Вы находитесь на странице: 1из 64

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

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

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


THOUSAND PESOS (P24,500,000.00) shall be payable in five
separate checks, made to the order of JOSE Ch. CATUNGAL, the
first check shall be for FOUR MILLION FIVE HUNDRED
THOUSAND PESOS (P4,500,000.00) and the remaining balance
to be paid in four checks in the amounts of FIVE MILLION PESOS
x------------------------------------------------- (P5,000,000.00) each after the VENDEE have (sic) successfully
--x negotiated, secured and provided a Road Right of Way
consisting of 12 meters in width cutting across Lot 10884 up to
the national road, either by widening the existing Road Right of
DECISION Way or by securing a new Road Right of Way of 12 meters in
width. If however said Road Right of Way could not be
negotiated, the VENDEE shall give notice to the VENDOR for
LEONARDO-DE CASTRO, J.: them to reassess and solve the problem by taking other options
and should the situation ultimately prove futile, he shall take
Before the Court is a Petition for Review on Certiorari, assailing the following steps to rescind or cancel the herein Conditional Deed of Sale.
issuances of the Court of Appeals in CA-G.R. CV No. 40627 consolidated with
CA-G.R. SP No. 27565: (a) the August 8, 2000 Decision,[1] which affirmed the c. That the access road or Road Right of Way leading to Lot
Decision[2] dated May 30, 1992 of the Regional Trial Court (RTC), Branch 27 of 10963 shall be the responsibility of the VENDEE to secure and
Lapu-lapu City, Cebu in Civil Case No. 2365-L, and (b) the January 30, 2001 any or all cost relative to the acquisition thereof shall be borne
Resolution,[3] denying herein petitioners motion for reconsideration of the August solely by the VENDEE. He shall, however, be accorded with
8, 2000 Decision. enough time necessary for the success of his endeavor,
The relevant factual and procedural antecedents of this case are as follows: granting him a free hand in negotiating for the passage.

This controversy arose from a Complaint for Damages and Injunction with BY THESE PRESENTS, the VENDOR do hereby agree to sell by
Preliminary Injunction/Restraining Order[4] filed on December 10, 1990 by herein way of herein CONDITIONAL DEED OF SALE to VENDEE, his
respondent Angel S. Rodriguez (Rodriguez), with the RTC, Branch 27, Lapu-lapu heirs, successors and assigns, the real property described in the
City, Cebu, docketed as Civil Case No. 2365-L against the spouses Agapita and Original Certificate of Title No. 105 x x x.
Jose Catungal (the spouses Catungal), the parents of petitioners.
xxxx
In the said Complaint, it was alleged that Agapita T. Catungal (Agapita) owned
a parcel of land (Lot 10963) with an area of 65,246 square meters, covered by 5. That the VENDEE has the option to rescind the sale. In the
Original Certificate of Title (OCT) No. 105[5] in her name situated in the Barrio of event the VENDEE exercises his option to rescind the herein
Talamban, Cebu City. The said property was allegedly the exclusive paraphernal Conditional Deed of Sale, the VENDEE shall notify the VENDOR
property of Agapita. by way of a written notice relinquishing his rights over the
property. The VENDEE shall then be reimbursed by the VENDOR
the sum of FIVE HUNDRED THOUSAND PESOS (P500,000.00) performing any of the acts mentioned in the next preceding
representing the downpayment, interest free, payable but paragraph.
contingent upon the event that the VENDOR shall have been 3. After trial, a Decision be rendered:
able to sell the property to another party.[8]
a) Making the injunction permanent;

In accordance with the Conditional Deed of Sale, Rodriguez purportedly secured b) Condemning defendants to pay to plaintiff, jointly
the necessary surveys and plans and through his efforts, the property was and solidarily:
reclassified from agricultural land into residential land which he claimed
substantially increased the propertys value. He likewise alleged that he actively Actual damages in the amount of P400,000.00 for their
negotiated for the road right of way as stipulated in the contract.[9] unlawful rescission of the Agreement and their performance of
acts in violation or disregard of the said Agreement;
Rodriguez further claimed that on August 31, 1990 the spouses Catungal
requested an advance of P5,000,000.00 on the purchase price for personal Moral damages in the amount of P200,000.00;
reasons. Rodriquez allegedly refused on the ground that the amount was
substantial and was not due under the terms of their agreement. Shortly after Exemplary damages in the amount of P200,000.00;
his refusal to pay the advance, he purportedly learned that the Catungals were Expenses of litigation and attorneys fees in the amount
offering the property for sale to third parties.[10] of P100,000.00; and

Thereafter, Rodriguez received letters dated October 22, 1990,[11] October 24, Costs of suit.[16]
1990[12] and October 29, 1990,[13] all signed by Jose Catungal who was a lawyer,
essentially demanding that the former make up his mind about buying the land
or exercising his option to buy because the spouses Catungal allegedly received On December 12, 1990, the trial court issued a temporary restraining order and
other offers and they needed money to pay for personal obligations and for set the application for a writ of preliminary injunction for hearing on December
investing in other properties/business ventures. Should Rodriguez fail to exercise 21, 1990 with a directive to the spouses Catungal to show cause within five days
his option to buy the land, the Catungals warned that they would consider the from notice why preliminary injunction should not be granted. The trial court
contract cancelled and that they were free to look for other buyers. likewise ordered that summons be served on them.[17]

In a letter dated November 4, 1990,[14] Rodriguez registered his objections to Thereafter, the spouses Catungal filed their opposition[18] to the issuance of a
what he termed the Catungals unwarranted demands in view of the terms of the writ of preliminary injunction and later filed a motion to dismiss[19] on the ground
Conditional Deed of Sale which allowed him sufficient time to negotiate a road of improper venue. According to the Catungals, the subject property was located
right of way and granted him, the vendee, the exclusive right to rescind the in Cebu City and thus, the complaint should have been filed in Cebu City, not
contract. Still, on November 15, 1990, Rodriguez purportedly received a letter Lapu-lapu City. Rodriguez opposed the motion to dismiss on the ground that his
dated November 9, 1990[15] from Atty. Catungal, stating that the contract had action was a personal action as its subject was breach of a contract, the
been cancelled and terminated. Conditional Deed of Sale, and not title to, or possession of real property.[20]

Contending that the Catungals unilateral rescission of the Conditional Deed of In an Order dated January 17, 1991,[21] the trial court denied the motion to
Sale was unjustified, arbitrary and unwarranted, Rodriquez prayed in his dismiss and ruled that the complaint involved a personal action, being merely
Complaint, that: for damages with a prayer for injunction.
1. Upon the filing of this complaint, a restraining order be issued
enjoining defendants [the spouses Catungal], their employees, Subsequently, on January 30, 1991, the trial court ordered the issuance of a writ
agents, representatives or other persons acting in their behalf of preliminary injunction upon posting by Rodriguez of a bond in the amount
from offering the property subject of this case for sale to third of P100,000.00 to answer for damages that the defendants may sustain by
persons; from entertaining offers or proposals by third persons reason of the injunction.
to purchase the said property; and, in general, from performing
acts in furtherance or implementation of defendants rescission On February 1, 1991, the spouses Catungal filed their Answer with
of their Conditional Deed of Sale with plaintiff [Rodriguez]. Counterclaim[22] alleging that they had the right to rescind the contract in view
of (1) Rodriguezs failure to negotiate the road right of way despite the lapse of
2. After hearing, a writ of preliminary injunction be issued upon several months since the signing of the contract, and (2) his refusal to pay the
such reasonable bond as may be fixed by the court enjoining additional amount of P5,000,000.00 asked by the Catungals, which to them
defendants and other persons acting in their behalf from indicated his lack of funds to purchase the property. The Catungals likewise
contended that Rodriguez did not have an exclusive right to rescind the contract
and that the contract, being reciprocal, meant both parties had the right to On December 23, 1991, the Catungals filed a motion for reconsideration[33] of
rescind.[23] The spouses Catungal further claimed that it was Rodriguez who was the December 20, 1991 Order denying their Urgent Motion to Dismiss but the
in breach of their agreement and guilty of bad faith which justified their rescission trial court denied reconsideration in an Order dated February 3,
of the contract.[24] By way of counterclaim, the spouses Catungal prayed for 1992.[34] Undeterred, the Catungals subsequently filed a Motion to Lift and to Set
actual and consequential damages in the form of unearned interests from the Aside Order of Default[35] but it was likewise denied for being in violation of the
balance (of the purchase price in the amount) of P24,500,000.00, moral and rules and for being not meritorious.[36] On February 28, 1992, the Catungals filed
exemplary damages in the amount of P2,000,000.00, attorneys fees in the a Petition for Certiorari and Prohibition[37] with the Court of Appeals, questioning
amount of P200,000.00 and costs of suits and litigation expenses in the amount the denial of their motion to dismiss and the order of default. This was docketed
of P10,000.00.[25] The spouses Catungal prayed for the dismissal of the as CA-G.R. SP No. 27565.
complaint and the grant of their counterclaim.
Meanwhile, Rodriguez proceeded to present his evidence before the trial
The Catungals amended their Answer twice,[26] retaining their basic allegations court.
but amplifying their charges of contractual breach and bad faith on the part of
Rodriguez and adding the argument that in view of Article 1191 of the Civil Code, In a Decision dated May 30, 1992, the trial court ruled in favor of Rodriguez,
the power to rescind reciprocal obligations is granted by the law itself to both finding that: (a) under the contract it was complainant (Rodriguez) that had the
parties and does not need an express stipulation to grant the same to the injured option to rescind the sale; (b) Rodriguezs obligation to pay the balance of the
party. In the Second Amended Answer with Counterclaim, the spouses Catungal purchase price arises only upon successful negotiation of the road right of way;
added a prayer for the trial court to order the Register of Deeds to cancel the (c) he proved his diligent efforts to negotiate the road right of way; (d) the
annotations of the two contracts at the back of their OCT.[27] spouses Catungal were guilty of misrepresentation which defeated Rodriguezs
On October 24, 1991, Rodriguez filed an Amended Complaint,[28] adding efforts to acquire the road right of way; and (e) the Catungals rescission of the
allegations to the effect that the Catungals were guilty of several contract had no basis and was in bad faith. Thus, the trial court made the
misrepresentations which purportedly induced Rodriguez to buy the property at injunction permanent, ordered the Catungals to reduce the purchase price by
the price of P25,000,000.00. Among others, it was alleged that the spouses the amount of acquisition of Lot 10963 which they misrepresented was part of
Catungal misrepresented that their Lot 10963 includes a flat portion of land the property sold but was in fact owned by a third party and ordered them to
which later turned out to be a separate lot (Lot 10986) owned by Teodora Tudtud pay P100,000.00 as damages, P30,000.00 as attorneys fees and costs.
who sold the same to one Antonio Pablo. The Catungals also allegedly
misrepresented that the road right of way will only traverse two lots owned by The Catungals appealed the decision to the Court of Appeals, asserting
Anatolia Tudtud and her daughter Sally who were their relatives and who had the commission of the following errors by the trial court in their appellants
already agreed to sell a portion of the said lots for the road right of way at a brief[38] dated February 9, 1994:
price of P550.00 per square meter. However, because of the Catungals acts of I
offering the property to other buyers who offered to buy the road lots
for P2,500.00 per square meter, the adjacent lot owners were no longer willing THE COURT A QUO ERRED IN NOT DISMISSING OF (SIC) THE
to sell the road lots to Rodriguez at P550.00 per square meter but were asking CASE ON THE GROUNDS OF IMPROPER VENUE AND LACK OF
for a price of P3,500.00 per square meter. In other words, instead of assisting JURISDICTION.
Rodriguez in his efforts to negotiate the road right of way, the spouses Catungal
allegedly intentionally and maliciously defeated Rodriguezs negotiations for a II
road right of way in order to justify rescission of the said contract and enable
them to offer the property to other buyers. THE COURT A QUO ERRED IN CONSIDERING THE CASE AS A
PERSONAL AND NOT A REAL ACTION.
Despite requesting the trial court for an extension of time to file an amended
Answer,[29] the Catungals did not file an amended Answer and instead filed an III
Urgent Motion to Dismiss[30] again invoking the ground of improper venue. In the
meantime, for failure to file an amended Answer within the period allowed, the GRANTING WITHOUT ADMITTING THAT VENUE WAS PROPERLY
trial court set the case for pre-trial on December 20, 1991. LAID AND THE CASE IS A PERSONAL ACTION, THE COURT A
QUO ERRED IN DECLARING THE DEFENDANTS IN DEFAULT
During the pre-trial held on December 20, 1991, the trial court denied in open DURING THE PRE-TRIAL WHEN AT THAT TIME THE
court the Catungals Urgent Motion to Dismiss for violation of the rules and for DEFENDANTS HAD ALREADY FILED THEIR ANSWER TO THE
being repetitious and having been previously denied.[31] However, Atty. Catungal COMPLAINT.
refused to enter into pre-trial which prompted the trial court to declare the
defendants in default and to set the presentation of the plaintiffs evidence on IV
February 14, 1992.[32]
THE COURT A QUO ERRED IN CONSIDERING THE DEFENDANTS Leave of Court to File Citation of Authorities[43] and a Citation of
AS HAVING LOST THEIR LEGAL STANDING IN COURT WHEN AT Authorities.[44] This would be followed by Atty. Borromeos filing of an Additional
MOST THEY COULD ONLY BE CONSIDERED AS IN DEFAULT AND Citation of Authority and Second Additional Citation of Authority both on
STILL ENTITLED TO NOTICES OF ALL FURTHER PROCEEDINGS November 17, 1997.[45]
ESPECIALLY AFTER THEY HAD FILED THE MOTION TO LIFT THE
ORDER OF DEFAULT. During the pendency of the case with the Court of Appeals, Agapita
Catungal passed away and thus, her husband, Jose, filed on February 17, 1999
V a motion for Agapitas substitution by her surviving children.[46]

THE COURT A QUO ERRED IN ISSUING THE WRIT [OF] On August 8, 2000, the Court of Appeals rendered a Decision in the
PRELIMINARY INJUNCTION RESTRAINING THE EXERCISE OF consolidated cases CA-G.R. CV No. 40627 and CA-G.R. SP No.
ACTS OF OWNERSHIP AND OTHER RIGHTS OVER REAL 27565,[47] affirming the trial courts Decision.
PROPERTY OUTSIDE OF THE COURTS TERRITORIAL
JURISDICTION AND INCLUDING PERSONS WHO WERE NOT In a Motion for Reconsideration dated August 21, 2000,[48] counsel for
BROUGHT UNDER ITS JURISDICTION, THUS THE NULLITY OF the Catungals, Atty. Borromeo, argued for the first time that paragraphs 1(b)
THE WRIT. and 5[49] of the Conditional Deed of Sale, whether taken separately or jointly,
violated the principle of mutuality of contracts under Article 1308 of the Civil
VI Code and thus, said contract was void ab initio. He adverted to the cases
mentioned in his various citations of authorities to support his argument of nullity
THE COURT A QUO ERRED IN NOT RESTRAINING ITSELF MOTU of the contract and his position that this issue may be raised for the first time on
PROP[R]IO FROM CONTINUING WITH THE PROCEEDINGS IN appeal.
THE CASE AND IN RENDERING DECISION THEREIN IF ONLY
FOR REASON OF COURTESY AND FAIRNESS BEING MANDATED Meanwhile, a Second Motion for Substitution[50] was filed by Atty.
AS DISPENSER OF FAIR AND EQUAL JUSTICE TO ALL AND Borromeo in view of the death of Jose Catungal.
SUNDRY WITHOUT FEAR OR FAVOR IT HAVING BEEN SERVED In a Resolution dated January 30, 2001, the Court of Appeals allowed the
EARLIER WITH A COPY OF THE PETITION FOR CERTIORARI substitution of the deceased Agapita and Jose Catungal by their surviving heirs
QUESTIONING ITS VENUE AND JURISDICTION IN CA-G.R. NO. and denied the motion for reconsideration for lack of merit
SP 27565 IN FACT NOTICES FOR THE FILING OF COMMENT
THERETO HAD ALREADY BEEN SENT OUT BY THE HONORABLE Hence, the heirs of Agapita and Jose Catungal filed on March 27, 2001
COURT OF APPEALS, SECOND DIVISION, AND THE COURT A the present petition for review,[51] which essentially argued that the Court of
QUO WAS FURNISHED WITH COPY OF SAID NOTICE. Appeals erred in not finding that paragraphs 1(b) and/or 5 of the Conditional
Deed of Sale, violated the principle of mutuality of contracts under Article 1308
VII of the Civil Code. Thus, said contract was supposedly void ab initio and the
Catungals rescission thereof was superfluous.
THE COURT A QUO ERRED IN DECIDING THE CASE IN FAVOR
OF THE PLAINTIFF AND AGAINST THE DEFENDANTS ON THE In his Comment,[52] Rodriguez highlighted that (a) petitioners were
BASIS OF EVIDENCE WHICH ARE IMAGINARY, FABRICATED, raising new matters that cannot be passed upon on appeal; (b) the validity of
AND DEVOID OF TRUTH, TO BE STATED IN DETAIL IN THE the Conditional Deed of Sale was already admitted and petitioners cannot be
DISCUSSION OF THIS PARTICULAR ERROR, AND, THEREFORE, allowed to change theories on appeal; (c) the questioned paragraphs of the
THE DECISION IS REVERSIBLE.[39] Conditional Deed of Sale were valid; and (d) petitioners were the ones who
committed fraud and breach of contract and were not entitled to relief for not
having come to court with clean hands.
On August 31, 1995, after being granted several extensions, Rodriguez
filed his appellees brief,[40] essentially arguing the correctness of the trial courts The Court gave due course to the Petition[53] and the parties filed their
Decision regarding the foregoing issues raised by the Catungals. Subsequently, respective Memoranda.
the Catungals filed a Reply Brief[41] dated October 16, 1995.
The issues to be resolved in the case at bar can be summed into two
From the filing of the appellants brief in 1994 up to the filing of the Reply questions:
Brief, the spouses Catungal were represented by appellant Jose Catungal
himself. However, a new counsel for the Catungals, Atty. Jesus N. Borromeo I. Are petitioners allowed to raise their theory of nullity of
(Atty. Borromeo), entered his appearance before the Court of Appeals on the Conditional Deed of Sale for the first time on appeal?
September 2, 1997.[42] On the same date, Atty. Borromeo filed a Motion for
II. Do paragraphs 1(b) and 5 of the Conditional Deed of Sale the parties, is not only irregular but also extrajudicial and invalid. The rule rests
violate the principle of mutuality of contracts under Article 1308 on the fundamental tenets of fair play.[59]
of the Civil Code?
During the proceedings before the trial court, the spouses Catungal
On petitioners change of theory never claimed that the provisions in the Conditional Deed of Sale, stipulating
that the payment of the balance of the purchase price was contingent upon the
Petitioners claimed that the Court of Appeals should have reversed the successful negotiation of a road right of way (paragraph 1[b]) and granting
trial courts Decision on the ground of the alleged nullity of paragraphs 1(b) and Rodriguez the option to rescind (paragraph 5), were void for allegedly making
5 of the Conditional Deed of Sale notwithstanding that the same was not raised the fulfillment of the contract dependent solely on the will of Rodriguez.
as an error in their appellants brief. Citing Catholic Bishop of Balanga v. Court of
Appeals,[54] petitioners argued in the Petition that this case falls under the On the contrary, with respect to paragraph 1(b), the Catungals did not
following exceptions: aver in the Answer (and its amended versions) that the payment of the purchase
price was subject to the will of Rodriguez but rather they claimed that paragraph
(3) Matters not assigned as errors on appeal but 1(b) in relation to 1(c) only presupposed a reasonable time be given to Rodriguez
consideration of which is necessary in arriving at a just decision to negotiate the road right of way.However, it was petitioners theory that more
and complete resolution of the case or to serve the interest of than sufficient time had already been given Rodriguez to negotiate the road right
justice or to avoid dispensing piecemeal justice; of way. Consequently, Rodriguezs refusal/failure to pay the balance of the
purchase price, upon demand, was allegedly indicative of lack of funds and a
(4) Matters not specifically assigned as errors on appeal breach of the contract on the part of Rodriguez.
but raised in the trial court and are matters of record having
some bearing on the issue submitted which the parties failed to Anent paragraph 5 of the Conditional Deed of Sale, regarding Rodriguezs
raise or which the lower court ignored; option to rescind, it was petitioners theory in the court a quo that
notwithstanding such provision, they retained the right to rescind the contract
(5) Matters not assigned as errors on appeal but closely for Rodriguezs breach of the same under Article 1191 of the Civil Code.
related to an error assigned; and
Verily, the first time petitioners raised their theory of the nullity of the
(6) Matters not assigned as errors but upon which the Conditional Deed of Sale in view of the questioned provisions was only in their
determination of a question properly assigned is dependent.[55] Motion for Reconsideration of the Court of Appeals Decision, affirming the trial
courts judgment. The previous filing of various citations of authorities by Atty.
Borromeo and the Court of Appeals resolutions noting such citations were of no
We are not persuaded. moment. The citations of authorities merely listed cases and their main rulings
without even any mention of their relevance to the present case or any prayer
This is not an instance where a party merely failed to assign an issue as for the Court of Appeals to consider them. In sum, the Court of Appeals did not
an error in the brief nor failed to argue a material point on appeal that was raised err in disregarding the citations of authorities or in denying petitioners motion
in the trial court and supported by the record. Neither is this a case where a for reconsideration of the assailed August 8, 2000 Decision in view of the
party raised an error closely related to, nor dependent on the resolution of, an proscription against changing legal theories on appeal.
error properly assigned in his brief. This is a situation where a party completely
changes his theory of the case on appeal and abandons his previous assignment Ruling on the questioned
of errors in his brief, which plainly should not be allowed as anathema to due provisions of the Conditional Deed
process. of Sale

Petitioners should be reminded that the object of pleadings is to draw Even assuming for the sake of argument that this Court may overlook the
the lines of battle between the litigants and to indicate fairly the nature of the procedural misstep of petitioners, we still cannot uphold their belatedly proffered
claims or defenses of both parties.[56] In Philippine National Construction arguments.
Corporation v. Court of Appeals,[57] we held that [w]hen a party adopts a certain
theory in the trial court, he will not be permitted to change his theory on appeal, At the outset, it should be noted that what the parties entered into is a
for to permit him to do so would not only be unfair to the other party but it would Conditional Deed of Sale, whereby the spouses Catungal agreed to sell and
also be offensive to the basic rules of fair play, justice and due process.[58] Rodriguez agreed to buy Lot 10963 conditioned on the payment of a certain price
but the payment of the purchase price was additionally made contingent on the
We have also previously ruled that courts of justice have no jurisdiction successful negotiation of a road right of way.It is elementary that [i]n conditional
or power to decide a question not in issue. Thus, a judgment that goes beyond obligations, the acquisition of rights, as well as the extinguishment or loss of
the issues and purports to adjudicate something on which the court did not hear
those already acquired, shall depend upon the happening of the event which
constitutes the condition.[60] From the moment the contract is perfected, the parties
are bound not only to the fulfillment of what has been expressly
Petitioners rely on Article 1308 of the Civil Code to support their conclusion stipulated but also to all the consequences which, according to
regarding the claimed nullity of the aforementioned provisions. Article 1308 their nature, may be in keeping with good faith, usage and law.
states that [t]he contract must bind both contracting parties; its validity or Under the agreement, private respondent is obligated to evict
compliance cannot be left to the will of one of them. the squatters on the property. The ejectment of the
squatters is a condition the operative act of which sets
Article 1182 of the Civil Code, in turn, provides: into motion the period of compliance by petitioner of his
own obligation, i.e., to pay the balance of the purchase
Art. 1182. When the fulfillment of the condition depends upon price. Private respondent's failure to remove the
the sole will of the debtor, the conditional obligation shall be squatters from the property" within the stipulated period
void. If it depends upon chance or upon the will of a third gives petitioner the right to either refuse to proceed with
person, the obligation shall take effect in conformity with the the agreement or waive that condition in consonance
provisions of this Code. with Article 1545 of the Civil Code. This option clearly
belongs to petitioner and not to private respondent.

In the past, this Court has distinguished between a condition imposed on the We share the opinion of the appellate court that
perfection of a contract and a condition imposed merely on the performance of the undertaking required of private respondent does not
an obligation. While failure to comply with the first condition results in the failure constitute a "potestative condition dependent solely on
of a contract, failure to comply with the second merely gives the other party the his will" that might, otherwise, be void in accordance
option to either refuse to proceed with the sale or to waive the condition.[61] This with Article 1182 of the Civil Code but a "mixed"
principle is evident in Article 1545 of the Civil Code on sales, which provides in condition "dependent not on the will of the vendor alone
part: but also of third persons like the squatters and
government agencies and personnel concerned." We
Art. 1545. Where the obligation of either party to a contract of must hasten to add, however, that where the so-called
sale is subject to any condition which is not performed, such "potestative condition" is imposed not on the birth of the
party may refuse to proceed with the contract or he may waive obligation but on its fulfillment, only the condition is avoided,
performance of the condition x x x. leaving unaffected the obligation itself.[63] (Emphases
supplied.)

Paragraph 1(b) of the Conditional Deed of Sale, stating that respondent


shall pay the balance of the purchase price when he has successfully negotiated From the provisions of the Conditional Deed of Sale subject matter of
and secured a road right of way, is not a condition on the perfection of the this case, it was the vendee (Rodriguez) that had the obligation to successfully
contract nor on the validity of the entire contract or its compliance as negotiate and secure the road right of way. However, in the decision of the trial
contemplated in Article 1308. It is a condition imposed only on respondents court, which was affirmed by the Court of Appeals, it was found that respondent
obligation to pay the remainder of the purchase price. In our view and applying Rodriguez diligently exerted efforts to secure the road right of way but the
Article 1182, such a condition is not purely potestative as petitioners contend. It spouses Catungal, in bad faith, contributed to the collapse of the negotiations
is not dependent on the sole will of the debtor but also on the will of third persons for said road right of way. To quote from the trial courts decision:
who own the adjacent land and from whom the road right of way shall be
negotiated. In a manner of speaking, such a condition is likewise dependent on It is therefore apparent that the vendees obligations
chance as there is no guarantee that respondent and the third party-landowners (sic) to pay the balance of the purchase price arises only when
would come to an agreement regarding the road right of way. This type of mixed the road-right-of-way to the property shall have been
condition is expressly allowed under Article 1182 of the Civil Code. successfully negotiated, secured and provided. In other words,
the obligation to pay the balance is conditioned upon the
Analogous to the present case is Romero v. Court of Appeals,[62] wherein the acquisition of the road-right-of-way, in accordance with
Court interpreted the legal effect of a condition in a deed of sale that the balance paragraph 2 of Article 1181 of the New Civil Code. Accordingly,
of the purchase price would be paid by the vendee when the vendor has an obligation dependent upon a suspensive condition cannot be
successfully ejected the informal settlers occupying the property. In Romero, we demanded until after the condition takes place because it is only
found that such a condition did not affect the perfection of the contract but only after the fulfillment of the condition that the obligation arises.
imposed a condition on the fulfillment of the obligation to pay the balance of the (Javier v[s] CA 183 SCRA) Exhibits H, D, P, R, T, FF and JJ show
purchase price, to wit: that plaintiff [Rodriguez] indeed was diligent in his
efforts to negotiate for a road-right-of-way to the on their own theory, the Catungals had a remedy under Article 1197 of the Civil
property. The written offers, proposals and follow-up of his Code, which mandates:
proposals show that plaintiff [Rodriguez] went all out in his
efforts to immediately acquire an access road to the property, Art. 1197. If the obligation does not fix a period, but
even going to the extent of offering P3,000.00 per square meter from its nature and the circumstances it can be inferred that a
for the road lots (Exh. Q) from the original P550.00 per sq. period was intended, the courts may fix the duration thereof.
meter. This Court also notes that defendant (sic) [the
Catungals] made misrepresentation in the negotiation The courts shall also fix the duration of the period when
they have entered into with plaintiff [Rodriguez]. (Exhs. F it depends upon the will of the debtor.
and G) The misrepresentation of defendant (sic) [the
Catungals] as to the third lot (Lot 10986) to be part and parcel In every case, the courts shall determine such period
of the subject property [(]Lot 10963) contributed in as may under the circumstances have been probably
defeating the plaintiffs [Rodriguezs] effort in acquiring contemplated by the parties. Once fixed by the courts, the
the road-right-of-way to the property. Defendants [the period cannot be changed by them.
Catungals] cannot now invoke the non-fulfillment of the
condition in the contract as a ground for rescission when
defendants [the Catungals] themselves are guilty of What the Catungals should have done was to first file an action in court
preventing the fulfillment of such condition. to fix the period within which Rodriguez should accomplish the successful
negotiation of the road right of way pursuant to the above quoted
From the foregoing, this Court is of the considered view provision. Thus, the Catungals demand for Rodriguez to make an additional
that rescission of the conditional deed of sale by the defendants payment of P5,000,000.00 was premature and Rodriguezs failure to accede to
is without any legal or factual basis.[64] x x x. (Emphases such demand did not justify the rescission of the contract.
supplied.)
With respect to petitioners argument that paragraph 5 of the Conditional
Deed of Sale likewise rendered the said contract void, we find no merit to this
In all, we see no cogent reason to disturb the foregoing factual findings theory. Paragraph 5 provides:
of the trial court.
5. That the VENDEE has the option to rescind the sale.
Furthermore, it is evident from the language of paragraph 1(b) that the In the event the VENDEE exercises his option to rescind the
condition precedent (for respondents obligation to pay the balance of the herein Conditional Deed of Sale, the VENDEE shall notify the
purchase price to arise) in itself partly involves an obligation to do, i.e., the VENDOR by way of a written notice relinquishing his rights over
undertaking of respondent to negotiate and secure a road right of way at his own the property. The VENDEE shall then be reimbursed by the
expense.[65] It does not escape our notice as well, that far from disclaiming VENDOR the sum of FIVE HUNDRED THOUSAND PESOS
paragraph 1(b) as void, it was the Catungals contention before the trial court (P500,000.00) representing the downpayment, interest free,
that said provision should be read in relation to paragraph 1(c) which stated: payable but contingent upon the event that the VENDOR shall
have been able to sell the property to another party.[67]
c. That the access road or Road Right of Way leading
to Lot 10963 shall be the responsibility of the VENDEE to secure
and any or all cost relative to the acquisition thereof shall be Petitioners posited that the above stipulation was the deadliest provision in the
borne solely by the VENDEE. He shall, however, be accorded Conditional Deed of Sale for violating the principle of mutuality of contracts since
with enough time necessary for the success of his it purportedly rendered the contract subject to the will of respondent.
endeavor, granting him a free hand in negotiating for the
passage.[66](Emphasis supplied.) We do not agree.

It is petitioners strategy to insist that the Court examine the first


The Catungals interpretation of the foregoing stipulation was that sentence of paragraph 5 alone and resist a correlation of such sentence with
Rodriguezs obligation to negotiate and secure a road right of way was one with other provisions of the contract. Petitioners view, however, ignores a basic rule
a period and that period, i.e., enough time to negotiate, had already lapsed by in the interpretation of contracts that the contract should be taken as a whole.
the time they demanded the payment of P5,000,000.00 from respondent. Even
assuming arguendo that the Catungals were correct that the respondents Article 1374 of the Civil Code provides that [t]he various stipulations of
obligation to negotiate a road right of way was one with an uncertain period, a contract shall be interpreted together, attributing to the doubtful ones that
their rescission of the Conditional Deed of Sale would still be unwarranted. Based sense which may result from all of them taken jointly. The same Code further
sets down the rule that [i]f some stipulation of any contract should admit of condition and still pay the purchase price despite the lack of road access. This is
several meanings, it shall be understood as bearing that import which is most the most just interpretation of the parties contract that gives effect to all its
adequate to render it effectual.[68] provisions.

Similarly, under the Rules of Court it is prescribed that [i]n the In any event, even if we assume for the sake of argument that the grant
construction of an instrument where there are several provisions or particulars, to Rodriguez of an option to rescind, in the manner provided for in the contract,
such a construction is, if possible, to be adopted as will give effect to all[69] and is tantamount to a potestative condition, not being a condition affecting the
for the proper construction of an instrument, the circumstances under which it perfection of the contract, only the said condition would be considered void and
was made, including the situation of the subject thereof and of the parties to it, the rest of the contract will remain valid.In Romero, the Court observed
may be shown, so that the judge may be placed in the position of those whose that where the so-called potestative condition is imposed not on the birth of the
language he is to interpret.[70] obligation but on its fulfillment, only the condition is avoided, leaving unaffected
the obligation itself.[71]
Bearing in mind the aforementioned interpretative rules, we find that
the first sentence of paragraph 5 must be taken in relation with the rest of It cannot be gainsaid that contracts have the force of law between the
paragraph 5 and with the other provisions of the Conditional Deed of Sale. contracting parties and should be complied with in good faith.[72] We have also
previously ruled that [b]eing the primary law between the parties, the contract
Reading paragraph 5 in its entirety will show that Rodriguezs option to governs the adjudication of their rights and obligations. A court has no
rescind the contract is not absolute as it is subject to the requirement that there alternative but to enforce the contractual stipulations in the manner they have
should be written notice to the vendor and the vendor shall only return been agreed upon and written.[73] We find no merit in petitioners contention that
Rodriguezs downpayment of P500,000.00, without interest, when the vendor their parents were merely duped into accepting the questioned provisions in the
shall have been able to sell the property to another party. That what is stipulated Conditional Deed of Sale. We note that although the contract was between
to be returned is only the downpayment of P500,000.00 in the event that Agapita Catungal and Rodriguez, Jose Catungal nonetheless signed thereon to
Rodriguez exercises his option to rescind is significant. To recall, paragraph 1(b) signify his marital consent to the same. We concur with the trial courts finding
of the contract clearly states that the installments on the balance of the purchase that the spouses Catungals claim of being misled into signing the contract was
price shall only be paid upon successful negotiation and procurement of a road contrary to human experience and conventional wisdom since it was Jose
right of way. It is clear from such provision that the existence of a road right of Catungal who was a practicing lawyer while Rodriquez was a non-lawyer.[74] It
way is a material consideration for Rodriguez to purchase the property. Thus, can be reasonably presumed that Atty. Catungal and his wife reviewed the
prior to him being able to procure the road right of way, by express stipulation provisions of the contract, understood and accepted its provisions before they
in the contract, he is not bound to make additional payments to the Catungals. It affixed their signatures thereon.
was further stipulated in paragraph 1(b) that: [i]f however said road right of way
cannot be negotiated, the VENDEE shall give notice to the VENDOR for them to After thorough review of the records of this case, we have come to the conclusion
reassess and solve the problem by taking other options and should the that petitioners failed to demonstrate that the Court of Appeals committed any
situation ultimately prove futile, he [Rodriguez] shall take steps to reversible error in deciding the present controversy. However, having made the
rescind or [cancel] the herein Conditional Deed of Sale. The intention of observation that it was desirable for the Catungals to file a separate action to fix
the parties for providing subsequently in paragraph 5 that Rodriguez has the the period for respondent Rodriguezs obligation to negotiate a road right of way,
option to rescind the sale is undeniably only limited to the contingency that the Court finds it necessary to fix said period in these proceedings. It is but
Rodriguez shall not be able to secure the road right of way. Indeed, if the parties equitable for us to make a determination of the issue here to obviate further
intended to give Rodriguez the absolute option to rescind the sale at any time, delay and in line with the judicial policy of avoiding multiplicity of suits.
the contract would have provided for the return of all payments made by
Rodriguez and not only the downpayment. To our mind, the reason only the If still warranted, Rodriguez is given a period of thirty (30) days from
downpayment was stipulated to be returned is that the vendees option to rescind the finality of this decision to negotiate a road right of way. In the event no road
can only be exercised in the event that no road right of way is secured and, thus, right of way is secured by Rodriquez at the end of said period, the parties shall
the vendee has not made any additional payments, other than his downpayment. reassess and discuss other options as stipulated in paragraph 1(b) of the
Conditional Deed of Sale and, for this purpose, they are given a period of thirty
In sum, Rodriguezs option to rescind the contract is not purely (30) days to agree on a course of action. Should the discussions of the parties
potestative but rather also subject to the same mixed condition as his prove futile after the said thirty (30)-day period, immediately upon the expiration
obligation to pay the balance of the purchase price i.e., the negotiation of a road of said period for discussion, Rodriguez may (a) exercise his option to rescind
right of way. In the event the condition is fulfilled (or the negotiation is the contract, subject to the return of his downpayment, in accordance with the
successful), Rodriguez must pay the balance of the purchase price. In the event provisions of paragraphs 1(b) and 5 of the Conditional Deed of Sale or (b) waive
the condition is not fulfilled (or the negotiation fails), Rodriguez has the choice the road right of way and pay the balance of the deducted purchase price as
either (a) to not proceed with the sale and demand return of his downpayment determined in the RTC Decision dated May 30, 1992.
or (b) considering that the condition was imposed for his benefit, to waive the
WHEREFORE, the Decision dated August 8, 2000 and For review under Rule 45 of the Rules of Court is the Decision[1] dated
the Resolution dated January 30, 2001 of the Court of Appeals in CA-G.R. CV No. May 30, 2002 and Resolution[2] dated August 12, 2002 of the Court Appeals in
40627 consolidated with CA-G.R. SP No. 27565 are AFFIRMED with the CA-G.R. SP No. 67816. The appellate court affirmed with modification the
following MODIFICATION: Decision[3] dated July 6, 2001 of the Securities and Exchange Commission
(SEC) En Banc in SEC AC Case No. 788 which, in turn, affirmed the
If still warranted, respondent Angel S. Rodriguez is given a period of Decision[4] dated April 28, 2000 of Hearing Officer Marciano S. Bacalla, Jr.
thirty (30) days from the finality of this Decision to negotiate a road right of way. (Bacalla) of the SEC Securities Investigation and Clearing Department (SICD) in
In the event no road right of way is secured by respondent at the end of said SEC Case No. 04-99-6264.
period, the parties shall reassess and discuss other options as stipulated in
paragraph 1(b) of the Conditional Deed of Sale and, for this purpose, they are Sometime in March 1997, respondent spouses Roy S. Tan and Susana
given a period of thirty (30) days to agree on a course of action. Should the C. Tan bought from petitioner RN Development Corporation (RNDC) two class D
discussions of the parties prove futile after the said thirty (30)-day period, shares of stock in petitioner Fontana Resort and Country Club, Inc. (FRCCI),
immediately upon the expiration of said period for discussion, Rodriguez may (a) worth P387,300.00, enticed by the promises of petitioners sales agents that
exercise his option to rescind the contract, subject to the return of his petitioner FRCCI would construct a park with first-class leisure facilities in Clark
downpayment, in accordance with the provisions of paragraphs 1(b) and 5 of the Field, Pampanga, to be called Fontana Leisure Park (FLP); that FLP would be fully
Conditional Deed of Sale or (b) waive the road right of way and pay the balance developed and operational by the first quarter of 1998; and that FRCCI class D
of the deducted purchase price as determined in the RTC Decision dated May 30, shareholders would be admitted to one membership in the country club, which
1992. entitled them to use park facilities and stay at a two-bedroom villa for five (5)
ordinary weekdays and two (2) weekends every year for free.[5]
No pronouncement as to costs.
Two years later, in March 1999, respondents filed before the SEC a
Complaint[6] for refund of the P387,300.00 they spent to purchase FRCCI shares
SO ORDERED. of stock from petitioners. Respondents alleged that they had been deceived into
buying FRCCI shares because of petitioners fraudulent
misrepresentations. Construction of FLP turned out to be still unfinished and the
policies, rules, and regulations of the country club were obscure.

FONTANA RESORT AND COUNTRY CLUB, G.R. No. 154670 Respondents narrated that they were able to book and avail themselves
INC. AND RN DEVELOPMENT CORP., of free accommodations at an FLP villa on September 5, 1998, a Saturday. They
Petitioners, Present: requested that an FLP villa again be reserved for their free use on October 17,
1998, another Saturday, for the celebration of their daughters 18th birthday, but
CORONA, C.J., were refused by petitioners.Petitioners clarified that respondents were only
Chairperson, entitled to free accommodations at FLP for one week annually consisting of five
- versus - LEONARDO-DE CASTRO, (5) ordinary days, one (1) Saturday and one (1) Sunday[,] and that respondents
BERSAMIN, had already exhausted their free Saturday pass for the year. According to
DEL CASTILLO, and respondents, they were not informed of said rule regarding their free
VILLARAMA, JR., JJ. accommodations at FLP, and had they known about it, they would not have
SPOUSES ROY S. TAN AND SUSAN C. TAN, availed themselves of the free accommodations on September 5, 1998. In
Respondents. Promulgated: January 1999, respondents attempted once more to book and reserve an FLP
villa for their free use on April 1, 1999, a Thursday. Their reservation was
January 30, 2012 confirmed by a certain Murphy Magtoto. However, on March 3, 1999, another
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - country club employee named Shaye called respondents to say that their
- -x reservation for April 1, 1999 was cancelled because the FLP was already fully
booked.

DECISION Petitioners filed their Answer[7] in which they asserted that respondents
had been duly informed of the privileges given to them as shareholders of FRCCI
class D shares of stock since these were all explicitly provided in the promotional
LEONARDO-DE CASTRO, J.: materials for the country club, the Articles of Incorporation, and the By-Laws of
FRCCI. Petitioners called attention to the following paragraph in their ads:

GUEST ROOMS
their reservation can be manifested by the act of the Clubs
As a member of the Fontana Resort and Country Club, personnel when it advised [respondents] on March 3, 1999 that
you are entitled to 7 days stay consisting of 5 weekdays, one there were still no available villas for their use because of full
Saturday and one Sunday. A total of 544 elegantly furnished bookings.[10]
villas available in two and three bedroom units.[8]

Lastly, petitioners averred that when respondents were first


Petitioners also cited provisions of the FRCCI Articles of Incorporation accommodated at FLP, only minor or finishing construction works were left to be
and the By-Laws on class D shares of stock, to wit: done and that facilities of the country club were already operational.

Class D shares may be sold to any person, irrespective SEC-SICD Hearing Officer Bacalla conducted preliminary hearings and
of nationality or Citizenship. Every registered owner of a class trial proper in the case. Respondents filed separate sworn Question and Answer
D share may be admitted to one (1) Membership in the Club depositions.[11]Esther U. Lacuna, a witness for respondents, also filed a sworn
and subject to the Clubs rules and regulations, shall be entitled Question and Answer deposition.[12] When petitioners twice defaulted, without
to use a Two (2) Bedroom Multiplex Model Unit in the residential any valid excuse, to present evidence on the scheduled hearing dates, Hearing
villas provided by the Club for one week annually consisting of Officer Bacalla deemed petitioners to have waived their right to present evidence
five (5) ordinary days, one (1) Saturday and one (1) Sunday. and considered the case submitted for resolution.[13]
(Article Seventh, Articles of Incorporation)
Based on the evidence presented by respondents, Hearing Officer
Class D shares which may be sold to any person, Bacalla made the following findings in his Decision dated April 28, 2000:
irrespective of nationality or Citizenship. Every registered
owner of a class D share may be admitted to one (1) To prove the merits of their case, both [herein
Membership in the Club and subject to the Clubs rules and respondents] testified. Ms. Esther U. Lacuna likewise testified
regulations, shall be entitled to use a Two (2) Bedroom in favor of [respondents].
Multiplex Model Unit in the residential villas provided by the
Club for one week annually consisting of five (5) ordinary days, As established by the testimonies of [respondents]
one (1) Saturday and one (1) Sunday. [Section 2(a), Article II witnesses, Ms. Esther U. Lacuna, a duly accredited sales agent
of the By-Laws.][9] of [herein petitioners] who went to see [respondents] for the
purpose of inducing them to buy membership shares of Fontana
Resort and Country Club, Inc. with promises that the park will
Petitioners further denied that they unjustly cancelled respondents provide its shareholders with first class leisure facilities,
reservation for an FLP villa on April 1, 1999, explaining that: showing them brochures (Exhibits V, V-1 and V-2) of the future
development of the park.
6. There is also no truth to the claim of [herein
respondents] that they were given and had confirmed Indeed [respondents] bought two (2) class D shares in
reservations for April 1, 1998. There was no reservation to Fontana Resort and Country Club, Inc. paying P387,000.00 to
cancel since there was no confirmed reservations to speak of [petitioners] as evidenced by provisional and official receipts
for the reason that April 1, 1999, being Holy Thursday, all (Exhibits A to S), and signing two (2) documents designated as
reservations for the Holy Week were fully booked as early as Agreement to Sell and Purchase Shares of Stock (Exhibits T to
the start of the current year. The Holy Week being a peak U-2).
season for accommodations, all reservations had to be made on
a priority basis; and as admitted by [respondents], they tried It is undisputed that many of the facilities promised
to make their reservation only on January 4, 1999, a time when were not completed within the specified date. Ms. Lacuna even
all reservations have been fully booked. The fact of testified that less than 50% of what was promised were actually
[respondents] non-reservation can be attested by the fact that delivered.
no confirmation number was issued in their favor.
What was really frustrating on the part of
If at all, [respondents] were wait-listed as of January [respondents] was when they made reservations for the use of
4, 1999, meaning, they would be given preference in the the Clubs facilities on the occasion of their daughters
reservation in the event that any of the confirmed 18th birthday on October 17, 1998 where they were deprived of
members/guests were to cancel. The diligence on the part of the clubs premises alleging that the two (2) weekend stay which
the [herein petitioners] to inform [respondents] of the status of class D shareholders are entitled should be on a Saturday and
on a Sunday. Since [respondents] have already availed of one
(1) weekend stay which was a Saturday, they could no longer In an Order[17] dated September 19, 2001, the SEC en banc denied
have the second weekend stay also on a Saturday. petitioners Motion for Reconsideration for being a prohibited pleading under the
SEC Rules of Procedure.
Another occasion was when [respondents] were again
denied the use of the clubs facilities because they did not have Petitioners filed before the Court of Appeals a Petition for Review under
a confirmation number although their reservation was Rule 43 of the Rules of Court. Petitioners contend that even on the sole basis of
confirmed. respondents evidence, the appealed decisions of Hearing Officer Bacalla and the
SEC en banc are contrary to law and jurisprudence.
All these rules were never communicated to
[respondents] when they bought their membership shares. The Court of Appeals rendered a Decision on March 30, 2002, finding
petitioners appeal to be partly meritorious.
It would seem that [petitioners], through their officers,
would make up rules as they go along. A clever ploy for The Court of Appeals brushed aside the finding of the SEC that
[petitioners] to hide the lack of club facilities to accommodate petitioners were guilty of fraudulent misrepresentation in inducing respondents
the needs of their members. to buy FRCCI shares of stock. Instead, the appellate court declared that:

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

All these empty promises of [petitioners] may well be


part of a scheme to attract, and induce [respondents] to buy Nonetheless, the Court of Appeals agreed with the SEC that the sale of
shares because surely if [petitioners] had told the truth about the two FRCCI class D shares of stock by petitioners to respondents should be
these matters, [respondents] would never have bought shares rescinded. Petitioners defaulted on their promises to respondents that FLP would
in their project in the first place.[14] be fully developed and operational by the first quarter of 1998 and that as
shareholders of said shares, respondents were entitled to the free use of first-
class leisure facilities at FLP and free accommodations at a two-bedroom villa for
Consequently, Hearing Officer Bacalla adjudged: five (5) ordinary weekdays and two (2) weekends every year.

WHEREFORE, premises considered, judgment is hereby The Court of Appeals modified the appealed SEC judgment by ordering
rendered directing [herein petitioners] to jointly and severally respondents to return their certificates of shares of stock to petitioners upon the
pay [herein respondents]: latters refund of the price of said shares since [t]he essence of the questioned
[SEC] judgment was really to declare as rescinded or annulled the sale or
1) The amount transfer of the shares to the respondents.[19]The appellate court additionally
of P387,000.00 plus interest at the rate of clarified that the sale of the FRCCI shares of stock by petitioners to respondents
21% per annum computed from August 28, partakes the nature of a forbearance of money, since the amount paid by
1998 when demand was first made, until such respondents for the shares was used by petitioners to defray the construction of
time as payment is actually made.[15] FLP; hence, the interest rate of 12% per annum should be imposed on said
amount from the date of extrajudicial demand until its return to
respondents. The dispositive portion of the Court of Appeals judgment reads:
Petitioners appealed the above-quoted ruling of Hearing Officer Bacalla
before the SEC en banc. In its Decision dated July 6, 2001, the SEC en WHEREFORE, premises considered, the appealed
banc held: judgment is MODIFIED: a) petitioner Fontana Resort and
Country Club is hereby ordered to refund and pay to the
WHEREFORE, the instant appeal is hereby DENIED and respondents Spouses Roy S. Tan and Susana C. Tan the amount
the Decision of Hearing Officer Marciano S. Bacalla, Jr. dated of P387,000.00, Philippine Currency, representing the price of
April 28, 2000 is hereby AFFIRMED.[16] two of its Class D shares of stock, plus simple interest at the
rate of 12% per annum computed from August 28, 1998 when
demand was first made, until payment is completed; b) the they are the owners and developers of FLP. Petitioner FRCCI is primarily liable
respondent spouses are ordered to surrender to petitioner for respondents claim for refund, and petitioner RNDC, at most, is only
Fontana Resort and Country Club their two (2) Class D shares subsidiarily liable considering that petitioner RNDC is a mere agent of petitioner
issued by said petitioner upon receipt of the full refund with FRCCI. Respondents finally insist that the imposition of the interest rate at 12%
interest as herein ordered.[20] per annum, computed from the date of the extrajudicial demand, is correct since
the obligation of petitioners is in the nature of a forbearance of money.

Petitioners filed a Motion for Reconsideration, but it was denied by the We find merit in the Petition.
Court of Appeals in its Resolution dated August 12, 2002.
We address the preliminary matter of the nature of respondents
Hence, the instant Petition for Review. Complaint against petitioners. Well-settled is the rule that the allegations in the
complaint determine the nature of the action instituted.[24]
Petitioners, in their Memorandum,[21] submit for our consideration the
following issues: Respondents alleged in their Complaint that:

a. Was the essence of the judgment of the 16. [Herein petitioners] failure to finish the
SEC which ordered the return of the purchase price but not of development works at the Fontana Leisure Park within the time
the thing sold a declaration of rescission or annulment of the frame that they promised, and [petitioners] failure/refusal to
contract of sale between RNDC and respondents? accom[m]odate [herein respondents] request for reservations
on 17 October 1998 and 1 April 1999, constitute gross
b. Was the order of the Court of Appeals to misrepresentation and a form of deception, not only to the
FRCCI which was not the seller of the thing sold (the seller was [respondents], but the general public as well.
RNDC) to return the purchase price to the buyers (the
respondents) in accordance with law? 17. [Petitioners] deliberately and maliciously
misrepresented that development works will be completed
c. Was the imposition of 12% interest per when they knew fully well that it was impossible to complete
annum from the date of extra-judicial demand on an obligation the development works by the deadline. [Petitioners] also
which is not a loan or forbearance of money in accordance with deliberately and maliciously deceived [respondents] into
law?[22] believing that they have the privilege to utilize Club facilities,
only for [respondents] to be later on denied such use of Club
facilities. All these acts are part of [petitioners] scheme to
Petitioners averred that the ruling of the Court of Appeals that the attract, induce and convince [respondents] to buy shares,
essence of the SEC judgment is the rescission or annulment of the contract of knowing that had they told the truth about these matters,
sale of the FRCCI shares of stock between petitioners and respondents is [respondents] would never have bought shares in their project.
inconsistent with Articles 1385 and 1398 of the Civil Code. The said SEC
judgment did not contain an express declaration that it involved the rescission 18. On 28 August 1998, [respondents] requested their
or annulment of contract or an explicit order for respondents to return the thing lawyer to write [petitioner] Fontana Resort and Country Club,
sold. Petitioners also assert that respondents claim for refund based on fraud or Inc. a letter demanding for the return of their payment. x x x.
misrepresentation should have been directed only against petitioner RNDC, the
registered owner and seller of the FRCCI class D shares of stock. Petitioner FRCCI 19. [Petitioner] Fontana Resort and Country Club, Inc.
was merely the issuer of the shares sold to respondents. Petitioners lastly responded to this letter, with a letter of its own dated 10
question the order of the Court of Appeals for petitioners to pay 12% interest September 1998, denying [respondents] request for a refund. x
per annum, the same being devoid of legal basis since their obligation does not x x.
constitute a loan or forbearance of money.
20. [Respondents] replied to [petitioner] Fontana
In their Memorandum,[23] respondents chiefly argue that petitioners Resort and Country Clubs letter with a letter dated 13 October
have posited mere questions of fact and none of law, precluding this Court to 1998, x x x. But despite receipt of this letter, [petitioners]
take cognizance of the instant Petition under Rule 45 of the Rules of Court. Even failed/refused and continue to fail /refuse to refund/return
so, respondents maintain that the Court of Appeals did not err in ordering them [respondents] payments.
to return the certificates of shares of stock to petitioners upon the latters refund
of the price thereof as the essence of respondents claim for refund is to rescind xxxx
the sale of said shares. Furthermore, both petitioners should be held liable since
22. [Petitioners] acted in bad faith when it sold Article 1191. The power to rescind obligations is
membership shares to [respondents], promising development implied in reciprocal ones, in case one of the obligors should not
work will be completed by the first quarter of 1998 when comply with what is incumbent upon him.
[petitioners] knew fully well that they were in no position and
had no intention to complete development work within the time The injured party may choose between the fulfillment
they promised. [Petitioners] also were maliciously motivated and the rescission of the obligation, with the payment of
when they promised [respondents] use of Club facilities only to damages in either case. He may also seek rescission, even after
deny [respondents] such use later on. he has chosen fulfillment, if the latter should become
impossible.
23. It is detrimental to the interest of [respondents]
and quite unfair that they will be made to suffer from the delay The court shall decree the rescission claimed, unless
in the completion of the development work, while [petitioners] there be just cause authorizing the fixing of a period.
are already enjoying the purchase price paid by [respondents].
This is understood to be without prejudice to the rights
xxxx of third persons who have acquired the thing, in accordance
with Articles 1385 and 1388 and the Mortgage Law.
26. Apart from the refund of the amount
of P387,300.00, [respondents] are also entitled to be paid Article 1385. Rescission creates the obligation to
reasonable interest from their money. Afterall, [petitioners] return the things which were the object of the contract, together
have already benefitted from this money, having been able to with their fruits, and the price with its interest; consequently, it
use it, if not for the Fontana Leisure Park project, for their other can be carried out only when he who demands rescission can
projects as well. And had [respondents] been able to deposit return whatever he may be obliged to return.
the money in the bank, or invested it in some worthwhile
undertaking, they would have earned interest on the money at Neither shall rescission take place when the things
the rate of at least 21% per annum.[25] which are the object of the contract are legally in the possession
of third persons who did not act in bad faith.

The aforequoted allegations in respondents Complaint sufficiently state


a cause of action for the annulment of a voidable contract of sale based on fraud In this case, indemnity for damages may be demanded
under Article 1390, in relation to Article 1398, of the Civil Code, and/or rescission from the person causing the loss.
of a reciprocal obligation under Article 1191, in relation to Article 1385, of the
same Code. Said provisions of the Civil Code are reproduced below:
It does not matter that respondents, in their Complaint, simply prayed
Article 1390. The following contracts are voidable or for refund of the purchase price they had paid for their FRCCI shares,[26] without
annullable, even though there may have been no damage to specifically mentioning the annulment or rescission of the sale of said
the contracting parties: shares. The Court of Appeals treated respondents Complaint as one for
annulment/rescission of contract and, accordingly, it did not simply order
1. Those where one of the parties is petitioners to refund to respondents the purchase price of the FRCCI shares, but
incapable of giving consent to a contract; also directed respondents to comply with their correlative obligation of
2. Those where the consent is vitiated by surrendering their certificates of shares of stock to petitioners.
mistake, violence, intimidation, undue influence or fraud.
Now the only issue left for us to determine whether or not petitioners
These contracts are binding, unless they are annulled committed fraud or defaulted on their promises as would justify the annulment
by a proper action in court. They are susceptible of ratification. or rescission of their contract of sale with respondents requires us to reexamine
Article 1398. An obligation having been annulled, the evidence submitted by the parties and review the factual findings by the SEC
contracting parties shall restore to each other the things which and the Court of Appeals.
have been the subject matter of the contract, with their fruits,
and the price with its interest, except in cases provided by law. As a general rule, the remedy of appeal by certiorari under Rule 45 of
the Rules of Court contemplates only questions of law and not issues of fact. This
In obligations to render service, the value thereof shall rule, however, is inapplicable in cases x x x where the factual findings complained
be the basis for damages. of are absolutely devoid of support in the records or the assailed judgment of
the appellate court is based on a misapprehension of facts.[27] Another well-
recognized exception to the general rule is when the factual findings of the Respondents decry the alleged arbitrary and unreasonable denial of their
administrative agency and the Court of Appeals are contradictory.[28] The said request for reservation at FLP and the obscure and ever-changing rules of the
exceptions are applicable to the case at bar. country club as regards free accommodations for FRCCI class D shareholders.

There are contradictory findings below as to the existence of fraud: while Yet, petitioners were able to satisfactorily explain, based on clear
Hearing Officer Bacalla and the SEC en banc found that there is fraud on the part policies, rules, and regulations governing FLP club memberships, why they
of petitioners in selling the FRCCI shares to respondents, the Court of Appeals rejected respondents request for reservation on October 17, 1998. Respondents
found none. do not dispute that the Articles of Incorporation and the By-Laws of FRCCI, as
well as the promotional materials distributed by petitioners to the public (copies
There is fraud when one party is induced by the other to enter into a of which respondents admitted receiving), expressly stated that the subscribers
contract, through and solely because of the latters insidious words or of FRCCI class D shares of stock are entitled free accommodation at an FLP two-
machinations. But not all forms of fraud can vitiate consent. Under Article 1330, bedroom villa only for one week annually consisting of five (5) ordinary
fraud refers to dolo causante or causal fraud, in which, prior to or simultaneous days, one (1) Saturday and one (1) Sunday. Thus, respondents cannot claim
with the execution of a contract, one party secures the consent of the other by that they were totally ignorant of such rule or that petitioners have been
using deception, without which such consent would not have been changing the rules as they go along. Respondents had already availed
given.[29] Simply stated, the fraud must be the determining cause of the contract, themselves of free accommodations at an FLP villa on September 5, 1998, a
or must have caused the consent to be given.[30] Saturday, so that there was basis for petitioners to deny respondents subsequent
request for reservation of an FLP villa for their free use on October 17, 1998,
[T]he general rule is that he who alleges fraud or mistake in a another Saturday.
transaction must substantiate his allegation as the presumption is that a person
takes ordinary care for his concerns and that private dealings have been entered Neither can we rescind the contract because construction of FLP facilities
into fairly and regularly.[31] One who alleges defect or lack of valid consent to a were still unfinished by 1998. Indeed, respondents allegation of unfinished FLP
contract by reason of fraud or undue influence must establish by full, clear and facilities was not disputed by petitioners, but respondents themselves were not
convincing evidence such specific acts that vitiated a partys consent, otherwise, able to present competent proof of the extent of such incompleteness. Without
the latters presumed consent to the contract prevails.[32] any idea of how much of FLP and which particular FLP facilities remain unfinished,
there is no way for us to determine whether petitioners were actually unable to
In this case, respondents have miserably failed to prove how petitioners deliver on their promise of a first class leisure park and whether there is sufficient
employed fraud to induce respondents to buy FRCCI shares. It can only be reason for us to grant rescission or annulment of the sale of FRCCI
expected that petitioners presented the FLP and the country club in the most shares. Apparently, respondents were still able to enjoy their stay at FLP despite
positive light in order to attract investor-members. There is no showing that in the still ongoing construction works, enough for them to wish to return and again
their sales talk to respondents, petitioners actually used insidious words or reserve accommodations at the park.
machinations, without which, respondents would not have bought the FRCCI
shares. Respondents appear to be literate and of above-average means, who Respondents additionally alleged the unreasonable cancellation of their
may not be so easily deceived into parting with a substantial amount of confirmed reservation for the free use of an FLP villa on April 1, 1999. According
money. What is apparent to us is that respondents knowingly and willingly to respondents, their reservation was confirmed by a Mr. Murphy Magtoto, only
consented to buying FRCCI shares, but were later on disappointed with the actual to be cancelled later on by a certain Shaye. Petitioners countered that April 1,
FLP facilities and club membership benefits. 1999 was a Holy Thursday and FLP was already fully-booked. Petitioners,
however, do not deny that Murphy Magtoto and Shaye are FLP employees who
Similarly, we find no evidence on record that petitioners defaulted on dealt with respondents. The absence of any confirmation number issued to
any of their obligations that would have called for the rescission of the sale of respondents does not also discount the possibility that the latters reservation
the FRCCI shares to respondents. was mistakenly confirmed by Murphy Magtoto despite FLP being fully-booked. At
most, we perceive a mix-up in the reservation process of petitioners. This
The right to rescind a contract arises once the other party defaults in demonstrates a mere negligence on the part of petitioners, but not willful
the performance of his obligation.[33] Rescission of a contract will not be intention to deprive respondents of their membership benefits. It does not
permitted for a slight or casual breach, but only such substantial and constitute default that would call for rescission of the sale of FRCCI shares by
fundamental breach as would defeat the very object of the parties in making the petitioners to respondents. For the negligence of petitioners as regards
agreement.[34] In the same case as fraud, the burden of establishing the default respondents reservation for April 1, 1999, respondents are at least entitled to
of petitioners lies upon respondents, but respondents once more failed to nominal damages in accordance with Articles 2221 and 2222 of the Civil Code.[35]
discharge the same.
In Almeda v. Cario,[36] we have expounded on the propriety of granting nominal
damages as follows:
[N]ominal damages may be awarded to a plaintiff whose right This Petition for Review on Certiorari1 assails the April 27, 2010 Decision2 and
has been violated or invaded by the defendant, for the purpose August 24, 2010 Resolution3 of the Court of Appeals (CA) in CA-G.R. CV No.
of vindicating or recognizing that right, and not for indemnifying 91758, entitled "Bernard C. Fernandez, Plaintiff-Appellee, versus Subic Bay
the plaintiff for any loss suffered by him. Its award is thus not Legend Resorts and Casinos, Inc., Defendant-Appellant," which affirmed in toto
for the purpose of indemnification for a loss but for the the May 17, 2006 Decision4 of the Regional Trial Court (RTC) of Olongapo City,
recognition and vindication of a right. Indeed, nominal damages Branch 74, in Civil Case No. 237-0-97.
are damages in name only and not in fact. When granted by the
courts, they are not treated as an equivalent of a wrong inflicted Factual Antecedents
but simply a recognition of the existence of a technical injury. A
violation of the plaintiff's right, even if only technical, is
sufficient to support an award of nominal damages. Conversely, Petitioner Subic Bay Legend Resorts ¥d Casinos, Inc., a duly organized and
so long as there is a showing of a violation of the right of the e)(isting corporation operating under Philippine laws, operates the Legenda
plaintiff, an award of nominal damages is proper.[37] Hotel and Casino (Legenda) located in the Subic Bay Freeport Zone in
Zambales. On the other hand, respondent Bernard C. Fernandez is the plaintiff
in Civil Case No. 237-0-97 prosecuted against petitioner in Olongapo RTC.
It is also settled that the amount of such damages is addressed to the sound
discretion of the court, taking into account the relevant circumstances.[38] As determined by the CA, the facts of the case are as follows:

In this case, we deem that the respondents are entitled to an award of P5,000.00
At around eleven o'clock in the evening of 6 June 1997, the
as nominal damages in recognition of their confirmed reservation for the free
appellee's5 brother[,] Ludwin Fernandez[,] visited the Legenda Hotel and
use of an FLP villa on April 1, 1999 which was inexcusably cancelled by petitioner
Casino x x x owned and operated by the appellant6 and located along the
on March 3, 1999.
Waterfront Road, Subic Bay Freep011 Zone. Legenda had strategically installed
several closedcircuit television (CCTV) cameras as part of security measures
In sum, the respondents Complaint sufficiently alleged a cause of action
required by its business. The monitors revealed that Ludwin changed x x x
for the annulment or rescission of the contract of sale of FRCCI class D shares
$5,000.00 w011h of chips into smaller denominations. Legenda admitted in its
by petitioners to respondents; however, respondents were unable to establish
brief that its surveillance staff paid close attention to Ludwin simply because it
by preponderance of evidence that they are entitled to said annulment or
was "wmsual" for a Filipino to play using dollar-denominated chips. After
rescission.
Ludwin won $200.00 in a game of baccarat, he redeemed the value of chips
worth $7,200.00. A review of the CCTV recordings showed that the incident
WHEREFORE, in view of the foregoing, the Petition is
was not the first time Ludwin visited the Casino, as he had also been there on
hereby GRANTED. The Decision dated May 30, 2002 and Resolution dated 5 June 1997.
August 12, 2002 of the Court Appeals in CA-G.R. SP No. 67816
are REVERSED and SET ASIDE. Petitioners are ORDERED to pay respondents
the amount of P5,000.00 as nominal damages for their negligence as regards An operation was launched by Legenda to zero-in on Ludwin whose picture was
respondents cancelled reservation for April 1, 1999, but respondents Complaint, furnished its security section. Thus, unbeknownst to him, he was already
in so far as the annulment or rescission of the contract of sale of the FRCCI class closely watched on 13 June 1997 when he went with another brother,
"D shares of stock is concerned, is DISMISSED for lack of merit. Deoven[,] to the casino at around the same time or at 11: 17 p.m. After
playing (and losing $100.00) only one round of baccarat, the siblings had their
SO ORDERED. chips encashed at two separate windows. Since the cashiers were apprised of a
supposed irregularity, they "froze" the transaction.

G.R. No. 193426 September 29, 2014 Shortly thereafter, Legenda's internal security officers accosted Ludwin and
Deoven and ordered them to return the cash and they complied without ado
because they were being pulled away. The two were eventually escorted to
SUBIC BAY LEGEND RESORTS AND CASINOS, INC., Petitioner,
private rooms where they were separately interrogated about the source of the
vs.
chips they brought. They were held for about seven hours w1til the wee hours
BERNARD C. FERNANDEZ, Respondent.
of the morning, without food or sleep. The ultimaturn was simple: they confess
that the chips were given by a certain employee, Michael Cabrera, or they
DECISION would not be released from questioning. The same line of questioning
confronted them when they were later twned-over for blotter preparation to
DEL CASTILLO, J.: the Intelligence and Investigation Office of the Subic Bay Metropolitan
Authority (IIO SBMA). Finally, the brothers succwnbed to Legenda's instruction
to execute a joint statement implicating Cabrera as the illegal source of the After pre-trial and trial, the trial court rendered its May 17, 2006 Decision,
chips. Due to hunger pangs and fatigue, they did not disown the statement which decreed as follows:
even when they subscribed the same before the prosecutor in whose office
they were [later] brought. On the other hand, they signed for basically the WHEREFORE, finding that the evidence preponderates in favor of the plaintiff,
san1e reason a document purporting to show that they were "released to judgment is rendered against the defendant ordering it to:
[their] brother's custody in good condition." At the time, Deoven was about 21
years old, in his second year of engineering studies and was not familiar with
the so-called "estafa" with which the security personnel threatened to sue him 1) Return to plaintiff casino chips worth USD $5,900.00 or its
for; although he was quite aware of the consequences of a crime such as direct equivalent in Philippine Peso at the rate of ₱38.00 to USD $1 in 1997.
assault because he had previously been convicted thereof. About two weeks
later, Deoven exec ted a retraction in Baguio City where he took up his 2) Pay plaintiff attorney's fees in the amount of ₱30,000.00 3) [Pay]
engineering course.7 [c]ost of this suit.

On July 1, 1997, respondent filed Civil Case No. 237-0-97 for recovery of sum SO DECIDED.11
of money with damages against petitioner, on the premise that on June 13,
1997, he went to Legenda with his brothers Ludwin and Deoven; that he In arriving at the above conclusion, the trial court held:
handed over Legenda casino chips worth US$6,000.00, which belonged to him,
to his brothers for the latter to use at the casino; that petitioner accosted his
brothers and unduly and illegally confiscated his casino chips equivalent to The primordial issue is whether or not plaintiff can be considered the lawful
US$5,900.00; and that petitioner refused and continues to refuse to return the owner of the USD $5,900 worth of casino chips that were confiscated.
same to him despite demand. His Complaint8 prayed for the return of the
casino chips and an award of ₱50,000.00 moral damages, ₱50,000.00 There is no dispute that the subject chips were in the possession of the
exemplary damages, ₱30,000.00 attorney's fees, ₱20,000.00 litigation plaintiff. He claims he got hold of them as payment for car services he
expenses, and costs. rendered to a Chinese individual. Defendant however, contends that said chips
were stolen from the casino and it is the lawful owner of the same.
Petitioner's Answer with Compulsory Counterclaim9 essentially alleged that
right after Ludwin and Deoven's transactions with the Legenda cashier were The onus fell on defendant to prove that the casino chips were stolen. The
frozen on June 13, 1997, they voluntarily agreed to proceed to the Legenda proof adduced however, is wanting. The statements of Deoven and Ludwin C.
security office upon invitation, where Ludwin voluntarily informed security Fernandez, confessing to the source of the chips were recanted hence, have
officers that it was a certain Michael Cabrera (Cabrera) - a Legenda table little probative value. The testimony of defendant's witnesses narrated
inspector at the time - who gave him the casino chips for encashment, taught defendant's action responding to the suspicious movements of the Fernandez
him how to play baccarat and thereafter encash the chips, and rewarded him brothers based on surveillance tapes. The tapes, however, do not show how
with Pl,000.00 for every $1,000.00 he encashed; that Ludwin pointed to a these persons got hold of the chips. The alleged source in the person of Mike
picture of Cabrera in a photo album of casino employees shown to him; that Cabrera, a table inspector of the casino[,] was based on the recanted
Ludwin and Deoven were then brought to the IIO SBMA, where they reiterated declarations of the brothers. No criminal charge was shown to have been filed
their statements made at the Legenda security office; that they volunteered to against him nor the plaintiff and his brothers. Neither was there an explanation
testify against Cabrera; that respondent himself admitted that it was Cabrera given as to how those chips came into the possession of Mike Cabrera much
who gave him the casino chips; that Ludwin and Deoven voluntarily executed a less that he passed them on to the brothers for the purpose of encashing and
joint affidavit before the Olongapo City Prosecutor's Office, which they dividing the proceeds amongst themselves. All told therefore, there is no direct
subsequently recanted; that respondent had no cause of action since the evidence to prove the theory of the defendant and the circumstantial evidence
confiscated casino chips worth US$5,900.00 were stolen from it, and thus it present is, to the mind of the court, not sufficient to rebut the legal
has the right to retain them. By way of counterclaim, petitioner sought an presw11ption that a person in possession of personal property is the lawful
award of P 1 million moral damages, ₱1 million exemplary damages, and P.5 owner of the same (Art. 559, Civil Code of the Philippines).12
million attorney's fees and litigation expenses.
Ruling of the Court of Appeals
Respondent filed his Answer10 to petitioner's counterclaim.
Petitioner appealed the May 1 7, 2006 Decision of the trial court, arguing that
Ruling of the Regional Trial Court Ludwin and Deoven's admission in their joint affidavit before the Olongapo City
Prosecutor's Office that it was Cabrera who gave them the casino chips
strongly indicates that the chips were stolen from Legenda; that the
subsequent recantation by Ludwin and Deoven of their joint affidavit should be a) The Honorable Court seriously erred in ruling that the recanted
looked upon with disfavor, given that recanted testimony is unreliable and statements of Deoven Fernandez and Ludwin C. Fernandez have [no]
recantations can be easily secured from poor and ignorant witnesses and for probative value;
monetary consideration or through intimidation; that respondent's explanation
that he gave the chips to his brothers Ludwin and Deoven for them to play in b) The Honorable Court seriously erred in ruling that the circumstantial
the casino is highly doubtful; that the true purpose of Ludwin and Deoven was evidence present is not sufficient to rebut the legal presumption that a
to encash the stolen chips; that no force or intimidation attended the treatment person in possession of personal property is the lawful owner of the
accorded Ludwin and Deoven when they were accosted and asked to explain same;
their possession of the chips; and that the trial court erred in awarding
attorney's fees and costs for the filing of a baseless suit solely aimed at
unjustly enriching respondent at petitioner's expense. c) The Honorable Court seriously erred in finding that the evidence
preponderates in favor of the herein respondent; [and]

On April 27, 2010, the CA issued the assailed Decision which affirmed the trial
court's May 17, 2006 Decision. Petitioner's Motion for Reconsideration was d) The Honorable Court seriously erred in awarding attorney's fees and
rebuffed as well. costs of suit I favor of the respondent.16

In deciding against petitioner, the CA held that, applying Article 559 of the Civil Petitioner's Arguments
Code,13 respondent had the legal presumption of title to or ownership of the
casino chips. This conclusion springs from respondent's admission during trial In its Petition and Reply,17 petitioner mainly argues that the assailed
that the chips represented payment by a Chinese customer for services he dispositions are grounded entirely on speculation, and the inferences made are
rendered to the latter in his car shop. The CA added that since respondent manifestly mistaken and based on a misappreciation of the facts and law; that
became the owner of the chips, he could very well have given them to Ludwin the CA failed to consider the testimonial and documentary evidence it
and Deoven, who likewise held them as "possessors in good faith and for presented to prove the fact that the casino chips were missing and were stolen
value" and with "presumptive title" derived from the respondent. On the other by Cabrera, who thereafter gave them to respondent's brothers, Ludwin and
hand, petitioner failed to convincingly show that the chips were stolen; for one, Deoven. Petitioner maintains that the presumption of title under Article 559
it did not even file a criminal case against the supposed mastermind, Cabrera - cannot extend to respondent's brothers, who admitted during the investigation
nor did it charge Ludwin or Deoven - for the alleged theft or taking of its chips. at the Legenda security office and in their Joint Affidavit18 that the chips came
from Cabrera, and not responcient; that the subsequent Sworn
The CA likewise held that Ludwin' s and Deoven' s statements and admissions Statement19 recanting the Joint Affidavit should not be given credence, as
at the Legenda security office are inadmissible because they were obtained in affidavits of recantation can easily be secured - which thus makes them
violation of their constitutional rights: they were held in duress, denied the unreliable; and that no duress attended the taking of the brothers' Joint
right to counsel and the opportunity to contact respondent, and deprived of Affidavit, which was prepared by Henry Marzo of the Intelligence and
sleep, which is one of the "more subtler [sic] techniques of physical and Investigation Office (IIO) of the Subic Bay Metropolitan Authority (SBMA).
psychological torture to coerce a confession."14 It found that the actions and
methods of the Legenda security personnel in detaining and extracting Petitioner asserts that it is unbelievable that respondent would give
confessions from Ludwin and Deoven were illegal and in gross violation of US$6,000.00 worth of casino chips to his brothers with which to play at the
Ludwin's and Deoven's constitutional rights.15 casino; that with the attending circumstances, the true intention of
respondent's brothers was to encash the stolen chips which Cabrera handed to
Finally, the CA held that petitioner was guilty of bad faith in advancing its them, and not to play at the casino. Petitioner thus concludes that no coercion
theory and claim against respondent by unduly accusing him of dealing in could have attended the investigation of Ludwin and Deoven; that their
stolen casino chips, which thus entitles respondent to the reduced award of subsequent recantation should not be given weight; and that for suing on a
attorney's fees in the amount of ₱30,000.00 baseless claim, respondent is not entitled to attorney's fees and costs of
litigation.

Issues
Petitioner thus prays for the reversal of the assailed dispositions and the
corresponding dismissal of Civil Case No. 237-0-97.
Petitioner raises the following issues:

Respondent's Arguments
In his Comment,20 respondent generally echoes the pronouncement of the CA. It is not even necessary to resolve whether Ludwin's and Deoven's Joint
He likewise notes that petitioner has raised only questions of fact; that the Affidavit was obtained by duress or otherwise; the document is irrelevant to
Petition is being prosecuted to delay the proceedings; that the trial and petitioner's cause, as it does not suggest at all that Cabrera stole the subject
appellate courts are correct in finding that petitioner failed to prove its case casino chips. At most, it only shows that Cabrera gave Ludwin and Deoven
and show that the casino chips were stolen; that petitioner failed to rebut the casino chips, if this fact is true at all - since such statement has since been
presumption that a person in possession of personal property is the lawful recanted.
owner of the same, pursuant to Article 559 of the Civil Code; and that the
₱30,000.00 award of attorney's fees should be increased to ₱100,000.00. The fact that Ludwin and Deoven appear to be indecisive as to who gave them
the casino chips does not help petitioner at all.1âwphi1 It cannot lead to the
Our Ruling conclusion that Cabrera stole the chips and then gave them to the two; as
earlier stated, petitioner had to prove this fact apart from Ludwin's and
The Petition is denied. Deoven's claims, no matter how incredible they may seem.

Petitioner's underlying theory is that the subject casino chips were in fact Though casino chips do not constitute legal tender,24 there is no law which
stolen by its employee Cabrera, then handed over to respondent's brothers, prohibits their use or trade outside of the casino which issues them. In any
Ludwin and Deoven, for encashment at the casino; that Ludwin and Deoven case, it is not unusual – nor is it unlikely – that respondent could be paid by his
played at the casino only for show and to conceal their true intention, which is Chinese client at the former' s car shop with the casino chips in question; said
to encash the chips; that respondent's claim that he owned the chips, as they transaction, if not common, is nonetheless not unlawful. These chips are paid
were given to him in payment of services he rendered to a Chinese client, is for anyway; petitioner would not have parted with the same if their
false. These arguments require the Court to examine in greater detail the facts corresponding representative equivalent - in legal tender, goodwill, or
involved. However, this may not be done because the Court is not a trier of otherwise – was not received by it in return or exchange. Given this premise -
facts and does not normally undertake the re-examination of the evidence that casino chips are considered to have been exchanged with their
presented during trial; the resolution of factual issues is the function of lower corresponding representative value - it is with more reason that this Court
courts, whose findings thereon are received with respect and are binding on should require petitioner to prove convincingly and persuasively that the chips
the Court subject only to specific exceptions.21 In tum, the factual findings of it confiscated from Ludwin and Deoven were indeed stolen from it; if so, any
the Court of Appeals carry even more weight when they are identical to those Tom, Dick or Harry in possession of genuine casino chips is presumed to have
of the trial court's.22 paid for their representative value in exchange therefor. If petitioner cannot
prove its loss, then Article 559 cannot apply; the presumption that the chips
were exchanged for value remains.
Besides, a question of fact cannot properly be raised in a petition for review on
certiorari.23 Moreover, if petitioner should stick to its theory that Cabrera stole
the subject casino chips, then its failure to file a criminal case against the latter Finally, the Court sustains the award of attorney's fees. Under Article 2208 of
-including Ludwin and Deoven for that matter - up to this point certainly does the Civil Code,25 attorney's fees may be recovered when the defendant acted in
not help to convince the Court of its position, especially considering that the gross and evident bad faith in refusing to satisfy the plaintiff's plainly valid, just
supposed stolen chips represent a fairly large amount of money. Indeed, for and demandable claim, or in any other case where the court deems it just and
purposes of this proceeding, there appears to be no evidence on record - other equitable that attorney's fees and expenses of litigation should be recovered.
than mere allegations and suppositions - that Cabrera stole the casino chips in Petitioner's act of arbitrarily confiscating the casino chips and treating Ludwin
question; such conclusion came unilaterally from petitioner, and for it to use and Deoven the way it did, and in refusing to satisfy respondent's claim despite
the same as foundation to the claim that Ludwin, Deoven and respondent are the fact that it had no basis to withhold the chips, confirm its bad faith, and
dealing in stolen chips is clearly irregular and unfair. should entitle respondent to an award.

Thus, there should be no basis to suppose that the casino chips found in With the foregoing view of the case, a discussion of the other issues raised is
Ludwin's and Deoven's possession were stolen; petitioner acted arbitrarily in deemed irrelevant and unnecessary.
confiscating the same without basis. Their Joint Affidavit - which was later
recanted - does not even bear such fact; it merely states that the chips came WHEREFORE, the Petition is DENIED. The assailed April 27, 2010 Decision and
from Cabrera. If it cannot be proved, in the first place, that Cabrera stole these August 24, 2010 Resolution of the Court of Appeals in CA-G.R. CV No. 91758
chips, then there is no more reason to suppose that Ludwin and Deoven were are AFFIRMED.
dealing in or possessed stolen goods; unless the independent fact that Cabrera
stole the chips can be proved, it cannot be said that they must be confiscated SO ORDERED.
when found to be in Ludwin's and Deoven's possession.
RUBEN REYNA and LLOYD SORIA, G.R. No. 167219 Before this Court is a Petition for certiorari,[1] under Rule 64 of the Rules
of Court, seeking to set aside Resolution No. 2004-046,[2] dated December 7,
Petitioners, 2004, of the Commission on Audit (COA).
Present:

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


CARPIO,

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

BRION,
Cooperatives who wish to avail of a loan under the program must fill up
PERALTA, a Credit Facility Proposal (CFP) which will be reviewed by the Ipil Branch. As
- versus - alleged by Emmanuel B. Bartocillo, Department Manager of the Ipil Branch, the
BERSAMIN, CFP is a standard and prepared form provided by the Land Bank main office to
be used in the loan application as mandated by the Field Operations
DEL CASTILLO, Manual.[3] One of the conditions stipulated in the CFP is that prior to the release
of the loan, a Memorandum of Agreement (MOA) between the supplier of the
ABAD, cattle, Remad Livestock Corporation (REMAD), and the cooperative, shall have
been signed providing the level of inventory of stocks to be delivered,
VILLARAMA, JR.,
specifications as to breed, condition of health, age, color, and weight. The MOA
PEREZ, shall further provide for a buy-back agreement, technology, transfer, provisions
for biologics requirement and technical visits and replacement of sterile,
MENDOZA, and unproductive stocks.[4] Allegedly contained in the contracts was a stipulation that
the release of the loan shall be made sixty (60) days prior to the delivery of the
SERENO, JJ. stocks.[5]

Promulgated: The Ipil Branch approved the applications of four cooperatives. R.T. Lim
Rubber Marketing Cooperative (RT Lim RMC) and Buluan Agrarian Reform
COMMISSION ON AUDIT, Beneficiaries MPC (BARBEMCO) were each granted two loans. Tungawan
February 8, 2011 Paglaum Multi-Purpose Cooperative (Tungawan PFMPC) and Siay Farmers Multi-
Respondent. Purpose Cooperative (SIFAMCO) were each granted one loan. Pursuant to the
terms of the CFP, the cooperatives individually entered into a contract with
x--------------------------------------------------------------------------------------- REMAD, denominated as a Cattle-Breeding and Buy-Back Marketing
--x Agreement.[6]

In December 1993, the Ipil Branch granted six loans to the four
cooperative borrowers in the following amounts:

DECISION
Date Name Amount Amount of Amount Paid
PERALTA, J.: of of of Livestock to Cattle
Release Borrower Loan Insurance Supplier (REMAD)

12-10-93 RTLim RMC P 795,305 P 62,305 P 733,000 4. No. 1 of the loan terms and conditions allowed
prepayments without taking into consideration the interest of
12-10-93 BARBEMCO 482,825 37,825 445,000 the Bank. Nowhere in the documents reviewed disclosed about
prepayment scheme with REMAD, the supplier/dealer.
12-16-93 Tungawan PFMPC 482,825 37,825 445,000
There was no justification for the prepayment scheme. Such is
12-22-93 SIFAMCO 983,010 77,010 906,000
a clear deviation from existing procedures on asset financing
12-22-93 RTLim RMC 187,705 14,705 173,000 under which the Bank will first issue a letter guarantee for the
account of the borrower. Payment thereof will only be effected
12-22- upon delivery of asset, inspection and acceptance of the same
93 BARBEMCO 448,105 35,105 413,000 TOTAL P3,375,775 264,775 by the borrower.
3,115,000[7]

The prepayment arrangement also violates Section 88 of


Presidential Decree (PD) No. 1445, to quote:
As alleged by petitioners, the terms of the CFP allowed for pre-payments
or advancement of the payments prior to the delivery of the cattle by the supplier
REMAD. This Court notes, however, that copies of the CFPs were not attached to
Prohibition against advance payment on
the records of the case at bar. More importantly, the very contract entered into
government Except with the prior approval of
by the cooperatives and REMAD, or the Cattle-Breeding and Buy-Back Marketing
the President (Prime Minister), the
Agreement[8] did not contain a provision authorizing prepayment.
government shall not be obliged to make an
advance payment for services not yet rendered
or for supplies and materials not yet delivered
Three checks were issued by the Ipil Branch to REMAD to serve as under any contract therefor. No payment,
advanced payment for the cattle. REMAD, however, failed to supply the cattle on partial or final shall be made on any such
the dates agreed upon. contract except upon a certification by the
head of the agency concerned to have effect
that the services or supplies and materials
have been delivered in accordance with the
In post audit, the Land Bank Auditor disallowed the amount terms of the contract and have been duly
of P3,115,000.00 under CSB No. 95-005 dated December 27, 1996 and Notices inspected and accepted.
of Disallowance Nos. 96-014 to 96-019 in view of the non-delivery of the
cattle.[9] Also made as the basis of the disallowance was the fact that advanced
payment was made in violation of bank policies and COA rules and
regulations. Specifically, the auditor found deficiencies in the CFPs, to wit: Moreover, the Manual on FOG Lending Operations (page 35)
provides the systems and procedures for releasing loans, to
quote:

The Auditor commented that the failure of such loan


projects deprived the farmer-beneficiaries the opportunity to
improve their economic condition. Loan Proceeds Released Directly to the
Supplier/Dealer Proceeds of loans granted for
the acquisition of farm machinery equipment;
and sub-loan components for the purchase of
From the Credit Facilities Proposals (CFP), the Auditor noted the construction materials, farm inputs, etc. shall
following deficiencies. be released directly to the accredited
dealers/suppliers. Payment to the dealer shall
be made after presentation of reimbursement
xxxx documents (delivery/ official receipts/
purchase orders) acknowledged by the
authorized LBP representative that same has Petitioners did not file a Petition for Review or a Notice of Appeal from
been delivered. the COA Regional Office Decision as required under Section 3, Rule VI[15] of the
1997 Revised Rules of Procedure of the COA. Thus, the Decision of the Director
of COA Regional Office No. IX became final and executory pursuant to Section
51[16] of the Government Auditing Code of the Philippines. Consequently, on April
In cases where supplier requires Cash on Delivery
12, 1999, the Director of the COA Regional Office No. IX issued a Memorandum
(COD), the checks may be issued and the cooperative and a LBP
to the Auditor directing him to require the accountant of the Ipil Branch to record
representative shall release the check to the supplier and then
in their books of account the said disallowance.[17]
take delivery of the object of financing.[10]

On July 12, 1999, the Auditor sent a letter to the Land Bank Branch
The persons found liable by the Auditor for the amount of P3,115,000.00
Manager requiring him to record the disallowance in their books of account. On
which was advanced to REMAD were the following employees of the Ipil Branch:
August 10, 1999, petitioners sent a letter[18] to COA Regional Office No. IX,
seeking to have the booking of the disallowance set aside, on the grounds that
they were absolved by the Ombudsman in a February 23, 1999
1. Emmanuel B. Bartocillo Department Manager II Resolution,[19] and that the Bangko Sentral ng Pilipinas had approved the writing
off of the subject loans.
2. George G. Hebrona Chief, Loans and Discounts Division

3. Petitioner Ruben A. Reyna Senior Field Operations


Specialist The February 23, 1999 Resolution of the Ombudsman was approved by
Margarito P. Gervacio, Jr. the Deputy Ombudsman for Mindanao, the dispositive
4. Petitioner Lloyd V. Soria Loans and Credit Analyst II portion of which reads:
5. Mary Jane T. Cunting[11] Cash Clerk IV

6. Leona O. Cabanatan Bookkeeper III/Acting Accountant.[12]

WHERFORE, premises considered, the instant


complaint is hereby dismissed for lack of sufficient
evidence.
The same employees, including petitioners, were also made respondents
in a Complaint filed by the COA Regional Office No. IX, Zamboanga City, before
the Office of the Ombudsman for Gross Negligence, Violation of Reasonable SO ORDERED.[20]
Office Rules and Regulations, Conduct Prejudicial to the Interest of the Bank and
Giving Unwarranted Benefits to persons, causing undue injury in violation of
Section 3(e) of Republic Act (R.A.) No. 3019, otherwise known as the Anti-Graft
and Corrupt Practices Act.[13] COA Regional Office No. IX endorsed to the Commission proper the
matter raised by the petitioners in their August 10, 1999 letter. This is contained
in its February 28, 2000 letter/endorsement,[21] wherein the Director of COA
Regional Office No. IX maintained his stand that the time for filing of a petition
On January 28, 1997, petitioners filed a Joint Motion for Reconsideration for review had already lapsed. The Regional Director affirmed the disallowance
claiming that the issuance of the Notice of Disallowance was premature in view of the transactions since the same were irregular and disadvantageous to the
of the pending case in the Office of the Ombudsman. The Motion was denied by government, notwithstanding the Ombudsman resolution absolving petitioners
the Auditor. Unfazed, petitioners filed an appeal with the Director of COA from fault.
Regional Office No. IX, Zamboanga City. On August 29, 1997, the COA
Regional Office issued Decision No. 97-001 affirming the findings of the
Auditor. On February 4, 1998, petitioners filed a Motion for Reconsideration,
which was denied by the Regional Office in Decision No. 98-005[14] issued In a Notice[22] dated June 29, 2000, the COA requested petitioners to
on February 18, 1998. submit a reply in response to the letter/endorsement of the Regional Office
Director. On August 10, 2000, petitioners submitted their Compliance/ Reply[23],
wherein they argued that the Ombudsman Resolution is a supervening event and
is a sufficient ground for exemption from the requirement to submit a Petition
for Review or a Notice of Appeal to the Commission proper. Petitioners also RESPONDENT COA COMMITTED GRAVE ABUSE OF
argued that by invoking the jurisdiction of the Commission proper, the Regional DISCRETION AMOUNTING TO LACK OF JURISDICTION FOR
Director had waived the fact that the case had already been resolved for failure HOLDING THE PETITIONERS ADMINISTRATIVELY LIABLE FOR
to submit the required Petition for Review. HAVING PROCESSED THE LOANS OF THE BORROWING
COOPERATIVES IN ACCORDANCE WITH THE BANKS MANUAL
On July 17, 2003, the COA rendered Decision No. 2003-107[24] affirming (FOG) LENDING OPERATIONS.
the rulings of the Auditor and the Regional Office, to wit:
RESPONDENT COA COMMITTED GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OF JURISDICTION WHEN IT
HELD THE PETITIONERS LIABLE AND, THEREFORE, IN EFFECT
WHEREFORE, foregoing premises considered, this
LIKEWISE OBLIGATED TO REFUND THE DISALLOWED AMOUNT
Commission hereby affirms both the subject disallowance
EVEN AS AMONG OTHER THINGS THEY ACTED IN EVIDENT
amounting to P3,115,000 and the Order of the Director, COA
GOOD FAITH. MORE SO, AS THE COLLECTIBLES HAVE BEEN
Regional Office No. IX, Zamboanga City, directing the recording
ALREADY EFFECTIVELY WRITTEN-OFF.[28]
of subject disallowance in the LBP books of accounts. This is,
however, without prejudice to the right of herein appellants to
run after the supplier for reimbursement of the advance
payment for the cattle.[25] The petition is not meritorious.

In denying petitioners request for the lifting of the booking of the I.


disallowance, the COA ruled that after a circumspect evaluation of the facts and
circumstances, the dismissal by the Office of the Ombudsman of the complaint
did not affect the validity and propriety of the disallowance which had become
Anent the first issue raised by petitioners, the same is without merit.
final and executory.[26]
Petitioners argue said issue on three points: first, the COA is estopped from
declaring the prepayment stipulation as invalid;[29] second, the prepayment
clause in the Land Bank-REMAD contract is valid;[30] and third, it is a matter of
On August 22, 2003, petitioners filed a Motion for Reconsideration, judicial knowledge that is not unusual for winning bidders involving public works
which was, however, denied by the COA in a Resolution[27] dated December 7, to enter into contracts with the government providing for partial prepayment of
2004. the contract price in the form of mobilization funds.[31]

Hence, herein petition, with petitioners raising the following grounds in As to their contention that the COA is estopped from declaring the
support of the petition, to wit: prepayment stipulation as invalid, petitioners argue in the wise:

xxxx

RESPONDENT COA COMMITTED GRAVE ABUSE OF


DISCRETION AMOUNTING TO LACK OF JURISDICTION IN
DECLARING THE PREPAYMENT STIPULATION IN THE The CATTLE BREEDING AND BUY BACK MARKETING
CONTRACT BETWEEN THE BANK AND REMAD PROSCRIBED BY AGREEMENT sample of which is attached as Annex I was a
SECTION 103 OF P.D. NO. 1445, OTHERWISE KNOWN AS THE Contract prepared by the bank and REMAD, it was agreed to by
STATE AUDIT CODE OF THE PHILIPPINES. the cooperatives. It was a standard Contract used in twenty two
(22) Land Bank branches throughout the country. It provided
in part:
6.1 That the release of the Loan Proceeds Released Directly to the
loan shall be made directly to the supplier 60 Supplier/Dealer Proceeds of loans granted for the acquisition of
days prior to the delivery of stocks per farm machinery equipment; and sub-loan components for the
prepayment term of REMAD LIVESTOCK purchase of construction materials, farm inputs, etc. shall be
COPORATION (supplier). Inspection shall be released directly to the accredited dealers/suppliers. Payment to
done before the 60th day/delivery of the the dealer shall be made after presentation of reimbursement
stocks. documents (delivery/ official receipts/ purchase orders)
acknowledged by the authorized LBP representative that same
has been delivered.[36]
Again, these Contracts were standard bank forms from
Land Bank head office. None of the Petitioners participated in
the drafting of the same.[32] However, this Court is not unmindful of the fact that petitioners contend that the
Legal Department of Land Bank supposedly passed upon the issue of application
of Section 88 of PD 1445. Petitioners argue that in an alleged August 22, 1996
Memorandum issued by the Land Bank, it opined that Section 88 of PD 1445 is
not applicable.[37] Be that as it may, this Court is again constrained by the fact
In the absence of grave abuse of discretion, questions of fact cannot be raised that petitioners did not offer in evidence the alleged August 22, 1996 Land Bank
in a petition for certiorari, under Rule 64 of the Rules of Court. The office of the Memorandum. Therefore, the supposed tenor of the said document deserves
petition for certiorari is not to correct simple errors of judgment; any resort to scant consideration. In any case, even assuming arguendo that petitioners are
the said petition under Rule 64, in relation to Rule 65, of the 1997 Rules of Civil correct in their claim, they still cannot hide from the fact that they violated the
Procedure is limited to the resolution of jurisdictional issues.[33] Accordingly, procedure in releasing loans embodied in the Manual on Lending Operations as
since the validity of the prepayment scheme is inherently a question of fact, the previously discussed.
same should no longer be looked into by this Court.

To emphasize, the Auditor noted that nowhere in the documents reviewed


In any case, even assuming that factual questions may be entertained, disclosed about prepayment scheme with REMAD. It is well settled that findings
the facts do not help petitioners' cause for the following reasons: first, the of fact of quasi-judicial agencies, such as the COA, are generally accorded
supposed Annex I does not contain a stipulation authorizing a pre-payment respect and even finality by this Court, if supported by substantial evidence, in
scheme; and second, petitioners clearly violated the procedure of releasing loans recognition of their expertise on the specific matters under their
contained in the Bank's Manual on Field Office Guidelines on Lending Operations jurisdiction.[38] If the prepayment scheme was in fact authorized, petitioners
(Manual on Lending Operations). should have produced the document to prove such fact as alleged by them in
the present petition. However, as stated before, even this Court is at a loss as
to whether the prepayment scheme was authorized as a review of Annex I, the
document to which petitioners base their authority to make advance payments,
A perusal of the aforementioned Annex I,[34] the Cattle-Breeding and does not contain such a stipulation or provision. Highlighted also is the fact that
Buy-Back Marketing Agreement, would show that stipulation 6.1 which allegedly petitioners clearly violated the procedure in releasing loans found in the Manual
authorizes prepayment does not exist. To make matters problematic is that on Lending Operations which provides that payments to the dealer shall only be
nowhere in the records of the petition can one find a document which embodies made after presentation of reimbursement documents acknowledged by the
such a stipulation. It bears stressing that the Auditor noted in his report authorized LBP representative that the same has been delivered.
that, nowhere in the documents reviewed disclosed about prepayment scheme
with REMAD, the supplier/dealer.

Moreover, it is surprising that one of petitioners defense is that In addition, this Court notes that much reliance is made by petitioners
they processed the cooperatives' applications in accordance with their individual on their allegation that the terms of the CFP allowed for prepayments or
job descriptions as provided in the Banks Manual on Field Office Guidelines on advancement of the payments prior to the delivery of the cattle by the supplier
Lending Operations[35] when, on the contrary, petitioners seem to be oblivious REMAD. It appears, however, that a CFP, even if admittedly a pro
of the fact that they clearly violated the procedure in releasing loans which is forma contract and emanating from the Land Bank main office, is merely
embodied in the very same Manual on Lending Operations, to wit: a facility proposal and not the contract of loan between Land Bank and
the cooperatives. It is in the loan contract that the parties embody the terms
and conditions of a transaction. If there is any agreement to release the loan in
advance to REMAD as a form of prepayment scheme, such a stipulation should
exist in the loan contract. There is, nevertheless, no proof of such stipulation as A perusal of the records would show that Land Bank Vice-President Conrado B.
petitioners had failed to attach the CFPs or the loan contracts relating to the Roxas sent a Memorandum[40] dated August 5, 1998 to the Head of the Ipil
present petition. Branch, advising them that the accounts subject of the present petition have
been written-off, to wit:

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

II.

Anent the second ground raised by petitioners, the same is again without merit.
Petitioners impute on the COA grave abuse of discretion when it held petitioners The Schedule of Accounts for Write-Off[42] attached to the August 5,
administratively liable for having processed the loans of the borrowing 1998 Memorandum shows that the same covered the two loans given to
cooperatives. This Court stresses, however, that petitioners cannot rely on their BARBEMCO, the two loans given to RTLim RMC, and the only loan given to
supposed observance of the procedure outlined in the Manual on Lending Tungawan PFPMC. The total amount approved for write-off
Operations when clearly the same provides that payment to the dealer shall be was P2,209,000.00.[43] Moreover, petitioners contend that the last loan given to
made after presentation of reimbursement documents (delivery/official SIFAMCO was also the subject of a write-off in a similar advice given to the Buug
receipts/purchase orders) acknowledged by the authorized LBP representative Branch. The total approved write-off in the second Memorandum[44] was
that the same has been delivered. Petitioners have not made a case to dispute for P906,000.00.
the COA's finding that they violated the foregoing provision. Any presumption,
therefore, that public officials are in the regular performance of their public
functions must necessarily fail in the presence of an explicit rule that was
In its Comment,[45] the COA argues that the fact that the audit
violated.
disallowance was allegedly written-off is of no moment. Respondent

There is no grave abuse of discretion on the part of the COA as petitioners were
given all the opportunity to argue their case and present any supporting evidence
maintains that Section 66 of PD 1445[46] expressly granted unto it the right to
with the COA Regional Director. Moreover, it bears to point out that even if
compromise monetary liabilities of the government.[47] The COA, thus, theorizes
petitioners' period to appeal had already lapsed, the COA Commission Proper
that without its approval, the alleged write-off is ineffectual. The same argument
even resolved their August 10, 1999 letter where they raised in issue the
was reiterated by the COA in its Memorandum.[48]
favorable ruling of the Ombudsman.

The COAs argument deserves scant consideration.


III.

Anent, the last issue raised by petitioners, the same is without merit.
Petitioners contend that respondents Order, requiring them to refund the A write-off is a financial accounting concept that allows for the reduction
in value of an asset or earnings by the amount of an expense or loss. It is a
means of removing bad debts from the financial records of the business.

disallowed transaction, is functus officio, the amount having been legally


written-off.[39] In Land Bank of the Philippines v. Commission on Audit,[49] this Court
ruled that Land Bank has the power and authority to write-off loans, to wit:
not exceed a certain aggregate amount. The pertinent
portion of that Circular reads:
LBP was created as a body corporate and government
instrumentality to provide timely and adequate financial
support in all phases involved in the execution of needed
agrarian reform (Rep. Act No. 3844, as amended, Sec. 74). b. Frequency/ceiling of write-off.
Section 75 of its Charter vests in LBP specific powers normally The frequency for writing-off loans and
exercised by banking institutions, such as the authority to grant advances shall be left to the discretion of
short, medium and long-term loans and advances against the Board of Directors of the bank
security of real estate and/or other acceptable assets; to concerned. Provided, that the aggregate
guarantee acceptance(s), credits, loans, transactions or amount of loans and advances which may be
obligations; and to borrow from, or rediscount notes, bills of written-off during the year, shall in no case
exchange and other commercial papers with the Central Bank. exceed 3% of total loans and investments;
In addition to the enumeration of specific powers granted to Provided, further, that charge-offs are made
LBP, Section 75 of its Charter also authorizes it: against allowance for possible losses, earnings
during the year and/or retained earnings.[50]

12. To exercise the general powers mentioned in the


Corporation Law and the General Banking Act, as amended, While the power to write-off is not expressly granted in the charter of
insofar as they are not inconsistent or incompatible with this the Land Bank, it can be logically implied, however, from the Land Bank's
Decree. authority to exercise the general powers vested in banking institutions as
provided in the General Banking Act (Republic Act 337). The clear intendment of
its charter is for the Land Bank to be clothed not only with the express powers
granted to it, but also with those implied, incidental and necessary for the
One of the general powers mentioned in the General exercise of those express powers.[51]
Banking Act is that provided for in Section 84 thereof, reading:

In the case at bar, it is thus clear that the writing-off of the loans
xxxx involved was a valid act of the Land Bank. In writing-off the loans, the only
requirement for the Land Bank was that the same be in accordance with the
applicable Bangko Sentral circulars, it being under the supervision and
Writing-off loans and advances with regulation thereof. The Land Bank recommended for write-off all six loans
an outstanding amount of one hundred granted to the cooperatives, and it is worthy to note that the Bangko
thousand pesos or more shall require the prior Sentral granted the same. The write-offs being clearly in accordance with law,
approval of the Monetary Board (As amended the COA should, therefore, adhere to the same, unless under its general audit
by PD 71). jurisdiction under PD 1445, it finds that under Section 25(1) the fiscal
responsibility that rests directly with the head of the government agency has not
been properly and effectively discharged.

It will, thus, be seen that LBP is a unique and On this note, the reliance of respondent on Section 66 of PD 1445 is
specialized banking institution, not an ordinary "government baseless as a reading thereof would show that the same does not pertain to the
agency" within the scope of Section 36 of Pres. Decree No. COAs power to compromise claims. Probably, what respondent wanted to refer
1445. As a bank, it is specifically placed under the to was Section 36 which provides:
supervision and regulation of the Central Bank of the
Philippines pursuant to its Charter (Sec. 97, Rep. Act No.
3844, as amended by Pres. Decree No. 251). In so far as
Section 36. Power to compromise claims. -
loans and advances are concerned, therefore, it should
be deemed primarily governed by Central Bank Circular
No. 958, Series of 1983, which vests the determination 1. When the interest of the government so requires,
of the frequency of writing-off loans in the Board of the Commission may compromise or release in whole or in
Directors of a bank provided that the loans written-off do part, any claim or settled liability to any government agency not
exceeding ten thousand pesos and with the written approval of
the Prime Minister, it may likewise compromise or release any
similar claim or liability not exceeding one hundred thousand
pesos, the application for relief therefrom shall be submitted, Write-off is not one of the legal grounds for extinguishing an obligation
through the Commission and the Prime Minister, with their under the Civil Code.[53] It is not a compromise of liability. Neither is it a
recommendations, to the National Assembly. condonation, since in condonation gratuity on the part of the obligee and
acceptance by the obligor are required.[54] In making the write-off, only the
creditor takes action by removing the uncollectible account from its books even
without the approval or participation of the debtor.
2. The respective governing bodies of
government-owned or controlled corporations, and self-
governing boards, commissions or agencies of the
government shall have the exclusive power to
compromise or release any similar claim or liability when Furthermore, write-off cannot be likened to a novation, since the
expressly authorized by their charters and if in their obligations of both parties have not been modified.[55] When a write-off occurs,
judgment, the interest of their respective corporations or the actual worth of the asset is reflected in the books of accounts of the creditor,
agencies so requires. When the charters do not so provide, the but the legal relationship between the creditor and the debtor still remains the
power to compromise shall be exercised by the Commission in same the debtor continues to be liable to the creditor for the full extent of the
accordance with the preceding paragraph. unpaid debt.

Based on the foregoing, as creditor, Land Bank may write-off in its books
of account the advance payment released to REMAD in the interest of accounting
x x x x[52] accuracy given that the loans were already uncollectible. Such write-off,
however, as previously discussed, does not equate to a release from liability of
petitioners.

Under Section 36, the use of the word may shows that the power of the Accordingly, the Land Bank Ipil Branch must be required to record in its
COA to compromise claims is only permissive, and not mandatory. Further, the books of account the Php3,115,000.00 disallowance, and petitioners, together
second paragraph of Section 36 clearly states that respective governing bodies with their four co-employees,[56] should be personally liable for the said amount.
of government-owned or controlled corporations, and self-governing boards, Such liability, is, however, without prejudice to petitioners right to run after
commissions or agencies of the government shall have the exclusive power to REMAD, to whom they illegally disbursed the loan, for the full reimbursement of
compromise or release any similar claim or liability when expressly authorized the advance payment for the cattle as correctly ruled by the COA in its July 17,
by their charters. Nowhere in Section 36 does it state that the COA must approve 2003 Decision.[57]
a compromise made by a government agency; the only requirement is that it be
authorized by its charter. It, therefore, bears to stress that the COA does not On a final note, it bears to point out that a cursory reading of the Ombudsman's
have the exclusive prerogative to settle and compromise liabilities to the resolution will show that the complaint against petitioners was dismissed not
Government. because of a finding of good faith but because of a finding of lack of sufficient
evidence. While the evidence presented before the Ombudsman may not have
been sufficient to overcome the burden in criminal cases of proof beyond
reasonable doubt,[58] it does not, however, necessarily follow, that the
The foregoing pronouncements notwithstanding, this Court rules that writing-off
administrative proceedings will suffer the same fate as only substantial evidence
a loan does not equate to a condonation or release of a debt by the creditor.
is required, or that amount of relevant evidence which a reasonable mind might
accept as adequate to justify a conclusion.[59]

As an accounting strategy, the use of write-off is a task that can help a


company maintain a more accurate inventory of the worth of its current assets.
An absolution from a criminal charge is not a bar to an administrative
In general banking practice, the write-off method is used when an account is
prosecution or vice versa.[60] The criminal case filed before the Office of the
determined to be uncollectible and an uncollectible expense is recorded in the
Ombudsman is distinct and separate from the proceedings on the disallowance
books of account. If in the future, the debt appears to be collectible, as when
before the COA. So also, the dismissal by Margarito P. Gervacio, Jr., Deputy
the debtor becomes solvent, then the books will be adjusted to reflect the
Ombudsman for Mindanao, of the criminal charges against petitioners does not
amount to be collected as an asset. In turn, income will be credited by the same
necessarily foreclose the matter of their possible liability as warranted by the
amount of increase in the accounts receivable.
findings of the COA.
SPOUSES SENANDO F. SALVADOR and JOSEFINA R.
SALVADOR, Respondents
In addition, this Court notes that the Ombudsman's Resolution relied on an
alleged April 6, 1992 Memorandum of the Field Loans Review Department which
DECISION
supposedly authorized the Field Offices to undertake a prepayment scheme. On
the other hand, the same Ombudsman's Resolution also made reference to a
January 19, 1994 Memorandum of EVP Diaz and a May 31, 1994 Memorandum DEL CASTILLO, J.:
of VP FSD which tackled the prohibition on advance payment to suppliers. All
these documents, however, were again not attached to the records of the case We resolve the Petition for Review on Certiorari under Rule 45 of the Rules of
at bar. Particularly, the supposed April 6, 1992 Memorandum of the Field Loans Court, assailing the August 23, 2012 Decision 1 and the January 10, 2013
Review Department was not even mentioned nor raised by petitioners as a Order 2 of the Regional Trial Court (RTC), Branch 270, Valenzuela City, in Civil
defense in herein petition. Case No. 17 5-V-11 which directed petitioner Republic of the Philippines
(Republic) to pay respondents spouses Senando F. Salvador and Josefina R.
Salvador consequential damages equivalent to the value of the capital gains
The decisions and resolutions emanating from the COA did not tackle tax and other taxes necessary for the transfer of the expropriated property in
the supposed April 6, 1992 Memorandum of the Field Loans Review Department the Republic's name.
which allegedly authorized the Field Offices to undertake a pre-payment
scheme. While it is possible that such document would have shown that The Antecedent Facts
petitioners were in good faith, the same should have been presented by them in
the proceedings before the Commission proper - an act which they were not able
Respondents are the registered owners of a parcel of land with a total land
to do because of their own negligence in allowing the period to file an appeal to
area of 229 square meters, located in Kaingin Street, Barangay Parada,
lapse. The April 6, 1992 Memorandum of the Field Loans Review Department
Valenzuela City, and covered by Transfer Certificate of Title No.V-77660. 3
would have been the best evidence to free petitioners from their liability. It
appears, however, that they did not present the same before the COA and it is
already too late in the day for them to present such document before this Court. On November 9, 2011, the Republic, represented by the Department of - Public
Works and Highways (DPWH), filed a verified Complaint 4 before the RTC
Petitioners' allegation of grave abuse of discretion by the COA implies
such capricious and whimsical exercise of judgment as is equivalent to lack of for the expropriation of 83 square meters of said parcel of land (subject
jurisdiction or, in other words, the exercise of the power in an arbitrary manner property), as well as the improvements thereon, for the construction of the C-5
by reason of passion, prejudice, or personal hostility; and it must be so patent Northern Link Road Project Phase 2 (Segment 9) from the North Luzon
or gross as to amount to an evasion of a positive duty or to a virtual refusal to Expressway (NLEX) to McArthur Highway. 5
perform the duty enjoined or to act at all in contemplation of law.[61] It is
imperative for petitioners to show caprice and arbitrariness on the part of the
COA whose exercise of discretion is being assailed. Proof of such grave abuse of On February 10, 2012, respondents received two checks from the DPWH
discretion, however, is wanting in this case. representing 100% of the zonal value of the subject property and the cost of
the one-storey semi-concrete residential house erected on the property
WHEREFORE, premises considered, the petition is DENIED. Decision amounting to ₱l61,850.00 6 and ₱523,449.22,7 respectively. 8 The RTC
No. 2003-107 dated July 17, 2003 and Resolution No. 2004-046 dated December thereafter issued the corresponding Writ of Possession in favor of the
7, 2004, of the Commission on Audit, are hereby AFFIRMED. Republic. 9

On the same day, respondents signified in open court that they recognized the
SO ORDERED. purpose for which their property is being expropriated and interposed no
objection thereto. 10 They also manifested that they have already received the
total sum of ₱685,349.22 from the DPWH and are therefore no longer
intending to claim any just compensation. 11
G.R. No. 205428
Ruling of the Regional Trial Court
REPUBLIC OF THE PHILIPPINES, represented by the DEPARTMENT OF
PUBLIC WORKS AND HIGHWAYS (DPWH), Petitioners In its Decision12 dated August 23, 2012, the RTC rendered judgment in favor
vs of the Republic condemning t1Je subject property for the purpose of
implementing the construction of the C-5 Northern Link Road Project Phase 2 We likewise rule that the RTC committed a serious error when it directed the
(Segment 9) from NLEX to McArthur Highway, Valenzuela City. 13 Republic to pay respondents consequential damages equivalent to the value of
the capital gains tax and other taxes necessary for the transfer of the subject
The RTC likewise directed the Republic to pay respondents consequential property.
damages equivalent to the value of the capital gains tax and other taxes
necessary for the transfer of the subject property in the Republic's name. 14
"Just compensation [is defined as] the full and fair equivalent of the property
sought to be expropriated.x x x The measure is not the taker's gain but the
The Republic moved for partial reconsideration, 15 specifically on the issue owner's loss. [The compensation, to be just,] must be fair not only to the
relating to the payment of the capital gains tax, but the RTC denied the motion owner but also to the taker."25
in its Order16 dated January 10, 2013 for having been belatedly filed. The RTC
also found no justifiable basis to reconsider its award of Consequential In order to determine just compensation, the trial court should first ascertain
damages in favor of respondents, as the payment of capital gains tax and other the market value of the property by considering the cost of acquisition, the
transfer taxes is but a consequence of the expropriation proceedings.17 current value of like properties, its actual or potential uses, and in the
particular case of lands, their size, shape, location, and the tax declarations
As a result, the Republic filed the present Petition for Review thereon. 26 if as a result of the expropriation, the remaining lot suffers from an
on Certiorari assailing the RTC's August 23, 2012 Decision and January 10, impairment or decrease in value, consequential damages may be awarded by
2013 Order. the trial court, provided that the consequential benefits which may arise from
the expropriation do not exceed said damages suffered by the owner of the
property. 27
Issues
While it is true that "the determination of the amount of just compensation is
In the present Petition, the Republic raises the following issues for the Court's within the court's discretion, it should not be done arbitrarily or capriciously.
resolution: first, whether the RTC correctly denied the Republic's Motion for [Rather,] it must [always] be based on all established rules, upon correct legal
Partial Reconsideration for having been filed out of principles and competent evidence." 28 The court cannot base its judgment on
time; 18 and second, whether the capital gains tax on the transfer of the mere speculations and surmises. 29
expropriated property can be considered as consequential damages that may
be awarded to respondents. 19
In the present case, the RTC deemed it "fair and just that x x x whatever is the
value of the capital gains tax and all other taxes necessary for the transfer of
The Court's Ruling the subject property to the [Republic] are but consequential damages that
should be paid by the latter."30 The RTC further explained in its assailed Order
The Petition is impressed with merit. that said award in favor of respondents is but equitable, just, and fair, viz.:

"Section 3, Rule 13 of the Rules of Court provides that if a pleading is filed by As aptly pointed out by [respondents], they were merely forced by
registered mail, x x x the date of mailing shall be considered as the date of circumstances to be dispossessed of [the] subject property owing to the
filing. It does not matter when the court actually receives the mailed exercise of the State of its sovereign power to expropriate. The payment of
pleading."20 capital gains tax and other transfer taxes is a consequence of the expropriation
proceedings. It is in the sense of equity, justness and fairness, and as upheld
by the Supreme Court in the case of Capitol Subdivision, Inc. vs. Province of
In this case, the records show that the Republic filed its Motion for Partial
Negros Occidental, G.R. No. L-16257, January 31, 1963 that the assailed
Reconsideration before the RTC via registered mail on September 28,
consequential damages was awarded by the court. 31
2012.21 Although the trial cou1treceived the Republic's motion only on October
5, 2012,22 it should have considered the pleading to have been filed on
September 28, 2012, the date of its mailing, which is clearly within the This is clearly an error. It is settled that the transfer of property through
reglementary period of 15 days to file said motion, 23 counted from September expropriation proceedings is a sale or· exchange within the meaning of
13, 2012, or the date of the Republic's receipt of the assailed Decision.24 Sections 24(D) and 56(A) (3) of the National Internal Revenue Code, and profit
from the transaction constitutes capital gain. 32 Since capital gains tax is a tax
on passive income, it is the seller, or respondents in this case, who are liable to
Given these circumstances, we hold that the RTC erred in denying the
shoulder the tax. 33
Republic's Motion for Partial Reconsideration for having been filed out of
time.1âwphi1
In fact, the Bureau of Internal Revenue (BIR), in BIR Ruling No. 476-2013 aside the February 19, 2013 Order5 of the RTC, Branch 17, Cebu City
dated December 18, 2013, has constituted the DPWH as a withholding agent dismissing Civil Case No. CEB-39025 for lack of jurisdiction.
tasked to withhold the 6% final withholding tax in the expropriation of real
property for infrastructure projects. 11ms, as far as the government is Factual Antecedents
concerned, the capital gains tax in expropriation proceedings remains a liability
of the seller, as it is a tax on the seller's gain from the sale of real property. 34
On September 3, 2012, Remarkable Laundry and Dry Cleaning (respondent)
filed a Complaint denominated as "Breach of Contract and Damages"6 against
Besides, as previously explained, consequential damages are only awarded spouses Romeo and Ida Pajares (petitioners) before the RTC of Cebu City,
if as a result of the expropriation, the remaining property of the owner which was docketed as Civil Case No. CEB-39025 and assigned to Branch 17 of
suffersfrom an impairment or decrease in value. 35 In this case, no evidence said court. Respondent alleged that it entered into a Remarkable Dealer Outlet
was submitted to prove any impairment or decrease in value of the subject Contract7 with petitioners whereby the latter, acting as a dealer outlet, shall
property as a result of the expropriation. More significantly, given that the accept and receive items or materials for laundry which are then picked up and
payment of capital gains tax on the transfer· of the subject property has no processed by the former in its main plant or laundry outlet; that petitioners
effect on the increase or decrease in value of the remaining property, it can violated Article IV (Standard Required Quota & Penalties) of said contract,
hardly be considered as consequential damages that may be awarded to which required them to produce at least 200 kilos of laundry items each week,
respondents. when, on April 30, 2012, they ceased dealer outlet operations on account of
lack of personnel; that respondent made written demands upon petitioners for
WHEREFORE, we GRANT the Petition for Review on Certiorari. The Decision the payment of penalties imposed and provided for in the contract, but the
dated August 23, 2012 and the Order dated January 10, 2013 of the Regional latter failed to pay; and, that petitioners' violation constitutes breach of
Trial Court, Branch 270, Valenzuela City, in Civil Case No. 175-V-11, are contract. Respondent thus prayed, as fol1ows:
hereby MODIFIED, in that the award of consequential damages is DELETED. In
addition, spouses Senando F. Salvador and Josefina R. Salvador are hereby WHEREFORE, premises considered, by reason of the above-mentioned breach
ORDERED to pay for the capital gains tax due on the transfer of the of the subject dealer contract agreement made by the defendant, it is most
expropriated property. respectfully prayed of the Honorable Court to order the said defendant to pay
the following incidental and consequential damages to the plaintiff, to wit:
SO ORDERED.
a) TWO HUNDRED THOUSAND PESOS (PHP200,000.00) plus legal interest
G.R. No. 212690* as incidental and consequential [sic] for violating Articles IV and XVI of the
Remarkable Laundry Dealer Contract dated 08 September 2011.
SPOUSES ROMEO PAJARES and IDA T. PAJARES, Petitioners
vs. b) Thirty Thousand Pesos (₱30,000.00) as legal expenses.
REMARKABLE LAUNDRY AND DRY CLEANING, represented by
ARCHEMEDES G. SOLIS, Respondent c) Thirty Thousand Pesos (₱30,000.00) as exemplary damages.

DECISION d) Twenty Thousand Pesos (₱20,000.00) as cost of suit.

DEL CASTILLO, J.: e) Such other reliefs that the Honorable Court deems as just and
equitable.8 (Italics in the original)
Breach of contract may give rise to an action for specific performance or
rescission of contract.1 It may also be the cause of action in a complaint for Petitioners submitted their Answer,9 to which respondent filed its Reply.10
damages filed pursuant to Art. 1170 of the Civil Code.2 In the specific
performance and rescission of contract cases, the subject matter is incapable
of pecuniary estimation, hence jurisdiction belongs to the Regional Trial Court During pre-trial, the issue of jurisdiction was raised, and the parties were
(RTC). In the case for damages, however, the court that has jurisdiction required to submit their respective position papers.
depends upon the total amount of the damages claimed.
Ruling of the Regional Trial Court
Assailed in this Petition for Review on Certiorari is the December 11, 2013
3

Decision4 of the Court of Appeals (CA) in CA-G.R. CEB SP No. 07711 that set On February 19, 2013, the RTC issued an Order dismissing Civil Case No. CEB-
39025 for lack of jurisdiction, stating:
In the instant case, the plaintiffs complaint is for the recovery of damages for claim is purely incidental to, or a consequence of the principal relief sought,
the alleged breach of contract. The complaint sought the award of ₱200,000.00 such are actions whose subjects are incapable of pecuniary estimation, hence
as incidental and consequential damages; the amount of ₱30,000.00 as legal cognizable by the RTCs.15
expenses; the amount of ₱30,000.00 as exemplary damages; and the amount
of ₱20,000.00 as cost of the suit, or for the total amount of ₱280,000.00 x x xx
as damages.

Verily, what determines the nature of the action and which court has
Under the provisions of Batas Pambansa Blg. 129 as amended by Republic Act jurisdiction over it are the allegations of the complaint and the character of the
No. 7691, the amount of demand or claim in the complaint for the Regional relief sought.16
Trial Courts (RTCs) to exercise exclusive original jurisdiction shall exceed
₱300,000.00; otherwise, the action shall fall under the jurisdiction of the
Municipal Trial Courts. In this case, the total amount of demand in the In our considered view, the complaint, is one incapable of pecuniary
complaint is only ₱280,000.00, which is less than the jurisdictional amount of estimation; thus, one within the RTC's jurisdiction. x x x
the RTCs. Hence, this Court (RTC) has no jurisdiction over the instant
case.1âwphi1 x x xx

WHEREFORE, premises considered, the instant case is hereby DISMISSED for A case for breach of contract [sic] is a cause of action either for specific
lack of jurisdiction. performance or rescission of contracts. An action for rescission of contract, as a
counterpart of an action for specific performance, is incapable of pecuniary
Notify the counsels. estimation, and therefore falls under the jurisdiction of the RTC.17

SO ORDERED.11 (Emphasis in the original) Thus, the totality of damages principle finds no application in the instant case
since the same applies only when damages is principally and primarily
demanded in accordance with the specification in Administrative Circular No.
Respondent filed its Motion for Reconsideration,12 arguing that as Civil Case No. 09-94 which reads: 'in cases where the claim for damages is the main cause of
CEB-39025 is for breach of contract, or one whose subject is incapable of action ... the amount of such claim shall be considered in determining the
pecuniary estimation, jurisdiction thus falls with the RTC. However, in an April jurisdiction of the court.'
29, 2013 Order,13 the RTC held its ground.

Thus, the court a quo should not have dismissed the instant case.
Ruling of the Court of Appeals

WHEREFORE, in view of the foregoing, the Order dated February 19, 2013 of
Respondent filed CA-G.R. CEB SP No. 07711, a Petition for Certiorari14 seeking the Regional Trial Court, 7th Judicial Region, Branch 17, Cebu City in Civil Case
to nullify the RTC's February 19, 2013 and April 29, 2013 Orders. It argued No. CEB-39025 for Breach of Contract and Damages is hereby REVERSED and
that the RTC acted with grave abuse of discretion in dismissing Civil Case No. SET ASCDE. This case is hereby REMANDED to the RTC which is ORDERED to
CEB-39025. According to respondent, said case is one whose subject matter is PROCEED with the trial on the merits with dispatch.
incapable of pecuniary estimation and that the damages prayed for therein are
merely incidental thereto. Hence, Civil Case No. CEB-39025 falls within the
jurisdiction of the RTC pursuant to Section 19 of Batas Pambansa Blg. 129, as SO ORDERED.18
amended (BP 129).
Petitioners sought to reconsider, but were denied. Hence, the present Petition.
On December 11, 2013, the CA rendered the assailed Decision setting aside
the February 19, 2013 Order of the RTC and remanding the case to the court a Issue
quo for further proceedings. It held as follows:
In a June 29, 2015 Resolution,19 this Court resolved to give due course to the
In determining the jurisdiction of an action whose subject is incapable of Petition, which claims that the CA erred in declaring that the RTC had
pecuniary estimation, the nature of the principal action or remedy sought must jurisdiction over respondent's Complaint which, although denominated as one
first be ascertained. If it is primarily for the recovery of a sum of money, the for breach of contract, is essentially one for simple payment of damages.
claim is considered capable of pecuniary estimation and the jurisdiction of the
court depends on the amount of the claim. But, where the primary issue is
Petitioners' Arguments
something other than the right to recover a sum of money, where the money
In praying that the assailed CA dispositions be set aside and that the RTC's counterpart of an action for specific performance, is incapable of pecuniary
February 19, 2013 Order dismissing Civil Case No. CEB-39025 be reinstated, estimation, and therefore falls under the jurisdiction of the RTC.24
petitioners in their Petition and Reply20 espouse the original findings of the RTC
that Civil Case No. CEB-39025 is for the recovery of a sum of money in the without, however, determining whether, from the four corners of the
form of damages. They asserted that in determining jurisdiction over the Complaint, respondent actually intended to initiate an action for specific
subject matter, the allegations in the Complaint and the principal relief in the performance or an action for rescission of contract. Specific performance is
prayer thereof must be considered; that since respondent merely prayed for ''[t]he remedy of requiring exact performance of a contract in the specific form
the payment of damages in its Complaint and not a judgment on the claim of in which it was made, or according to the precise terms agreed upon. [It is t]he
breach of contract, then jurisdiction should be determined based solely on the actual accomplishment of a contract by a party bound to fulfill it."25 Rescission
total amount of the claim or demand as alleged in the prayer; that while of contract under Article 1191 of the Civil Code, on the other hand, is a remedy
breach of contract may involve a claim for specific performance or rescission, available to the obligee when the obligor cannot comply with what is incumbent
neither relief was sought in respondent's Complaint; and, that respondent upon him.26 It is predicated on a breach of faith by the other party who violates
"chose to focus his [sic] primary relief on the payment of damages,"21 which is the reciprocity between them. Rescission may also refer to a remedy granted
"the true, actual, and principal relief sought, and is not merely incidental to or by law to the contracting parties and sometimes even to third persons in order
a consequence of the alleged breach of contract."22Petitioners conclude that, to secure reparation of damages caused them by a valid contract; by means of
applying the totality of claims rule, respondent's Complaint should be restoration of things to their condition in which they were prior to the
dismissed as the claim stated therein is below the jurisdictional amount of the celebration of the contract.27
RTC.

In a line of cases, this Court held that –


Respondent's Arguments

In determining whether an action is one the subject matter of which is not


Respondent, on the other hand, counters in its Comment23 that the CA is capable of pecuniary estimation this Court has adopted the criterion of first
correct in declaring that Civil Case No. CEB-39025 is primarily based on breach ascertaining the nature of the principal action or remedy sought. If it is
of contract, and the damages prayed for are merely incidental to the principal primarily for the recovery of a sum of money, the claim is considered capable
action; that the Complaint itself made reference to the Remarkable Dealer of pecuniary estimation, and whether jurisdiction is in the municipal trial courts
Outlet Contract and the breach committed by petitioners, which gave rise to a or in the courts of first instance would depend on the amount of the claim.
cause of action against the latter; and, that with the filing of the case, the trial However, where the basic issue is something other than the right to recover a
court was thus called upon to determine whether petitioners violated the dealer sum of money, where the money claim is purely incidental to, or a
outlet contract, and if so, the amount of damages that may be adjudged in consequence of, the principal relief sought, this Court has considered such
respondent's favor. actions as cases where the subject of the litigation may not be estimated in
terms of money, and are cognizable exclusively by courts 1of first instance
Our Ruling (now Regional Trial Courts).28

The Court grants the Petition. The RTC was correct in categorizing Civil Case To write finis to this controversy, therefore, it is imperative that we first
No. CEB-39025 as an action for damages seeking to recover an amount below determine the real nature of respondent's principal action, as well as the relief
its jurisdictional limit. sought in its Complaint, which we 1quote in haec verba:

Respondent's complaint denominated REPUBLIC OF THE PHILIPPNES


as one for "'Breach of Contract & REGIONAL TRIAL COURT
Damages" is neither an action for BRANCH ______
specific performance nor a complaint CEBU CITY
for rescission of contract.

Remarkable Laundry and Dry Cleaning herein Civil Case No. ______
In ruling that respondent's Complaint is incapable of pecuniary estimation and
represented by Archemedes G. Solis, Plaintiff, For: Breach of Contract
that the RTC has jurisdiction, the CA comported itself with the following
& Damages
ratiocination:
vs.
A case for breach of contract [sic] is a cause of action either for specific
performance or rescission of contracts. An action for rescission of contract, as a
7. Under the aforementioned Dealer Contract, specifically in Article XV of the
same are classified as BREACH BY THE OUTLETS:
Spouses Romeo Pajares and Ida T. Pajares,
Defendants.
'The parties agree that the happening of any of the stipulation and events by
the dealer outlet is otherwise [sic] in default of any of its obligations or violate
---------------------------------------------------------------------------------------- any of the terms and condition under this agreement.
------------------
Any violation of the above-mentioned provisions shall result in the immediate
COMPLAINT termination of this agreement, without prejudice to any of the RL Main
Operators rights or remedies granted to it by law.

Plaintiff, by counsels, to the Honorable Court most respectfully states THAT:


THE DEALER OUTLET SHALL ALSO BE LIABLE TO PAY A FINE OF TWENTY FIVE
THOUSAND PESOS, (₱25,000), FOR EVERY VIOLATION AND PHP 50,000 IF
1. Plaintiff Remarkable Laundry and Dry Cleaning Services, is a sole PRE-TERMINATION BY THE RL MAIN OPERATOR DUE TO BREACH OF THIS
proprietorship business owned by Archemedes Solis with principal office AGREEMENT.'
address at PREDECO CMPD AS-Ostechi Bldg. Banilad, Heman Cortes St.,
Mandaue City.
8. Likewise it is provided in the said contract that:

2. Defendant Ida Pajares is of legal age, Filipino, married with address at


Hermag Village, Basak Mandaue City where she can be served with summons ' ... The DEALER OUTLET must have a minimum 200 kilos on a six-day or per
and other processes of the Honorable Court. week pick-up for the entire duration of the contract to free the dealer outlet
from being charge[d] Php 200/week on falling below required minimum kilos
per week of laundry materials. Automatic charging shall become part of the
3. On 08 SEP 2011, parties entered and signed a Remarkable Laundry Dealer billing on the services of the dealer outlet on cases where the minimum
Outlet Contract for the processing of laundry materials, plaintiff being the requirements on required kilos are not met.[']
owner of Remarkable Laundry and the defendant being the authorized dealer of
the said business. (Attached and marked as Annex "A" is a copy of the
Remarkable Laundry Dealer Outlet Contract.) 9. The cessation of operation by the defendant, which is tantamount to gross
infraction to [sic] the subject contract, resulted to [sic] incidental damages
amounting to Two Hundred Thousand Pesos (PHP200,000.00). Defendant
CAUSES OF ACTION: should have opted to comply with the Pre-termination clause in the subject
contract other than its [sic] unilateral and whimsical cessation of operations.
4. Sometime on [sic] the second (2nd) quarter of 2012, defendant failed to
follow the required standard purchase quota mentioned in article IV of the 10. The plaintiff formally reminded the defendant of her obligations under the
subject dealership agreement. subject contract through demand letters, but to no avail. The defendant
purposely ignored the letters by [sic] the plaintiff. (Attached and marked as
5. Defendant through a letter dated April 24, 2012 said it [sic] would CEASE Annex "C" to "C-2" are the Demand Letters dated May 2, 2012, June 2, 2012
OPERATION. It [sic] further stated that they [sic] would just notify or advise and June 19, 2012 respectively.)
the office when they are [sic] ready for the business again making the whole
business endeavor totally dependent upon their [sic] whims and caprices. 11. To reiterate, the defendant temporarily stopped its business operation prior
(Attached and marked as Annex "B'' is a copy of letter of the defendant dated to the two-year contract duration had elapsed to the prejudice of the plaintiff,
April 24, 2012.) which is a clear disregard of its two-year obligation to operate the business
unless a pre-termination is called.
6. The aforementioned act of unilateral cessation of operation by the defendant
constitutes a serious breach to [sic] the contract because it totally, whimsically 12. Under Article 1159 of the Civil Code of the Philippines provides [sic]:
and grossly disregarded the Remarkable Laundry Dealer Outlet Contract, which
resulted to [sic] failure on its part in obtaining the minimum purchase or
delivery of 200 kilos per week for the entire duration of its cessation of 'Obligations arising .from contracts have the force of law between the
operations. contracting parties and should be complied with in good faith. '

13. Likewise, Article 1170 of the Civil Code of the Philippines [provides] that:
'Those who in the performance of their obligations are guilty of fraud, CEB 39025 is one for a breach of contract."31 There is no such thing as an
negligence, or delay, and those who in any manner contravene the tenor "action for breach of contract." Rather, "[b]reach of contract is a cause of
thereof are liable for damages. ' action,32 but not the action or relief itself"33 Breach of contract may be the
cause of action in a complaint for specific performance or rescission of contract,
14. That the above-mentioned violations by the defendant to the Remarkable both of which are incapable of pecuniary estimation and, therefore, cognizable
Laundry Dealer Contract, specifically Articles IV and XVI thereof constitute by the RTC. However, as will be discussed below, breach of contract may also
gross breach of contract which are unlawful and malicious under the Civil Code be the cause of action in a complaint for damages.
of the Philippines, which caused the plaintiff to incur incidental and
consequential damages as found in the subject dealer contract in the total A complaint primarily seeking to
amount of Two Hundred Thousand Pesos (PHP200,000.00) and incidental legal enforce the accessory obligation
expenses to protect its rights in the amount of ₱30,000.00. contained in the penal clause is actually
an action for damages capable of
PRAYER: pecuniary estimation.

WHEREFORE, premises considered, by reason of the above-mentioned breach Neither can we sustain respondent's contention that its Complaint is incapable
of the subject dealer contract agreement made by the defendant, it is most of pecuniary estimation since it primarily seeks to enforce the penal clause
respectfully prayed of the Honorable Court to order the said defendant to pay contained in Article IV of the Remarkable Dealer Outlet Contract, which reads:
the following incidental and consequential damages to the plaintiff, to wit:
Article IV: STANDARD REQUIRED QUOTA & PENALTIES
a) TWO HUNDRED THOUSAND PESOS (PHP200,000.00) plus legal interest
as incidental and consequential [damages] for violating Articles IV and XVI of In consideration [sic] for such renewal of franchise-dealership rights, the dealer
the Remarkable Laundry Dealer Contract dated 08 SEP 2011; outlet must have a minimum 200 kilos on a six-day or per week pick-up for the
entire duration of the contract to FREE the dealer outlet from being charge [sic]
b) Thirty Thousand Pesos (₱30,000.00) as legal expenses; Php200/week on falling below required minimum kilos per week of laundry
materials. Automatic charging shall become part of the billing on the services
of the dealer outlet on cases where the minimum requirements on required
c) Thirty Thousand Pesos (₱30,000.00) as exemplary damages; kilos are not met.

d) Twenty Thousand Pesos (₱20,000.00) as cost of suit; The RL Main Operator has the option to cancel, terminate this dealership outlet
contract, at its option should [sic] in the event that there are unpaid services
e) Such other reliefs that the Honorable Court deems as just and equitable. equivalent to a two-week minimum required number of kilos of laundry
materials but not ₱8,000 worth of collectibles, for services performed by the RL
August 31, 2012, Cebu City, Philippines.29 Main Operator or its assigned Franchise Outlet, unpaid bills on ordered and
delivered support products, falling below required monthly minimum number of
kilos.
An analysis of the factual and material allegations in the Complaint shows that
there is nothing therein which would support a conclusion that respondent's
Ten [percent] (10%) interest charge per month will be collected on all unpaid
Complaint is one for specific performance or rescission of contract. It should be
obligations but should not be more than 45 days or an additional 10% on top
recalled that the principal obligation of petitioners under the Remarkable
of uncollected amount shall be imposed and shall earn additional 10% on the
Laundry Dealership Contract is to act as respondent's dealer outlet.
next succeeding months if it still remains unpaid. However, if the cause of
Respondent, however, neither asked the RTC to compel petitioners to perfom1
default is due to issuance of a bouncing check the amount of such check shall
such obligation as contemplated in said contract nor sought the rescission
earn same penalty charge with additional 5% for the first two weeks and 10%
thereof. The Complaint's body, heading, and relief are bereft of such allegation.
for the next two weeks and its succeeding two weeks thereafter from the date
In fact, neither phrase appeared on or was used in the Complaint when, for
of dishonor until fully paid without prejudice to the filling of appropriate cases
purposes of clarity, respondent's counsels, who are presumed to be learned in
before the courts of justice. Violation of this provision if remained unsettled for
law, could and should have used any of those phrases to indicate the proper
two months shall be considered as violation [wherein] Article XV of this
designation of the Complaint. To the contrary, respondent's counsels
agreement shall be applied.34
designated the Complaint as one for "Breach of Contract & Damages," which is
a misnomer and inaccurate. This erroneous notion was reiterated in
respondent's Memorandum30 wherein it was stated that "the main action of
To Our mind, petitioners' responsibility under the above penal clause involves The above jurisdictional amount had been increased to ₱200,000.00 on March
the payment of liquidated damages because under Article 222635 of the Civil 20, 1999 and further raised to ₱300,000.00 on February 22, 2004 pursuant to
Code the amount the parties stipulated to pay in case of breach are liquidated Section 5 of RA 7691.41
damages. "It is attached to an obligation in order to ensure performance and
has a double function: (1) to provide for liquidated damages, and (2) to Then in Administrative Circular No. 09-9442 this Court declared that "where the
strengthen the coercive force of the obligation by the threat of greater claim for damages is the main cause of action, or one of the causes of action,
responsibility in the event of breach."36 the amount of such claim shall be considered in determining the jurisdiction of
the court." In other words, where the complaint primarily seeks to recover
Concomitantly, what respondent primarily seeks in its Complaint is to recover damages, all claims for damages should be considered in determining which
aforesaid liquidated damages (which it termed as "incidental and consequential court has jurisdiction over the subject matter of the case regardless of whether
damages") premised on the alleged breach of contract committed by the they arose from a single cause of action or several causes of action.1âwphi1
petitioners when they unilaterally ceased business operations. Breach of
contract may also be the cause of action in a complaint for damages filed Since the total amount of the damages claimed by the respondent in its
pursuant to Article 1170 of the Civil Code. It provides: Complaint filed with the RTC on September 3, 2012 amounted only to
₱280,000.00, said court was correct in refusing to take cognizance of the case.
Art. 1170. Those who in the performance of their obligations are guilty of
fraud, negligence, or delay, and those who in any manner contravene the tenor WHEREFORE, the Petition is GRANTED and the December 11, 2013 Decision
thereof; are liable for damages. (Emphasis supplied) and March 19, 2014 Resolution of the Court of Appeals in CA-G.R. CEB SP No.
07711 are REVERSED and SET ASIDE. The February 19, 2013 Order of the
In Pacmac, Inc. v. Intermediate Appellate Court,37 this Court held that the Regional Trial Court, Branch 17, Cebu City dismissing Civil Case No. CEB-39025
party who unilaterally terminated the exclusive distributorship contract without for lack of jurisdiction is REINSTATED.
any legal justification can be held liable for damages by reason of the breach
committed pursuant to Article 1170. SO ORDERED.

In sum, after juxtaposing Article IV of the Remarkable Dealer Outlet G.R. No. 207277
Contract vis-a-vis the prayer sought in respondent's Complaint, this Court is
convinced that said Complaint is one for damages. True, breach of contract
may give rise to a complaint for specific performance or rescission of contract. MALAYAN INSURANCE CO., INC., YVONNE S. YUCHENGCO, ATTY.
In which case, the subject matter is incapable of pecuniary estimation and, EMMANUEL G. VILLANUEVA, SONNY RUBIN,1 ENGR. FRANCISCO
therefore, jurisdiction is lodged with the RTC. However, breach of contract may MONDELO, and MICHAEL REQUIJO,2 Petitioners.
also be the cause of action in a complaint for damages. Thus, it is not correct vs.
to immediately conclude, as the CA erroneously did, that since the cause of EMMA CONCEPCION L. LIN,3 Respondent.
action is breach of contract, the case would only either be specific pe1formance
or rescission of contract because it may happen, as in this case, that the DECISION
complaint is one for damages.
DEL CASTILLO, J.:
In an action for damages, the court
which has jurisdiction is determined by
Assailed in this Petition for Review on Certiorari4 are the December 21, 2012
the total amount of damages claimed.
Decision5 of the Court of Appeals (CA) and its May 22, 2013 Resolution6 in CA-
GR. SP No. 118894, both of which found no grave abuse of discretion in the
Having thus determined the nature of respondent's principal action, the next twin Orders issued by the Regional Trial Court (RTC) of Manila, Branch 52, on
question brought to fore is whether it is the RTC which has jurisdiction over the September 29, 20107 and on January 25, 20118 in Civil Case No. 10-122738.
subject matter of Civil Case No. CEB-39025.
Factual Antecedents
Paragraph 8, Section 1938 of BP 129, as amended by Republic Act No.
7691,39 provides that where the amount of the demand exceeds ₱100,000.00,
On January 4, 2010, Emma Concepcion L. Lin (Lin) filed a Complaint9 for
exclusive of interest, damages of whatever kind, attorney's fees, litigation
Collection of Sum of Money with Damages against Malayan Insurance Co., Inc.
expenses, and costs, exclusive jurisdiction is lodged with the RTC. Otherwise,
(Malayan), Yvonne Yuchengco (Yvonne), Atty. Emmanuel Villanueva, Sonny
jurisdiction belongs to the Municipal Trial Court.40
Rubin, Engr. Francisco Mondelo, Michael Angelo Requijo (collectively, the
petitioners), and the Rizal Commercial and Banking Corporation (RCBC). This claim; that the elements of forum shopping are present in these two cases
was docketed as Civil Case No. 10-122738 of Branch 52 of the Manila RTC. because there exists identity of parties since Malayan's individual officers who
were impleaded in the civil case are also involved in the administrative case;
Lin alleged that she obtained various loans from RCBC secured by six clustered that the same interests are shared and represented in both the civil and
warehouses located at Plaridel, Bulacan; that the five warehouses were insured administrative cases; that there is identity of causes of action and reliefs
with Malayan against fire for ₱56 million while the remaining warehouse was sought in the two cases since the administrative case is merely disguised as an
insured for ₱2 million; that on February 24, 2008, the five warehouses were unfair claim settlement charge, although its real purpose is to allow Lin to
gutted by fire; that on April 8, 2008 the Bureau of Fire Protection (BFP) issued recover her insurance claim from Malayan; that Lin sought to obtain the same
a Fire Clearance Certification to her (April 8, 2008 FCC) after having reliefs in the administrative case as in the civil case; that Lin did not comply
determined that the cause of fire was accidental; that despite the foregoing, with her sworn undertaking in the Certification on Non-Forum Shopping which
her demand for payment of her insurance claim was denied since the forensic she attached to the civil case, because she deliberately failed to notify the RTC
investigators hired by Malayan claimed that the cause of the fire was arson and about the pending administrative case within five days from the filing thereof.
not accidental; that she sought assistance from the Insurance Commission (IC)
which, after a meeting among the parties and a conduct of reinvestigation into This motion to dismiss drew a Comment/Opposition, 11
which Lin filed on
the cause/s of the fire, recommended that Malayan pay Lin's insurance claim August 31, 2010.
and/or accord great weight to the BFP's findings; that in defiance thereof,
Malayan still denied or refused to pay her insurance claim; and that for these Ruling of the Regional Trial Court
reasons, Malayan's corporate officers should also be held liable for acquiescing
to Malayan's unjustified refusal to pay her insurance claim.
In its Order of September 29, 2010,12 the RTC denied the Motion to Dismiss,
thus:
As against RCBC, Lin averred that notwithstanding the loss of the mortgaged
properties, the bank refused to go after Malayan and instead insisted that she
herself must pay the loans to RCBC, otherwise, foreclosure proceedings would WHEREFORE, the MOTION TO DISMISS filed by [petitioners] is hereby DENIED
ensue; and that to add insult to injury, RCBC has been compounding the for lack of merit.
interest on her loans, despite RCBC's failure or refusal to go after Malayan.
Furnish the parties through their respective [counsels] with a copy each [of]
Lin thus prayed in Civil Case No. 10-122738 that judgment be rendered the Order.
ordering petitioners to pay her insurance claim plus interest on the amounts
due or owing her; that her loans and mortgage to RCBC be deemed SO ORDERED.13
extinguished as of February 2008; that RCBC be enjoined from foreclosing the
mortgage on the properties put up as collaterals; and that petitioners he
The RTC held that in the administrative case, Lin was seeking a relief clearly
ordered to pay her ₱l,217,928.88 in the concept of filing foes, costs of suit,₱l
distinct from that sought in the civil case; that while in the administrative case
million as exemplary damages, and ₱500,000.00 as attorney’s fees.
Lin prayed for the suspension or revocation of Malayan's license to operate as a
non-life insurance company, in the civil case Lin prayed for the collection of a
Some five months later, or on June 17, 2010, Lin filed before the IC an sum of money with damages; that it is abundantly clear that any judgment
administrative case 10 against Malayan, represented this time by Yvonne. This that would be obtained in either case would not be res judicata to the other,
was docketed as Administrative Case No. 431. hence, there is no forum shopping to speak of.

In this administrative case, Lin claimed that since it had been conclusively In its Order of January 25, 2011, 14 the RTC likewise denied, for lack of merit,
found that the cause of the fire was "accidental," the only issue left to be petitioners' Motion for Reconsideration.
resolved is whether Malayan should be held liable for unfair claim settlement
practice under Section 241 in relation to Section 247 of the Insurance Code
Ruling of the Court of Appeals
due to its unjustified refusal to settle her claim; and that in consequence of the
foregoing failings, Malayan's license to operate as a non-life insurance
company should be revoked or suspended, until such time that it fully complies Petitioners thereafter sued out a Petition for Certiorari and Prohibition15 before
with the IC Resolution ordering it to accord more weight to the BFP's findings. the CA. However, in a Decision 16dated December 21, 2012, the CA upheld the
RTC, and disposed as follows:
On August 17, 2010, Malayan filed a motion to dismiss Civil Case No. 10-
122738 based on forum shopping. It argued that the administrative case was
instituted to prompt or incite IC into ordering Malayan to pay her insurance
WHEREFORE absent grave abuse of discretion on the part of respondent Judge, A.
the Petition for Certiorari and Prohibition (with Temporary Restraining Order
and Preliminary Injunction) is DISMISSED. The [CA] erred in not dismissing the Civil Case on the ground of willful and
deliberate [forum shopping] despite the fact that the civil case and the
SO ORDERED.17 administrative case both seek the payment of the same fire insurance claim.

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

The CA ruled that forum shopping exists where the elements of litis Petitioners' Arguments
pendentia concurred, and where a final judgment in one case will amount
to res judicata in the other. The CA held that of the three elements of forum
shopping viz., (l) identity of parties, or at least such parties as would represent In praying for the reversal of the CA Decision, petitioners argue that regardless
the same interest in both actions, (2) identity of rights asserted and reliefs of nomenclature, it is Lin and no one else who filed the administrative case,
prayed for, the relief being founded on the same facts, and (3) identity of the and that she is not a mere complaining witness therein; that it is settled that
two proceedings such that any judgment rendered in one action will, regardless only substantial identity of parties is required for res judicata to apply; that the
of which party is successful, amount to res judicata in the other action under sharing of the same interest is sufficient to constitute identity of parties; that
consideration, only the first element may be deemed present in the instant Lin has not denied that the subject of both the administrative case and the civil
case. The CA held that there is here identity of parties in the civil and case involved the same fire insurance claim; that there is here identity of
administrative cases because Lin is the complainant in both the civil and causes of action, too, because the ultimate objective of both the civil case and
administrative cases, and these actions were filed against the same petitioners, the administrative case is to compel Malayan to pay Lin's fire insurance claim;
the same RCBC and the same Malayan, represented by Yvonne, respectively. It that although the reliefs sought in the civil case and those in the administrative
held that there is however no identity of rights asserted and reliefs prayed for case are worded differently, Lin was actually asking for the payment of her
because in the civil case, it was Lin's assertion that petitioners had violated her insurance claim in both cases; that it is well-entrenched that a party cannot
rights to recover the full amount of her insurance claim, which is why she escape the operation of the principle in res judicata that a cause of action
prayed/demanded that petitioners pay her insurance claim plus damages; cannot be litigated twice just by varying the form of action or the method of
whereas in the administrative case, Lin's assertion was that petitioners were presenting the case; that Go v. Office of the Ombudsman22is inapplicable
guilty of unfair claim settlement practice, for which reason she prayed that because the issue in that case was whether there was unreasonable delay in
Malayan's license to operate as an insurance company be revoked or withholding the insured's claims, which would warrant the revocation or
suspended; that the judgment in the civil case, regardless of which party is suspension of the insurers' licenses, and not whether the insurers should pay
successful, would not amount to res judicata in the administrative case in view the insured's insurance claim; that Almendras Mining Corporation v. Office of
of the different issues involved, the dissimilarity in the quantum of evidence the Insurance Commission23does not apply to this case either, because the
required, and the distinct mode or procedure to be observed in each case. parties in said case agreed to submit the case for resolution on the sole issue
of whether the revocation or suspension of the insurer's license was justified;
and that petitioners will suffer irreparable injury as a consequence of having to
Petitioners moved for reconsideration 18 of the CA's Decision, but this motion defend themselves in a case which should have been dismissed on the ground
was denied by the CA in its Resolution of May 22, 2013.19 of forum shopping.

Issues Respondents Arguments

Before this Court, petitioners instituted the present Petition,20 which raises the Lin counters that as stressed in Go v. Office of the Ombudsman, 24 an
following issues: administrative case for unfair claim settlement practice may proceed
simultaneously with, or independently of, the civil case for collection of the
The [CA] not only decided questions of substance contrary to law and the insurance proceeds filed by the same claimant since a judgment in one will not
applicable decisions of this Honorable Court, it also sanctioned a flagrant amount to res judicata to the other, and vice versa, due to the variance or
departure from the accepted and usual course of judicial proceedings. differences in the issues, in the quantum of evidence, and in the procedure to
be followed in prosecuting the cases; that in this case the CA cited the teaching
in Go v. Office of the Ombudsman that there was no grave abuse of discretion an evasion of a positive duty or a virtual refusal to perform a duty enjoined by
in the RTC's dismissal of petitioners' motion to dismiss; that the CA correctly law, or to act at all in contemplation of law."30
held that the RTC did not commit grave abuse of discretion in denying
petitioners' motion to dismiss because the elements of forum shopping were In the present case, petitioners basically insist that Lin committed willful and
absent; that there is here no identity of parties because while she (respondent) deliberate forum shopping which warrants the dismissal of her civil case
is the plaintiff in the civil case, she is only a complaining witness in the because it is not much different from the administrative case in terms of the
administrative case since it is the IC that is the real party in interest in the parties involved, the causes of action pleaded, and the reliefs prayed for.
administrative case; that the cause of action in the civil case consists of Petitioners also posit that another ground warranting the dismissal of the civil
Malayan's failure or refusal to pay her insurance claim, whereas in the case was Lin's failure to notify the RTC about the pendency of the
administrative case, it consists of Malayan's unfair claim settlement practice; administrative case within five days from the filing thereof.
that the issue in the civil case is whether Malayan is liable to pay Lin's
insurance claim, while the issue in the administrative case is whether Malayan's
license to operate should be revoked or suspended for engaging in unfair claim These arguments will not avail. The proscription against forum shopping is
settlement practice; and that the relief sought in the civil case consists in the found in Section 5, Rule 7 of the Rules of Court, which provides:
payment of a sum of money plus damages, while the relief in the
administrative case consists of the revocation or suspension of Malayan's SEC. 5. Certification against forum shopping. --The plaintiff or principal party
license to operate as an insurance company. According to Lin, although in the shall certify under oath in the complaint or other initiatory pleading asserting a
administrative case she prayed that the IC Resolution ordering Malayan to claim for relief, or in a sworn certification annexed thereto and simultaneously
accord weight to the BFP's findings be declared final, this did not mean that filed therewith; (a) that he has not theretofore commenced any action or filed
she was therein seeking payment of her insurance claim, but rather that the IC any claim involving the same issues in any court, tribunal or quasi-judicial
can now impose the appropriate administrative sanctions upon Malayan; that if agency and, to the best of his knowledge, no such other action or claim is
Malayan felt compelled to pay Lin's insurance claim for fear that its license to pending therein; (b) if there is such other pending action or claim, a complete
operate as an insurance firm might be suspended or revoked, then this is just a statement of the present status thereof; and (c) if he should thereafter learn
logical result of its failure or refusal to pay the insurance claim; that the that the same or similar action or claim has been filed or is pending, he shall
judgment in the civil case will not amount to res judicata in the administrative report that fact within five (5) days therefrom to the court wherein his
case, and vice versa, pursuant to the case law ruling in Go v. Office of the aforesaid complaint or initiatory pleading has been filed.
Ombudsman25and in Almendras v. Office of the Insurance Commission, 26 both
of which categorically allowed the insurance clain1ants therein to file both a
Failure to comply with the foregoing requirements shall not be curable by mere
civil and an administrative case against insurers; that the rule against forum
amendment of the complaint or other initiatory pleading but shall be cause for
shopping was designed to serve a noble purpose, viz., to be an instrument of
the dismissal of the case without prejudice, unless otherwise provided, upon
justice, hence, it can in no way be interpreted to subvert such a noble purpose.
motion and after hearing. The submission of a false certification or non-
compliance with any of the undertakings therein shall constitute indirect
Our Ruling contempt of court, without prejudice to the corresponding administrative and
criminal actions. If the acts of the party or his counsel clearly constitute willful
We deny this Petition. We hold that the case law rulings in and deliberate forum shopping, the same shall be ground for summary
the Go and Almendras cases27 control and govern the case at bench. dismissal with prejudice and shall constitute direct contempt, as well as a
cause for administrative sanctions. (n)

First off, it is elementary that "an order denying a motion to dismiss is merely
interlocutory and, therefore, not appealable, x x x to x x x avoid undue The above-stated rule covers the very essence of forum shopping itself, and
inconvenience to the appealing party by having to assail orders as they are the constitutive elements thereof viz., the cognate concepts of
promulgated by the court, when all such orders may be contested in a single litis pendentia and res judicata -
appeal."28
x x x [T]he essence of forum shopping is the filing of multiple suits involving
Secondly, petitioners herein utterly failed to prove that the RTC, in issuing the the same parties for the same cause of action, either simultaneously or
assailed Orders, acted with grave abuse of discretion amounting to lack or successively, for the purpose of obtaining a favorable judgment. It exists
excess of jurisdiction. "It is well-settled that an act of a court or tribunal may where the elements of litis pendentia are present or where a final judgment in
only be considered to have been done in grave abuse of discretion when the one case will amount to res judicata in another. On the other hand, for litis
same was performed in a capricious or whimsical exercise of judgment which is pendentia to be a ground for the dismissal of an action, the following requisites
equivalent to lack or excess of jurisdiction."29 "[F]or grave abuse of discretion must concur: (a) identity of parties, or at least such parties who represent the
to exist, the abuse of discretion must be patent and gross so as to amount to same interests in both actions; (b) identity of rights asserted and relief prayed
for, the relief being founded on the same facts; and (c) the identity with
respect to the two preceding particulars in the two cases is such that any which Section also specifies the authority to which a decision of the Insurance
judgment that may be rendered in the pending case, regardless of which party Commissioner rendered in the exercise of its regulatory function may be
is successful, would amount to res judicata in the other case.31 appealed.

Res judicata, in turn, has the following requisites: "(1) the former judgment The adjudicatory authority of the Insurance Commissioner is generally
must be final; (2) it must have been rendered by a court having jurisdiction described in Section 416 of the Insurance Code, as amended, which reads as
over the subject matter and over the parties; (3) it must be a judgment on the follows:
merits; and (4) there must be, between the first and second actions, (a)
identity of parties, (b) identity of subject matter, and (c) identity of cause of 'Sec. 416. The Commissioner shall have the power to adjudicate claims and
action."32 complaints involving any loss, damage or liability for which an insurer may be
answerable under any kind of policy or contract of insurance, or for which such
"The settled rule is that criminal and civil cases are altogether different from insurer may be liable under a contract of suretyship, or for which a reinsurer
administrative matters, such that the disposition in the first two will not may be sued under any contract or reinsurance it may have entered into, or for
inevitably govern the third and vice versa."33In the context of the case at bar, which a mutual benefit association may be held liable under the membership
matters handled by the IC are delineated as either regulatory or adjudicatory, certificates it has issued to its members, where the amount of any such loss,
both of which have distinct characteristics, as postulated in Almendras Mining damage or liability, excluding interests, cost and attorney’s fees, being claimed
Corporation v. Office of the Insurance Commission:34 or sued upon any kind of insurance, bond, reinsurance contract, or
membership certificate does not exceed in any single claim one hundred
The provisions of the Insurance Code (Presidential Decree [P.D.] No. 1460), as thousand pesos.
amended, clearly indicate that the Office of the [IC] is an administrative
agency vested with regulatory power as well as with adjudicatory authority. xxxx
Among the several regulatory or non-quasi-judicial duties of the Insurance
Commissioner under the Insurance Code is the authority to issue, or refuse The authority to adjudicate granted to the Commissioner under this section
issuance of, a Certificate of Authority to a person or entity desirous of engaging shall be concurrent with that of the civil courts, but the filing of a complaint
in insurance business in the Philippines, and to revoke or suspend such with the Commissioner shall preclude the civil courts from taking cognizance of
Certificate of Authority upon a finding of the existence of statutory grounds for a suit involving the same subject matter.' (Italics supplied)
such revocation or suspension. The grounds for revocation or suspension of an
insurer's Certificate of Authority are set out in Section 241 and in Section 247
of the Insurance Code as amended. The general regulatory authority of the Continuing, Section 416 (as amended by Batas Pambansa (B.P.) Blg. 874) also
Insurance Commissioner is described in Section 414 of the Insurance Code, as specifies the authority to which appeal may be taken from a final order or
amended, in the following terms: decision of the Commissioner given in the exercise of his adjudicatory or quasi-
judicial power:

'Section 414. The Insurance Commissioner shall have the duty to see that all
laws relating to insurance, insurance companies and other insurance matters, 'Any decision, order or ruling rendered by the Commissioner after a hearing
mutual benefit associations, and trusts for charitable uses are faithfully shall have the force and effect of a judgment. Any party may appeal from a
executed and to perform the duties imposed upon him by this Code, and shall, final order, ruling or decision of the Commissioner by filing with the
notwithstanding any existing laws to the contrary, have sole and exclusive Commissioner within thirty days from receipt of copy of such order, ruling or
authority to regulate the issuance and sale of variable contracts as defined in decision a notice of appeal to the Intermediate Appellate Court (now the Court
section two hundred thirty-two and to provide for the licensing of persons of Appeals) in the manner provided for in the Rules of Court for appeals from
selling such contracts, and to issue such reasonable rules and regulations the Regional Trial Court to the Intermediate Appellate Court (now the Court of
governing the same. Appeals)

The Commissioner may issue such rulings, instructions, circulars, orders[,] and x x x x'
decisions as he may deem necessary to secure the enforcement of the
provisions of this Code, subject to the approval of the Secretary of Finance It may be noted that under Section 9 (3) of B.P. Big. 129, appeals from a final
[DOF Secretary]. Except as otherwise specified, decisions made by the decision of the Insurance Commissioner rendered in the exercise of his
Commissioner shall be appealable to the [DOF Secretary].' (Italics supplied) adjudicatory authority now fall within the exclusive appellate jurisdiction of
the Court of Appeals.35
Go v. Office of the Ombudsman36reiterated the above-stated distinctions vis-a- entitled to damages. Such finding would not restrain the [IC], in the exercise of
vis the principles enunciating that a civil case before the trial court involving its regulatory power, from making its own finding of unreasonable delay or
recovery of payment of the insured's insurance claim plus damages, can denial as long as it is supported by substantial evidence.
proceed simultaneously with an administrative case before the
IC.37 Expounding on the foregoing points, this Court said - While the possibility that these two bodies will come up with conflicting
resolutions on the same issue is not far-fetched, the finding or conclusion of
**The findings of the trial court will not necessarily foreclose the administrative one would not necessarily be binding on the other given the difference in the
case before the [IC], or [vice versa]. True, the parties are the same, and both issues involved, the quantum of evidence required and the procedure to be
actions are predicated on the same set of facts, and will require identical followed.
evidence. But the issues to be resolved, the quantum of evidence, the
procedure to be followed[,] and the reliefs to be adjudged by these two bodies Moreover, public interest and public policy demand the speedy and inexpensive
are different. disposition of administrative cases.

Petitioner's causes of action in Civil Case No. Q-95-23135 are predicated on the Hence, Adm. Case No. RD-156 may proceed alongside Civil Case No. Q-95-
insurers' refusal to pay her fire insurance claims despite notice, proofs of losses 23135.38
and other supporting documents. Thus, petitioner prays in her complaint that
the insurers be ordered to pay the full-insured value of the losses, as embodied
in their respective policies. Petitioner also sought payment of interests and As the aforecited cases are analogous in many aspects to the present case,
damages in her favor caused by the alleged delay and refusal of the insurers to both in respect to their factual backdrop and in their jurisprudential teachings,
pay her claims. The principal issue then that must be resolved by the trial court the case law ruling in the Almendras and in the Go cases must apply with
is whether or not petitioner is entitled to the payment of her insurance claims implacable force to the present case. Consistency alone demands - because
and damages. The matter of whether or not there is unreasonable delay or justice cannot be inconsistent - that the final authoritative mandate in the cited
denial of the claims is merely an incident to be resolved by the trial court, cases must produce an end result not much different from the present case.
necessary to ascertain petitioner's right to claim damages, as prescribed by
Section 244 of the Insurance Code. All told, we find that the CA did not err in holding that the petitioners utterly
failed to prove that the RTC exhibited grave abuse of discretion, amounting to
On the other hand, the core, if not the sole bone of contention in Adm. Case lack or excess of jurisdiction, which would justify the issuance of the
No. RD-156, is the issue of whether or not there was unreasonable delay or extraordinary writ of certiorari.39
denial of the claims of petitioner, and if in the affirmative, whether or not that
would justify the suspension or revocation of the insurers' licenses. WHEREFORE, the Petition is DENIED. The December 21, 2012 Decision and
the May 22, 2013 Resolution of the Court of Appeals in CA-GR. SP No. 118894
Moreover, in Civil Case No. Q-95-23135, petitioner must establish her case by are hereby AFFIRMED.
a preponderance of evidence, or simply put, such evidence that is of greater
weight, or more convincing than that which is offered in opposition to it. In Costs against petitioners.
Adm. Case No. RD-156, the degree of proof required of petitioner to establish
her claim is substantial evidence, which has been defined as that amount of
SO ORDERED.
relevant evidence that a reasonable mind might accept as adequate to justify
the conclusion.
G.R. No. 203397, December 09, 2015
In addition, the procedure to be followed by the trial court is governed by the
Rules of Court, while the [IC] has its own set of rules and it is not bound by the AUGUSTO ONG TRINIDAD II, AUGUSTO ONG TRINIDAD III FOR
rigidities of technical rules of procedure. These two bodies conduct independent HIMSELF AND REPRESENTING LEVY ONG TRINIDAD AND ROHMEL ONG
means of ascertaining the ultimate facts of their respective cases that will TRINIDAD, MARY ANN NEPOMUCENO TRINIDAD FOR HERSELF AND
serve as basis for their respective decisions.1âwphi1 ASSISTING HER MINOR CHILDREN JOAQUIN GERARD N. TRINIDAD IV,
JACOB GABRIEL N. TRINIDAD, AND JERED GYAN N.
TRINIDAD, Petitioners, v. SPOUSES BONIFACIO PALAD AND FELICIDAD
If, for example, the trial court finds that there was no unreasonable delay or
KAUSAPIN, Respondent.
denial of her claims, it does not automatically mean that there was in fact no
such unreasonable delay or denial that would justify the revocation or
suspension of the licenses of the concerned insurance companies. It only DECISION
means that petitioner failed to prove by preponderance of evidence that she is
DEL CASTILLO, J.: Ong Trinidad II, Augusto Ong Trinidad III and Joaquin Trinidad III were
substituted as defendants.
This Petition for Review on Certiorari1 seeks to set aside the March 27, 2012
Decision2 and August 24,2012 Resolution3 of the Court of Appeals (CA) in CA- xxxx
G.R. CV No. 92118 which granted respondents' appeal and reversed the July 4,
2008 Decision4 of the Regional Trial Court (RTC) of Lucena City, Branch 53 The land subject of this case is a 2-hectare portion of the eight (8) hectares
(RTC) in Civil Case No. 92-71. covered by Transfer Certificate of Title No. T-47318 now registered in the
names of the spouses Bonifacio Palad and Felicidad Kausapin (Exhibit "A").
Factual Antecedents
In their complaint, the plaintiffs merely emphasized the fact that as the
On July 23, 1985, respondents - spouses Bonifacio Palad and Felicidad registered owners of the parcel of land with an area of eight (8) hectares
Kausapin (Felicidad) - bought from Renato Ramos (Ramos) an eight-hectare including the 2-hectare area in dispute, they are entitled to the possession of
parcel of land located within Lucena City, which was later registered as the disputed area which, despite their demands to the defendants to vacate,
Transfer Certificate of Title No. (TCT) T-47318.5 the defendants have not vacated the area consisting of a well-developed
fishpond.
Respondents later caused the subject property to be surveyed, and it was
discovered that a two-hectare portion thereof (the subject property) was xxxx
occupied by Augusto Trinidad (Augusto), who converted the same into a
fishpond. For their part, the defendants posit as follows: During the lifetime of Genaro
Kausapin, the father of complainant Felicidad Kausapin, Genaro Kausapin
On May 29, 1992, respondents filed with the RTC of Lucena City a availed of the legal services of Atty. Joaquin Trinidad in a land dispute involving
Complaint6 for recovery of possession with damages against Augusto, which a 12-hectare property. For Atty. Trinidad's services, Genaro Kausapin and Atty.
was docketed as Civil Case No. 92-71 and assigned to RTC Branch 53. Trinidad executed on October 4, 1977 a document denominated Kasulatan ng
Pagbabahagi whereby they partitioned between themselves the 12-hectare
In his Answer,7 Augusto claimed that respondents were not the owners of the property composed of Lot 13-A, Lot 13-B and Lot 13-C of the Subdivision Plan,
subject property; that Felicidad secured her title through dubious means; that (LRC) PSD-254630 confirmed on December 19,1976 by the Land Registration
the subject property formed part of a five-hectare piece of property that was Commission. As his share in the partition Atty. Trinidad was given Lot 13-A
given to him by his father, Atty. Joaquin Trinidad (Atty. Trinidad); that this (Exhibit "2").
five-hectare property was acquired by his father from Genaro Kausapin
(Genaro), who was his father's client; that said five-hectare property was In 1980 Atty. Trinidad gave to his son August© Trinidad the five (5) hectares
declared for taxation purposes by his father; that since 1980, he (Augusto) has given to him by Genaro Kausapin as attorney's fee. Augusto Trinidad developed
been in possession of the five-hectare property; that he filed criminal cases for a 2-hectare portion of the five hectares into a fishpond spending huge amount
falsification against Felicidad; and that Felicidad was motivated by greed and of money in the process.
bad faith in filing the case. Augusto thus prayed that the complaint be
dismissed; that Felicidad's TCT T-47318 be nullified; and that damages and xxxx
attorney's fees be awarded to him.
By whichever mode the plaintiffs had come to title the 8-hectare property
During the proceedings, Augusto passed away and was substituted by his including the 2-hectare portion in dispute, the Court, sifting through the
widow - herein petitioner Levy Ong Trinidad - and children - petitioners evidence presented by the parties, finds:
Augusto Ong Trinidad II, Augusto Ong Trinidad in, Rohmel Ong Trinidad, and
Joaquin Ong Trinidad III. 1. By virtue of the Kasulatan ng Pagbabahagi dated October 4,
1977 Genaro Kausapin and Atty. Joaquin Trinidad partitioned
Ruling of the Regional Trial Court between themselves the 12-hectare property composed of Lot
13-A, Lot 13-B and Lot 13-C of the Subdivision Plan (LRC)
After trial, or on July 4,2008, the RTC rendered its Decision,8 pronouncing as PSD-254630, Atty. Joaquin Trinidad getting Lot 13-A as his
follows: attorney's fee for legal services he rendered to Genaro
Kausapin.
This is a complaint for recovery of possession with damages filed by the
spouses Bonifacio Palad and Felicidad Kausapin against Augusto Trinidad as the 2. Atty. Joaquin Trinidad gave to his son Augusto Trinidad his 5-
original defendant. In the course of the trial Augusto C. Trinidad died and his hectare share and Augusto Trinidad, beginning the year 1980,
widow, Levy Ong Trinidad, and their children Rohmel Ong Trinidad, Augusto
developed a portion of the area into a fishpond spending a Riding of the Court of Appeals
huge amount of money in the process.
Respondents filed an appeal before the CA, docketed as CA-G.R. CV No. 92118,
3. On July 23, 1985 the plaintiffs bought an 8-hectare property arguing that as registered owners of the subject two-hectare property, they
from Renato Ramos and they had the land titled in their have a better right thereto; that petitioners' claim that the subject property
names on September 11,1985. was part of a 12-hectare piece of property owned by respondent Felicidad's
father Genaro, five hectares of which was allegedly awarded by Genaro to
4. It was when the plaintiffs had the land they bought from petitioners' father Atty. Trinidad as the latter's attorney's fees in a case, has no
Renato Ramos surveyed that they found out that the fishpond basis, as there is no evidence on record to show that Genaro even owned a
developed by Augusto Trinidad was embraced in the area of parcel of land; that in truth, Genaro was a mere tenant of the original owners
the [land] Renato Ramos sold to them. of the 12-hectare property - Juliana Navarro (Navarro), Pedro Loyola, and
Ramos; that eventually, Ramos sold an eight-hectare portion of the property to
respondents, which is now the property covered by TCT T-47318 and claimed
5. Renato Ramos did not know that the area developed by
by petitioners to the extent of two hectares; that apart from a document
Augusto Trinidad into a fishpond was part of the land he
denominated as "Kasulatan ng Pagbabahagi" supposedly executed by Genaro
(Ramos) sold to the plaintiffs. Otherwise, if Renato Ramos
and Atty. Trinidad on October 4,1977, petitioners have not presented any title
knew this, he would not have allowed Augusto Trinidad to
or any other documentary proof, such as receipts showing payment of real
occupy and transform the area into a fishpond and, much
property taxes, to prove their alleged ownership of the subject property; that
more, for him (Renato Ramos) to have sold the entire
respondents cannot be bound by the supposed agreement between Genaro and
property to the plaintiffs for the measly sum of P8,000.00,
Atty. Trinidad because it is void since, being a mere tenant of the property,
given the size of the area and the improvements on the area
Genaro cannot award the same to Atty. Trinidad; that Genaro's status as a
in dispute. Likewise, it was only after the plaintiffs had caused
mere tenant is known to Atty. Trinidad, since the latter was Genaro's counsel in
the survey of the area they bought that they came to know
a claim involving the subject property docketed as CAR Case No. 585(62),
that the 2-hectare [property] developed by Augusto Trinidad
which was eventually terminated by Genaro's execution in 1963 of a
into a fishpond was within the area they bought.
"Kasunduan", wherein he acknowledged before Ramos and Atty. Trinidad that
he was a mere tenant of the Ramos family; that Augusto was a policeman
From the foregoing, it is clear that when Augusto Trinidad entered the property during his lifetime, and he took over the disputed property by force, and
in dispute in 1980 and began to transform it into a fishpond, this was with the respondents -fearing violence and bloodshed - opted to resort to court action
knowledge and consent of Genaro Kausapin, the father of the plaintiff. That instead; and that under the Civil Code,10 they are protected as the registered
what Augusto Trinidad occupied was Lot 13-C when it should have been Lot owners, and petitioners should be considered intruders and builders in bad
13-A becomes immaterial when it is considered that while the lots were then faith.
designated as Lot 13-A, Lot 13-B and Lot 13-C, obviously Genaro Kausapin and
Atty. Joaquin Trinidad and Augusto Trinidad were not fully aware of the exact During the pendency of the appeal, Joaquin Ong Trinidad HI died and was
metes and bounds of each lot. This was also the case when, before the area substituted by his widow and children - herein petitioners Mary Ann
bought by the plaintiffs was surveyed, the vendor Renato Ramos and the Nepomuceno Trinidad, Joaquin Gerard N. Trinidad IV, Jacob Gabriel N. Trinidad
plaintiffs as vendees did not know that the area developed by Augusto Trinidad and Jered Gyan N. Trinidad.
as a fishpond was within the area sold to the plaintiffs.
On March 27, 2012, the CA rendered the assailed judgment, declaring as
Given that the possession by the defendants of the area in question antedates follows:
by five years the claim of the plaintiffs to the disputed property, and given that In this appeal, Spouses Palad assert their Transfer Certificate of Title No. T-
the parties who should have questioned the entry of the defendants into the 47318 which undoubtedly covers appellees' two-hectare fishpond found within
property, namely, Genaro Kausapin or Renato Ramos, did not do so, and the former's eight-hectare lot. They argue that appellees' predecessors-in-
considering the valuable improvements made by the defendants in the area in interest, Genaro Kausapin and Atty. Joaquin Trinidad, were never owners of
dispute, the defendants have a better right to possess the disputed area, even the eight-hectare lot, including the subject realty, as the property was owned
as the area had been included in [the] title issued to the plaintiffs. by Renato Ramos who sold it to them.

WHEREFORE, the complaint is ordered dismissed. On the other hand, appellees reiterate in their brief that their father possessed
the fishpond long before Spouses Palad bought the eight-hectare lot. They also
Defendants' counterclaim is likewise ordered dismissed. posit that a certificate of title by itself alone does not vest ownership in any
person.
SO ORDERED.9ChanRoblesVirtualawlibrary
We grant the appeal.
Trinidad, their successors-in-interest, privies and heirs are ordered to vacate
Appellants are owners of the eight-hectare lot, including the two-hectare the two-hectare fishpond occupied by them in Lot 13-C under Transfer
fishpond, by virtue of their Transfer Certificate of Title No. T-47318. Spouses Certificate of Title No. T-47318. No costs.
Esmaquel v. Coprada, explains why:
On the other hand, it is undisputed that the subject property is covered by SO ORDERED.11 (Emphasis in the original).
Transfer Certificate of Title No. T-93542, registered in the name of the
Petitioners filed their Motion for Reconsideration,12 which was denied in the
petitioners. As against the respondent's unproven claim that she acquired a
assailed August 24, 2012 Resolution. Hence, the instant Petition.
portion of the property from the petitioners by virtue of an oral sale, the
Torrens title of petitioners must prevail. Petitioners' title over the
In a January 27, 2014 Resolution,13 this Court resolved to give due course to
subject property is evidence of their ownership thereof. It is a
the Petition.
fundamental principle in land registration that the certificate of title
serves as evidence of an indefeasible and incontrovertible title to the
property in favor of the person whose name appears therein. Issues
Moreover, the age-old rule is that the person who has a Torrens title
over a land is entitled to possession thereof. Petitioners claim that the CA erred:

As a rule, a certificate of title cannot be attacked collaterally. At any rate,


1. In its ruling that the respondents have a better right of
in Spouses Sarmiento et al. v. Court of Appeals et al., a counterclaim assailing
possession over the disputed 2-hectare portion of the 8-
a certificate of title is deemed a direct attack. x x x
hectare property by the mere fact that said disputed portion is
covered by a certificate of title in their names;
xxxx

The burden of proof is on appellees to establish by clear and convincing 2. In its ruling that the petitioners offered no evidence that
evidence the ground or grounds for annulling a certificate of title, In Lasquite spouses Palad's transfer certificate of title should be annulled,
et al. v. Victory Hills: and therefore remains valid and binding with all its legal
The established legal principle in actions for annulment or reconveyance effects, as it failed to consider evidence showing otherwise;
of title is that a party seeking it should establish not merely by a
preponderance of evidence but by clear and convincing evidence that 3. In its ruling that the petitioners should vacate the 2-hectare
the land sought to be reconveyed is his. It is rather obvious from the fishpond, as it failed to consider that the respondents have no
foregoing disquisition that respondent failed to dispense such burden. Indeed, right or cause of action against the petitioners to seek the
the records are replete with proof that respondent declared the lots comprising latter's ejectment from the property in question.14
Lot No. 3050 for taxation purposes only after it had instituted the present case
in court. This is not to say of course that tax receipts are evidence of Petitioners'Arguments
ownership, since they are not, albeit they are good indicia of possession in the
concept of owner, for no one would ordinarily be paying taxes for a property In their Petition and Reply15 seeking reversal of the assailed CA dispositions
not in his actual or at least constructive possession. x x x and reinstatement of the RTC's July 4, 2008 Decision dismissing Civil Case No.
Here, appellees offered no evidence, much less, clear and convincing evidence, 92-71, petitioners essentially argue that respondents may not claim ownership
that Spouses Palad's transfer certificate of title should be annulled. In fact, it is of the subject property just because it is embraced within their title, TCT T-
on record that appellees' documents pertain to Lot 13-A, but they occupied Lot 47318; that TCT T-47318 is null and void since it is the result of a June 5, 1985
13-C. As the trial court determined, appellees' only basis for claiming the deed of extrajudicial settlement16 and September 9, 1985 segregation
fishpond was their occupation thereof, though mistakenly and the absence of agreement17 and not a sale between respondents and Ramos; that since
the boundaries of Lots 13-A, 13-B and 13-C. But these matters do not and respondent Felicidad was not an heir of one of the original owners of the
cannot annul Spouses Palad's transfer certificate of title. They actually imply property - Navarro - as erroneously stated in the deeds of extrajudicial
admission of appellees' intrusion into Lot 13-C under Transfer Certificate of settlement and segregation agreement, said documents are therefore null and
Title No. T-47318 without any right to own or possess it. Truth to tell, the trial void, and could not be the bases for the issuance of TCT T-47318; that the
court correctly did not set aside the transfer certificate of title. Hence, it subject property was not included in the July 23, 1985 sale between
remains valid and binding with all its legal effects. respondents and Ramos because its inclusion in TCT T-47318 was discovered
only after a survey was conducted after the sale; that since respondents are
ACCORDINGLY, the appeal is GRANTED. The Decision dated July 4, 2008 of not the owners of the subject property, they have no cause of action against
the Regional Trial Court, Branch 53, Lucena City, in Civil Case No. 92-71 petitioners; and that in their answer with counterclaim, they sought to annul
is REVERSED AND SET ASIDE. Defendants-appellees Levy Ong Trinidad, TCT T-47318, claiming that respondents secured same through Felicidad's
Joaquin Trinidad III, Augusto Trinidad II, Augusto Trinidad III and Rohmel claim that she is an heir of Navarro - thus, said allegation made through a valid
counterclaim constitutes a direct attack upon the validity of TCT T-47318 which respondents' certificate of title prevails. "[M]ere possession cannot defeat the
is allowed by law. title of a holder of a registered [T]orrens title x x x."21

Respondents' Arguments On the other hand, petitioners' claim - their main defense in the suit - is that
their predecessor Augusto was the owner of the subject property. But such
In their Comment18 seeking denial of the Petition, respondents argue that the claim rests on very shaky ground. First, they claim that the subject property
CA correctly held that TCT T-47318 serves as incontrovertible proof of their was awarded as attorney's fees in 1977 to Augusto by Genaro. However, in
indefeasible title to the subject property, as well as their right to possession seeking the annulment of respondents' title, they claim at the same time that
thereof; that petitioners' claim that their title is void as it arose out of void the property was acquired by Felicidad through inheritance from Navarro, who
agreements constitutes a prohibited collateral attack on TCT T-47318; that the happens to be the grandmother of Ramos.22 And yet, at the appeal stage
issue of validity or nullity of TCT T-47318 cannot be raised, as said issue was before the CA, they adopt without question the RTC's finding that the subject
not touched upon by the RTC; that TCT T-47318 may not be annulled because property was purchased by Felicidad from Ramos. Such a conflicting and flip-
petitioners' supposed claim of ownership specifically refers to Lot 13-A, while flopping stance deserves no serious consideration. Genaro may not dispose of
they wrongly occupied Lot 13-C, which is the subject of TCT T-47318; and that the property which does not belong to him although he may have executed a
with the finding on record that petitioners wrongly occupied Lot 13-C, they document awarding the same to Augusto. No one can give that which he does
must be ordered to vacate the same and surrender possession to respondents not own - nemo dat quod non habet. Finally, petitioners acknowledge that what
who are the registered owners Genaro supposedly gave Augusto as the latter's attorney's fees was Lot 13-A,
while it turned out that what Augusto occupied was Lot 13-C, which is
Our Ruling registered in respondents' favor as TCT T-47318. Evidently, Augusto had no
right over Lot 13-C which he wrongly occupied; consequently, petitioners, as
The Court denies the Petition. Augusto's successors-in-interest, have no viable defense to respondents' claim
in Civil Case No. 92-71.
The fact is undisputed that the subject two-hectare property lies within Lot 13-
C which is registered in the name of respondents as TCT T-47318. Indeed, the only reason why petitioners won their case in the RTC is that in the
court's July 4, 2008 Decision it assumed and concluded that Genaro was the
The evidence on record also suggests that contrary to petitioners' claim, the owner of the subject property which he awarded to Augusto via the supposed
subject property constitutes a portion of an eight-hectare parcel of land October 4, 1977 "Kasulatan ng Pagbabahagi" between Genaro and Augusto -
acquired by respondents from Ramos by purchase in 1985, and was not the when the evidence points to the fact that the property was acquired by
result of a June 5, 1985 deed of extrajudicial settlement and September 9, respondents through purchase from its original owner, Ramos.
1985 segregation agreement between the original owners and respondent
Felicidad. This is a finding of fact arrived at by both the RTC and the CA - and Thus, as the CA correctly held, petitioners are mere intruders with respect to
this is admitted by petitioners in their Petition, which specifically adopted the the subject property; they have no right to own or possess the same. On the
findings of fact of the RTC on this score.19 other hand, as registered owners of the subject property, respondents have the
right to exercise all attributes of ownership including possession which they
By adopting the findings of fact of the trial court, petitioners are precluded cannot do while petitioners remain there.
from further arguing that TCT T-47318 is void on the ground that it was
obtained through a simulated extrajudicial settlement agreement; and as far as WHEREFORE, the Petition is DENIED. The March 27, 2012 Decision and
this Court is concerned, the fact is settled that respondents acquired the August 24, 2012 Resolution of the Court of Appeals in CA-G.R. CV No. 92118
property covered by TCT T-47318 by purchase from Ramos. If indeed Felicidad are AFFIRMED IN TOTO. Petitioners and their heirs, successors-in-interest
was an heir of any of the original owners of the property, then there would and privies are ordered to VACATE the two-hectare fishpond as well as any
have been no need for her to purchase the same. Besides, the evidence further other portion of the property covered by Transfer Certificate of Title No. T-
points to the fact that Felicidad's father Genaro was a mere tenant of the 47318.
Ramos family and could not have owned the property in question; and this is
precisely why, to own it, she had to purchase the same from Ramos. SO ORDERED.chanroblesvirtuallawlibrary

The CA is therefore correct in its pronouncement - citing Spouses Esmaquel


and Sordevilla v. Coprada20 - that TCT T-47318 constitutes evidence of G.R. No. 187543
respondents' ownership over the subject property, which lies within the area
covered by said title; that TCT T-47318 serves as evidence of indefeasible and
WERR CORPORATION INTERNATIONAL, Petitioner
incontrovertible title to the property in favor of respondents, whose names
vs.
appear therein; and that as registered owners, they are entitled to possession
HIGHLANDS PRIME INC., Respondent
of the subject property. As against possession claimed by the petitioners,
x-----------------------x Under the Agreement, Werr had the obligation to complete the project within
210 calendar days from receipt of the Notice of Award/Notice to Proceed on
G.R. No. 187580 July 22, 2005, or until February 19, 2006.9 For the completion of the project,
HPI undertook to pay Werr a lump sum contract price of ₱271,797,900.00
inclusive of applicable taxes, supply and transportation of materials, and
HIGHLANDS PRIME, INC., Petitioner, labor.10 It was agreed that this contract price shall be subject to the following
vs. payment scheme: (1) HPI shall pay 20% of the contract price upon the
WERR CORPORATION INTERNATIONAL, Respondent. execution of the agreement and the presentation of the necessary bonds and
insurance required under the contract, and shall pay the balance on
DECISION installments progress billing subject to recoupment of downpayment and
retention money;11 (2) HPI shall retain 10% of the contract price in the form of
JARDELEZA, J.: retention bond provided by Werr;12 (3) HPI may deduct or set off any sum
against monies due Werr, including expenses for the rectification of defects in
the construction project;13 and (4) HPI has the right to liquidated damages in
These are consolidated petitions1 seeking to nullify the Court of Appeals' (CA) the event of delay in the construction of the project equivalent to 1/10 of 1%
February 9, 2009 Decision2 and April 16, 2009 Resolution3 in CA-G.R. SP No. of the contract price for every day of delay.14
105013. The CA modified the August 11, 2008 Decision4 of the Construction
Industry Arbitration Commission (CIAC) in CIAC Case No. 09-2008, viz.:
Upon HPI's payment of the stipulated 20% downpayment in the amount of
₱54,359,580.00, Werr commenced with the construction of the project. The
WHEREFORE, premises considered, the instant petition for review is PARTLY contract price was paid and the retention money was deducted, both in the
GRANTED. The assailed Decision dated August 11, 2008 of the Construction progress billings. The project, however, was not completed on the initial
Industry Arbitration Commission in CIAC Case No. 09-2008 is completion date of February 19, 2006, which led HPI to grant several
hereby MODIFIED as follows: extensions and a final extension until October 15, 2006. On May 8, 2006, W err
sought the assistance of HPI to pay its obligations with its suppliers under a
1) Respondent Werr Corporation International shall pay petitioner Highlands "Direct Payment Scheme" totaling ₱24,503,500.08, which the latter approved
Prime, Inc. liquidated damages in the amount of ₱8,969,330.70; only up to the amount of ₱18,762,541.67. The amount is to be charged against
the accumulated retention money. As of the last billing on October 25, 2006,
HPI had already paid the amount of ₱232,940,265.85 corresponding to 93.18%
2) Petitioner Highlands Prime, Inc. shall return to respondent Werr Corporation
accomplishment rate of the project and retained the amount of ₱25,738,258.01
International the balance of its retention money in the amount of
as retention bond.15
₱10,955,899.80 with the right to offset the award for liquidated damages in the
aforesaid amount of ₱8,969,330.70; and
The project was not completed on the last extension given. Thus, HPI
terminated its contract with Werr on November 28, 2006, which the latter
3) The cost of arbitration shall be shared equally by the parties.
accepted on November 30, 2006.16 No progress billing was adduced for the
period October 28, 2006 until the termination of the contract.17
The rest of the decision stands.
On October 3, 2007, Werr demanded from HPI payment of the balance of the
SO ORDERED.5 contract price as reflected in its financial status report which showed a
conditional net payable amount of ₱36,078,652.90.18 On January 24, 2007, HPI
Facts informed Werr that based on their records, the amount due to the latter as of
December 31, 2006 is ₱14,834,926.71.19 This amount was confirmed by
Werr.20 Not having received any payment, Werr filed a Complaint21 for
Highlands Prime, Inc. (HPI) and Werr Corporation International (Werr) are
arbitration against HPI before the CIAC to recover the ₱14,834,926.71
domestic corporations engaged in property development and construction,
representing the balance of its retention money.
respectively. For the construction of 54 residential units contained in three
clusters of five-storey condominium structures, known as "The Horizon-
Westridge Project," in Tagaytay Midlands Complex, Talisay, Batangas, the In its Answer,22 HPI countered that it does not owe Werr because the balance
project owner, HPI, issued a Notice of Award/Notice to Proceed6 to its chosen of the retention money answered for the payments made to suppliers and for
contractor, Werr, on July 22, 2005. Thereafter, the parties executed a General the additional costs and expenses incurred after termination of the contract.
Building Agreement7 (Agreement) on November 17, 2005.8 From the retention money of ₱25,738,258.0l, it deducted (1) ₱18,762,541.67
as payment to the suppliers under the Direct Payment Scheme, and (2)
₱7,548,729.15 as additional costs and expenses further broken down as remaining 1.82% is the period of delay. Based on the past billings, since it took
follows: (a) ₱3,336,526.91 representing the unrecouped portion of the 20% Werr 5 .128 days30 to achieve 1% accomplishment, it will therefore take it
downpayment; (b) ₱542,500.00 representing the remainder of Werr's unpaid 9.327 days to achieve substantial completion. Thus, the CIAC concluded that
advances; (c) ₱629,702.24 for the waterproofing works done by Dubbel the period of delay until substantial completion of the project is 9.327 days.
Philippines; and (d) ₱3,040,000.00 for the rectification works performed by The liquidated damages under the Agreement being 1/10 of 1% of the
A.A. Manahan Construction after the termination of the contract. Deducting the ₱271,797,900.00 or ₱271,797.90 per day of delay, Werr is liable for liquidated
foregoing from the accumulated retention money resulted in a deficiency of damages in the amount of ₱2,535,048.95.31
₱573,012.81 in its favor.23 By way of counterclaim, HPI prayed for the payment
of liquidated damages in the amount of ₱11,959,107.60 for the 44-day delay in Since the liquidated damages did not exhaust the balance of the retention
the completion of the project reckoned from October 15, 2006 up to the money, the CIAC likewise denied the claim for actual damages.32
termination of the Agreement on November 28, 2006; for actual damages in
the sum of ₱573,012.81; and for attorney's fees of ₱500,000.00 and litigation
expenses of ₱100,000.00.24 Thereafter, HPI filed its petition for review33 under Rule 43 with the CA on
August 28, 2008.1âwphi1

CIAC's Ruling
CA's Ruling

After due proceedings, the CIAC rendered its Decision on August 11, 2008
25

where it granted Werr's claim for the balance of the retention money in the The CA rendered the assailed decision, affirming the CIAC's findings on the
amount of ₱10,955,899.79 and arbitration costs. It also granted HPI's claim for allowable charges against the retention money, and on the attorney's fees and
liquidated damages in the amount of ₱2,535,059.0l equivalent to 9.327 days of litigation expenses. It, however, disagreed with the CIAC decision as to the
delay,26 but denied its counterclaim for damages, attorney's fees, and litigation amount of liquidated damages and arbitration costs. According to the CA, delay
expenses. should be computed from October 27, 2006 until termination of the contract on
November 28, 2006, or 33 days, since the contract prevails over the industry
practice. Thus, the total liquidated damages is ₱8,969,330.70. As to the
From the claims of HPI, the CIAC only deducted the amounts of (1) arbitration costs, it ruled that it is more equitable that it be borne equally by
₱10,903,331.30 representing the direct payments made from September 26, the parties since the claims of both were considered and partially granted. 34
2006 until December 31, 2006,27 (2) ₱3,336,526.91 representing the
unrecouped retention money, and (3) P542,500.00 representing the unpaid
cash advances from the ₱25,738,258.0l retention money. It disallowed the Hence, these consolidated petitions.
direct payments charged by HPI in 2007 and 2008 for having been supplied
after the termination of the project, for not corresponding to the list of Arguments
suppliers submitted, and for HPI failing to show that Werr requested it to
continue payments even after termination of the Agreement. It also disallowed
Werr argues that the CA erred in modifying the CIAC decision on the amount of
the amount of ₱629,702.24 for the waterproofing works done by Dubbel
liquidated damages and arbitration costs. It insists that the appellate court
Philippines for being works done after the termination of the contract. The
disregarded Articles 1234, 1235, and 1376 of the Civil Code and the industry
₱3,040,000.00 for the rectification works performed after the termination of
practice (as evidenced by Clause 52.1 of the Construction Industry Authority of
the contract was also disallowed because while HPI presented its contract with
the Philippines [CIAP] Document No. 101 or the "General Conditions of
A.A. Manahan Construction for rectification and completion works, it failed to
Contract for Government Construction" and Article 20.11 of CIAP Document
present proof of how much was specifically paid for rectification works only, as
No. 102 or the "Uniform General Conditions of Contract for Private
well as the proof of its payment. Moreover, prior notice of such defective works
Construction") when it did not apply the construction industry practice in
was not shown to have been given to Werr as required under the Agreement,
computing liquidated damages only until substantial completion of the project,
and even noted that HPI's project manager approved of the quality of the
and not until the termination of the contract.35 Werr further emphasizes that
works up to almost 94%.28
the CIAC, being an administrative agency, has expertise on the subject matter,
and thus, its findings prevail over the appellate court's findings.36
The CIAC further ruled that Werr incurred only 9.327 days of delay. Citing
Article 137629 of the Civil Code and considering the failure of the Agreement to
On the other hand, HPI argues that Werr was unjustly enriched when the CA
state otherwise, it applied the industry practice in the construction industry
disallowed HPI' s recovery of the amounts it paid to suppliers. HPI claims that:
that liquidated damages do not accrue after achieving substantial compliance.
(1) payments made to suppliers identified in the Direct Payment Scheme even
It held that delay should be counted from October 27, 2006 until the projected
after the termination of the contract should be charged against the balance of
date of substantial completion. Since the last admitted accomplishment is
the retention money, the same having been made pursuant to Werr's express
93.18% on October 27, 2006, the period it will take Werr to perform the
instructions; (2) the payments to Dubbel Philippines and the cost of the
contract with A.A. Manahan Construction are chargeable to the retention freely consent in advance to abide by the arbitral award issued after
money, pursuant to the terms of the Agreement; and (3) the expenses proceedings where both parties had the opportunity to be heard. The basic
incurred in excess of the retention money should be paid by Werr as actual objective is to provide a speedy and inexpensive method of settling disputes by
damages. These payments, while made after the termination of the contract, allowing the parties to avoid the formalities, delay, expense and aggravation
were for prior incurred obligations.37 HPI also argues that it is not liable for which commonly accompany ordinary litigation, especially litigation which goes
arbitration costs, and reiterates its claims for actual damages, and payment of through the entire hierarchy of courts. Executive Order No. 1008 created an
attorney's fees and litigation expenses.38 arbitration facility to which the construction industry in the Philippines can have
recourse. The Executive Order was enacted to encourage the early and
Issues expeditious settlement of disputes in the construction industry, a public policy
the implementation of which is necessary and important for the realization of
national development goals.
I. Whether the payments made to suppliers and contractors after the
termination of the contract are chargeable against the retention money.
Aware of the objective of voluntary arbitration in the labor field, in the
construction industry, and in any other area for that matter, the Court will not
II. Whether the industry practice of computing liquidated damages only up to assist one or the other or even both parties in any effort to subvert or defeat
substantial completion of the project applies in the computation of liquidated that objective for their private purposes. The Court will not review the factual
damages. Consequently, whether delay should be computed until termination findings of an arbitral tribunal upon the artful allegation that such body had
of the contract or until substantial completion of the project. "misapprehended the facts" and will not pass upon issues which are, at bottom,
issues of fact, no matter how cleverly disguised they might be as "legal
III. Whether the cost of arbitration should be shouldered by both parties. questions." The parties here had recourse to arbitration and chose the
arbitrators themselves; they must have had confidence in such arbitrators. The
Court will not, therefore, permit the parties to relitigate before it the issues of
IV. Whether HPI is entitled to attorney's fees and litigation expenses.
facts previously presented and argued before the Arbitral Tribunal, save only
where a very clear showing is made that, in reaching its factual conclusions,
Our Ruling the Arbitral Tribunal committed an error so egregious and hurtful to one party
as to constitute a grave abuse of discretion resulting in lack or loss of
We deny the consolidated petitions. jurisdiction. Prototypical examples would be factual conclusions of the Tribunal
which resulted in deprivation of one or the other party of a fair opportunity to
present its position before the Arbitral Tribunal, and an award obtained through
I. Charges against the Retention Money
fraud or the corruption of arbitrators. Any other, more relaxed, rule would
result in setting at naught the basic objective of a voluntary arbitration and
Anent the first issue, we emphasize that what is before us is a petition for would reduce arbitration to a largely inutile institution.44
review under Rule 45 where only questions of law may be raised.39 Factual
issues, which involve a review of the probative value of the evidence
In this case, the issues of whether HPI was able to prove that payments made
presented, such as the credibility of witnesses, or the existence or relevance of
to suppliers and to third party contractors are prior incurred obligations that
surrounding circumstances and their relation to each other, may not be raised
should be charged against the retention money, and whether HPI incurred
unless it is shown that the case falls under recognized exceptions.40
expenses above the retention money that warrants actual damages, are issues
of facts beyond the review of the Court under Rule 45.
In cases of arbitral awards rendered by the CIAC, adherence to this rule is all
the more compelling.41 Executive Order No. 1008,42 which vests upon the CIAC
Moreover, even if we consider such factual issues, we are bound by the
original and exclusive jurisdiction over disputes arising from, or connected
findings of fact of the CIAC especially when affirmed by the CA.45 Factual
with, contracts entered into by parties involved in construction in the
findings by a quasi-judicial body like the CIAC, which has acquired expertise
Philippines, clearly provides that the arbitral award shall be binding upon the
because its jurisdiction is confined to specific matters, are accorded not only
parties and that it shall be final and inappealable except on questions of law
with respect but even finality if they are supported by substantial
which shall be appealable to the Supreme Court.43 This rule on the finality of an
evidence.46 We recognize that certain cases require the expertise, specialized
arbitral award is anchored on the premise that an impartial body, freely chosen
skills, and knowledge of the proper administrative bodies because technical
by the parties and to which they have confidence, has settled the dispute after
matters or intricate questions of facts are involved.47
due proceedings:

We nevertheless note that factual findings of the construction arbitrators are


Voluntary arbitration involves the reference of a dispute to an impartial body,
not beyond review, such as when the petitioner affirmatively proves the
the members of which are chosen by the parties themselves, which parties
following: (1) the award was procured by corruption, fraud, or other undue 20.11 SUBSTANTIAL COMPLETION AND ITS EFFECT:
means; (2) there was evident partiality or corruption of the arbitrators or any
of them; (3) the arbitrators were guilty of misconduct in refusing to hear A. [a] There is substantial completion when the Contractor completes 95% of
evidence pertinent and material to the controversy; (4) one or more of the the Work, provided that the remaining work and the performance of the work
arbitrators were disqualified to act as such under Section 1048 of Republic Act necessary to complete the Work shall not prevent the normal use of the
No. 87649 and willfully refrained from disclosing such disqualifications or of any completed portion.
other misbehavior by which the rights of any party have been materially
prejudiced; (5) the arbitrators exceeded their powers, or so imperfectly
executed them, that a mutual, final, and definite award upon the subject xxx
matter submitted to them was not made; (6) when there is a very clear
showing of grave abuse of discretion resulting in lack or loss of jurisdiction as D. [a] No liquidated damages for delay beyond the Completion Time shall
when a party was deprived of a fair opportunity to present its position before accrue after the date of substantial completion of the Work.
the arbitral tribunal or when an award is obtained through fraud or the
corruption of arbitrators; (7) when the findings of the CA are contrary to those
We reject this claim of Werr and find that while this industry practice may
of the CIAC; or (8) when a party is deprived of administrative due supplement the Agreement, Werr cannot benefit from it.
process.50 However, we do not find that HPI was able to show any of the
exceptions that should warrant a review and reversal of the findings made by
the CIAC and the CA. At the outset, we do not agree with the CA that industry practice be rejected
because liquidated damages is provided in the Agreement, autonomy of
contracts prevails, and industry practice is completely set aside. Contracting
Thus, we affirm the CIAC and CA's findings that direct payments charged by
parties are free to stipulate as to the terms and conditions of the contract for
HPI in 2007 and 2008 were for materials supplied after the termination of the
as long as they are not contrary to law, morals, good customs, public order or
project and did not correspond to the list of suppliers submitted; that the
public policy.52 Corollary to this rule is that laws are deemed written in every
waterproofing works done by Dubbel Philippines in the amount of ₱629,702.24
contract.53
were for works done after the termination of the contract that were for the
account of the new contractor; and that the rectification works performed after
the termination of the contract worth ₱3,040,000.00 were not proven to have Deemed incorporated into every contract are the general provisions on
been paid, that it was for rectification works only, and that prior notice of such obligations and interpretation of contracts found in the Civil Code. The Civil
defective works as required under the Agreement was not proven. Accordingly, Code provides:
we affirm that the balance of the retention money is ₱10,955,899.79.
Art. 1234. If the obligation has been substantially performed in good faith, the
II. Delay in computing Liquidated Damages obligor may recover as though there had been a strict and complete fulfillment,
less damages suffered by the obligee.
On the other hand, the question on how liquidated damages should be
computed based on the Agreement and prevailing jurisprudence is a question Art. 1376. The usage or custom of the place shall be borne in mind in the
of law that we may review. interpretation of the ambiguities of a contract, and shall fill the omission of
stipulations which are ordinarily established.
The pertinent provision on liquidated damages is found in clause 41.5 of the
Agreement, viz.: In previous cases, we applied these provisions in construction agreements to
determine whether the project owner is entitled to liquidated damages. We
held that substantial completion of the project equates to achievement of 95%
41.5. Considering the importance of the timely completion of the WORKS on
project completion which excuses the contractor from the payment of
the OWNER'S commitments to its clients, the CONTRACTOR agrees to pay
liquidated damages.
the OWNER liquidated damages in the amount of 1/10th of 1% of the amount
of the Contract price for every day of delay (inclusive of Sundays and
holidays).51 In Diesel Construction Co., Inc. v. UPSI Property Holdings, Inc.,54 we applied
Article 1234 of the Civil Code. In determining what is considered substantial
compliance, we used the CIAP Document No. 102 as evidence of the
Werr, as contractor, urges us to apply the construction industry practice that
construction industry practice that substantial compliance is equivalent to 95%
liquidated damages do not accrue after the date of substantial completion of
accomplishment rate. In that case, the construction agreement requires the
the project, as evidenced in CIAP Document No. 102, which provides that:
contractor "to pay the owner liquidated damages in the amount equivalent to
one-fifth (1/5) of one (1) percent of the total Project cost for each calendar day
of delay."55 We declared that the contractor cannot be liable for liquidated Nonetheless, we find that Werr cannot benefit from the effects of substantial
damages because it already accomplished 97.56% of the project.56 We compliance.
reiterated this in Transcept Construction and Management Professionals, Inc. v.
Aguilar57 where we ruled that since the contractor accomplished 98.16% of the Paragraph A.[a.], Article 20.11 of CIAP Document No. 102 requires that the
project, the project owner is not entitled to the 10% liquidated damages.58 contractor completes 95% of the work for there to be substantial completion of
the project. Also, in those cases where we applied the industry practice to
Considering the foregoing, it: was error for the CA to immediately dismiss the supplement the contracts and excused payment from liquidated damages
application of industry practice on the sole ground that there is an existing under Article 1234, the contractors there actually achieved 95% completion of
agreement as to liquidated damages. As expressly stated under Articles 1234 the project. Neither the CIAC nor the courts assumed as to when substantial
and 1376, and in jurisprudence, the construction industry's prevailing practice compliance will be achieved by the contractor, but the contractors offered
may supplement any ambiguities or omissions in the stipulations of the substantial evidence that they actually achieved at least 95% completion of the
contract. project. Thus, the effects of substantial completion only operate to relieve the
contractor from the burden of paying liquidated damages when it has, in
Notably, CIAP Document N0. 102, by itself, was intended to have suppletory reality, achieved substantial completion of the project.
effect on private construction contracts.1âwphi1 This is evident in CIAP Board
Resolution No. 1-98,59 which states: While the case before us presents a different scenario, as the contractor here
does not demand total release from payment of liquidated damages, we find
Sec. 9. Policy-Making Body, - The [CIAP], through the CIAP Executive Office that in order to benefit from the effects of the substantial completion of a
and its various Implementing Agencies, shall continuously monitor and study project, the condition precedent must first be met-the contractor must
the operations of the construction industry, both domestic and overseas successfully prove by substantial evidence that it actually achieved 95%
operations, to identify its needs, problems and opportunities, in order to completion rate of the project. As such, it is incumbent upon Werr to show that
provide for the pertinent policies and/or executive action and/or legislative it had achieved an accomplishment rate of 95% before or at the time of the
agenda necessary to implement plans, programs and measures required to termination of the contract.
support the sustainable development of the construction industry, such as but
not limited to the following: Here, there is no dispute that Werr failed to prove that it completed 95% of the
project before or at the time of the termination of the contract. As found by
xxx CIAC, it failed to present evidence as to what accomplishment it achieved from
the time of the last billing until the termination of the contract.60 What was
admitted as accomplishment at the last billing is 93.18%. For this reason, even
9.05 The promulgation and adoption of Standard Conditions of Contract for the if we adopt the rule that no liquidated damages shall run after the date of
public construction and private construction sector which shall have suppletory substantial completion of the project, Werr cannot claim benefit for it failed to
effect in cases where there is a conflict in the internal documents of a meet the condition precedent, i.e., the contractor has successfully proven that
construction contract or in the absence of the general conditions of a it actually achieved 95% completion rate.
construction agreement[.]

More importantly, Werr failed to show that it is the construction industry's


As the standard conditions for contract for private construction adopted and practice to project the date of substantial completion of a project, and to
promulgated by the CIAP, CIAP Document No. 102 applies suppletorily to compute the period of delay based on the rate in past progress billings just as
private construction contracts to remedy the conflict in the internal documents what the CIAC has done. Consequently, the CIAC erred when it assumed that
of, or to fill in the omissions in, the construction agreement. Werr continued to perform works, and if it did, that it performed them at the
rate of accomplishment of the previous works in the absence of evidence.
In this case, clause 41.5 of the Agreement is undoubtedly a valid stipulation.
However, while clause 41.5 requires payment of liquidated damages if there is That the effects of substantial completion will only apply
delay, it is silent as to the period until when liquidated damages shall run. The when actual substantial completion is reached is apparent when we consider
Agreement does not state that liquidated damages is due until termination of the reason behind the rules on substantial completion of the project found in
the project; neither does it completely reject that it is only due until substantial Section 20.1l[E] of the CIAP Document No. 102, viz.:
completion of the project. This omission in the Agreement may be
supplemented by the provisions of the Civil Code, industry practice, and the
CIAP Document No. 102. Hence, the industry practice that substantial E. The purpose of this Article [ART. 20, WORK; 20.11: SUBSTANTIAL
compliance excuses the contractor from payment of liquidated damages applies COMPLETION AND ITS EFFECT] is to ensure that the Contractor is paid for
to the Agreement. Work completed and for the Owner to retain such portion of the Contract Price
which, together with the Performance Bond, is sufficient to complete the Work November 24, 2010
without additional cost to the Owner. x---------------------------------------------------------------------------------------
--x
The rules are intended to balance the allocation and burden of costs between
the contractor and the project owner so that the contractor still achieves a
return for its completed work, and the project owner will not incur further DECISION
costs. To compute the period of delay when substantial compliance is not yet
achieved but merely on the assumption that it will eventually be achieved
would result in an iniquitous situation where the project owner will bear the VELASCO, JR., J.:
risks and additional costs for the period excused from liquidated damages.

This is an appeal from the October 20, 2009 Decision of the Court of Appeals
From the foregoing, we affirm the CA' s conclusion that the period of delay in (CA) in CA-G.R. CR-CV No. 84445 entitled Alfredo Ong v. Land Bank of the
computing liquidated damages should be reckoned from October 27, 2006 until Philippines, which affirmed the Decision of the Regional Trial Court (RTC), Branch
the termination of the contract or for 33 days, and not only until the projected 17 in Tabaco City.
substantial completion date. Consistent with the CA's ruling that liquidated
damages did not exceed the retention money, we therefore affirm that HPI did The Facts
not suffer actual damages in the amount of ₱573,012.81.
On March 18, 1996, spouses Johnson and Evangeline Sy secured a loan
III. Arbitration Costs, Attorney's Fees, and Litigation Costs from Land Bank Legazpi City in the amount of PhP 16 million. The loan was
secured by three (3) residential lots, five (5) cargo trucks, and a warehouse.
Under the loan agreement, PhP 6 million of the loan would be short-term and
Courts are allowed to adjudge which party may bear the cost of the suit
would mature on February 28, 1997, while the balance of PhP 10 million would
depending on the circumstances of the case.61 Considering the CA's findings
be payable in seven (7) years. The Notice of Loan Approval dated February 22,
that both parties were able to recover their claims, and neither was guilty of
1996 contained an acceleration clause wherein any default in payment of
bad faith, we do not find that the CA erred in dividing the arbitration costs
between the parties. amortizations or other charges would accelerate the maturity of the loan.[1]

Subsequently, however, the Spouses Sy found they could no longer


We also do not find the need to disturb the findings as to attorney's fees and pay their loan. On December 9, 1996, they sold three (3) of their mortgaged
expenses of litigation, both the CIAC and the CA having found that there is no parcels of land for PhP 150,000 to Angelina Gloria Ong, Evangelines mother,
basis for the award of attorney's fees and litigation expenses.62 under a Deed of Sale with Assumption of Mortgage. The relevant portion of the
WHEREFORE, the petitions are DENIED. The Court of Appeals' February 9, document[2] is quoted as follows:
2009 Decision and April 16, 2009 Resolution are AFFIRMED. The net award in
favor of Werr Corporation International shall earn interest at the rate of WHEREAS, we are no longer in a position to settle our
6% per annum from date of demand on October 3, 2007 until finality of this obligation with the bank;
Decision. Thereafter, the total amount shall earn interest from finality of this NOW THEREFORE, for and in consideration of the sum of
Decision until fully paid. ONE HUNDRED FIFTY THOUSAND PESOS (P150,000.00)
Philippine Currency, we hereby these presents SELL, CEDE,
SO ORDERED. TRANSFER and CONVEY, by way of sale unto ANGELINA GLORIA
ONG, also of legal age, Filipino citizen, married to Alfredo Ong,
and also a resident of Tabaco, Albay, Philippines, their heirs and
LAND BANK OF THE PHILIPPINES, G.R. No. 190755
assigns, the above-mentioned debt with the said LAND BANK OF
Petitioner,
THE PHILIPPINES, and by reason hereof they can make the
Present:
necessary representation with the bank for the proper
restructuring of the loan with the said bank in their favor;
CORONA, C.J., Chairperson,
- versus - VELASCO, JR.,
That as soon as our obligation has been duly settled, the
LEONARDO-DE CASTRO,
bank is authorized to release the mortgage in favor of the
PERALTA,* and
vendees and for this purpose VENDEES can register this
PEREZ, JJ.
instrument with the Register of Deeds for the issuance of the
ALFREDO ONG,
titles already in their names.
Respondent. Promulgated:
IN WITNESS WHEREOF, we have hereunto affixed our 216,246.56 accrued interests receivable
signatures this 9th day of December 1996 at Tabaco, Albay, 396,571.77 interests
Philippines. 18,766.10 penalties
16,805.98 accounts receivable
(signed) (signed) ----------------
EVANGELINE O. SY JOHNSON B. SY Total: 750,000.00
Vendor Vendor
According to Atty. Hingco, the bank processes an assumption of mortgage as a
new loan, since the new borrower is considered a new client. They used
Evangelines father, petitioner Alfredo Ong, later went to Land Bank to character, capacity, capital, collateral, and conditions in determining who can
inform it about the sale and assumption of mortgage.[3] Atty. Edna Hingco, the qualify to assume a loan. Alfredos proposal to assume the loan, she explained,
Legazpi City Land Bank Branch Head, told Alfredo and his counsel Atty. Ireneo was referred to a separate office, the Lending Center. [8]
de Lumen that there was nothing wrong with the agreement with the Spouses During cross-examination, Atty. Hingco testified that several months after
Sy but provided them with requirements for the assumption of mortgage. They Alfredo made the tender of payment, she received word that the Lending Center
were also told that Alfredo should pay part of the principal which was computed rejected Alfredos loan application. She stated that it was the Lending Center and
at PhP 750,000 and to update due or accrued interests on the promissory notes not her that should have informed Alfredo about the denial of his and his wifes
so that Atty. Hingco could easily approve the assumption of mortgage. Two assumption of mortgage. She added that although she told Alfredo that the
weeks later, Alfredo issued a check for PhP 750,000 and personally gave it to agreement between the spouses Sy and Alfredo was valid between them and
Atty. Hingco. A receipt was issued for his payment. He also submitted the other that the bank would accept payments from him, Alfredo did not pay any further
documents required by Land Bank, such as financial statements for 1994 and amount so the foreclosure of the loan collaterals ensued. She admitted that
1995. Atty. Hingco then informed Alfredo that the certificate of title of the Alfredo demanded the return of the PhP 750,000 but said that there was no
Spouses Sy would be transferred in his name but this never materialized. No written demand before the case against the bank was filed in court. She said
notice of transfer was sent to him.[4] that Alfredo had made the payment of PhP 750,000 even before he applied for
the assumption of mortgage and that the bank received the said amount because
Alfredo later found out that his application for assumption of mortgage the subject account was past due and demandable; and the Deed of Assumption
was not approved by Land Bank. The bank learned from its credit investigation of Mortgage was not used as the basis for the payment. [9]
report that the Ongs had a real estate mortgage in the amount of PhP
18,300,000 with another bank that was past due. Alfredo claimed that this was The Ruling of the Trial Court
fully paid later on. Nonetheless, Land Bank foreclosed the mortgage of the
Spouses Sy after several months. Alfredo only learned of the foreclosure when The RTC held that the contract approving the assumption of mortgage was not
he saw the subject mortgage properties included in a Notice of Foreclosure of perfected as a result of the credit investigation conducted on Alfredo. It noted
Mortgage and Auction Sale at the RTC in Tabaco, Albay. Alfredos other counsel, that Alfredo was not even informed of the disapproval of the assumption of
Atty. Madrilejos, subsequently talked to Land Banks lawyer and was told that mortgage but was just told that the accounts of the spouses Sy had matured
the PhP 750,000 he paid would be returned to him.[5] and gone unpaid. It ruled that under the principle of equity and justice, the bank
should return the amount Alfredo had paid with interest at 12% per annum
On December 12, 1997, Alfredo initiated an action for recovery of sum computed from the filing of the complaint. The RTC further held that Alfredo was
of money with damages against Land Bank in Civil Case No. T-1941, as entitled to attorneys fees and litigation expenses for being compelled to
Alfredos payment was not returned by Land Bank. Alfredo maintained that litigate.[10]
Land Banks foreclosure without informing him of the denial of his assumption
of the mortgage was done in bad faith. He argued that he was lured into The dispositive portion of the RTC Decision reads:
believing that his payment of PhP 750,000 would cause Land Bank to approve
his assumption of the loan of the Spouses Sy and the transfer of the mortgaged WHEREFORE, premises considered, a decision is
properties in his and his wifes name.[6] He also claimed incurring expenses for rendered, ordering defendant bank to pay plaintiff, Alfredo Ong
attorneys fees of PhP 150,000, filing fee of PhP 15,000, and PhP 250,000 in the amount of P750,000.00 with interest at 12% per annum
moral damages.[7] computed from Dec. 12, 1997 and attorneys fees and litigation
expenses of P50,000.00.
Testifying for Land Bank, Atty. Hingco claimed during trial that as branch
manager she had no authority to approve loans and could not assure anybody Costs against defendant bank.
that their assumption of mortgage would be approved. She testified that the SO ORDERED.[11]
breakdown of Alfredos payment was as follows:

PhP 101,409.59 applied to principal The Ruling of the Appellate Court


The creditor is not bound to accept payment or performance by
On appeal, Land Bank faulted the trial court for (1) holding that the payment a third person who has no interest in the fulfillment of the
of PhP 750,000 made by Ong was one of the requirements for the approval of obligation, unless there is a stipulation to the contrary.
his proposal to assume the mortgage of the Sy spouses; (2) erroneously
ordering Land Bank to return the amount of PhP 750,000 to Ong on the ground Whoever pays for another may demand from the debtor what
of its failure to effect novation; and (3) erroneously affirming the award of PhP he has paid, except that if he paid without the knowledge or
50,000 to Ong as attorneys fees and litigation expenses. against the will of the debtor, he can recover only insofar as the
payment has been beneficial to the debtor.
The CA affirmed the RTC Decision.[12] It held that Alfredos recourse is not against
the Sy spouses. According to the appellate court, the payment of PhP 750,000
was for the approval of his assumption of mortgage and not for payment of We agree with Land Bank on this point as to the first part of paragraph
arrears incurred by the Sy spouses. As such, it ruled that it would be incorrect 1 of Art. 1236. Land Bank was not bound to accept Alfredos payment, since as
to consider Alfredo a third person with no interest in the fulfillment of the far as the former was concerned, he did not have an interest in the payment of
obligation under Article 1236 of the Civil Code. Although Land Bank was not the loan of the Spouses Sy. However, in the context of the second part of said
bound by the Deed between Alfredo and the Spouses Sy, the appellate court paragraph, Alfredo was not making payment to fulfill the obligation of the
found that Alfredo and Land Banks active preparations for Alfredos assumption Spouses Sy. Alfredo made a conditional payment so that the properties subject
of mortgage essentially novated the agreement. of the Deed of Sale with Assumption of Mortgage would be titled in his name. It
is clear from the records that Land Bank required Alfredo to make payment
On January 5, 2010, the CA denied Land Banks motion for reconsideration for before his assumption of mortgage would be approved. He was informed that
lack of merit. Hence, Land Bank appealed to us. the certificate of title would be transferred accordingly. He, thus, made payment
not as a debtor but as a prospective mortgagor. But the trial court stated:
The Issues

I [T]he contract was not perfected or consummated


because of the adverse finding in the credit investigation which
Whether the Court of Appeals erred in holding that Art. 1236 of led to the disapproval of the proposed assumption. There was
the Civil Code does not apply and in finding that there is no no evidence presented that plaintiff was informed of the
novation. disapproval. What he received was a letter dated May 22, 1997
informing him that the account of spouses Sy had matured but
II there [were] no payments. This was sent even before the
conduct of the credit investigation on June 20, 1997 which led
Whether the Court of Appeals misconstrued the evidence and to the disapproval of the proposed assumption of the loans of
the law when it affirmed the trial court decisions ordering Land spouses Sy.[13]
Bank to pay Ong the amount of Php750,000.00 with interest at
12% annum.
Alfredo, as a third person, did not, therefore, have an interest in the fulfillment
III of the obligation of the Spouses Sy, since his interest hinged on Land Banks
approval of his application, which was denied. The circumstances of the instant
Whether the Court of Appeals committed reversible error when case show that the second paragraph of Art. 1236 does not apply. As Alfredo
it affirmed the award of Php50,000.00 to Ong as attorneys fees made the payment for his own interest and not on behalf of the Spouses Sy,
and expenses of litigation. recourse is not against the latter. And as Alfredo was not paying for another, he
cannot demand from the debtors, the Spouses Sy, what he has paid.
The Ruling of this Court
Novation of the loan agreement
We affirm with modification the appealed decision.
Land Bank also faults the CA for finding that novation applies to the
Recourse is against Land Bank instant case. It reasons that a substitution of debtors was made without its
consent; thus, it was not bound to recognize the substitution under the rules on
Land Bank contends that Art. 1236 of the Civil Code backs their claim that Alfredo novation.
should have sought recourse against the Spouses Sy instead of Land Bank. Art.
1236 provides: On the matter of novation, Spouses Benjamin and Agrifina Lim v. M.B.
Finance Corporation[14] provides the following discussion:
made without the consent of Land Bank a requirement which is
Novation, in its broad concept, may either be extinctive indispensable in order to effect a novation of the obligation, it is
or modificatory. It is extinctive when an old obligation is therefore not bound to recognize the substitution of debtors.
terminated by the creation of a new obligation that takes the Land Bank did not intervene in the contract between Spouses Sy
place of the former; it is merely modificatory when the old and Spouses Ong and did not expressly give its consent to this
obligation subsists to the extent it remains compatible with the substitution.[16]
amendatory agreement. An extinctive novation results either by
changing the object or principal conditions (objective or real),
or by substituting the person of the debtor or subrogating a Unjust enrichment
third person in the rights of the creditor (subjective or
personal). Under this mode, novation would have dual functions Land Bank maintains that the trial court erroneously applied the principle
─ one to extinguish an existing obligation, the other to of equity and justice in ordering it to return the PhP 750,000 paid by Alfredo.
substitute a new one in its place ─ requiring a conflux of four Alfredo was allegedly in bad faith and in estoppel. Land Bank contends that it
essential requisites: (1) a previous valid obligation; (2) an enjoyed the presumption of regularity and was in good faith when it accepted
agreement of all parties concerned to a new contract; (3) Alfredos tender of PhP 750,000. It reasons that it did not unduly enrich itself at
the extinguishment of the old obligation; and (4) the Alfredos expense during the foreclosure of the mortgaged properties, since it
birth of a valid new obligation. x x x tendered its bid by subtracting PhP 750,000 from the Spouses Sys outstanding
loan obligation. Alfredos recourse then, according to Land Bank, is to have his
In order that an obligation may be extinguished by payment reimbursed by the Spouses Sy.
another which substitutes the same, it is imperative that it be
so declared in unequivocal terms, or that the old and the new We rule that Land Bank is still liable for the return of the PhP 750,000
obligations be on every point incompatible with each other. The based on the principle of unjust enrichment. Land Bank is correct in arguing that
test of incompatibility is whether or not the two obligations can it has no obligation as creditor to recognize Alfredo as a person with interest in
stand together, each one having its independent existence. x x the fulfillment of the obligation. But while Land Bank is not bound to accept the
x (Emphasis supplied.) substitution of debtors in the subject real estate mortgage, it is estopped by its
action of accepting Alfredos payment from arguing that it does not have to
recognize Alfredo as the new debtor. The elements of estoppel are:
Furthermore, Art. 1293 of the Civil Code states:
First, the actor who usually must have knowledge,
Novation which consists in substituting a new debtor in the notice or suspicion of the true facts, communicates something
place of the original one, may be made even without the to another in a misleading way, either by words, conduct or
knowledge or against the will of the latter, but not without the silence; second, the other in fact relies, and relies reasonably
consent of the creditor. Payment by the new debtor gives him or justifiably, upon that communication; third, the other would
rights mentioned in articles 1236 and 1237. be harmed materially if the actor is later permitted to assert
any claim inconsistent with his earlier conduct; and fourth, the
actor knows, expects or foresees that the other would act upon
We do not agree, then, with the CA in holding that there was a novation in the the information given or that a reasonable person in the actors
contract between the parties. Not all the elements of novation were position would expect or foresee such action.[17]
present. Novation must be expressly consented to. Moreover, the conflicting
intention and acts of the parties underscore the absence of any express By accepting Alfredos payment and keeping silent on the status of
disclosure or circumstances with which to deduce a clear and unequivocal intent Alfredos application, Land Bank misled Alfredo to believe that he had for all
by the parties to novate the old agreement.[15] Land Bank is thus correct when intents and purposes stepped into the shoes of the Spouses Sy.
it argues that there was no novation in the following:
The defense of Land Bank Legazpi City Branch Manager Atty. Hingco
[W]hether or not Alfredo Ong has an interest in the that it was the banks Lending Center that should have notified Alfredo of his
obligation and payment was made with the knowledge or consent assumption of mortgage disapproval is unavailing. The Lending Centers lack of
of Spouses Sy, he may still pay the obligation for the reason that notice of disapproval, the Tabaco Branchs silence on the disapproval, and the
even before he paid the amount of P750,000.00 on January 31, banks subsequent actions show a failure of the bank as a whole, first, to notify
1997, the substitution of debtors was already perfected by and Alfredo that he is not a recognized debtor in the eyes of the bank; and second,
between Spouses Sy and Spouses Ong as evidenced by a Deed to apprise him of how and when he could collect on the payment that the bank
of Sale with Assumption of Mortgage executed by them on no longer had a right to keep.
December 9, 1996. And since the substitution of debtors was
We turn then on the principle upon which Land Bank must return
Alfredos payment. Unjust enrichment exists when a person unjustly retains a Another claim made by Land Bank is the presumption of regularity it
benefit to the loss of another, or when a person retains money or property of enjoys and that it was in good faith when it accepted Alfredos tender of PhP
another against the fundamental principles of justice, equity and good 750,000.
conscience.[18] There is unjust enrichment under Art. 22 of the Civil Code when
(1) a person is unjustly benefited, and (2) such benefit is derived at the expense The defense of good faith fails to convince given Land Banks
of or with damages to another.[19] actions. Alfredo was not treated as a mere prospective borrower. After he had
paid PhP 750,000, he was made to sign bank documents including a promissory
Additionally, unjust enrichment has been applied to actions called accion note and real estate mortgage. He was assured by Atty. Hingco that the titles to
in rem verso. In order that the accion in rem verso may prosper, the following the properties covered by the Spouses Sys real estate mortgage would be
conditions must concur: (1) that the defendant has been enriched; (2) that the transferred in his name, and upon payment of the PhP 750,000, the account
plaintiff has suffered a loss; (3) that the enrichment of the defendant is without would be considered current and renewed in his name.[24]
just or legal ground; and (4) that the plaintiff has no other action based on
contract, quasi-contract, crime, or quasi-delict.[20] The principle of unjust Land Bank posits as a defense that it did not unduly enrich itself at
enrichment essentially contemplates payment when there is no duty to pay, and Alfredos expense during the foreclosure of the mortgaged properties, since it
the person who receives the payment has no right to receive it.[21] tendered its bid by subtracting PhP 750,000 from the Spouses Sys outstanding
loan obligation. It is observed that this is the first time Land Bank is revealing
The principle applies to the parties in the instant case, as, Alfredo, this defense. However, issues, arguments, theories, and causes not raised below
having been deemed disqualified from assuming the loan, had no duty to pay may no longer be posed on appeal.[25] Land Banks contention, thus, cannot be
petitioner bank and the latter had no right to receive it. entertained at this point.

Land Bank further questions the lower courts decision on the basis of
Moreover, the Civil Code likewise requires under Art. 19 that [e]very person the inconsistencies made by Alfredo on the witness stand. It argues that Alfredo
must, in the exercise of his rights and in the performance of his duties, act with was not a credible witness and his testimony failed to overcome the presumption
justice, give everyone his due, and observe honesty and good faith. Land Bank, of regularity in the performance of regular duties on the part of Land Bank.
however, did not even bother to inform Alfredo that it was no longer approving
his assumption of the Spouses Sys mortgage. Yet it acknowledged his interest This claim, however, touches on factual findings by the trial court, and we defer
in the loan when the branch head of the bank wrote to tell him that his daughters to these findings of the trial court as sustained by the appellate court. These are
loan had not been paid.[22] Land Bank made Alfredo believe that with the generally binding on us. While there are exceptions to this rule, Land Bank has
payment of PhP 750,000, he would be able to assume the mortgage of the not satisfactorily shown that any of them is applicable to this issue.[26] Hence,
Spouses Sy. The act of receiving payment without returning it when demanded the rule that the trial court is in a unique position to observe the demeanor of
is contrary to the adage of giving someone what is due to him. The outcome of witnesses should be applied and respected[27] in the instant case.
the application would have been different had Land Bank first conducted the
credit investigation before accepting Alfredos payment. He would have been In sum, we hold that Land Bank may not keep the PhP 750,000 paid by Alfredo
notified that his assumption of mortgage had been disapproved; and he would as it had already foreclosed on the mortgaged lands.
not have taken the futile action of paying PhP 750,000. The procedure Land Bank
took in acting on Alfredos application cannot be said to have been fair and proper. Interest and attorneys fees

As to the claim that the trial court erred in applying equity to Alfredos case, we As to the applicable interest rate, we reiterate the guidelines found
hold that Alfredo had no other remedy to recover from Land Bank and the lower in Eastern Shipping Lines, Inc. v. Court of Appeals:[28]
court properly exercised its equity jurisdiction in resolving the collection suit. As
we have held in one case:
II. With regard particularly to an award of interest in
Equity, as the complement of legal jurisdiction, seeks to reach the concept of actual and compensatory damages, the rate of
and complete justice where courts of law, through the interest, as well as the accrual thereof, is imposed, as follows:
inflexibility of their rules and want of power to adapt their
judgments to the special circumstances of cases, are 1. When the obligation is breached, and it consists in
incompetent to do so. Equity regards the spirit and not the the payment of a sum of money, i.e., a loan or forbearance of
letter, the intent and not the form, the substance rather than money, the interest due should be that which may have been
the circumstance, as it is variously expressed by different stipulated in writing. Furthermore, the interest due shall itself
courts.[23] earn legal interest from the time it is judicially demanded. In
the absence of stipulation, the rate of interest shall be 12% per
annum to be computed from default, i.e., from judicial or forbearance of money, goods, or credit, the governing provision
extrajudicial demand under and subject to the provisions of is Art. 2209 of the Civil Code prescribing a yearly 6%
Article 1169 of the Civil Code. interest. Art. 2209 pertinently provides:

2. When an obligation, not constituting a loan or Art. 2209. If the obligation consists in the
forbearance of money, is breached, an interest on the amount payment of a sum of money, and the debtor incurs
of damages awarded may be imposed at the discretion of the in delay, the indemnity for damages, there being no
court at the rate of 6% per annum. No interest, however, shall stipulation to the contrary, shall be the payment of the
be adjudged on unliquidated claims or damages except when interest agreed upon, and in the absence of
or until the demand can be established with reasonable stipulation, the legal interest, which is six per cent
certainty. Accordingly, where the demand is established with per annum.
reasonable certainty, the interest shall begin to run from the
time the claim is made judicially or extrajudicially (Art. 1169, The term forbearance, within the context of usury law,
Civil Code) but when such certainty cannot be so reasonably has been described as a contractual obligation of a lender or
established at the time the demand is made, the interest shall creditor to refrain, during a given period of time, from requiring
begin to run only from the date the judgment of the court is the borrower or debtor to repay the loan or debt then due and
made (at which time the quantification of damages may be payable.
deemed to have been reasonably ascertained). The actual base
for the computation of legal interest shall, in any case, be on Eastern Shipping Lines, Inc. synthesized the rules on the
the amount finally adjudged. imposition of interest, if proper, and the applicable rate, as
follows: The 12% per annum rate under CB Circular No. 416 shall
3. When the judgment of the court awarding a sum of apply only to loans or forbearance of money, goods, or credits,
money becomes final and executory, the rate of legal interest, as well as to judgments involving such loan or forbearance of
whether the case falls under paragraph 1 or paragraph 2, money, goods, or credit, while the 6% per annum under Art.
above, shall be 12% per annum from such finality until its 2209 of the Civil Code applies when the transaction
satisfaction, this interim period being deemed to be by then an involves the payment of indemnities in the concept of
equivalent to a forbearance of credit. damage arising from the breach or a delay in the
performance of obligations in general, with the application
of both rates reckoned from the time the complaint was filed until
No evidence was presented by Alfredo that he had sent a written demand to the [adjudged] amount is fully paid. In either instance, the
Land Bank before he filed the collection suit. Only the verbal agreement between reckoning period for the commencement of the running of the
the lawyers of the parties on the return of the payment was legal interest shall be subject to the condition that the courts are
mentioned.[29] Consequently, the obligation of Land Bank to return the payment vested with discretion, depending on the equities of each case,
made by Alfredo upon the formers denial of the latters application for assumption on the award of interest.[30](Emphasis supplied.)
of mortgage must be reckoned from the date of judicial demand on December
12, 1997, as correctly determined by the trial court and affirmed by the appellate
court. Based on our ruling above, forbearance of money refers to the contractual
obligation of the lender or creditor to desist for a fixed period from requiring the
The next question is the propriety of the imposition of interest and the borrower or debtor to repay the loan or debt then due and for which 12% per
proper imposable rate of applicable interest. The RTC granted the rate of 12% annum is imposed as interest in the absence of a stipulated rate. In the instant
per annum which was affirmed by the CA. From the above-quoted guidelines, case, Alfredos conditional payment to Land Bank does not constitute forbearance
however, the proper imposable interest rate is 6% per annum pursuant to Art. of money, since there was no agreement or obligation for Alfredo to pay Land
2209 of the Civil Code. Sunga-Chan v. Court of Appeals is illuminating in this Bank the amount of PhP 750,000, and the obligation of Land Bank to return what
regard: Alfredo has conditionally paid is still in dispute and has not yet been determined.
Thus, it cannot be said that Land Banks alleged obligation has become a
In Reformina v. Tomol, Jr., the Court held that the legal forbearance of money.
interest at 12% per annum under Central Bank (CB) Circular No.
416 shall be adjudged only in cases involving the loan or On the award of attorneys fees, attorneys fees and expenses of litigation
forbearance of money. And for transactions involving were awarded because Alfredo was compelled to litigate due to the unjust refusal
payment of indemnities in the concept of damages arising of Land Bank to refund the amount he paid. There are instances when it is just
from default in the performance of obligations in and equitable to award attorneys fees and expenses of litigation.[31] Art. 2208 of
general and/or for money judgment not involving a loan or the Civil Code pertinently states:
compensation6 filed by petitioner Union Bank of the Philippines (Union Bank)
In the absence of stipulation, attorneys fees and against respondent Development Bank of the Philippines (DBP).
expenses of litigation, other than judicial costs, cannot be
recovered, except: The Facts

xxxx
Foodmasters, Inc. (FI) had outstanding loan obligations to both Union Bank’s
(2) When the defendants act or omission has predecessor-in-interest, Bancom Development Corporation (Bancom), and to
compelled the plaintiff to litigate with third persons or to incur DBP.
expenses to protect his interest.
On May 21, 1979, FI and DBP, among others, entered into a Deed of Cession of
Property In Payment of Debt7(dacion en pago) whereby the former ceded in
Given that Alfredo was indeed compelled to litigate against Land Bank favor of the latter certain properties (including a processing plant in Marilao,
and incur expenses to protect his interest, we find that the award falls under the Bulacan [processing plant]) in consideration of the following: (a) the full and
exception above and is, thus, proper given the circumstances. complete satisfaction of FI’s loan obligations to DBP; and (b) the direct
assumption by DBP of FI’s obligations to Bancom in the amount of
On a final note. The instant case would not have been litigated had Land Bank ₱17,000,000.00 (assumed obligations).8
been more circumspect in dealing with Alfredo. The bank chose to accept
payment from Alfredo even before a credit investigation was underway, a
On the same day, DBP, as the new owner of the processing plant, leased
procedure worsened by the failure to even inform him of his credit standings
back9 for 20 years the said property to FI (Lease Agreement) which was, in
impact on his assumption of mortgage. It was, therefore, negligent to a certain turn, obliged to pay monthly rentals to be shared by DBP and Bancom.
degree in handling the transaction with Alfredo. It should be remembered that
the business of a bank is affected with public interest and it should observe a
higher standard of diligence when dealing with the public.[32] DBP also entered into a separate agreement10 with Bancom (Assumption
Agreement) whereby the former: (a) confirmed its assumption of FI’s
WHEREFORE, the appeal is DENIED. The CA Decision in CA-G.R. CR-CV No. obligations to Bancom; and (b) undertook to remit up to 30% of any and all
84445 is AFFIRMED with MODIFICATION in that the amount of PhP 750,000 rentals due from FI to Bancom (subject rentals) which would serve as payment
will earn interest at 6% per annum reckoned from December 12, 1997, and the of the assumed obligations, to be paid in monthly installments. The pertinent
total aggregate monetary awards will in turn earn 12% per annum from the portions of the Assumption Agreement reads as follows:
finality of this Decision until fully paid.
WHEREAS, DBP has agreed and firmly committed in favor of Bancom that the
SO ORDERED. above obligations to Bancom which DBP has assumed shall be settled, paid
and/or liquidated by DBP out of a portion of the lease rentals or part of the
proceeds of sale of those properties of the Assignors conveyed to DBP pursuant
G.R. No. 191555 January 20, 2014 to the [Deed of Cession of Property in Payment of Debt dated May 21, 1979]
and which are the subject of [the Lease Agreement] made and executed by
and between DBP and [FI], the last hereafter referred to as the "Lessee" to be
UNION BANK OF THE PHILIPPINES, Petitioner, effective as of July 31, 1978.
vs.
DEVELOPMENT BANK OF THE PHILIPPINES, Respondent.
xxxx
DECISION
4. DBP hereby covenants and undertakes that the amount up to 30% of any
and all rentals due from the Lessee pursuant to the Lease Agreement shall be
PERLAS-BERNABE, J.:
remitted by DBP to Bancom at the latter’s offices at Pasay Road, Makati, Metro
Manila within five (5) days from due dates thereof, and applied in payment of
Assailed in this petition for review on Certiorari1 are the Decision2 dated the Assumed Obligations. Likewise, the amount up to 30% of the proceeds
November 3, 2009 and Resolution3 dated February 26, 2010 of the Court of from any sale of the Leased Properties shall within the same period above, be
Appeals (CA) in CA-G.R. SP No. 93833 which affirmed the Orders4 dated remitted by DBP to Bancom and applied in payment or prepayment of the
November 9, 2005 and January 30, 2006 of the Regional Trial Court of Makati, Assumed Obligations. x x x.
Branch 585 (RTC) in Civil Case No. 7648 denying the motion to affirm legal
Any balance of the Assumed Obligations after application of the entire rentals It rejected Union Bank’s claim that DBP has the direct obligation to remit the
and or the entire sales proceeds actually received by Bancom on the Leased subject rentals not only from FW’s rental payments but also out of its own
Properties shall be paid by DBP to Bancom not later than December 29, 1998. resources since said claim contravened the "plain meaning" of the Assumption
(Emphases supplied) Agreement which specifies that the payment of the assumed obligations shall
be made "out of the portion of the lease rentals or part of the proceeds of the
Meanwhile, on May 23, 1979, FI assigned its leasehold rights under the Lease sale of those properties of [FI] conveyed to DBP."21 It also construed the
Agreement to Foodmasters Worldwide, Inc. (FW);11 while on May 9, 1984, phrase under the Assumption Agreement that DBP is obligated to "pay any
Bancom conveyed all its receivables, including, among others, DBP’s assumed balance of the Assumed Obligations after application of the entire rentals
obligations, to Union Bank.12 and/or the entire sales proceeds actually received by [Union Bank] on the
Leased Properties . . . not later than December 29, 1998" to mean that the
lease rentals must first be applied to the payment of the assumed obligations
Claiming that the subject rentals have not been duly remitted despite its in the amount of ₱17,000,000.00, and that DBP would have to pay out of its
repeated demands, Union Bank filed, on June 20, 1984, a collection case own money only in case the lease rentals were insufficient, having only until
against DBP before the RTC, docketed as Civil Case No. 7648.13 In opposition, December 29, 1998 to do so. Nevertheless, the monthly installments in
DBP countered, among others, that the obligations it assumed were payable satisfaction of the assumed obligations would still have to be first sourced from
only out of the rental payments made by FI. Thus, since FI had yet to pay the said lease rentals as stipulated in the assumption agreement.22 In view of the
same, DBP’s obligation to Union Bank had not arisen.14 In addition, DBP sought foregoing, the CA ruled that DBP did not default in its obligations to remit the
to implead FW as third party-defendant in its capacity as FI’s assignee and, subject rentals to Union Bank precisely because it had yet to receive the rental
thus, should be held liable to Union Bank.15 payments of FW.23

In the interim, or on May 6, 1988, DBP filed a motion to dismiss on the ground Separately, the CA upheld the RTC’s denial of DBP’s motion to dismiss for the
that it had ceased to be a real-party-in-interest due to the supervening transfer reason that the transfer of its rights, title and interests over the subject matter
of its rights, title and interests over the subject matter to the Asset to the APT occurred pendente lite, and, as such, the substitution of parties is
Privatization Trust (APT). Said motion was, however, denied by the RTC in an largely discretionary on the part of the court.
Order dated May 27, 1988.16
At odds with the CA’s ruling, Union Bank and DBP filed separate petitions for
The RTC Ruling in Civil Case No. 7648 review on certiorari before the Court, respectively docketed as G.R. Nos.
115963 and 119112, which were thereafter consolidated.
Finding the complaint to be meritorious, the RTC, in a Decision17 dated May 8,
1990, ordered: (a) DBP to pay Union Bank the sum of ₱4,019,033.59, The Court’s Ruling in G.R. Nos. 115963 & 119112
representing the amount of the subject rentals (which, again, constitutes 30%
of FI’s [now FW’s] total rental debt), including interest until fully paid; and (b)
FW, as third-party defendant, to indemnify DBP, as third- party plaintiff, for its The Court denied both petitions in a Resolution24 dated December 13, 1995.
payments of the subject rentals to Union Bank. It ruled that there lies no First, it upheld the CA’s finding that while DBP directly assumed FI’s obligations
evidence which would show that DBP’s receipt of the rental payments from FW to Union Bank, DBP was only obliged to remit to the latter 30% of the lease
is a condition precedent to the former’s obligation to remit the subject rentals rentals collected from FW, from which any deficiency was to be settled by DBP
under the Lease Agreement. Thus, when DBP failed to remit the subject rentals not later than December 29, 1998.25 Similarly, the Court agreed with the CA
to Union Bank, it defaulted on its assumed obligations.18 DBP then elevated the that the denial of DBP’s motion to dismiss was proper since substitution of
case on appeal before the CA, docketed as CA-G.R. CV No. 35866. parties, in case of transfers pendente lite, is merely discretionary on the part of
the court, adding further that the proposed substitution of APT will amount to a
novation of debtor which cannot be done without the consent of the creditor.26
The CA Ruling in CA-G.R. CV No. 35866
On August 2, 2000, the Court’s resolution became final and executory.27
In a Decision19 dated May 27, 1994 (May 27, 1994 Decision), the CA set aside
the RTC’s ruling, and consequently ordered: (a) FW to pay DBP the amount of
₱32,441,401.85 representing the total rental debt incurred under the Lease The RTC Execution Proceedings
Agreement, including ₱10,000.00 as attorney’s fees; and (b) DBP, after having
been paid by FW its unpaid rentals, to remit 30% thereof (i.e., the subject On May 16, 2001, Union Bank filed a motion for execution28 before the RTC,
rentals) to Union Bank.20 praying that DBP be directed to pay the amount of ₱9,732,420.555 which
represents the amount of the subject rentals (i.e., 30% of the FW’s total rental
debt in the amount of ₱32,441,401.85). DBP opposed29 Union Bank’s motion,
contending that it sought to effectively vary the dispositive portion of the CA’s to Union Bank for remittance of the lease payments is contingent on FW’s prior
May 27, 1994 Decision in CA-G.R. CV No. 35866. Also, on September 12, payment to DBP, and that any deficiency DBP had to pay by December 29,
2001, DBP filed its own motion for execution against FW, citing the same CA 1998 as per the Assumption Agreement cannot be determined until after the
decision as its basis. satisfaction of FW’s own rental obligations to DBP. Accordingly, the Court: (a)
nullified the October 15, 2001 Writ of Execution and all related issuances
In a Consolidated Order30 dated October 15, 2001 (Order of Execution), the thereto; and (b) ordered Union Bank to return to DBP the amounts it received
RTC granted both motions for execution. Anent Union Bank’s motion, the RTC pursuant to the said writ.40 Dissatisfied, Union Bank moved for reconsideration
opined that the CA’s ruling that DBP’s payment to Union Bank shall be which was, however, denied by the Court in a Resolution dated March 24, 2004
demandable only upon payment of FW must be viewed in light of the date with finality. Thus, the January 13, 2004 Decision attained finality on April 30,
when the same was rendered. It noted that the CA decision was promulgated 2004.41 Thereafter, DBP moved for the execution of the said decision before
only on May 27, 1994, which was before the December 29, 1998 due date the RTC. After numerous efforts on the part of Union Bank proved futile, the
within which DBP had to fully pay its obligation to Union Bank under the RTC issued a writ of execution (September 6, 2005 Writ of Execution), ordering
Assumption Agreement. Since the latter period had already lapsed, "[i]t would, Union Bank to return to DBP all funds it received pursuant to the October 15,
thus, be too strained to argue that payment by DBP of its assumed 2001 Writ of Execution.42
obligation[s] shall be dependent on [FW’s] ability, if not availability, to
pay."31 In similar regard, the RTC granted DBP’s motion for execution against Union Bank’s Motion to Affirm Legal Compensation
FW since its liability to Union Bank and DBP remained undisputed.
On September 13, 2005, Union Bank filed a Manifestation and Motion to Affirm
As a result, a writ of execution32 dated October 15, 2001 (October 15, 2001 Legal Compensation,43 praying that the RTC apply legal compensation between
Writ of Execution) and, thereafter, a notice of garnishment33 against DBP were itself and DBP in order to offset the return of the funds it previously received
issued. Records, however, do not show that the same writ was implemented from DBP. Union Bank anchored its motion on two grounds which were
against FW. allegedly not in existence prior to or during trial, namely: (a) on December 29,
1998, DBP’s assumed obligations became due and demandable;44 and (b)
DBP filed a motion for reconsideration34 from the Execution Order, averring considering that FWI became non-operational and non-existent, DBP became
that the latter issuance varied the import of the CA’s May 27, 1994 Decision in primarily liable to the balance of its assumed obligation, which as of Union
CA-G.R. CV No. 35866 in that it prematurely ordered DBP to pay the assumed Bank’s computation after its claimed set-off, amounted to ₱1,849,391.87.45
obligations to Union Bank before FW’s payment. The motion was, however,
denied on December 5, 2001.35 Thus, DBP’s deposits were eventually On November 9, 2005, the RTC issued an Order46 denying the above-
garnished.36 Aggrieved, DBP filed a petition for certiorari37 before the CA, mentioned motion for lack of merit, holding that Union Bank’s stated grounds
docketed as CA-G.R. SP No. 68300. were already addressed by the Court in the January 13, 2004 Decision in G.R.
No. 155838. With Union Bank’s motion for reconsideration therefrom having
The CA Ruling in CA-G.R. SP No. 68300 been denied, it filed a petition for certiorari47 with the CA, docketed as CA-G.R.
SP No. 93833.

In a Decision38 dated July 26, 2002, the CA dismissed DBP’s petition, finding
that the RTC did not abuse its discretion when it issued the October 15, 2001 Pending resolution, Union Bank issued Manager’s Check48 No. 099-0003192363
Writ of Execution. It upheld the RTC’s observation that there was "nothing dated April 21, 2006 amounting to ₱52,427,250.00 in favor of DBP, in
wrong in the manner how [said writ] was implemented," as well as "in the satisfaction of the Writ of Execution dated September 6, 2005 Writ of
zealousness and promptitude exhibited by Union Bank" in moving for the same. Execution. DBP, however, averred that Union Bank still has a balance of
DBP appealed the CA’s ruling before the Court, which was docketed as G.R. No. ₱756,372.39 representing a portion of the garnished funds of DBP,49 which
155838. means that said obligation had not been completely extinguished.

The Court’s Ruling in G.R. No. 155838 The CA Ruling in CA-G.R. SP No. 93833

In a Decision39 dated January 13, 2004 (January 13, 2004 Decision), the Court In a Decision50 dated November 3, 2009, the CA dismissed Union Bank’s
granted DBP’s appeal, and thereby reversed and set aside the CA’s ruling in petition, finding no grave abuse of discretion on the RTC’s part. It affirmed the
CA-G.R. SP No. 68300. It found significant points of variance between the CA’s denial of its motion to affirm legal compensation considering that: (a) the RTC
May 27, 1994 Decision in CA-G.R. CV No. 35866, and the RTC’s Order of only implemented the Court’s January 13, 2004 Decision in G.R. No. 155838
Execution/October 15, 2001 Writ of Execution. It ruled that both the body and which by then had already attained finality; (b) DBP is not a debtor of Union
the dispositive portion of the same decision acknowledged that DBP’s obligation Bank; and (c) there is neither a demandable nor liquidated debt from DBP to
Union Bank.51
Undaunted, Union Bank moved for reconsideration which was, however, denied obligations to Union Bank for remittance of the lease payments are – in the
in a Resolution52 dated February 26, 2010; hence, the instant petition. Court’s words in its Decision dated January 13, 2004 in G.R. No. 155838 – "
contingent on the prior payment thereof by [FW] to DBP," it cannot be said
The Issue Before the Court that both debts are due (requisite 3 of Article 1279 of the Civil Code). Also, in
the same ruling, the Court observed that any deficiency that DBP had to make
up (by December 29, 1998 as per the Assumption Agreement) for the full
The sole issue for the Court’s resolution is whether or not the CA correctly satisfaction of the assumed obligations " cannot be determined until after the
upheld the denial of Union Bank’s motion to affirm legal compensation. satisfaction of Foodmasters’ obligation to DBP." In this regard, it cannot be
concluded that the same debt had already been liquidated, and thereby
The Court’s Ruling became demandable (requisite 4 of Article 1279 of the Civil Code).

The petition is bereft of merit. Compensation is defined as a mode of The aforementioned Court decision had already attained finality on April 30,
extinguishing obligations whereby two persons in their capacity as principals 200455 and, hence, pursuant to the doctrine of conclusiveness of judgment, the
are mutual debtors and creditors of each other with respect to equally facts and issues actually and directly resolved therein may not be raised in any
liquidated and demandable obligations to which no retention or controversy has future case between the same parties, even if the latter suit may involve a
been timely commenced and communicated by third parties.53 The requisites different cause of action.56 Its pertinent portions are hereunder quoted for
therefor are provided under Article 1279 of the Civil Code which reads as ready reference:57
follows:
Both the body and the dispositive portion of the [CA’s May 27, 1994 Decision in
Art. 1279. In order that compensation may be proper, it is necessary: CA-G.R. CV No. 35866] correctly construed the nature of DBP’s liability for the
lease payments under the various contracts, to wit:
(1) That each one of the obligors be bound principally, and that he be
at the same time a principal creditor of the other; x x x Construing these three contracts, especially the "Agreement" x x x
between DBP and Bancom as providing for the payment of DBP’s assumed
obligation out of the rentals to be paid to it does not mean negating DBP’s
(2) That both debts consist in a sum of money, or if the things due are
assumption "for its own account" of the ₱17.0 million debt x x x. It only means
consumable, they be of the same kind, and also of the same quality if
the latter has been stated; that they provide a mechanism for discharging [DBP’s] liability. This liability
subsists, since under the "Agreement" x x x, DBP is obligated to pay "any
balance of the Assumed Obligations after application of the entire rentals and
(3) That the two debts be due; or the entire sales proceeds actually received by [Union Bank] on the Leased
Properties … not later than December 29, 1998." x x x It only means that the
(4) That they be liquidated and demandable; lease rentals must first be applied to the payment of the ₱17 million debt and
that [DBP] would have to pay out of its money only in case of insufficiency of
the lease rentals having until December 29, 1998 to do so. In this sense, it is
(5) That over neither of them there be any retention or controversy,
correct to say that the means of repayment of the assumed obligation is not
commenced by third persons and communicated in due time to the
limited to the lease rentals. The monthly installments, however, would still
debtor.1awp++i1 (Emphases and underscoring supplied)
have to come from the lease rentals since this was stipulated in the
"Agreement."
The rule on legal54 compensation is stated in Article 1290 of the Civil Code
which provides that "[w]hen all the requisites mentioned in Article 1279 are
xxxx
present, compensation takes effect by operation of law, and extinguishes both
debts to the concurrent amount, even though the creditors and debtors are not
aware of the compensation." Since, as already stated, the monthly installments for the payment of the ₱17
million debt are to be funded from the lease rentals, it follows that if the lease
rentals are not paid, there is nothing for DBP to remit to [Union Bank], and
In this case, Union Bank filed a motion to seek affirmation that legal
thus [DBP] should not be considered in default. It is noteworthy that, as stated
compensation had taken place in order to effectively offset (a) its own
in the appealed decision, "as regards plaintiff’s claim for damages against
obligation to return the funds it previously received from DBP as directed under
defendant for its alleged negligence in failing and refusing to enforce a lessor’s
the September 6, 2005 Writ of Execution with (b) DBP’s assumed obligations
remedies against Foodmasters Worldwide, Inc., the Court finds no competent
under the Assumption Agreement. However, legal compensation could not have
and reliable evidence of such claim."
taken place between these debts for the apparent reason that requisites 3 and
4 under Article 1279 of the Civil Code are not present. Since DBP’s assumed
xxxx

WHEREFORE, the decision appealed from is SET ASIDE and another one is
RENDERED, Republic of the Philippines
Supreme Court
(i) Ordering third-party defendant-appellee Foodmasters Worldwide, Manila
Inc. to pay defendant and third-party plaintiff-appellant Development
Bank of the Philippines the sum of ₱32,441,401.85, representing the
unpaid rentals from August 1981 to June 30, 1987, as well as SECOND DIVISION
₱10,000.00 for attorney’s fees; and

CRESENCIO C. MILLA, G.R. No. 188726


(ii) Ordering defendant and third-party plaintiff-appellant Development
Bank of the Philippines after having been paid by third-party Petitioner,
defendant-appellee the sum of ₱32,441,401.85, to remit 30% thereof
to plaintiff-appellee Union Bank of the Philippines. Present:

SO ORDERED.
CARPIO, J.,
In other words, both the body and the dispositive portion of the aforequoted
- versus - Chairperson,
decision acknowledged that DBP’s obligation to Union Bank for remittance of
the lease payments is contingent on the prior payment thereof by Foodmasters PEREZ,
to DBP.
SERENO,
A careful reading of the decision shows that the Court of Appeals, which was
REYES, and
affirmed by the Supreme Court, found that only the balance or the deficiency
of the ₱17 million principal obligation, if any, would be due and demandable as PERLAS-BERNABE,* JJ.
of December 29, 1998. Naturally, this deficiency cannot be determined until
after the satisfaction of Foodmasters obligation to DBP, for remittance to Union PEOPLE OF THE PHILIPPINES and MARKET Promulgated:
Bank in the proportion set out in the 1994 Decision. (Emphases and PURSUITS, INC. represented by CARLO V.
underscoring supplied; citations omitted) LOPEZ,

Respondents. January 25, 2012


xxxx

In fine, since requisites 3 and 4 of Article 1279 of the Civil Code have not
x-------------------------------------------------
concurred in this case, no legal compensation could have taken place between
- -x
the above-stated debts pursuant to Article 1290 of the Civil Code. Perforce, the
petition must be denied, and the denial of Union Bank s motion to affirm legal
compensation sustained.
DECISION
WHEREFORE, the petition is DENIED. The Decision dated November 3, 2009 SERENO, J.:
and Resolution dated February 26, 2010 of the Court of Appeals in CA-G.R. SP
No. 93833 are hereby AFFIRMED.
This is a Petition for Certiorari assailing the 22 April 2009 Decision[1] and
8 July 2009 Resolution[2] of the Court of Appeals, affirming the Decision of the
SO ORDERED. trial court finding petitioner Cresencio C. Milla (Milla) guilty of two counts
of estafa through falsification of public documents.

Respondent Carlo Lopez (Lopez) was the Financial Officer of private respondent,
Market Pursuits, Inc. (MPI). In March 2003, Milla represented himself as a real
estate developer from Ines Anderson Development Corporation, which was Public for and in the City of Makati, denominated as Doc. No.
engaged in selling business properties in Makati, and offered to sell MPI a 297, Page No. 61, Book No. 69, Series of 2003 in his Notarial
property therein located. For this purpose, he Register, hence, a public document, by causing it to appear that
showed Lopez a photocopy of Transfer Certificate of Title (TCT) No. 216445 the registered owners of the property covered by TCT No.
registered in the name of spouses Farley and Jocelyn Handog (Sps. Handog), as 216445 have sold their land to complainant Market Pursuits,
well as a Special Power of Attorney purportedly executed by the spouses in favor Inc. when in truth and in fact the said Deed of Absolute Sale
of Milla.[3] Lopez verified with the Registry of Deeds of Makati and confirmed that was not executed by the owners thereof and after the document
the property was indeed registered under the names of Sps. Handog. Since Lopez was falsified, accused, with intent to defraud complainant
was convinced by Millas authority, MPI purchased the property for P2 million, Market Pursuits, Inc. presented the falsified Deed of Sale to
issuing Security Bank and Trust Co. (SBTC) Check No. 154670 in the amount complainant, herein represented by Carlo V. Lopez, and
of P1.6 million. After receiving the check, Milla gave Lopez (1) a notarized Deed complainant believing in the genuineness of the Deed of
of Absolute Sale dated 25 March 2003 executed by Sps. Handog in favor of MPI Absolute Sale paid accused the amount of P1,600,000.00 as
and (2) an original Owners Duplicate Copy of TCT No. 216445.[4] partial payment for the property, to the damage and prejudice
of complainant in the aforementioned amount of P1,600,000.00
Milla then gave Regino Acosta (Acosta), Lopezs partner, a copy of the
new Certificate of Title to the property, TCT No. 218777, registered in the name CONTRARY TO LAW.
of MPI. Thereafter, it tendered in favor of Milla SBTC Check No. 15467111 in the CRIMINAL CASE NO. 034168
amount of P400,000 as payment for the balance.[5]

Milla turned over TCT No. 218777 to Acosta, but did not furnish the latter
with the receipts for the transfer taxes and other costs incurred in the transfer That on or about the 3rd day of April 2003, in the City of Makati,
of the property. This failure to turn over the receipts prompted Lopez to check Philippines and within the jurisdiction of this Honorable Court,
with the Register of Deeds, where he discovered that (1) the Certificate of Title the above-named accused, a private individual, did then and
given to them by Milla could not be found therein; (2) there was no transfer of there wilfully, unlawfully and feloniously falsify a document
the property from Sps. Handog to MPI; and (3) TCT No. 218777 was registered denominated as Transfer Certificate of Title No. 218777
in the name of a certain Matilde M. Tolentino.[6] purportedly issued by the Register of Deeds of Makati City,
hence, a public document, by causing it to appear that the lot
Consequently, Lopez demanded the return of the amount of P2 million covered by TCT No. 218777 was already registered in the name
from Milla, who then issued Equitable PCI Check Nos. 188954 and 188955 dated of complainant Market Pursuits, Inc., herein represented by
20 and 23 May 2003, respectively, in the amount of P1 million each. However, Carlo V. Lopez, when in truth and in fact, as said accused well
these checks were dishonored for having been drawn against insufficient funds. knew that the Register of Deeds of Makati did not issue TCT No.
When Milla ignored the demand letter sent by Lopez, the latter, by virtue of the 218777 in the name of Market Pursuits Inc., and after the
authority vested in him by the MPI Board of Directors, filed a Complaint against document was falsified, accused with
the former on 4 August 2003. On 27 and 29 October 2003, two Informations intent to defraud complainant and complainant believing in the
for Estafa Thru Falsification of Public Documents were filed against Milla and genuineness of Transfer Certificate of Title No. 218777 paid
were raffled to the Regional Trial Court, National Capital Judicial Region, Makati accused the amount of P400,000.00, to the damage and
City, Branch 146 (RTC Br. 146).[7] Milla was accused of having prejudice of complainant in the aforementioned amount of
committed estafa through the falsification of the notarized Deed of Absolute Sale P4000,000.00 (sic).
and TCT No. 218777 purportedly issued by the Register of Deeds of Makati, viz: CONTRARY TO LAW.[8]

CRIMINAL CASE NO. 034167


After the prosecution rested its case, Milla filed, with leave of court, his
Demurrer to Evidence.[9] In its Order dated 26 January 2006, RTC Br. 146 denied
the demurrer and ordered him to present evidence, but he failed to do so despite
That on or about the 25th day of March 2003, in the City having been granted ample opportunity.[10] Though the court considered his right
of Makati, Philippines and within the jurisdiction of this to present evidence to have been consequently waived, it nevertheless allowed
Honorable Court, the above-named accused, a private him to file a memorandum.[11]
individual, did then and there, wilfully, unlawfully and
feloniously falsify a document denomindated as Deed of
Absolute Sale, duly notarized by Atty. Lope M. Velasco, a Notary
In its Joint Decision dated 28 November 2006,[12] RTC Br. 146 found V. Whether the supposed inconsistent statements of
Milla guilty beyond reasonable doubt of two counts of estafa through falsification prosecution witnesses cast a doubt on the guilt of petitioner.[16]
of public documents, thus:
In its Comment, MPI argues that (1) Milla was not deprived of due process on
the ground of gross negligence of counsel; (2) under the Revised Penal Code,
WHEREFORE, judgment is rendered finding the accused novation is not one of the grounds for the extinction of criminal liability
Cresencio Milla guilty beyond reasonable doubt of two (2) for estafa; and (3) factual findings of the trial court, when affirmed by the Court
counts of estafa through falsification of public documents. of Appeals, are final and conclusive.[17]
Applying the indeterminate sentence law and considering that
the amount involved is more than P22,000,00 this Court should On the other hand, in its Comment, the Office of the Solicitor General contends
apply the provision that an additional one (1) year should be that (1) Milla was accorded due process of law; (2) the elements of the crime
imposed for every ten thousand (P10,000.00) pesos in excess charged against him were established during trial; (3) novation is not a ground
of P22,000.00, thus, this Court is constrained to impose the for extinction of criminal liability for estafa; (4) the money received by Milla from
Indeterminate (sic) penalty of four (4) years, two (2) months Lopez was not in the nature of a simple loan or cash advance; and (5) Lopez was
one (1) day of prision correccional as minimum to twenty (20) duly authorized by MPI to institute the action.[18]
years of reclusion temporal as maximum for each count.
In his Consolidated Reply, Milla reiterates that the negligence of his former
counsel warrants a reopening of the case, wherein he can present evidence to
prove that his transaction with MPI was in the nature of a simple loan.[19]
Accused is adjudged to be civilly liable to the private
complainant and is ordered pay (sic) complainant the total
In the disposition of this case, the following issues must be resolved:
amount of TWO MILLION (P2,000,000.00) PESOS with legal
rate of interest from the filing of the Information until the same
is fully paid and to pay the costs. He is further ordered to pay I. Whether the negligence of counsel deprived Milla of due
attorneys fees equivalent to ten (10%) of the total amount due process of law
as and for attorneys fees. A lien on the monetary award is
constituted in favor of the government, the private complainant II. Whether the principle of novation can exculpate Milla from
not having paid the required docket fee prior to the filing of the criminal liability
Information.
III. Whether the factual findings of the trial court, as affirmed
by the appellate court, should be reviewed on appeal
SO ORDERED.[13]
We resolve to deny the Petition.
On appeal, the Court of Appeals, in the assailed Decision dated 22 April
2009, affirmed the findings of the trial court.[14] In its assailed Resolution dated
8 July 2009, it also denied Millas subsequent Motion for Reconsideration.[15] Milla was not deprived of
due process.
In the instant Petition, Milla alleges that the Decision and the Resolution
of the Court of Appeals were not in accordance with law and jurisprudence. He Milla argues that the negligence of his former counsel, Atty. Manuel V. Mendoza
raises the following issues: (Atty. Mendoza), deprived him of due process. Specifically, he states that after
the prosecution had rested its case, Atty. Mendoza filed a Demurrer to Evidence,
I. Whether the case should be reopened on the ground of and that the former was never advised by the latter of the demurrer. Thus, Milla
negligence of counsel; was purportedly surprised to discover that RTC Br. 146 had already rendered
judgment finding him guilty, and that it had issued a warrant for his arrest. Atty.
II. Whether the principle of novation is applicable; Mendoza filed an Omnibus Motion for Leave to File Motion for New Trial, which
Milla claims to have been denied by the trial court for being an inappropriate
remedy, thus, demonstrating his counsels negligence. These contentions cannot
III. Whether the principle of simple loan is applicable;
be given any merit.
IV. Whether the Secretarys Certificate presented by the
The general rule is that the mistake of a counsel binds the client, and it is only
prosecution is admissible in evidence;
in instances wherein the negligence is so gross or palpable that courts must step
in to grant relief to the aggrieved client.[20] In this case, Milla was able to file a Even in Civil Law the acceptance of partial
Demurrer to Evidence, and upon the trial courts denial thereof, was allowed to payments, without further change in the original relation
present evidence.[21] Because of his failure to do so, RTC Br. 146 was justified in between the complainant and the accused, can not
considering that he had waived his right thereto. Nevertheless, the trial court produce novation. For the latter to exist, there must be
still allowed him to submit a memorandum in the interest of justice. Further, proof of intent to extinguish the original relationship,
contrary to his assertion that RTC Br. 146 denied the Motion to Recall Warrant and such intent can not be inferred from the mere
of Arrest thereafter filed by his former counsel, a reading of the 2 August 2007 acceptance of payments on account of what is totally
Order of RTC Br. 146 reveals that it partially denied the Omnibus Motion for New due. Much less can it be said that the acceptance of partial
Trial and Recall of Warrant of Arrest, but granted the Motion for Leave of Court satisfaction can effect the nullification of a criminal liability that
to Avail of Remedies under the Rules of Court, allowing him to file an appeal and is fully matured, and already in the process of enforcement.
lifting his warrant of arrest.[22] Thus, this Court has ruled that the offended partys
acceptance of a promissory note for all or part of the
It can be gleaned from the foregoing circumstances that Milla was given amount misapplied does not obliterate the criminal
opportunities to defend his case and was granted concomitant reliefs. Thus, it offense(Camus vs. Court of Appeals, 48 Off. Gaz.
cannot be said that the mistake and negligence of his former counsel were so 3898).[24] (Emphasis supplied.)
gross and palpable to have deprived him of due process.

Further, in Quinto v. People,[25] this Court exhaustively explained the concept of


novation in relation to incipient criminal liability, viz:
The principle of novation
cannot be applied to the
case at bar. Novation is never presumed, and the animus
novandi, whether totally or partially, must appear by express
Milla contends that his issuance of Equitable PCI Check Nos. 188954 and 188955 agreement of the parties, or by their acts that are too clear and
before the institution of the criminal complaint against him novated his obligation unequivocal to be mistaken.
to MPI, thereby enabling him to avoid any incipient criminal liability and
converting his obligation into a purely civil one. This argument does not The extinguishment of the old obligation by the new
persuade. one is a necessary element of novation which may be effected
either expressly or impliedly. The term expressly means that
The principles of novation cannot apply to the present case as to extinguish his the contracting parties incontrovertibly disclose that their object
criminal liability. Milla cites People v. Nery[23] to support his in executing the new contract is to extinguish the old one. Upon
the other hand, no specific form is required for an implied
novation, and all that is prescribed by law would be an
incompatibility between the two contracts. While there is
really no hard and fast rule to determine what might
contention that his issuance of the Equitable PCI checks prior to the filing of the constitute to be a sufficient change that can bring about
criminal complaint averted his incipient criminal liability. However, it must be novation, the touchstone for contrariety, however, would
clarified that mere payment of an obligation before the institution of a criminal be an irreconcilable incompatibility between the old and
complaint does not, on its own, constitute novation that may prevent criminal the new obligations.
liability. This Courts ruling in Nery in fact warned:
There are two ways which could indicate, in fine, the
presence of novation and thereby produce the effect of
It may be observed in this regard that novation is not extinguishing an obligation by another which substitutes the
one of the means recognized by the Penal Code whereby same. The first is when novation has been explicitly stated and
criminal liability can be extinguished; hence, the role of declared in unequivocal terms. The second is when the old and
novation may only be to either prevent the rise of criminal the new obligations are incompatible on every point. The test
liability or to cast doubt on the true nature of the original of incompatibility is whether or not the two obligations
petition, whether or not it was such that its breach would not can stand together, each one having its independent
give rise to penal responsibility, as when money loaned is made existence. If they cannot, they are incompatible and the
to appear as a deposit, or other similar disguise is resorted to latter obligation novates the first. Corollarily, changes
(cf. Abeto vs. People, 90 Phil. 581; Villareal, 27 Phil. 481). that breed incompatibility must be essential in nature
and not merely accidental. The incompatibility must take
place in any of the essential elements of the obligation, property of another without right. Verily, the sale of the pieces
such as its object, cause or principal conditions thereof; of jewelry on installments (sic) in contravention of the explicit
otherwise, the change would be merely modificatory in terms of the authority granted to her in Exhibit A (supra) is
nature and insufficient to extinguish the original deemed to be one of conversion. Thus, neither the theory of
obligation. delay in the fulfillment of commission nor that of novation posed
by petitioner, can avoid the incipient criminal liability. In People
The changes alluded to by petitioner consists vs. Nery, this Court held:
only in the manner of payment. There was really no
substitution of debtors since private complainant merely xxx xxx xxx
acquiesced to the payment but did not give her consent to enter
into a new contract. The appellate court observed: The criminal liability for estafa already
xxx xxx xxx committed is then not affected by the subsequent
novation of contract, for it is a public offense which must
The acceptance by complainant of be prosecuted and punished by the State in its own
partial payment tendered by the buyer, conation. (Emphasis supplied.)[26]
Leonor Camacho, does not evince the
intention of the complainant to have their In the case at bar, the acceptance by MPI of the Equitable PCI checks tendered
agreement novated. It was simply by Milla could not have novated the original transaction, as the checks were only
necessitated by the fact that, at that time, intended to secure the return of the P2 million the former had already given him.
Camacho had substantial accounts Even then, these checks bounced and were thus unable to satisfy his liability.
payable to complainant, and because of Moreover, the estafa involved here was not for simple misappropriation or
the fact that appellant made herself conversion, but was committed through Millas falsification of public documents,
scarce to complainant. (TSN, April 15, the liability for which cannot be extinguished by mere novation.
1981, 31-32) Thus, to obviate the
situation where complainant would end
up with nothing, she was forced to
receive the tender of Camacho. Moreover, The Court of Appeals was
it is to be noted that the aforesaid payment correct in affirming the
was for the purchase, not of the jewelry trial courts finding of guilt.
subject of this case, but of some other jewelry
subject of a previous transaction. (Ibid. June Finally, Milla assails the factual findings of the trial court. Suffice it to say that
8, 1981, 10-11) factual findings of the trial court, especially when affirmed by the appellate court,
are binding on and accorded great respect by this Court.[27]
xxx xxx xxx
There was no reversible error on the part of the Court of Appeals when it affirmed
Art. 315 of the Revised Penal Code defines estafa and the finding of the trial court that Milla was guilty beyond reasonable doubt of the
penalizes any person who shall defraud another by offense of estafathrough falsification of public documents. The prosecution was
misappropriating or converting, to the prejudice of another, able to prove the existence of all the elements of the crime charged. The relevant
money, goods, or any other personal property received by the provisions of the Revised Penal Code read:
offender in trust or on commission, or for administration, or
under any other obligation involving the duty to make delivery
of or to return the same, even though such obligation be totally
Art. 172. Falsification by private individual and use of
or partially guaranteed by a bond; or by denying having
falsified documents. The penalty of prision correccional in its
received such money, goods, or other property. It is axiomatic
medium and maximum periods and a fine of not more than 5,000
that the gravamen of the offense is the appropriation or
shall be imposed upon:
conversion of money or property received to the prejudice of
the owner. The terms convert and misappropriate have been
held to connote an act of using or disposing of anothers property
as if it were ones own or devoting it to a purpose or use different 1. Any private individual who shall commit
from that agreed upon. The phrase, to misappropriate to ones any of the falsification enumerated in the next preceding article
own use has been said to include not only conversion to ones in any public or official document or letter of exchange or any
personal advantage, but also every attempt to dispose of the other kind of commercial document
xxx xxx xxx

Art. 315. Swindling (estafa). Any person who shall


defraud another by any of the means mentioned hereinbelow
shall be punished by:

xxx xxx xxx

2. By means of any of the following false pretenses or


fraudulent acts executed prior to or simultaneously with the
commission of the fraud:

(a) By using a fictitious name, or falsely pretending to


possess power, influence, qualifications, property, credit, agency,
business or imaginary transactions; or by means of other similar
deceits.

xxx xxx xxx

It was proven during trial that Milla misrepresented himself to have the authority
to sell the subject property, and it was precisely this misrepresentation that
prompted MPI to purchase it. Because of its reliance on his authority and on the
falsified Deed of Absolute Sale and TCT No. 218777, MPI parted with its money in
the amount of P2 million, which has not been returned until now despite Millas
allegation of novation. Clearly, he is guilty beyond reasonable doubt
of estafa through falsification of public documents.

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


and Resolution of the Court of Appeals are hereby AFFIRMED.

SO ORDERED.