[ GR No. 187987, Nov 26, 2014 ] payment of rental fees amounting to P1,000.
00 per month from January 2004 or
VICENTE TORRES v. LORENZO LAPINID +
DECISION
PEREZ, J.:
This is a Petition for Review on Certiorari[1] under Rule 45 of the Rules of Court
filed by the petitioners assailing the 30 January 2009 Decision[2] and 14 May
2009 Resolution[3] of the Twentieth Division of the Court of Appeals in CA-G.R.
CV No. 02390, affirming the 15 October 2007 Decision[4] of the Regional Trial
Court of Cebu City (RTC Cebu City) which dismissed the complaint for the
declaration of nullity of deed of sale against respondent Lorenzo Lapinid (Lapinid).
The facts as reviewed are the following:
On 4 February 2006, Vicente V. Torres, Jr. (Vicente), Mariano Velez
(Mariano)[5] and Carlos Velez (petitioners) filed a Complaint[6] before RTC Cebu
City praying for the nullification of the sale of real property by respondent Jesus
Velez (Jesus) in favor of Lapinid; the recovery of possession and ownership of the
property; and the payment of damages.
Petitioners alleged in their complaint that they, including Jesus, are co-owners of
several parcels of land including the disputed Lot. No. 4389[7] located at Cogon,
Carcar, Cebu. Sometime in 1993, Jesus filed an action for partition of the parcels
of land against the petitioners and other co-owners before Branch 21 of RTC
Cebu City. On 13 August 2001, a judgment was rendered based on a
compromise agreement signed by the parties wherein they agreed that Jesus,
Mariano and Vicente were jointly authorized to sell the said properties and
receive the proceeds thereof and distribute them to all the co-owners. However,
the agreement was later amended to exclude Jesus as an authorized seller.
Pursuant to their mandate, the petitioners inspected the property and discovered
that Lapinid was occupying a specific portion of the 3000 square meters of Lot
No. 4389 by virtue of a deed of sale executed by Jesus in favor of Lapinid. It was
pointed out by petitioner that as a consequence of what they discovered, a
forcible entry case was filed against Lapinid.
The petitioners prayed that the deed of sale be declared null and void arguing
that the sale of a definite portion of a co-owned property without notice to the
other co-owners is without force and effect. Further, the complainants prayed for
from the time of deprivation of property in addition to attorney's fees and
litigation expenses.
Answering the allegations, Jesus admitted that there was a partition case
between him and the petitioners filed in 1993 involving several parcels of land
including the contested Lot No. 4389. However, he insisted that as early as 6
November 1997, a motion[8] was signed by the co-owners (including the
petitioners) wherein Lot No. 4389 was agreed to be adjudicated to the co-owners
belonging to the group of Jesus and the other lots be divided to the other co-
owners belonging to the group of Torres. Jesus further alleged that even prior to
the partition and motion, several co-owners in his group had already sold their
shares to him in various dates of 1985, 1990 and 2004.[9] Thus, when the motion
was filed and signed by the parties on 6 November 1997, his rights as a majority
co-owner (73%) of Lot No. 4389 became consolidated. Jesus averred that it was
unnecessary to give notice of the sale as the lot was already adjudicated in his
favor. He clarified that he only agreed with the 2001 Compromise Agreement
believing that it only pertained to the remaining parcels of land excluding Lot No.
4389.[10]
On his part, Lapinid admitted that a deed of sale was entered into between him
and Jesus pertaining to a parcel of land with an area of 3000 square meters.
However, he insisted on the validity of sale since Jesus showed him several deeds
of sale making him a majority owner of Lot No. 4389. He further denied that he
acquired a specific and definite portion of the questioned property, citing as
evidence the deed of sale which does not mention any boundaries or specific
portion. He explained that Jesus permitted him to occupy a portion not
exceeding 3000 square meters conditioned on the result of the partition of the co-
owners.[11]
Regarding the forcible entry case, Jesus and Lapinid admitted that such case
was filed but the same was already dismissed by the Municipal Trial Court of
Carcar, Cebu. In that decision, it was ruled that the buyers, including Lapinid,
were buyers in good faith since a proof of ownership was shown to them by
Jesus before buying the property.[12]
On 15 October 2007, the trial court dismissed the complaint of petitioners in this
wise:
Therefore, the Court DISMISSES the Complaint. At the same time, the Court
NULLIFIES the site assignment made by Jesus Velez in the Deed of Sale, dated
November 9, 1997, of Lorenzo Lapinid's portion, the exact location of which still
has to be determined either by agreement of the co-owners or by the Court in
proper proceedings.[13]
Aggrieved, petitioners filed their partial motion for reconsideration which was
denied through a 26 November 2007 Order of the court.[14] Thereafter, they filed a
notice of appeal on 10 December 2007.[15]
On 30 January 2009, the Court of Appeals affirmed[16] the decision of the trial
court. It validated the sale and ruled that the compromise agreement did not
affect the validity of the sale previously executed by Jesus and Lapinid. It likewise
dismissed the claim for rental payments, attorney's fees and litigation expenses of
the petitioners.
Upon appeal before this Court, the petitioners echo the same arguments posited
before the lower courts. They argue that Lapinid, as the successor-in-interest of
Jesus, is also bound by the 2001 judgment based on compromise stating that
the parcels of land must be sold jointly by Jesus, Mariano and Vicente and the
proceeds of the sale be divided among the co-owners. To further strengthen their
contention, they advance the argument that since the portion sold was a definite
and specific portion of a co-owned property, the entire deed of sale must be
declared null and void.
We deny the petition.
Admittedly, Jesus sold an area of land to Lapinid on 9 November 1997. To
simplify, the question now is whether Jesus, as a co-owner, can validly sell a
portion of the property he co-owns in favor of another person. We answer in the
affirmative.
A co-owner has an absolute ownership of his undivided and pro-indiviso share in
the co-owned property.[17] He has the right to alienate, assign and mortgage it,
even to the extent of substituting a third person in its enjoyment provided that no
personal rights will be affected. This is evident from the provision of the Civil
Code:
Art. 493. Each co-owner shall have the full ownership of his part and of the fruits
and benefits pertaining thereto, and he may therefore alienate, assign or
mortgage it, and even substitute another person in its enjoyment, except when
personal rights are involved. But the effect of the alienation or the mortgage, with
respect to the co-owners, shall be limited to the portion which may be allotted to
him in the division upon the termination of the co-ownership.
A co-owner is an owner of the whole and over the whole he exercises the right of
dominion, but he is at the same time the owner of a portion which is truly
abstract.[18] Hence, his co-owners have no right to enjoin a co-owner who intends
to alienate or substitute his abstract portion or substitute a third person in its
enjoyment.[19]
In this case, Jesus can validly alienate his co-owned property in favor of Lapinid,
free from any opposition from the co-owners. Lapinid, as a transferee, validly
obtained the same rights of Jesus from the date of the execution of a valid sale.
Absent any proof that the sale was not perfected, the validity of sale subsists. In
essence, Lapinid steps into the shoes of Jesus as co-owner of an ideal and
proportionate share in the property held in common.[20] Thus, from the perfection
of contract on 9 November 1997, Lapinid eventually became a co-owner of the
property.
Even assuming that the petitioners are correct in their allegation that the
disposition in favor of Lapinid before partition was a concrete or definite portion,
the validity of sale still prevails.
In a catena of decisions,[21] the Supreme Court had repeatedly held that no
individual can claim title to a definite or concrete portion before partition of co-
owned property. Each co-owner only possesses a right to sell or alienate his ideal
share after partition. However, in case he disposes his share before partition,
such disposition does not make the sale or alienation null and void. What will be
affected on the sale is only his proportionate share, subject to the results of the
partition. The co-owners who did not give their consent to the sale stand to be
unaffected by the alienation.[22]
As explained in Spouses Del Campo v. Court of Appeals:[23]
We are not unaware of the principle that a co-owner cannot rightfully dispose of a
particular portion of a co-owned property prior to partition among all the co-
owners. However, this should not signify that the vendee does not acquire
anything at all in case a physically segregated area of the co-owned lot is in fact
sold to him. Since the co-owner/vendor's undivided interest could properly be
the object of the contract of sale between the parties, what the vendee obtains by
virtue of such a sale are the same rights as the vendor had as co-owner, in an
ideal share equivalent to the consideration given under their transaction. In other
words, the vendee steps into the shoes of the vendor as co-owner and acquires a
proportionate abstract share in the property held in common.[24]
Also worth noting is the pronouncement in Lopez v. Vda. De Cuaycong:[25]
x x x The fact that the agreement in question purported to sell a concrete
portion of the hacienda does not render the sale void, for it is a well-established
principle that the binding force of a contract must be recognized as far as it is
legally possible to do so. "Quando res non valet ut ago, valeat quantum valere
potest." (When a thing is of no force as I do it, it shall have as much force as it can
have).[26] (Italics theirs).
Consequently, whether the disposition involves an abstract or concrete portion of
the co-owned property, the sale remains validly executed.
The validity of sale being settled, it follows that the subsequent compromise
agreement between the other co-owners did not affect the rights of Lapinid as a
co-owner.
Records show that on 13 August 2001, a judgment based on compromise
agreement was rendered with regard to the previous partition case involving the
same parties pertaining to several parcels of land, including the disputed lot. The
words of the compromise state that:
COME NOW[,] the parties and to this Honorable Court, most respectfully state
that instead of partitioning the properties, subject matter of litigation, that they
will just sell the properties covered by TCT Nos. 25796, 25797 and 25798 of the
Register of Deeds of the Province of Cebu and divide the proceeds among
themselves.
That Jesus Velez, Mariano Velez and Vicente Torres, Jr. are currently authorized
to sell said properties, receive the proceeds thereof and distribute them to the
parties.[27]
Be that as it may, the compromise agreement failed to defeat the already accrued
right of ownership of Lapinid over the share sold by Jesus. As early as 9
November 1997, Lapinid already became a co-owner of the property and thus,
vested with all the rights enjoyed by the other co-owners. The judgment based on
the compromise agreement, which is to have the covered properties sold, is valid
and effectual provided as it does not affect the proportionate share of the non-
consenting party. Accordingly, when the compromise agreement was executed
without Lapinid's consent, said agreement could not have affected his ideal and
undivided share. Petitioners cannot sell Lapinid's share absent his
consent. Nemo dat quod non habet "no one can give what he does not have."[28]
This Court has ruled in many cases that even if a co-owner sells the whole
property as his, the sale will affect only his own share but not those of the other
co-owners who did not consent to the sale. This is because the sale or other
disposition of a co-owner affects only his undivided share and the transferee gets
only what would correspond to his grantor in the partition of the thing owned in
common.[29]
We find unacceptable the argument that Lapinid must pay rental payments to
the other co-owners.
As previously discussed, Lapinid, from the execution of sale, became a co-owner
vested with rights to enjoy the property held in common.
Clearly specified in the Civil Code are the following rights:
Art. 486. Each co-owner may use the thing owned in common, provided he does
so in accordance with the purpose for which it is intended and in such a way as
not to injure the interest of the co-ownership or prevent the other co-owners from
using it according to their rights. The purpose of the co-ownership may be
changed by agreement, express or implied.
Art. 493. Each co-owner shall have the full ownership of his part and of the fruits
and benefits pertaining thereto, and he may therefore alienate, assign or
mortgage it and even substitute another person in its enjoyment, except when
personal rights are involved. But the effect of the alienation or mortgage, with
respect to the co-owners, shall be limited to the portion which may be allotted to
him in the division upon the termination of the co-ownership.
Affirming these rights, the Court held in Aguilar v. Court of Appeals that:[30]
x x x Each co-owner of property held pro indiviso exercises his rights over the
whole property and may use and enjoy the same with no other limitation than
that he shall not injure the interests of his co-owners, the reason being that until
a division is made, the respective share of each cannot be determined and every
co-owner exercises, together with his co-participants joint ownership over the pro
indiviso property, in addition to his use and enjoyment of the same.[31]
From the foregoing, it is absurd to rule that Lapinid, who is already a co-owner,
be ordered to pay rental payments to his other co-owners. Lapinid's right of
enjoyment over the property owned in common must be respected despite
opposition and may not be limited as long he uses the property to the purpose for
which it is intended and he does not injure the interest of the co-ownership.
Finally, we find no error on denial of attorney's fees and litigation expenses.
Pursuant to Article 2208 of the New Civil Code, attorney's fees and expenses of
litigation, in the absence of stipulation, are awarded only in the following SO ORDERED.
instances:

xxxx

1. When exemplary damages are awarded;

2. When the defendant's act or omission has compelled the plaintiff

to litigate with third persons or to incur expenses to protect his
interests

3. In criminal cases of malicious prosecution against the plaintiff;

4. In case of a clearly unfounded civil action or proceeding against the

plaintiff;

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

6. In actions for legal support;

7. In actions for the recovery of wages of household helpers, laborers and

skilled workers;

8. In actions for indemnity under workmen's compensation and

employer's liability laws;

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

10. When at least double judicial costs are awarded;

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

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

Petitioners cite Jesus' act of selling a definite portion to Lapinid as the reason
which forced them to litigate and file their complaint. However, though the Court
may not fault the complainants when they filed a complaint based on their
perceived cause of action, they should have also considered thoroughly that it is
well within the rights of a co-owner to validly sell his ideal share pursuant to law
and jurisprudence.

WHEREFORE, the petition is DENIED. Accordingly, the Decision and Resolution

of the Court of Appeals dated 30 January 2009 and 14 May 2009 are
hereby AFFIRMED.
 [ GR NO. 153802, Mar 11, 2005 ]
HOMEOWNERS SAVINGS v. MIGUELA C. DAILO +
DECISION
TINGA, J.:
This is a petition for review on certiorari under Rule 45 of the Revised Rules of
Court, assailing the Decision[1] of the Court of Appeals in CA-G.R. CV No. 59986
rendered on June 3, 2002, which affirmed with modification the October 18,
1997 Decision[2] of the Regional Trial Court, Branch 29, San Pablo City, Laguna
in Civil Case No. SP-4748 (97).
The following factual antecedents are undisputed.
Respondent Miguela C. Dailo and Marcelino Dailo, Jr. were married on August 8,
1967. During their marriage, the spouses purchased a house and lot situated at
Barangay San Francisco, San Pablo City from a certain Sandra Dalida. The
subject property was declared for tax assessment purposes under Assessment of
Real Property No. 94-051-2802. The Deed of Absolute Sale, however, was
executed only in favor of the late Marcelino Dailo, Jr. as vendee thereof to the
exclusion of his wife.[3]
On December 1, 1993, Marcelino Dailo, Jr. executed a Special Power of Attorney
(SPA) in favor of one Lilibeth Gesmundo, authorizing the latter to obtain a loan
from petitioner Homeowners Savings and Loan Bank to be secured by the
spouses Dailo's house and lot in San Pablo City. Pursuant to the SPA,
Gesmundo obtained a loan in the amount of P300,000.00 from petitioner. As
security therefor, Gesmundo executed on the same day a Real Estate Mortgage
constituted on the subject property in favor of petitioner. The abovementioned
transactions, including the execution of the SPA in favor of Gesmundo, took
place without the knowledge and consent of respondent.[4]
Upon maturity, the loan remained outstanding. As a result, petitioner instituted
extrajudicial foreclosure proceedings on the mortgaged property. After the
extrajudicial sale thereof, a Certificate of Sale was issued in favor of petitioner as
the highest bidder. After the lapse of one year without the property being
redeemed, petitioner, through its vice-president, consolidated the ownership
thereof by executing on June 6, 1996 an Affidavit of Consolidation of Ownership
and a Deed of Absolute Sale.[5]
In the meantime, Marcelino Dailo, Jr. died on December 20, 1995. In one of her
visits to the subject property, respondent learned that petitioner had already
employed a certain Roldan Brion to clean its premises and that her car, a Ford
sedan, was razed because Brion allowed a boy to play with fire within the
premises.
Claiming that she had no knowledge of the mortgage constituted on the subject
property, which was conjugal in nature, respondent instituted with the Regional
Trial Court, Branch 29, San Pablo City, Civil Case No. SP-2222 (97) for Nullity of
Real Estate Mortgage and Certificate of Sale, Affidavit of Consolidation of
Ownership, Deed of Sale, Reconveyance with Prayer for Preliminary Injunction
and Damages against petitioner. In the latter's Answer with
Counterclaim, petitioner prayed for the dismissal of the complaint on the ground
that the property in question was the exclusive property of the late Marcelino
Dailo, Jr.
After trial on the merits, the trial court rendered a Decision on October 18, 1997.
The dispositive portion thereof reads as follows:
WHEREFORE, the plaintiff having proved by the preponderance of evidence the
allegations of the Complaint, the Court finds for the plaintiff and hereby orders:
ON THE FIRST CAUSE OF ACTION
1. The declaration of the following documents as null and void:
(a) The Deed of Real Estate Mortgage dated December 1, 1993 executed before
Notary Public Romulo Urrea and his notarial register entered as Doc. No. 212;
Page No. 44, Book No. XXI, Series of 1993.
(b) The Certificate of Sale executed by Notary Public Reynaldo Alcantara on April
20, 1995.
(c) The Affidavit of Consolidation of Ownership executed by the defendant
(c) The Affidavit of Consolidation of Ownership executed by the defendant over
the residential lot located at Brgy. San Francisco, San Pablo City, covered by ARP
No. 95-091-1236 entered as Doc. No. 406; Page No. 83, Book No. III, Series of
1996 of Notary Public Octavio M. Zayas.
(d) The assessment of real property No. 95-051-1236.
 2. The defendant is ordered to reconvey the property subject of this
complaint to the plaintiff.
ON THE SECOND CAUSE OF ACTION
1. The defendant to pay the plaintiff the sum of P40,000.00 representing
the value of the car which was burned.
ON BOTH CAUSES OF ACTION
1. The defendant to pay the plaintiff the sum of P25,000.00 as attorney's
fees;
2. The defendant to pay plaintiff P25,000.00 as moral damages;
3. The defendant to pay the plaintiff the sum of P10,000.00 as exemplary
damages;
4. To pay the cost of the suit
The counterclaim is dismissed.
SO ORDERED.[6]
Upon elevation of the case to the Court of Appeals, the appellate court affirmed
the trial court's finding that the subject property was conjugal in nature, in the
absence of clear and convincing evidence to rebut the presumption that the
subject property acquired during the marriage of spouses Dailo belongs to their
conjugal partnership.[7] The appellate court declared as void the mortgage on the
subject property because it was constituted without the knowledge and consent
of respondent, in accordance with Article 124 of the Family Code. Thus, it upheld
the trial court's order to reconvey the subject property to respondent.[8] With
respect to the damage to respondent's car, the appellate court found petitioner to
be liable therefor because it is responsible for the consequences of the acts or
omissions of the person it hired to accomplish the assigned task.[9] All told, the
appellate court affirmed the trial court's Decision, but deleted the award for
damages and attorney's fees for lack of basis.[10]
Hence, this petition, raising the following issues for this Court's consideration:
1. WHETHER OR NOT THE MORTGAGE CONSTITUTED BY THE LATE
MARCELINO DAILO, JR. ON THE SUBJECT PROPERTY AS CO-
OWNER THEREOF IS VALID AS TO HIS UNDIVIDED SHARE.
2. WHETHER OR NOT THE CONJUGAL PARTNERSHIP IS LIABLE FOR
THE PAYMENT OF THE LOAN OBTAINED BY THE LATE MARCELINO
DAILO, JR. THE SAME HAVING REDOUNDED TO THE BENEFIT OF
THE FAMILY.[11]
First, petitioner takes issue with the legal provision applicable to the factual
milieu of this case. It contends that Article 124 of the Family Code should be
construed in relation to Article 493 of the Civil Code, which states:
ART. 493. Each co-owner shall have the full ownership of his part and of the
fruits and benefits pertaining thereto, and he may therefore alienate, assign or
mortgage it, and even substitute another person in its enjoyment, except when
personal rights are involved. But the effect of the alienation or the mortgage,
with respect to the co-owners, shall be limited to the portion which may be
allotted to him in the division upon the termination of the co-ownership.
Article 124 of the Family Code provides in part:
ART. 124. The administration and enjoyment of the conjugal partnership
property shall belong to both spouses jointly. . . .
In the event that one spouse is incapacitated or otherwise unable to participate in
the administration of the conjugal properties, the other spouse may assume sole
powers of administration. These powers do not include the powers of disposition
or encumbrance which must have the authority of the court or the written
consent of the other spouse. In the absence of such authority or consent, the
disposition or encumbrance shall be void. . . .
Petitioner argues that although Article 124 of the Family Code requires the
consent of the other spouse to the mortgage of conjugal properties, the framers of
the law could not have intended to curtail the right of a spouse from exercising
full ownership over the portion of the conjugal property pertaining to him under
the concept of co-ownership.[12] Thus, petitioner would have this Court uphold
the validity of the mortgage to the extent of the late Marcelino Dailo, Jr.'s share in
the conjugal partnership.
In Guiang v. Court of Appeals,[13] it was held that the sale of a conjugal property
requires the consent of both the husband and wife.[14] In applying Article 124 of
the Family Code, this Court declared that the absence of the consent of one
renders the entire sale null and void, including the portion of the conjugal
property pertaining to the husband who contracted the sale. The same principle
in Guiang squarely applies to the instant case. As shall be discussed next, there
is no legal basis to construe Article 493 of the Civil Code as an exception to
Article 124 of the Family Code.
Respondent and the late Marcelino Dailo, Jr. were married on August 8, 1967. In
the absence of a marriage settlement, the system of relative community or
conjugal partnership of gains governed the property relations between
respondent and her late husband.[15] With the effectivity of the Family Code on
August 3, 1988, Chapter 4 on Conjugal Partnership of Gains in the Family Code
was made applicable to conjugal partnership of gains already established before
its effectivity unless vested rights have already been acquired under the Civil
Code or other laws.[16]
The rules on co-ownership do not even apply to the property relations of
respondent and the late Marcelino Dailo, Jr. even in a suppletory manner. The
regime of conjugal partnership of gains is a special type of partnership, where the
husband and wife place in a common fund the proceeds, products, fruits and
income from their separate properties and those acquired by either or both
spouses through their efforts or by chance.[17] Unlike the absolute community of
property wherein the rules on co-ownership apply in a suppletory manner,[18] the
conjugal partnership shall be governed by the rules on contract of partnership in
all that is not in conflict with what is expressly determined in the chapter (on
conjugal partnership of gains) or by the spouses in their marriage
settlements.[19] Thus, the property relations of respondent and her late husband
shall be governed, foremost, by Chapter 4 on Conjugal Partnership of Gains of
the Family Code and, suppletorily, by the rules on partnership under the Civil
Code. In case of conflict, the former prevails because the Civil Code provisions on
partnership apply only when the Family Code is silent on the matter.
The basic and established fact is that during his lifetime, without the knowledge
and consent of his wife, Marcelino Dailo, Jr. constituted a real estate mortgage on
the subject property, which formed part of their conjugal partnership. By express
provision of Article 124 of the Family Code, in the absence of (court) authority or
written consent of the other spouse, any disposition or encumbrance of the
conjugal property shall be void.
The aforequoted provision does not qualify with respect to the share of the
spouse who makes the disposition or encumbrance in the same manner that the
rule on co-ownership under Article 493 of the Civil Code does. Where the law
does not distinguish, courts should not distinguish.[20] Thus, both the trial court
and the appellate court are correct in declaring the nullity of the real estate
mortgage on the subject property for lack of respondent's consent.
Second, petitioner imposes the liability for the payment of the principal obligation
obtained by the late Marcelino Dailo, Jr. on the conjugal partnership to the
extent that it redounded to the benefit of the family.[21]
Under Article 121 of the Family Code, "[T]he conjugal partnership shall be liable
for: . . . (3) Debts and obligations contracted by either spouse without the
consent of the other to the extent that the family may have been benefited; . . . ."
For the subject property to be held liable, the obligation contracted by the late
Marcelino Dailo, Jr. must have redounded to the benefit of the conjugal
partnership. There must be the requisite showing then of some advantage which
clearly accrued to the welfare of the spouses. Certainly, to make a conjugal
partnership respond for a liability that should appertain to the husband alone is
to defeat and frustrate the avowed objective of the new Civil Code to show the
utmost concern for the solidarity and well-being of the family as a unit.[22]
The burden of proof that the debt was contracted for the benefit of the conjugal
partnership of gains lies with the creditor-party litigant claiming as such.[23] Ei
incumbit probatio qui dicit, non qui negat (he who asserts, not he who denies,
must prove).[24] Petitioner's sweeping conclusion that the loan obtained by the late
Marcelino Dailo, Jr. to finance the construction of housing units without a doubt
redounded to the benefit of his family, without adducing adequate proof, does not
persuade this Court. Other than petitioner's bare allegation, there is nothing from
the records of the case to compel a finding that, indeed, the loan obtained by the
late Marcelino Dailo, Jr. redounded to the benefit of the family. Consequently, the
conjugal partnership cannot be held liable for the payment of the principal
obligation.
In addition, a perusal of the records of the case reveals that during the trial,
petitioner vigorously asserted that the subject property was the exclusive
property of the late Marcelino Dailo, Jr. Nowhere in the answer filed with the trial
court was it alleged that the proceeds of the loan redounded to the benefit of the
family. Even on appeal, petitioner never claimed that the family benefited from
the proceeds of the loan. When a party adopts a certain theory in the court
below, he will not be permitted to change his theory on appeal, for to permit him
to do so would not only be unfair to the other party but it would also be offensive
to the basic rules of fair play, justice and due process.[25] A party may change his
legal theory on appeal only when the factual bases thereof would not require
presentation of any further evidence by the adverse party in order to enable it to
properly meet the issue raised in the new theory.[26]
WHEREFORE, the petition is DENIED. Costs against petitioner.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur.
 G.R. No. 199852 November 12, 2014
SPS. FELIPE SOLITARIOS and JULIA TORDA, Petitioners,
vs.
SPS. GASTON JAQUE and LILIA JAQUE, Respondents.
DECISION
VELASCO, JR., J.:
Nature of the Case
In this Petition for Review on Certiorari under Rule 45 of the Rules of Court,
petitioners spouses Felipe Solitarios and Julia Torda (spouses Solitarios) seek the
reversal of the August 31, 2010 Decision and November 24, 2011 Resolution of
the Court of Appeals (CA) in CA-G.R. CEB-CV No. 00112, which in tum set aside
the Decision of the Regional Trial Court of Calbayog City, Branch 31 (RTC), in
Civil Case No. 772.
The Facts
The property subject of this suit is a parcel of agricultural land designated as Lot
4089, consisting of 40,608 square meters (sq. m.), and located in Calbayog,
Samar. It was originally registered in the name of petitioner Felipe Solitarios
under Original Certificate of Title (OCT) No. 1249, and, thereafter, in the name of
the respondents, spouses Gaston and Lilia Jaque (the Jaques), under Transfer
Certificate of Title (TCT) No. 745.
In a Complaint for Ownership and Recovery of Possession with the RTC of
Calbayog City, the respondents spouses Jaque alleged that they purchased Lot
4089 from the petitioners, spouses Solitarios in stages. According to respondents,
they initially bought one-half of Lot No. 4089 for ₱7,000.00. This sale is allegedly
evidenced by a notarized Deed of Sale dated May 8, 1981. Two months later, the
spouses Solitarios supposedly mortgaged the remaining half of Lot 4089 to the
Jaques via a Real Estate Mortgage (REM) dated July 15, 1981, to securea loan
amounting to ₱3,000.00.
After almost two (2) years, the spouses Solitarios finally agreed to sell the
mortgaged half. However, instead of executing a separate deed of sale for the
second half, they executed a Deed of Sale dated April 26, 1983 for the whole lot to
save on taxes, by making it appear that the consideration for the sale of the entire
lot was only ₱12,000.00 when the Jaques actually paid ₱19,000.00 in cash and
condoned the spouses Solitarios’ ₱3,000.00 loan.
On the basis of this second notarized deed, the Jaques had OCT No. 1249
cancelled and registered Lot 4089 in their name under Transfer Certificate of Title
(TCT) No. 745.
In spite of the sale, the Jaques, supposedly out of pity for the spouses Solitarios,
allowed the latter to retain possession of Lot 4089, subject only to the condition
that the spouses Solitarioswill regularly deliver a portion of the property’s
produce. In an alleged breach of their agreement, however, the spouses Solitarios
stopped delivering any produce sometime in 2000. Worse, the spouses Solitarios
even claimed ownership over Lot 4089. Thus, the Jaques filed the adverted
complaint with the RTC.
For their part, the spouses Solitarios denied selling Lot 4089 and explained that
they merely mortgaged the same to the Jaques after the latter helped them
redeem the land from the Philippine National Bank (PNB).
The spouses Solitarios narrated that, way back in 1975, they obtained a loan
from PNB secured by a mortgage over Lot 4089. They were able to pay this loan
and redeem their property with their own funds. Shortly thereafter, in 1976, they
again mortgaged their property to PNB to secure a ₱5,000.00 loan. This time, the
Jaques volunteered to pay the mortgage indebtedness, including interests and
charges and so gave the spouses Solitarios ₱7,000.00 for this purpose. However,
this accommodation was made, so the spouses Solitarios add, with the
understanding that they would pay back the Jaques by delivering to them a
portion of the produce of Lot 4089, in particular, onehalf of the produce of the
rice land and one-fourth of the produce of the coconut land. The spouses
Solitarios contended that this agreement was observed by the parties until May
2000, when Gaston Jaque informed them that he was taking possession of Lot
4089 as owner. And to their surprise, Gaston Jaque showed them the Deeds of
Sale dated May 8, 1981 and April 26, 1983, the REM contract dated July 15,
1981, and TCT No. 745 to prove his claim. The spouses Solitarios contended that
these deeds of sale were fictitious and their signatures therein forged. Further,
the spouses Solitarios challenge the validity of TCT No. 745, alleging thatthe
Jaques acquired it through fraud and machinations and by taking advantage of
their ignorance and educational deficiency. Thus, they prayed that the RTC: (1)
cancel TCT No. 745; (2) declare the adverted deeds of sales dated May 8, 1981
and April 26, 1983 as null and void; (3) declare them the true and lawful owners
of Lot 4089; and (4) award them moral and actual damages.
During the course of the trial, and in compliance with the February 7, 2001
Order of the RTC, the spouses Solitarios deposited with the court a quothe
Jaques’ purported share in the produce of Lot 4089 for the years 2001-2003,
which amounted to 16,635.60.1
On April 15, 2004, the RTC rendered a Decision2 upholding the validity of the
deeds of sale in question and TCT No. 745, rejecting the allegations of forgery and
fraud. However, in the same breath, the RTC declared that what the parties
entered into was actually an equitable mortgage as defined under Article 1602 in
relation to Article 1604 of the New Civil Code, and not a sale. Consequently, the
RTC ordered, among others, the reformation of the Deeds ofSale dated May
9,1981 and April 26, 1983, and the cancellation of TCT No. 745 in the name of
the Jaques. The dispositive portion of the RTC Decision reads:
WHEREFORE, this Court dismisses the instant case and pronounces Judgment
against plaintiffs and hereby orders the following:
1. Reformation of the Deed of Sale dated May 9, 1981 (Exhibit "E") and the Deed
of Sale dated April 26, 1983 (Exhibit "G") into contracts of mortgage;
2. Cancellation of TCT No. 745 in the name of spouses Gaston Jaque and Lilia
Laure Jaque;
3. Considering the total mortgage debt of Php 12,000.00 as totally paid pursuant
to Article 1602 of the New Civil Code;
4. Release of the amounts deposited to the Court by defendants to them minus
lawful charges for their safekeeping, if any; and
5. Payment of costs of the proceedings by the plaintiffs.
SO ORDERED.3
The RTC anchored its holding on the nature of the pertinent contracts in
question on its findings that: (1) after the alleged sale, the spouses Solitarios
remained in possession ofthe land; (2) the Jaques did not physically occupy Lot
4089; (3) the consideration for the sale of the whole land as stated in the Deed of
Sale dated April 26, 1983, was only ₱12,000.00, an amount grossly inadequate
for a titled coconut and rice lands consisting of 40,608 sq. m.; (3) the Jaques did
not disturb the possession of Lot 4089 by Leonora Solitarios, Felipe’s sister-in-
law, who resided therein; and (4) the Jaques never had a tenant in the subject
property.
On appeal, the CA4 reversed and set aside the RTC Decision, rejecting the trial
court’s holding that the contract between the parties constituted an equitable
mortgage.
The CA noted that the allegation thatthe transaction is an equitable mortgage
and not one of sale was not presented before the trial court and was raised
belatedly on appeal. Even then, the CA held that the spouses Solitarios failed to
convincingly prove that the deeds of sale were sham, noting that their bare denial
as to their authenticity was insufficient to overcome the positive value of the
notarized deeds of sale. The CA further found that the spouses Solitarios’ claim of
inadequacy of the purchase price is unsupported by any evidence on record and
that the spouses Solitarios’ possession of Lot 4089 after the sale was not in the
concept of an owner. In addition, the appellate court gave weight to the fact that
the Jaques paid the taxes on Lot 4089 since 1984. The CA, thus, concluded that
based on the parties’ actuations before, during, and after the transactions, it was
unmistakable that they had no other intention but to enter into a contract of sale
of Lot 4089.
Their Motion for Reconsideration having thereafter been denied by the CA in its
Resolution dated November 24, 2011, the spouses Solitarios5 have filed the
instant petition.
Issue
From the foregoing narration of facts,it is abundantly clear that the only material
point of inquiry is whether the parties effectively entered into a contract of
absolute sale or anequitable mortgage of Lot 4089.
The Court's Ruling
The petition is impressed with merit.
At the outset, We note that, contrary to the finding of the CA, petitioner spouses
Solitarios actually presented before the RTC their position that the real
agreement between the parties was a mortgage, and not a sale. Being unlettered,
petitioners may have averred that the deeds of sale and TCT presented by
respondents were forgeries, obtained as they were through fraud and
machination. However, their saying that the sale instruments were "fictitious"
and their signatures thereon were "forged" amounts to alleging that they never
agreed to the sale of their lot, and they never intended to sign such conveyances.
This reality is supported by the testimony of petitioner Felipe Solitarios that was
offered to prove the true intention of the parties ―that Lot 4089 was only
mortgaged, not sold, to the Jaques. Before Felipe’s direct examination, his
counsel stated thus-
"ATTY. MARTIRES
With the permission of the Court.This witness is one of the defendants; he will
testify that the land was just mortgaged to the plaintiff contrary to the claim of
the plaintiff that the defendants sold the same to the plaintiffs; he will also testify
that the defendants never executed deed of sale in favor of the plaintiffs; he will
also testify that ½ of the produce of the cocoland subject of this case was
delivered by the defendants to the plaintiffs and with regards to the riceland, ¼ of
the produce was also delivered to the plaintiffs; and he will also testify other
matters related to this case."6
The Court is, therefore, not precluded from looking into the real intentions of the
parties in order to resolve the present controversy. For that reason, the Court
takes guidance from Article 1370 of the Civil Code, which instructs that "if the
words [of a contract] appear to be contrary to the evident intention of the parties,
the latter shall prevail over the former." Indeed, it is firmly settled that clarity of
contract terms and the name given to it does not bar courts from determining the
true intent of the parties. In Zamora vs. Court of Appeals,7 the Court elucidated
that —
In determining the nature of a contract, courts are not bound by the title or name
given by the parties. The decisive factor in evaluating such agreement is the
intention of the parties, as shown not necessarily by the terminology used in the
contract but by their conduct, words, actions and deeds prior to, during and
immediately after executing the agreement. As such therefore, documentary and
parol evidence may be submitted and admitted to prove such intention.8
Further, in resolving this kind of controversy, the doctrinal teaching of Reyes vs.
Court of Appeals9 impels us to give utmost consideration to the intention of the
parties in light of the relative situation of each, and the circumstances
surrounding the execution of the contract, thus: In determining whether a deed
absolute in form is a mortgage, the court is not limited to the written memorials
of the transaction. The decisive factor in evaluating such agreement is the
intention of the parties, as shown not necessarily bythe terminology used in the
contract but by all the surrounding circumstances, such as the relative situation
of the parties at that time, the attitude, acts, conduct, declarations of the parties,
the negotiations between them leading to the deed, and generally, all pertinent
facts having a tendency to fix and determine the real nature of their design and
understanding. x x x
There is no single conclusive test to determine whether a deed of sale, absolute
on its face, is really a simple loan accommodation secured by a mortgage.10
However, Article 1602 in relation to Article 1604 of the Civil Code enumerates
several instances whena contract, purporting to be, and in fact styled as, an
absolute sale, is presumed to be an equitable mortgage, thus:
Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of
the following cases:
(1) When the price of a sale withright to repurchase is unusually inadequate;
(2) When the vendor remains inpossession as lessee or otherwise;
(3) When upon or after the expiration of the right to repurchase another
instrument extending the period of redemption or granting a new period is
executed;
(4) When the purchaser retains for himself a part of the purchase price;
(5) When the vendor binds himself to pay the taxes on the thing sold;
(6) In any other case where it may be fairly inferred that the real intention of the
parties is that the transaction shall secure the payment of a debt or the
performance of any other obligation.
In any of the foregoing cases, any money, fruits, or other benefit to be received by
the vendee as rent or otherwise shall be considered as interest which shall be
subject to the usury laws.11 Art. 1604. The provisions of Article 1602 shall also
apply to a contract purporting to be an absolute sale.
As evident from Article 1602 itself, the presence of anyof the circumstances set
forth therein suffices for a contract to be deemed an equitable mortgage. No
concurrence or an overwhelming number is needed.12
With the foregoing in mind, We thus declare that the transaction between the
parties of the present case is actually one of equitable mortgage pursuant to the
foregoing provisions ofthe Civil Code. It has never denied by respondents that the
petitioners, the spouses Solitarios, have remained in possession of the subject
property and exercised acts of ownership over the said lot even after the
purported absolute sale of Lot 4089. This fact is immediately apparent from the
testimonies of the parties and the evidence extant on record, showing that the
real intention of the parties was for the transaction to secure the payment of a
debt. Nothing more.
Petitioner’s Possession of the Subject Property after the Purported Sale
During pre-trial, the Jaques admitted that the spouses Solitarios were in
possession of the subject property.13 Gaston Jaque likewise confirmed that
petitioners were allowed to produce copra and till the rice field, which comprise
one-half of the lot that was previously covered by the real estate mortgage, after
said portion was allegedly sold to them.14
This Court had held that a purportedcontract of sale where the vendor remains
in physical possession of the land, as lessee or otherwise, is an indiciumof an
equitable mortgage.15 In Rockville v. Sps. Culla,16 We explained that the reason
for this rule lies in the legal reality that in a contract of sale, the legal title to the
property is immediately transferred to the vendee. Thus, retention by the vendor
of the possession of the property is inconsistent with the vendee’s acquisition of
ownership under a true sale. It discloses, in the alleged vendee, a lack of interest
in the property that belies the truthfulness of the sale.
During the period material to the present controversy, the petitioners, spouses
Solitarios, retained actual possession of the property. This was never disputed. If
the transaction had really been one of sale, as the Jaques claim, they should
have asserted their rights for the immediate delivery and possession of the lot
instead of allowing the spouses Solitarios to freely stay in the premises for almost
seventeen (17) years from the time of the purported sale until their filing ofthe
complaint. Human conduct and experience reveal that an actual owner of a
productive land will not allow the passage of a long period of time, as in this case,
without asserting his rights of ownership.
Further, Gaston Jaque first claimed possession of the subject property through
his mother-in-law, and then through hired workers when the latter passed
away;17 not personally. It is also undisputed that the Jaques never installed a
tenant on Lot 4089 and did not disturb the Solitarios’ possession of the same.18
On this note, We agree with the finding of the RTC that the Jaques’ alleged
possession of the subject property is suspect and unsubstantial, and they never
possessed the same in the concept of owners, viz:
Even as to the first half portion of the land allegedly sold by the defendants to the
plaintiffs, the evidence too tends to show that the plaintiffs did not really possess
it asowners. Plaintiffs’ evidence with regards to their possession over this portion
is very doubtful. According to plaintiff Gaston Jaque when he testified in Court,
they possessed this portion through his mother-in-law till she died in 1992 or
1992: that when she died, they possessed it already through hired workers.
However, in the statement of facts of the resolution of the public prosecutor in the
case of Qualified Theft which plaintiffs filed against the defendants, it is clearly
shown that the plaintiffs stated thatthe defendants took possession of the entire
property since 1983 yet.
On the other hand, in this case, they are now claiming that it was actually in the
year 2000 that the defendants bid claim on this land.
xxxx
Third, the fact that defendants’ witness Leonora Solitarios [Felipe’s sister] resides
and has a house in the land in question without having been disturbed by the
plaintiffs and the fact that the plaintiffs never have a tenant in the land even if
they reside in Cebu City also show in some manner that they are not really the
owners of the land, but the defendants.19
Not only is there a presumption that the deeds of sale are an equitable mortgage,
it has been amply demonstrated by petitioners that the deed of sale is intended to
be one of mortgage based on the proof presented by petitioners and propped up
even by the admissions of respondents. The intention of the parties was for the
transaction to secure the payment of a debt
To stress, Article 1602(6) of the Civil Code provides that a transaction is
presumed to be an equitable mortgage:
(6) In any other case where it may be fairly inferred that the real intention of the
parties is that the transaction shall secure the payment of a debt or the
performance of any other obligation.
This provision may very well be applied in this case. There is sufficient basis to
indulge in the presumption that the transaction between the parties was that of
an equitable mortgage and that the spouses Solitarios never wanted to sell the
same to the Jaques.
The foregoing presumption finds support in the following: First, the very
testimony of Gaston Jaque and the documents he presented establish the
existence of two loans, which the Jaques extended to the spouses Solitarios, that
were secured by the subject property; and, second, the testimonies of the parties
reveal that they came to an agreement as to how these loans would be paid.
The first loan was contracted when Gaston Jaque gave the spouses Solitarios
₱7,000.00 to help them redeem the subject property from PNB.20 In effect, by
extending the ₱7,000.00 financial assistance to the spouses Solitarios, Gaston
Jaque took over the loan, became the lender and assumed the role of mortgagee
in place of PNB.
Thereafter, the spouses Solitarios obtained a second loan from the Jaques
amounting to ₱3,000.00. This is evidenced by an REM dated July 15, 1981 by
virtue of which the spouses Solitarios mortgaged one-half of the subject property
to the Jaques to secure the payment of said loan.
The parties testified that they entered into a verbal agreement on the sharing of
the produce of the subject property. For his part, it seemed that Gaston Jaque
wanted to impress upon the lower court that this sharing agreement was fixed as
a condition for his allowing the Solitarios’ continued possession and cultivation of
the subject property. However, there is a strong reason to believe that this
arrangement was, in fact, a payment scheme for the debts that the spouses
Solitarios incurred.
During his testimony, Felipe Solitarios explained that after the Jaques gave him
funds to redeemthe property from PNB, they entered into an agreement on the
sharing of the produce and that this arrangement would last until they shall
have redeemed the land from the Jaques. We note that this assertion by Felipe
Solitarios was never refuted on cross or re-cross examination. Felipe Solitarios
explained–
DIRECT EXAMINATION BY
ATTY. MELINDA MARTIRES
Q When did Lilia Jaque give you the money to redeem the mortgage
indebtedness from the Philippine National Bank?
A In 1976
Q How much did she give you?
A ₱5,000.00
Q After giving you the amount of 5,000.00 to be used to redeem the mortgage
indebtedness, was there any agreement between you and Lilia Jaque?
A Our agreement was, on the produce of the riceland, she will be given 1/4 and
on the coconut land 1/2.21
xxx xxx xxx
Q Where were the spouses when the land was already redeemed from the PNB?
A They were in Cebu.
Q So, to whom did you deliver their share of the produce of the land?
A Every harvest, we deliver their share and everytime we make copra, we also
deliver their share to Ma Yaning.
xxx xxx xxx
ATTY. MARTIRES
Q Per condition with the plaintiffs which you have told us a while ago, for how
long will you deliver their share?
A Every harvest we have to give their share because we have not yet redeemed
the land.
Q So there was no duration of your giving their share of the land?
A If I desire to redeem the land from them.22
Furthermore, Gaston Jaque himself testified receiving a portion of the produce of
the subject property preciselybecause of the loan covered by the July 15, 1981
REM.23
It is, thus, clear from the foregoing that the Jaques extended two loans to the
spouses Solitarios, who in exchange, offered tothe former the subject property,
not to transfer ownership thereto, but to merely secure the payment of their
debts. This may be deduced from the testimonies of both Felipe Solitarios and
Gaston Jaque, revealing the fact that they agreed upon terms for the payment of
the loans, in particular, the sharing in the produce of the lot.
Verily, the fact that the parties agreed on payment terms is inconsistent with the
claim of the Jaques that when the spouses Solitarios executed the questioned
deeds of sale they had no other intention but to transfer ownership over the
subject property.

A To Yaning, the mother of Ma Lilia. Thus, there is ground to presume that the transaction between the parties was
an equitable mortgage and not a sale. There is nothing in the records sufficient
Q When did you start delivering the share of the plaintiff of the land in question? enough to overturn this presumption.
A From the time I mortgaged this land to them. The contracts of sale and mortgage are of doubtful veracity
Q You mean to say from 1976? Furthermore, an examination of the transaction documents casts doubts on
their validity. As alleged by petitioners, their signatures therein appear to be
A Yes.
forged. We distinctlyobserve that each of the three (3) documents bears different
Q How many times did you deliver tothe parents of the plaintiffs the share of the versions of petitioner Julia Solitarios’ signatures. First, on the first page of the
plaintiffs ofthe produce of the land? 1981 Deed of Sale, particularly on the space provided for Julia Solitarios to
express her marital consent to the sale, the signature "Julia Torda Solitarios"
appears.24 What is strange is that in the acknowledgement page of the very
same document, Julia Solitarios purportedly signed as "Julia T. Solitarios,"25
which is obviously different from the signature appearing on the first page.
Further, while the 1981 REM document contains the signature "Julia Turda,"26
the 1983 Deed of Sale bears the signature "Julia Torda." These discrepancies
suggest that the documents were signed by different persons.
Nevertheless, assuming arguendo that these documents were really signed by
petitioners, there is reason to believe that they did so without understanding
their real nature and thatthe Jaques never explained to them the effects and
consequencesof signing the same.
In negotiating the transactions, the parties did not deal with each other on equal
terms
The Civil Code provisions that consider certain types of sales as equitable
mortgages are intended for the protection of the unlettered such as the spouses
Solitarios, who are penurious vis-à-vis their creditors.27 In Cruz v. Court of
Appeals,28 the Court held -
Vendors covered by Art. 1602 usually find themselves in an unequal position
when bargaining with the vendees, and will readily sign onerous contracts to get
the money they need. Necessitous men are not really free men in the sense that
toanswer a pressing emergency they will submit to any terms that the crafty may
impose on them. This is precisely the evil that Art. 1602 seeks to guard against.
The evident intent of the provision is to give the supposed vendor maximum
safeguards for the protection of his legal rights under the true agreement of the
parties.
Without doubt, the spouses Solitarios need the protection afforded by the Civil
Code provisions on equitable mortgage. Certainly, the parties were negotiating on
unequal footing. As opposed to the uneducated29 and impoverished farmer,
Felipe Solitarios,30 Gaston Jaque, was a 2nd Lieutenant of the Armed Forces of
the Philippines when he retired.31 Further, Felipe Solitarios was constantly
infinancial distress. He was constantly in debt and in dire financial need. That he
borrowed money from the PNB twice, first in 1975 then in 1976, and mortgaged
the subject property to the Jaques suggest as much.
While Felipe Solitarios was able to settle his 1975 loan and redeem the mortgage
with his own money,32 he no longer had enough funds to redeem the subject
property after obtaining a loan in 1976. Thus, he was impelled to borrow money
from the Jaques to get his property back in 1981. Shortly after, on July 15, 1981,
Felipe Solitarios, again indesperate need, borrowed money from Gaston Jaque
and mortgaged to the latter a portion of the subject property.
It is, therefore, not difficult to imagine that Felipe Solitarios quickly consented to
arrangements proposed to him by a seemingly trustworthy Gaston Jaque, and
mindlessly signed instrumental documents that were never explained to him and
he never fully understood but nonetheless assured him of fast cash and easy
payment terms. What the court a quo wrote in this regard merits concurrence:
Still another fact which militates against plaintiffs’ cause is their failure to prove
during trial that they really endeavored to explain to the defendants the real
nature of the contract they were entering into, it appearing that the defendants
are of low education compared to them especially plaintiff Gaston Jaque who is a
retired military officer. The law requires that in case one of the partiesto a
contract is unable to read (or maybe of low education), and fraud isalleged, the
person enforcing the contract must show that the term thereof have been fully
explained to the former (Spouses Nena Arriola and Francisco Adolfo, et.al. vs.
Demetrio Lolita, Pedro, Nena, Braulio and Dominga, all surnamed Mahilum, et.
al. G.R. No. 123490, August 9, 2000).33
The law favors the least transmission of rights
It is further established that when doubt exists as to the true nature of the
parties’ transaction, courts must construe such transaction purporting to be a
sale as an equitable mortgage, as the latter involves a lesser transmission of
rights and interests over the property in controversy.34 Thus, in several cases,
the Court has not hesitated to declare a purported contract of sale to be an
equitable mortgage based solely on one of the enumerated circumstances under
Article 1602. So it should be in the present case.
In Sps. Raymundo v. Sps. Bandong,35 the Court observed that it is contrary to
human experience that a person would easily part with his property after
incurring a debt. Rather, he would first look for means to settle his obligation,
and the selling of a propertyon which the house that shelters him and his family
stands, would be his last resort.
Here, the Court finds the spouses Solitarios’ alleged sale of the subject property
in favor of the Jaques simply contrary to normal human behavior. Be it
remembered that the spouses Solitarios depended much on this property as
source of income and livelihood. Further, they made use of it to obtain and
secure badly needed loans. This property was so important to them that they had
to borrow money from the Jaques to raise funds to ensure its redemption.
Furthermore, even after the supposed sale, the spouses Solitarios remained tied
to this land asthey never left it to live in another place and continued tilling and
cultivating the same. Thus, considering how valuable this land was to the
spouses Solitarios, being their main, if not, only source of income, it is hard to
believe that they would easily part with it and sell the same to another.
Furthermore, it is also difficult to understand why, after going through all the
complications in redeeming the property from PNB, the spouses Solitarios would
simply transfer this tothe Jaques. It is inconceivable that the spouses Solitarios
would sell their property just to pay the PNB loan. It is more believable that, if at
all, they conveyed their land on a temporary basis only, without any intention to
transfer ownership thereto and with the assurance that upon the payment of
their debts, the same would be returned to them.
The only reasonable conclusion that may be derived from the execution of the
Deeds of Sale in favor of the Jaques is to ensure that the Solitarios will pay their
obligation.
The transfer of the subject property is a pactum commissorium
Further, We cannot allow the transfer of ownership ofLot 4098 to the Jaques as it
would amount to condoning the prohibited practice of pactum comissorium.
Article 2088 of the Civil Code clearly provides that a creditor cannot appropriate
or consolidate ownership over a mortgaged property merely upon failure of the
mortgagor to pay a debt obligation,36 viz.:
Art. 2088. The creditor cannot appropriate the things given by way of pledge or
mortgage, or dispose of them. Any stipulation to the contrary is null and void.
The essence of pactum commissorium is that ownership of the security will pass
to the creditor by the mere default of the debtor. This Court has repeatedly
declared such arrangements as contrary to morals and public policy.37
As We have repeatedly held, the only right of a mortgagee in case of non-payment
of debt secured by mortgage would be to foreclose the mortgage and have the
encumbered property sold to satisfy the outstanding indebtedness. The
mortgagor’s default does not operate to automatically vest on the mortgagee the
ownership of the encumbered property, for any such effect is against public
policy, as earlier indicated.38
Applying the principle of pactum commissorium to equitable mortgages, the
Court, in Montevirgen vs. CA,39 enunciated that the consolidation of ownership
in the person of the mortgagee in equity, merely upon failure of the mortgagor in
equityto pay the obligation, would amount to a pactum commissorium.The Court
further articulated that if a mortgagee in equity desires to obtain title to a
mortgaged property, the mortgagee’s proper remedy is to cause the foreclosure of
the mortgage in equity and buy it at a foreclosure sale.
In Sps. Cruz vs. CA,40 the Court again reiteratedthat, in an equitable mortgage,
perfect title over the mortgaged property may not be secured in a pactum
commissorium fashion, but only by causing the foreclosure of the mortgage and
buying the same in an auction sale. The Court held –
Indeed, all the circumstances, taken together, are familiar badges of an equitable
mortgage. Private respondents could not in a pactum commissorium fashion
appropriate the disputed property for themselves as they appeared to have done;
otherwise, their act will not be countenanced by this Court being contrary to
goodmorals and public policy hence void. If they wish to secure a perfect title over
the mortgaged property, they should do so in accordance with law, i.e., by
foreclosing the mortgage and buying the property in the auction sale.
It does not appear, under the premises, that the Jaques availed themselves of the
remedy of foreclosure, or that they bought the subject property in an auction sale
after the spouses Solitarios failed to pay their debt obligation. What seems clear is
that the Jaques took advantage of the spouses Solitarios’ intellectual and
educational deficiency and urgent need of money and made it appear that the
latter executed in their favor the questioned Deeds of Sale, thereby automatically
appropriating unto themselves the subject property upon their debtors’ default.
The amount reflected in the 1981 Deedof Sale is telling. The sum of ₱7,000.00
representing the alleged purchase price of one-half of the subject property in the
1981 Deed of Sale is actually the amount advanced to the spouses Solitarios by
way of loan. Other than the testimony of Gaston Jaque, there is no evidence
showing that this purchase price was actually paid or that the subject property
was bought in a foreclosure sale.
Further, it can be gleaned from the testimony of Gaston Jaque that when the
spouses Solitarios failed to pay their loan of ₱3,000.00, reflected in the July 15,
1981 REM covering the remaining half of the subject property,41 the Jaques did
not foreclose the mortgage and purchase the said lot in an auction sale. Rather,
they supposedly bought the lot directly from the spouses Solitarios and offset the
loan amount against a portion of the supposed purchase price they agreed
upon.42
Indubitably, the subject property was transferred to the Jaques in a prohibited
pactum commisorium manner and, therefore, void. Thus, the foregoing
transaction and the registration of the deeds of sale, by virtue of which the
Jaques were able to obtain the impugned TCT No. 745 must be declared void.43
Furthermore, given that the transaction between the parties is an equitable
mortgage, this means that the title to the subject property actually remained with
Felipe Solitarios, as owner-mortgagor, conformably with the well-established
doctrine that the mortgagee does not become the owner of the mortgaged
property because the ownership remains with the mortgagor.44 Thus, Felipe
Solitarios’ ownership over the subject property is not affected by the fact that the
same was already registered in the name of the Jaques. The pronouncement in
Montevirgen v. Court of Appeals is instructive:
x x x Equity looks through the form and considers the substance, and no kind of
engagement can be allowed which will enable the parties to escape from the
equitable doctrine adverted to. In other words, a conveyance of land,
accompanied by registration in the name of the transferee and the issuance of a
new certificate, is no more secured from the operation of this equitable doctrine
than the most informal conveyance that could be devised.
Finally, the circumstance that the original transaction was subsequently
declared to be an equitable mortgage must mean that the title to the subject
landwhich had been transferred to private respondents actually remained or is
transferred back to petitioners herein as ownersmortgagors, conformably to the
well-established doctrine that the mortgagee does not become the owner of the
mortgaged property because the ownership remains with the mortgagor (Art.
2088, New Civil Code).45
Finally, We agree with the RTC that the mortgage debt of the spouses Solitarios
had been fully paid.1âwphi1 This holds true whether the amount of the debt is
₱12,000.00, as found by the RTC or ₱22,000.00, the amount which the Jaques
claim they paid for the subject property. The RTC elucidated as follows -
2. The total mortgage debt of Php12,000.00 which was the consideration in Exh.
"G" is deemed totally paid.
This finding is based on the last paragraph of Article 1602 of the New Civil Code
of the Philippines which provides that "In any of the foregoing cases, any money,
fruits, or other benefit to be received by the vendee as rent or otherwise shall be
considered as interest which shall be subject to the usury laws." (underscoring
ours)
If this Court will take at its face value plaintiffs’ claim in their complaint that they
get Php10,000.00 every quarter or Php40,000.00 a year from the coconut portion
and Php5,000.00 every planting season or Php10,000.00 a year from the rice
land portion of the subject land, then plaintiffs could have earned Php50,000.00
a year or more or less one million pesos already when they filed this case in the
year 2000.
But this Court has given more credence to defendants’ assertion that from 1976
to 2000, hewas giving the one-half share of the plaintiffs from the proceeds of the
copras and rice land to plaintiffs’ alleged caretaker, Yaning. So, if the produce of
the land in question as claimed by the plaintiffs is about Php50,000.00 a year,
one-half (1/2) of it would be Php25,000.00 which is 25 times higher than the
Php1,000.00 interest at 12% per year for the alleged purchase price of
Php12,000.00 of the land in question. The Php24,000.00 excess interest would
have already been sufficient to pay even the principal of Php12,000.00. Thus,
clearly, the Php12,000.00 purchase price of the land should now be considered
fully paid.
WHEREFORE, premises considered, the petition is GRANTED. The assailed
August 31, 2010 Decision and November 24, 2011 Resolution of the Court of
Appeals in CA-G.R. CEB-CV No. 00112 are, thus, SET ASIDE. The Decision of
the Regional Trial Court, Calbayog City Branch 21 in Civil Case No. 772 is
REINSTATED, with modification that the reformation of the Deeds of Absolute
Sale dated May 9, 1981 and April 26, 1983 is deleted as it is unnecessary, and
that the transfer of the title to the name of petitioners shall be exempt from
registration fees and taxes and other charges. As Modified, the Decision of the
trial court shall read:
WHEREFORE, this Court dismisses the instant case and pronounces Judgment
against plaintiffs and hereby orders the following:
1. TCT No. 745 in the name of spouses Gaston Jaque and Lilia Laure Jaque is
declared void and cancelled. Furthermore, the Register of Deeds of the City of
Calbayog is ordered to issue a new title in the name of petitioners Felipe Solitarios
and Julia Torda without need of payment of registration fees, taxes, and other
charges;
2. The total mortgage debt is considered and deemed totally paid pursuant to
Article 1602 of the New Civil Code;
3. The amounts deposited to the Court by defendants Solitarios are ordered
released to plaintiffs Spouses Gaston and Lilia Jaque minus lawful charges for
their safekeeping, if any; and
4. The costs of the proceedings shall be paid by the plaintiffs.
SO ORDERED.
PRESBITERO J. VELASCO, JR.
Associate Justice
 G.R. No. L-78519 September 26, 1989
VICTORIA YAU CHU, assisted by her husband MICHAEL CHU, petitioners,
vs.
HON. COURT OF APPEALS, FAMILY SAVINGS BANK and/or CAMS
TRADING ENTERPRISES, INC., respondents.
Francisco A. Lara, Jr. for petitioner.
D. T. Ramos and Associates for respondent Family Savings Bank.
Romulo T. Santos for respondent CAMS Trading.
GRINO-AQUINO, J.:
This is a petition for review on certiorari to annul and set aside the Court of
Appeals' decision dated October 28, 1986 in CA-G.R. CV No. 03269 which
affirmed the decision of the trial court in favor of the private respondents in an
action to recover the petitioners' time deposits in the respondent Family Savings
Bank.
Since 1980, the petitioner, Victoria Yau Chu, had been purchasing cement on
credit from CAMS Trading Enterprises, Inc. (hereafter "CAMS Trading" for
brevity). To guaranty payment for her cement withdrawals, she executed in favor
of Cams Trading deeds of assignment of her time deposits in the total sum of
P320,000 in the Family Savings Bank (hereafter the Bank). Except for the serial
numbers and the dates of the time deposit certificates, the deeds of assignment,
which were prepared by her own lawyer, uniformly provided —
... That the assignment serves as a collateral or guarantee for the payment of my
obligation with the said CAMS TRADING ENTERPRISES, INC. on account of my
cement withdrawal from said company, per separate contract executed between
us.
On July 24,1980, Cams Trading notified the Bank that Mrs. Chu had an unpaid
account with it in the sum of P314,639.75. It asked that it be allowed to encash
the time deposit certificates which had been assigned to it by Mrs. Chu. It
submitted to the Bank a letter dated July 18, 1980 of Mrs. Chu admitting that
her outstanding account with Cams Trading was P404,500. After verbally
advising Mrs. Chu of the assignee's request to encash her time deposit
certificates and obtaining her verbal conformity thereto, the Bank agreed to
encash the certificates.It delivered to Cams Trading the sum of P283,737.75 only,
as one time deposit certificate (No. 0048120954) lacked the proper signatures.
Upon being informed of the encashment, Mrs. Chu demanded from the Bank
and Cams Trading that her time deposit be restored. When neither complied, she
filed a complaint to recover the sum of P283,737.75 from them. The case was
docketed in the Regional Trial Court of Makati, Metro Manila (then CFI of Rizal,
Pasig Branch XIX), as Civil Case No. 38861.
In a decision dated December 12, 1983, the trial court dismissed the complaint
for lack of merit.
Chu appealed to the Court of Appeals (CA-G.R. CV No. 03269) which affirmed
the dismissal of her complaint.
In this petition for review, she alleges that the Court of Appeals erred:
1. In not annulling the encashment of her time deposit certificates as a pactum
commissorium; and
2. In not finding that the obligations secured by her time deposits had already
been paid.
We find no merit in the petition for review.
The Court of Appeals found that the deeds of assignment were contracts of
pledge, but, as the collateral was also money or an exchange of "peso for peso,"
the provision in Article 2112 of the Civil Code for the sale of the thing pledged at
public auction to convert it into money to satisfy the pledgor's obligation, did not
have to be followed. All that had to be done to convert the pledgor's time deposit
certificates into cash was to present them to the bank for encashment after due
notice to the debtor.
The encashment of the deposit certificates was not a pacto commissorio which is
prohibited under Art. 2088 of the Civil Code. A pacto commissorio is a provision
for the automatic appropriation of the pledged or mortgaged property by the
creditor in payment of the loan upon its maturity. The prohibition against a pacto
commissorio is intended to protect the obligor, pledgor, or mortgagor against
being overreached by his creditor who holds a pledge or mortgage over property
whose value is much more than the debt. Where, as in this case, the security for
the debt is also money deposited in a bank, the amount of which is even less
than the debt, it was not illegal for the creditor to encash the time deposit
certificates to pay the debtors' overdue obligation, with the latter's consent.
Whether the debt had already been paid as now alleged by the debtor, is a factual
question which the Court of Appeals found not to have been proven for the
evidence which the debtor sought to present on appeal, were receipts for
payments made prior to July 18, 1980. Since the petitioner signed on July 18,
1980 a letter admitting her indebtedness to be in the sum of P404,500, and there
is no proof of payment made by her thereafter to reduce or extinguish her debt,
the application of her time deposits, which she had assigned to the creditor to
secure the payment of her debt, was proper. The Court of Appeals did not
commit a reversible error in holding that it was so.

WHEREFORE, the petition for review is denied. Costs against the appellant.

SO ORDERED.

Narvasa, Cruz and Medialdea, JJ., concur.

Gancayco, J., took no part.

 G.R. No. 159617 August 8, 2007
ROBERTO C. SICAM and AGENCIA de R.C. SICAM, INC., petitioners,
vs.
LULU V. JORGE and CESAR JORGE, respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
Before us is a Petition for Review on Certiorari filed by Roberto C. Sicam, Jr.
(petitioner Sicam) and Agencia de R.C. Sicam, Inc. (petitioner corporation)
seeking to annul the Decision1 of the Court of Appeals dated March 31, 2003,
and its Resolution2 dated August 8, 2003, in CA G.R. CV No. 56633.
It appears that on different dates from September to October 1987, Lulu V. Jorge
(respondent Lulu) pawned several pieces of jewelry with Agencia de R. C. Sicam
located at No. 17 Aguirre Ave., BF Homes Parañaque, Metro Manila, to secure a
loan in the total amount of P59,500.00.
On October 19, 1987, two armed men entered the pawnshop and took away
whatever cash and jewelry were found inside the pawnshop vault. The incident
was entered in the police blotter of the Southern Police District, Parañaque Police
Station as follows:
Investigation shows that at above TDPO, while victims were inside the office, two
(2) male unidentified persons entered into the said office with guns drawn.
Suspects(sic) (1) went straight inside and poked his gun toward Romeo Sicam
and thereby tied him with an electric wire while suspects (sic) (2) poked his gun
toward Divina Mata and Isabelita Rodriguez and ordered them to lay (sic) face flat
on the floor. Suspects asked forcibly the case and assorted pawned jewelries
items mentioned above.
Suspects after taking the money and jewelries fled on board a Marson Toyota
unidentified plate number.3
Petitioner Sicam sent respondent Lulu a letter dated October 19, 1987 informing
her of the loss of her jewelry due to the robbery incident in the pawnshop. On
November 2, 1987, respondent Lulu then wrote a letter4 to petitioner Sicam
expressing disbelief stating that when the robbery happened, all jewelry pawned
were deposited with Far East Bank near the pawnshop since it had been the
practice that before they could withdraw, advance notice must be given to the
pawnshop so it could withdraw the jewelry from the bank. Respondent Lulu then
requested petitioner Sicam to prepare the pawned jewelry for withdrawal on
November 6, 1987 but petitioner Sicam failed to return the jewelry.
On September 28, 1988, respondent Lulu joined by her husband, Cesar Jorge,
filed a complaint against petitioner Sicam with the Regional Trial Court of Makati
seeking indemnification for the loss of pawned jewelry and payment of actual,
moral and exemplary damages as well as attorney's fees. The case was docketed
as Civil Case No. 88-2035.
Petitioner Sicam filed his Answer contending that he is not the real party-in-
interest as the pawnshop was incorporated on April 20, 1987 and known as
Agencia de R.C. Sicam, Inc; that petitioner corporation had exercised due care
and diligence in the safekeeping of the articles pledged with it and could not be
made liable for an event that is fortuitous.
Respondents subsequently filed an Amended Complaint to include petitioner
corporation.
Thereafter, petitioner Sicam filed a Motion to Dismiss as far as he is concerned
considering that he is not the real party-in-interest. Respondents opposed the
same. The RTC denied the motion in an Order dated November 8, 1989.5
After trial on the merits, the RTC rendered its Decision6 dated January 12, 1993,
dismissing respondents’ complaint as well as petitioners’ counterclaim. The RTC
held that petitioner Sicam could not be made personally liable for a claim arising
out of a corporate transaction; that in the Amended Complaint of respondents,
they asserted that "plaintiff pawned assorted jewelries in defendants' pawnshop";
and that as a consequence of the separate juridical personality of a corporation,
the corporate debt or credit is not the debt or credit of a stockholder.
The RTC further ruled that petitioner corporation could not be held liable for the
loss of the pawned jewelry since it had not been rebutted by respondents that the
loss of the pledged pieces of jewelry in the possession of the corporation was
occasioned by armed robbery; that robbery is a fortuitous event which exempts
the victim from liability for the loss, citing the case of Austria v. Court of Appeals;7
and that the parties’ transaction was that of a pledgor and pledgee and under
Art. 1174 of the Civil Code, the pawnshop as a pledgee is not responsible for
those events which could not be foreseen.
Respondents appealed the RTC Decision to the CA. In a Decision dated March
31, 2003, the CA reversed the RTC, the dispositive portion of which reads as
follows:
WHEREFORE, premises considered, the instant Appeal is GRANTED, and the
Decision dated January 12, 1993,of the Regional Trial Court of Makati, Branch
62, is hereby REVERSED and SET ASIDE, ordering the appellees to pay
appellants the actual value of the lost jewelry amounting to P272,000.00, and
attorney' fees of P27,200.00.8
In finding petitioner Sicam liable together with petitioner corporation, the CA
applied the doctrine of piercing the veil of corporate entity reasoning that
respondents were misled into thinking that they were dealing with the pawnshop
owned by petitioner Sicam as all the pawnshop tickets issued to them bear the
words "Agencia de R.C. Sicam"; and that there was no indication on the
pawnshop tickets that it was the petitioner corporation that owned the
pawnshop which explained why respondents had to amend their complaint
impleading petitioner corporation.
The CA further held that the corresponding diligence required of a pawnshop is
that it should take steps to secure and protect the pledged items and should take
steps to insure itself against the loss of articles which are entrusted to its custody
as it derives earnings from the pawnshop trade which petitioners failed to do;
that Austria is not applicable to this case since the robbery incident happened in
1961 when the criminality had not as yet reached the levels attained in the
present day; that they are at least guilty of contributory negligence and should be
held liable for the loss of jewelries; and that robberies and hold-ups are
foreseeable risks in that those engaged in the pawnshop business are expected to
foresee.
The CA concluded that both petitioners should be jointly and severally held liable
to respondents for the loss of the pawned jewelry.
Petitioners’ motion for reconsideration was denied in a Resolution dated August
8, 2003.
Hence, the instant petition for review with the following assignment of errors:
THE COURT OF APPEALS ERRED AND WHEN IT DID, IT OPENED ITSELF TO
REVERSAL, WHEN IT ADOPTED UNCRITICALLY (IN FACT IT REPRODUCED
AS ITS OWN WITHOUT IN THE MEANTIME ACKNOWLEDGING IT) WHAT THE
RESPONDENTS ARGUED IN THEIR BRIEF, WHICH ARGUMENT WAS
PALPABLY UNSUSTAINABLE.
THE COURT OF APPEALS ERRED, AND WHEN IT DID, IT OPENED ITSELF TO
REVERSAL BY THIS HONORABLE COURT, WHEN IT AGAIN ADOPTED
UNCRITICALLY (BUT WITHOUT ACKNOWLEDGING IT) THE SUBMISSIONS OF
THE RESPONDENTS IN THEIR BRIEF WITHOUT ADDING ANYTHING MORE
THERETO DESPITE THE FACT THAT THE SAID ARGUMENT OF THE
RESPONDENTS COULD NOT HAVE BEEN SUSTAINED IN VIEW OF
UNREBUTTED EVIDENCE ON RECORD.9
Anent the first assigned error, petitioners point out that the CA’s finding that
petitioner Sicam is personally liable for the loss of the pawned jewelries is "a
virtual and uncritical reproduction of the arguments set out on pp. 5-6 of the
Appellants’ brief."10
Petitioners argue that the reproduced arguments of respondents in their
Appellants’ Brief suffer from infirmities, as follows:
(1) Respondents conclusively asserted in paragraph 2 of their Amended
Complaint that Agencia de R.C. Sicam, Inc. is the present owner of Agencia de
R.C. Sicam Pawnshop, and therefore, the CA cannot rule against said conclusive
assertion of respondents;
(2) The issue resolved against petitioner Sicam was not among those raised and
litigated in the trial court; and
(3) By reason of the above infirmities, it was error for the CA to have pierced the
corporate veil since a corporation has a personality distinct and separate from its
individual stockholders or members.
Anent the second error, petitioners point out that the CA finding on their
negligence is likewise an unedited reproduction of respondents’ brief which had
the following defects:
(1) There were unrebutted evidence on record that petitioners had observed the
diligence required of them, i.e, they wanted to open a vault with a nearby bank
for purposes of safekeeping the pawned articles but was discouraged by the
Central Bank (CB) since CB rules provide that they can only store the pawned
articles in a vault inside the pawnshop premises and no other place;
(2) Petitioners were adjudged negligent as they did not take insurance against the
loss of the pledged jelweries, but it is judicial notice that due to high incidence of
crimes, insurance companies refused to cover pawnshops and banks because of
high probability of losses due to robberies;
(3) In Hernandez v. Chairman, Commission on Audit (179 SCRA 39, 45-46), the
victim of robbery was exonerated from liability for the sum of money belonging to
others and lost by him to robbers.
Respondents filed their Comment and petitioners filed their Reply thereto. The
parties subsequently submitted their respective Memoranda.
We find no merit in the petition.
To begin with, although it is true that indeed the CA findings were exact
reproductions of the arguments raised in respondents’ (appellants’) brief filed
with the CA, we find the same to be not fatally infirmed. Upon examination of the
Decision, we find that it expressed clearly and distinctly the facts and the law on
which it is based as required by Section 8, Article VIII of the Constitution. The
discretion to decide a case one way or another is broad enough to justify the
adoption of the arguments put forth by one of the parties, as long as these are
legally tenable and supported by law and the facts on records.11
Our jurisdiction under Rule 45 of the Rules of Court is limited to the review of
errors of law committed by the appellate court. Generally, the findings of fact of
the appellate court are deemed conclusive and we are not duty-bound to analyze
and calibrate all over again the evidence adduced by the parties in the court a
quo.12 This rule, however, is not without exceptions, such as where the factual
findings of the Court of Appeals and the trial court are conflicting or
contradictory13 as is obtaining in the instant case.
However, after a careful examination of the records, we find no justification to
absolve petitioner Sicam from liability.
The CA correctly pierced the veil of the corporate fiction and adjudged petitioner
Sicam liable together with petitioner corporation. The rule is that the veil of
corporate fiction may be pierced when made as a shield to perpetrate fraud
and/or confuse legitimate issues. 14 The theory of corporate entity was not meant
to promote unfair objectives or otherwise to shield them.15
Notably, the evidence on record shows that at the time respondent Lulu pawned
her jewelry, the pawnshop was owned by petitioner Sicam himself. As correctly
observed by the CA, in all the pawnshop receipts issued to respondent Lulu in
September 1987, all bear the words "Agencia de R. C. Sicam," notwithstanding
that the pawnshop was allegedly incorporated in April 1987. The receipts issued
after such alleged incorporation were still in the name of "Agencia de R. C.
Sicam," thus inevitably misleading, or at the very least, creating the wrong
impression to respondents and the public as well, that the pawnshop was owned
solely by petitioner Sicam and not by a corporation.
Even petitioners’ counsel, Atty. Marcial T. Balgos, in his letter16 dated October 15,
1987 addressed to the Central Bank, expressly referred to petitioner Sicam as the
proprietor of the pawnshop notwithstanding the alleged incorporation in April
1987.
We also find no merit in petitioners' argument that since respondents had alleged
in their Amended Complaint that petitioner corporation is the present owner of
the pawnshop, the CA is bound to decide the case on that basis.
Section 4 Rule 129 of the Rules of Court provides that an admission, verbal or
written, made by a party in the course of the proceedings in the same case, does
not require proof. The admission may be contradicted only by showing that it
was made through palpable mistake or that no such admission was made.
Thus, the general rule that a judicial admission is conclusive upon the party
making it and does not require proof, admits of two exceptions, to wit: (1) when it
is shown that such admission was made through palpable mistake, and (2) when
it is shown that no such admission was in fact made. The latter exception
allows one to contradict an admission by denying that he made such an
admission.17
The Committee on the Revision of the Rules of Court explained the second
exception in this wise:
x x x if a party invokes an "admission" by an adverse party, but cites the
admission "out of context," then the one making the "admission" may show that
he made no "such" admission, or that his admission was taken out of
context.
x x x that the party can also show that he made no "such admission", i.e.,
not in the sense in which the admission is made to appear.
That is the reason for the modifier "such" because if the rule simply states that
the admission may be contradicted by showing that "no admission was made,"
the rule would not really be providing for a contradiction of the admission but
just a denial.18 (Emphasis supplied).
While it is true that respondents alleged in their Amended Complaint that
petitioner corporation is the present owner of the pawnshop, they did so only
because petitioner Sicam alleged in his Answer to the original complaint filed
against him that he was not the real party-in-interest as the pawnshop was
incorporated in April 1987. Moreover, a reading of the Amended Complaint in its
entirety shows that respondents referred to both petitioner Sicam and petitioner
corporation where they (respondents) pawned their assorted pieces of jewelry and
ascribed to both the failure to observe due diligence commensurate with the
business which resulted in the loss of their pawned jewelry.
Markedly, respondents, in their Opposition to petitioners’ Motion to Dismiss
Amended Complaint, insofar as petitioner Sicam is concerned, averred as follows:
Roberto C. Sicam was named the defendant in the original complaint because
the pawnshop tickets involved in this case did not show that the R.C. Sicam
Pawnshop was a corporation. In paragraph 1 of his Answer, he admitted the
allegations in paragraph 1 and 2 of the Complaint. He merely added "that
defendant is not now the real party in interest in this case."
It was defendant Sicam's omission to correct the pawnshop tickets used in the
subject transactions in this case which was the cause of the instant action. He
cannot now ask for the dismissal of the complaint against him simply on the
mere allegation that his pawnshop business is now incorporated. It is a matter of
defense, the merit of which can only be reached after consideration of the
evidence to be presented in due course.19
Unmistakably, the alleged admission made in respondents' Amended Complaint
was taken "out of context" by petitioner Sicam to suit his own purpose.
Ineluctably, the fact that petitioner Sicam continued to issue pawnshop receipts
under his name and not under the corporation's name militates for the piercing
of the corporate veil.
We likewise find no merit in petitioners' contention that the CA erred in piercing
the veil of corporate fiction of petitioner corporation, as it was not an issue raised
and litigated before the RTC.
Petitioner Sicam had alleged in his Answer filed with the trial court that he was
not the real party-in-interest because since April 20, 1987, the pawnshop
business initiated by him was incorporated and known as Agencia de R.C.
Sicam. In the pre-trial brief filed by petitioner Sicam, he submitted that as far as
he was concerned, the basic issue was whether he is the real party in interest
against whom the complaint should be directed.20 In fact, he subsequently
moved for the dismissal of the complaint as to him but was not favorably acted
upon by the trial court. Moreover, the issue was squarely passed upon, although
erroneously, by the trial court in its Decision in this manner:
x x x The defendant Roberto Sicam, Jr likewise denies liability as far as he is
concerned for the reason that he cannot be made personally liable for a claim
arising from a corporate transaction.
This Court sustains the contention of the defendant Roberto C. Sicam, Jr. The
amended complaint itself asserts that "plaintiff pawned assorted jewelries in
defendant's pawnshop." It has been held that " as a consequence of the separate
juridical personality of a corporation, the corporate debt or credit is not the debt
or credit of the stockholder, nor is the stockholder's debt or credit that of a
corporation.21
Clearly, in view of the alleged incorporation of the pawnshop, the issue of whether
petitioner Sicam is personally liable is inextricably connected with the
determination of the question whether the doctrine of piercing the corporate veil
should or should not apply to the case.
The next question is whether petitioners are liable for the loss of the pawned
articles in their possession.
Petitioners insist that they are not liable since robbery is a fortuitous event and
they are not negligent at all.
We are not persuaded.
Article 1174 of the Civil Code provides:
Art. 1174. Except in cases expressly specified by the law, or when it is otherwise
declared by stipulation, or when the nature of the obligation requires the
assumption of risk, no person shall be responsible for those events which could
not be foreseen or which, though foreseen, were inevitable.
Fortuitous events by definition are extraordinary events not foreseeable or
avoidable. It is therefore, not enough that the event should not have been
foreseen or anticipated, as is commonly believed but it must be one impossible to
foresee or to avoid. The mere difficulty to foresee the happening is not
impossibility to foresee the same. 22
To constitute a fortuitous event, the following elements must concur: (a) the
cause of the unforeseen and unexpected occurrence or of the failure of the debtor
to comply with obligations must be independent of human will; (b) it must be
impossible to foresee the event that constitutes the caso fortuito or, if it can be
foreseen, it must be impossible to avoid; (c) the occurrence must be such as to
render it impossible for the debtor to fulfill obligations in a normal manner; and,
(d) the obligor must be free from any participation in the aggravation of the injury
or loss. 23
The burden of proving that the loss was due to a fortuitous event rests on him
who invokes it.24 And, in order for a fortuitous event to exempt one from liability,
it is necessary that one has committed no negligence or misconduct that may
have occasioned the loss. 25
It has been held that an act of God cannot be invoked to protect a person who
has failed to take steps to forestall the possible adverse consequences of such a
loss. One's negligence may have concurred with an act of God in producing
damage and injury to another; nonetheless, showing that the immediate or
proximate cause of the damage or injury was a fortuitous event would not
exempt one from liability. When the effect is found to be partly the result of a
person's participation -- whether by active intervention, neglect or failure to act --
the whole occurrence is humanized and removed from the rules applicable to
acts of God. 26
Petitioner Sicam had testified that there was a security guard in their pawnshop
at the time of the robbery. He likewise testified that when he started the
pawnshop business in 1983, he thought of opening a vault with the nearby bank
for the purpose of safekeeping the valuables but was discouraged by the Central
Bank since pawned articles should only be stored in a vault inside the
pawnshop. The very measures which petitioners had allegedly adopted show that
to them the possibility of robbery was not only foreseeable, but actually foreseen
and anticipated. Petitioner Sicam’s testimony, in effect, contradicts petitioners’
defense of fortuitous event.
Moreover, petitioners failed to show that they were free from any negligence by
which the loss of the pawned jewelry may have been occasioned.
Robbery per se, just like carnapping, is not a fortuitous event. It does not
foreclose the possibility of negligence on the part of herein petitioners. In Co v.
Court of Appeals,27 the Court held:
It is not a defense for a repair shop of motor vehicles to escape liability simply
because the damage or loss of a thing lawfully placed in its possession was due
to carnapping. Carnapping per se cannot be considered as a fortuitous event.
The fact that a thing was unlawfully and forcefully taken from another's
rightful possession, as in cases of carnapping, does not automatically give
rise to a fortuitous event. To be considered as such, carnapping entails
more than the mere forceful taking of another's property. It must be
proved and established that the event was an act of God or was done solely
by third parties and that neither the claimant nor the person alleged to be
negligent has any participation. In accordance with the Rules of Evidence,
the burden of proving that the loss was due to a fortuitous event rests on
him who invokes it — which in this case is the private respondent.
However, other than the police report of the alleged carnapping incident, no other
evidence was presented by private respondent to the effect that the incident was
not due to its fault. A police report of an alleged crime, to which only private
respondent is privy, does not suffice to establish the carnapping. Neither does it
prove that there was no fault on the part of private respondent notwithstanding
the parties' agreement at the pre-trial that the car was carnapped. Carnapping
does not foreclose the possibility of fault or negligence on the part of private
respondent.28
Just like in Co, petitioners merely presented the police report of the Parañaque
Police Station on the robbery committed based on the report of petitioners'
employees which is not sufficient to establish robbery. Such report also does not
prove that petitioners were not at fault.
On the contrary, by the very evidence of petitioners, the CA did not err in finding
that petitioners are guilty of concurrent or contributory negligence as provided in
Article 1170 of the Civil Code, to wit:
Art. 1170. Those who in the performance of their obligations are guilty of fraud,
negligence, or delay, and those who in any manner contravene the tenor thereof,
are liable for damages.29
Article 2123 of the Civil Code provides that with regard to pawnshops and other
establishments which are engaged in making loans secured by pledges, the
special laws and regulations concerning them shall be observed, and
subsidiarily, the provisions on pledge, mortgage and antichresis.
The provision on pledge, particularly Article 2099 of the Civil Code, provides that
the creditor shall take care of the thing pledged with the diligence of a good father
of a family. This means that petitioners must take care of the pawns the way a
prudent person would as to his own property.
In this connection, Article 1173 of the Civil Code further provides:
Art. 1173. The fault or negligence of the obligor consists in the omission of that
diligence which is required by the nature of the obligation and corresponds with
the circumstances of the persons, of time and of the place. When negligence
shows bad faith, the provisions of Articles 1171 and 2201, paragraph 2 shall
apply.
If the law or contract does not state the diligence which is to be observed in the
performance, that which is expected of a good father of a family shall be required.
We expounded in Cruz v. Gangan30 that negligence is the omission to do
something which a reasonable man, guided by those considerations which
ordinarily regulate the conduct of human affairs, would do; or the doing of
something which a prudent and reasonable man would not do.31 It is want of
care required by the circumstances.
A review of the records clearly shows that petitioners failed to exercise reasonable
care and caution that an ordinarily prudent person would have used in the same
situation. Petitioners were guilty of negligence in the operation of their pawnshop
business. Petitioner Sicam testified, thus:
Court:
Q. Do you have security guards in your pawnshop?
A. Yes, your honor.
Q. Then how come that the robbers were able to enter the premises when
according to you there was a security guard?
A. Sir, if these robbers can rob a bank, how much more a pawnshop.
Q. I am asking you how were the robbers able to enter despite the fact that there
was a security guard?
A. At the time of the incident which happened about 1:00 and 2:00 o'clock in the
afternoon and it happened on a Saturday and everything was quiet in the area
BF Homes Parañaque they pretended to pawn an article in the pawnshop, so one
of my employees allowed him to come in and it was only when it was announced
that it was a hold up.
Q. Did you come to know how the vault was opened?
A. When the pawnshop is official (sic) open your honor the pawnshop is partly
open. The combination is off.
Q. No one open (sic) the vault for the robbers?
A. No one your honor it was open at the time of the robbery.
Q. It is clear now that at the time of the robbery the vault was open the reason
why the robbers were able to get all the items pawned to you inside the vault.
A. Yes sir.32
revealing that there were no security measures adopted by petitioners in the
operation of the pawnshop. Evidently, no sufficient precaution and vigilance were
adopted by petitioners to protect the pawnshop from unlawful intrusion. There
was no clear showing that there was any security guard at all. Or if there was
one, that he had sufficient training in securing a pawnshop. Further, there is no
showing that the alleged security guard exercised all that was necessary to
prevent any untoward incident or to ensure that no suspicious individuals were
allowed to enter the premises. In fact, it is even doubtful that there was a security
guard, since it is quite impossible that he would not have noticed that the
robbers were armed with caliber .45 pistols each, which were allegedly poked at
the employees.33 Significantly, the alleged security guard was not presented at all
to corroborate petitioner Sicam's claim; not one of petitioners' employees who
were present during the robbery incident testified in court.
Furthermore, petitioner Sicam's admission that the vault was open at the time of
robbery is clearly a proof of petitioners' failure to observe the care, precaution and
vigilance that the circumstances justly demanded. Petitioner Sicam testified that
once the pawnshop was open, the combination was already off. Considering
petitioner Sicam's testimony that the robbery took place on a Saturday afternoon
and the area in BF Homes Parañaque at that time was quiet, there was more
reason for petitioners to have exercised reasonable foresight and diligence in
protecting the pawned jewelries. Instead of taking the precaution to protect them,
they let open the vault, providing no difficulty for the robbers to cart away the
pawned articles.
We, however, do not agree with the CA when it found petitioners negligent for not
taking steps to insure themselves against loss of the pawned jewelries.
Under Section 17 of Central Bank Circular No. 374, Rules and Regulations for
Pawnshops, which took effect on July 13, 1973, and which was issued pursuant
to Presidential Decree No. 114, Pawnshop Regulation Act, it is provided that
pawns pledged must be insured, to wit:
Sec. 17. Insurance of Office Building and Pawns- The place of business of a
pawnshop and the pawns pledged to it must be insured against fire and
against burglary as well as for the latter(sic), by an insurance company
accredited by the Insurance Commissioner.
However, this Section was subsequently amended by CB Circular No. 764 which
took effect on October 1, 1980, to wit:
Sec. 17 Insurance of Office Building and Pawns – The office building/premises
and pawns of a pawnshop must be insured against fire. (emphasis supplied).
where the requirement that insurance against burglary was deleted. Obviously,
the Central Bank considered it not feasible to require insurance of pawned
articles against burglary.
The robbery in the pawnshop happened in 1987, and considering the above-
quoted amendment, there is no statutory duty imposed on petitioners to insure
the pawned jewelry in which case it was error for the CA to consider it as a factor
in concluding that petitioners were negligent.
Nevertheless, the preponderance of evidence shows that petitioners failed to
exercise the diligence required of them under the Civil Code.
The diligence with which the law requires the individual at all times to govern his
conduct varies with the nature of the situation in which he is placed and the
importance of the act which he is to perform.34 Thus, the cases of Austria v. Court
of Appeals,35 Hernandez v. Chairman, Commission on Audit36 and Cruz v.
Gangan37 cited by petitioners in their pleadings, where the victims of robbery
were exonerated from liability, find no application to the present case.
In Austria, Maria Abad received from Guillermo Austria a pendant with
diamonds to be sold on commission basis, but which Abad failed to
subsequently return because of a robbery committed upon her in 1961. The
incident became the subject of a criminal case filed against several persons.
Austria filed an action against Abad and her husband (Abads) for recovery of the
pendant or its value, but the Abads set up the defense that the robbery
extinguished their obligation. The RTC ruled in favor of Austria, as the Abads
failed to prove robbery; or, if committed, that Maria Abad was guilty of negligence.
The CA, however, reversed the RTC decision holding that the fact of robbery was
duly established and declared the Abads not responsible for the loss of the
jewelry on account of a fortuitous event. We held that for the Abads to be relieved
from the civil liability of returning the pendant under Art. 1174 of the Civil Code,
it would only be sufficient that the unforeseen event, the robbery, took place
without any concurrent fault on the debtor’s part, and this can be done by
preponderance of evidence; that to be free from liability for reason of fortuitous
event, the debtor must, in addition to the casus itself, be free of any concurrent or
contributory fault or negligence.38
We found in Austria that under the circumstances prevailing at the time the
Decision was promulgated in 1971, the City of Manila and its suburbs had a
high incidence of crimes against persons and property that rendered travel after
nightfall a matter to be sedulously avoided without suitable precaution and
protection; that the conduct of Maria Abad in returning alone to her house in the
evening carrying jewelry of considerable value would have been negligence per se
and would not exempt her from responsibility in the case of robbery. However we
did not hold Abad liable for negligence since, the robbery happened ten years
previously; i.e., 1961, when criminality had not reached the level of incidence
obtaining in 1971.
In contrast, the robbery in this case took place in 1987 when robbery was
already prevalent and petitioners in fact had already foreseen it as they wanted to
deposit the pawn with a nearby bank for safekeeping. Moreover, unlike in
Austria, where no negligence was committed, we found petitioners negligent in
securing their pawnshop as earlier discussed.
In Hernandez, Teodoro Hernandez was the OIC and special disbursing officer of
the Ternate Beach Project of the Philippine Tourism in Cavite. In the morning of
July 1, 1983, a Friday, he went to Manila to encash two checks covering the
wages of the employees and the operating expenses of the project. However for
some reason, the processing of the check was delayed and was completed at
about 3 p.m. Nevertheless, he decided to encash the check because the project
employees would be waiting for their pay the following day; otherwise, the
workers would have to wait until July 5, the earliest time, when the main office
would open. At that time, he had two choices: (1) return to Ternate, Cavite that
same afternoon and arrive early evening; or (2) take the money with him to his
house in Marilao, Bulacan, spend the night there, and leave for Ternate the
following day. He chose the second option, thinking it was the safer one. Thus, a
little past 3 p.m., he took a passenger jeep bound for Bulacan. While the jeep was
on Epifanio de los Santos Avenue, the jeep was held up and the money kept by
Hernandez was taken, and the robbers jumped out of the jeep and ran.
Hernandez chased the robbers and caught up with one robber who was
subsequently charged with robbery and pleaded guilty. The other robber who
held the stolen money escaped. The Commission on Audit found Hernandez
negligent because he had not brought the cash proceeds of the checks to his
office in Ternate, Cavite for safekeeping, which is the normal procedure in the
handling of funds. We held that Hernandez was not negligent in deciding to
encash the check and bringing it home to Marilao, Bulacan instead of Ternate,
Cavite due to the lateness of the hour for the following reasons: (1) he was moved
by unselfish motive for his co-employees to collect their wages and salaries the
following day, a Saturday, a non-working, because to encash the check on July
5, the next working day after July 1, would have caused discomfort to laborers
who were dependent on their wages for sustenance; and (2) that choosing
Marilao as a safer destination, being nearer, and in view of the comparative
hazards in the trips to the two places, said decision seemed logical at that time.
We further held that the fact that two robbers attacked him in broad daylight in
the jeep while it was on a busy highway and in the presence of other passengers
could not be said to be a result of his imprudence and negligence.
Unlike in Hernandez where the robbery happened in a public utility, the robbery
in this case took place in the pawnshop which is under the control of petitioners.
Petitioners had the means to screen the persons who were allowed entrance to
the premises and to protect itself from unlawful intrusion. Petitioners had failed
to exercise precautionary measures in ensuring that the robbers were prevented
from entering the pawnshop and for keeping the vault open for the day, which
paved the way for the robbers to easily cart away the pawned articles.
In Cruz, Dr. Filonila O. Cruz, Camanava District Director of Technological
Education and Skills Development Authority (TESDA), boarded the Light Rail
Transit (LRT) from Sen. Puyat Avenue to Monumento when her handbag was
slashed and the contents were stolen by an unidentified person. Among those
stolen were her wallet and the government-issued cellular phone. She then
reported the incident to the police authorities; however, the thief was not located,
and the cellphone was not recovered. She also reported the loss to the Regional
Director of TESDA, and she requested that she be freed from accountability for
the cellphone. The Resident Auditor denied her request on the ground that she
lacked the diligence required in the custody of government property and was
ordered to pay the purchase value in the total amount of P4,238.00. The COA
found no sufficient justification to grant the request for relief from accountability.
We reversed the ruling and found that riding the LRT cannot per se be
denounced as a negligent act more so because Cruz’s mode of transit was
influenced by time and money considerations; that she boarded the LRT to be
able to arrive in Caloocan in time for her 3 pm meeting; that any prudent and
rational person under similar circumstance can reasonably be expected to do the
same; that possession of a cellphone should not hinder one from boarding the
LRT coach as Cruz did considering that whether she rode a jeep or bus, the risk
of theft would have also been present; that because of her relatively low position
and pay, she was not expected to have her own vehicle or to ride a taxicab; she
did not have a government assigned vehicle; that placing the cellphone in a bag
away from covetous eyes and holding on to that bag as she did is ordinarily
sufficient care of a cellphone while traveling on board the LRT; that the records
did not show any specific act of negligence on her part and negligence can never
be presumed.

Unlike in the Cruz case, the robbery in this case happened in petitioners'
pawnshop and they were negligent in not exercising the precautions justly
demanded of a pawnshop.

WHEREFORE, except for the insurance aspect, the Decision of the Court of
Appeals dated March 31, 2003 and its Resolution dated August 8, 2003, are
AFFIRMED.

Costs against petitioners.

SO ORDERED.
 G.R. No. 126891 August 5, 1998
LIM TAY, petitioner,
vs.
COURT OF APPEALS, GO FAY AND CO. INC., SY GUIOK, and THE ESTATE
OF ALFONSO LIM, respondents.
PANGANIBAN, J.:
The duty of a corporate secretary to record transfers of stocks is ministerial.
However, he cannot be compelled to do so when the transferee's title to said
shares has no prima facie validity or is uncertain. More specifically, a pledgor,
prior to foreclosure and sale, does not acquire ownership rights over the pledged
shares and thus cannot compel the corporate secretary to record his alleged
ownership of such shares on the basis merely of the contract of pledge. Similarly,
the SEC does not acquire jurisdiction over a dispute when a party's claim to
being a shareholder is, on the face of the complaint, invalid or inadequate or is
otherwise negated by the very allegations of such complaint. Mandamus will not
issue to establish a right, but only to enforce one that is already established.
Statement of the Case
There are the principles, used by this Court in resolving this Petition for Review
on Certiorari before us, assailing the October 24, 1996 Decision 1 of the Court of
Appeals 2 in CA-GR SP No. 40832, the dispositive portion of which reads:
IN THE LIGHT OF ALL THE FOREGOING, the Petition at bench is DENIED DUE
COURSE and is hereby DISMISSED. With costs against the [p]etitioner. 3
By the foregoing disposition, the Court of Appeals effectively affirmed the March
7, 1996 Decision 4 of the Securities and Exchange Commission (SEC) en banc:
WHEREFORE, in view of all the foregoing, judgment is hereby rendered
dismissing the appeal on the ground that mandamus will only issue upon a clear
showing of ownership over the assailed shares of stock, [t]he determination of
which, on the basis of the foregoing facts, is within the jurisdiction of the regular
courts and not with the SEC. 5
The SEC en banc upheld the August 16, 1993 Decision 6 of SEC Hearing Officer
Rolando C. Malabonga, which dismissed the action for mandamus filed by
petitioner.
The Facts
As found by the Court of Appeals, the facts of the case are as follows:
. . . On January 8, 1980, Respondent-Appellee Sy Guiok secured a loan from the
[p]etitioner in the amount of P40,000 payable within six (6) months. To secure
the payment of the aforesaid loan and interest thereon, Respondent Guiok
executed a Contract of Pledge in favor of the [p]etitioner whereby he pledged his
three hundred (300) shares of stock in the Go Fay & Company Inc., Respondent
Corporation, for brevity's sake. Respondent Guiok obliged himself to pay interest
on said loan at the rate of 10% per annum from the date of said contract of
pledge. On the same date, Alfonso Sy Lim secured a loan from the [p]etitioner in
the amount of P40,000 payable in six (6) months. To secure the payment of his
loan, Sy Lim executed a "Contract of Pledge" covering his three hundred (300)
shares of stock in Respondent Corporation. Under said contract, Sy Lim obliged
himself to pay interest on his loan at the rate of 10% per annum from the date of
the execution of said contract.
Under said "Contracts of Pledge," Respondent[s] Guiok and Sy Lim covenanted,
inter alia, that:
3. In the event of the failure of the PLEDGOR to pay the amount within a period
of six (6) months from the date hereof, the PLEDGEE is hereby authorized to
foreclose the pledge upon the said shares of stock hereby created by selling the
same at public or private sale with or without notice to the PLEDGOR, at which
sale the PLEDGEE may be the purchaser at his option; and the PLEDGEE is
hereby authorized and empowered at his option to transfer the said shares of
stock on the books of the corporation to his own name and to hold the certificate
issued in lieu thereof under the terms of this pledge, and to sell the said shares to
issue to him and to apply the proceeds of the sale to the payment of the said sum
and interest, in the manner hereinabove provided;
4. In the event of the foreclosure of this pledge and the sale of the pledged
certificate, any surplus remaining in the hands of the PLEDGEE after the
payment of the said sum and interest, and the expenses, if any, connected with
the foreclosure sale, shall be paid by the PLEDGEE to the PLEDGOR;
5. Upon payment of the said amount and interest in full, the PLEDGEE will, on
demand of the PLEDGOR, redeliver to him the said shares of stock by
surrendering the certificate delivered to him by the PLEDGOR or by
retransferring each share to the PLEDGOR, in the event that the PLEDGEE,
under the option hereby granted, shall have caused such shares to be
transferred to him upon the books of the issuing company."(idem, supra)
Respondent Guiok and Sy Lim endorsed their respective shares of stock in blank
and delivered the same to the [p]etitioner. 7
However, Respondent Guiok and Sy Lim failed to pay their respective loans and
the accrued interests thereon to the [p]etitioner. In October, 1990, the [p]etitioner
filed a "Petition for Mandamus" against Respondent Corporation, with the SEC
entitled "Lim Tay versus Go Fay & Company. Inc., SEC Case No. 03894", praying
that:
PRAYER
WHEREFORE, premises considered, it is respectfully prayed that an order be
issued directing the corporate secretary of [R]espondent Go Fay & Co., Inc. to
register the stock transfers and issue new certificates in favor of Lim Tay. It is
likewise prayed that [R]espondent Go Fay & Co., Inc[.] be ordered to pay all
dividends due and unclaimed on the said certificates to [P]laintiff Lim Tay.
Plaintiff further prays for such other relief just and equitable in the premises. (
page 34, Rollo)
The [p]etitioner alleged, inter alia, in his Petition that the controversy between him
as stockholder and the Respondent Corporation was intra-corporate in view of
the obstinate refusal of the corporate secretary of Respondent Corporation to
record the transfer of the shares of stock of Respondent Guiok and Sy Lim in
favor of and under the name of the [p]etitioner and to issue new certificates of
stock to the [p]etitioner.
The Respondent Corporation filed its Answer to the Complaint and alleged, as
Affirmative Defense, that:
AFFIRMATIVE DEFENSE
7. Respondent repleads and incorporates herein by reference the foregoing
allegations.
8. The Complaint states no cause of action against [r]espondent.
9. Complainant is not a stockholder of [r]espondent. Hence, the Honorable
Commission has no jurisdiction to enter the present controversy since their [sic]
is no intracorporate relationship between complainant and respondent.
10. Granting arguendo that a pledge was constituted over the shareholdings of
Sy Guiok in favor of the complainant and that the former defaulted in the
payment of his obligations to the latter, the same did not automatically vest [i]n
complainant ownership of the pledged shares. ( pace 37, Rollo)
In the interim, Sy Lim died. Respondents Guiok and the Intestate Estate of
Alfonso Sy Lim, represented by Conchita Lim, filed their Answer-In-Intervention
with the SEC alleging, inter alia, that:
xxx xxx xxx
3. Deny specifically the allegation under paragraph 5 of the Complaint that,
failure to pay the loan within the contract period automatically foreclosed the
pledged shares of stocks and that the share of stocks are automatically
purchased by the plaintiff, for being false and distorted, the truth being that
pursuant to the [sic] paragraph 3 of the contract of pledges, Annexes "A" and "B",
it is clear that upon failure to pay the amount within the stipulated period, the
pledgee is authorized to foreclose the pledge and thereafter, to sell the same to
satisfy the loan. [H]owever, to this point in time, plaintiff has not performed any
operative act of foreclosing the shares of stocks of [i]ntervenors in accordance
with the Chattel Mortgage law, [n]either was there any sale of stocks — by way of
public or private auction — made after foreclosure in favor of the plaintiff to
speak about, and therefore, the respondent company could not be force[d] to [sic]
by way of mandamus, to transfer the subject shares of stocks from the name of
your [i]ntervenors to that of the plaintiff in the absence of clear and legal basis for
such;
4. DENY specifically the allegations under paragraphs 6, 7 and 8 of the
complaint as to the existence of the alleged intracorporate dispute between
plaintiff and company for being without proper and legal basis. In the first place,
plaintiff is not a stockholder of the respondent corporation; there was no
foreclosure of shares executed in accordance with the Chattel Mortgage Law
whatsoever; there were no sales consummated that would transfer to the plaintiff
the subject shares of stocks and therefore, any demand to transfer the shares of
stocks to the name of the plaintiff has no legal basis. In the second place,
[i]ntervenors had been in the past negotiating possible compromise and at the
same time, had tendered payment of the loan secured by the subject pledges but
plaintiff refused unjustifiably to oblige and accept payment o[r] even agree on the
computation of the principal amount of the loan and interest on top of a
substantial amount offered just to settle and compromise the indebtedness of
[i]ntervenors;
II. SPECIAL AFFIRMATIVE DEFENSES
Intervenors replead by way of reference all the foregoing allegations to form part
of the special affirmative defenses;
5. This Honorable Commission has no jurisdiction over the person of the
respondent and nature of the action, plaintiff having no personality at all to
compel respondent by way of mandamus to perform certain corporate
function[s];
6. The complaint states no cause of action;
7. That respondent is not [a] real party in interest;
8. The appropriation of the subject shares of stocks by plaintiff, without
compliance with the formality of law, amounted to "[p]actum commis[s]orium"
therefore, null and void;
9. Granting for the sake of argument only that there was a valid foreclosure and
sale of the subject st[o]cks in favor of the plaintiff — which [i]ntervenors deny —
still paragraph 5 of the contract allows redemption, for which intervenors are
willing to redeem the share of stocks pledged;
10. Even the Chattel Mortgage law allowed redemption of the [c]hattel foreclosed;
11. As a matter of fact, on several occasions, [i]ntervenors had made
representations with the plaintiff for the compromise and settlement of all the
obligations secured by the subject pledges — even offering to pay compensation
over and above the value of the obligations, interest[s] and dividends accruing to
the share of stocks but, plaintiff unjustly refused to accept the offer of payment; (
pages 39-42, Rollo)
The [r]espondents-[i]ntervenors prayed the SEC that judgment be rendered in
their favor, as follows:
IV. PRAYER
It is respectfully prayed to this Honorable Commission after due hearing, to
dismiss the case for lack of merit, ordering plaintiff to accept payment for the
loans secured by the subject shares of stocks and to pay plaintiff:
1. The sum of P50,000.00, as moral damages;
2. the sum of P50,000.00, as attorneys fees; and,
3. costs of suit.
Other reliefs just and equitable [are] likewise prayed for.
( pages 42-43, Rollo)
After due proceedings, the [h]earing [o]fficer promulgated a Decision dismissing
[p]etitioner's Complaint on the ground that although the SEC had jurisdiction
over the action, pursuant to the Decision of the Supreme Court in the case of
"Rural Bank of Salinas, et al. vs. Court of Appeals, et al., 210 SCRA 510", he
failed to prove the legal basis for the secretary of the Respondent Corporation to
be compelled to register stock transfers in favor of the [p]etitioner and to issue
new certificates of stock under his name ( pages 67-77, Rollo). The [p]etitioner
appealed the Decision of the [h]earing [o]fficer to the SEC, but, on March 7, 1996,
the SEC promulgated a Decision, dismissing [p]etitioner's appeal on the grounds
that: (a) the issue between the [p]etitioner and the [r]espondents being one
involving the ownership of the shares of stock pledged by Respondent Guiok and
Sy Lim, the SEC had no jurisdiction over the action filed by the [p]etitioner; (b)
the latter had no cause of action for mandamus against the Respondent
Corporation, the right of ownership of the [p]etitioner over the 300 shares of stock
pledged by Respondent Guiok and Sy Lim not having been as yet, established,
preparatory to the institution of said Petition for Mandamus with the SEC.
Ruling of the Court of Appeals
On the issue of jurisdiction, the Court of Appeals ruled:
In ascertaining whether or not the SEC had exclusive jurisdiction over
[p]etitioner's action, the [a]ppellate [c]ourt must delve into and ascertain: (a)
whether or not there is a need to enlist the expertise and technical know-how of
the SEC in resolving the issue of the ownership of the shares of stock; (b) the
status of the relationships of the parties; [and] (c) the nature of the question that
is the subject of the controversy. Where the controversy is purely a civil matter
resoluble by civil law principles and there is no need for the application of the
expertise and technical know-how of the SEC, then the regular courts have
jurisdiction over the action. 8 [citations omitted]
On the issue of whether mandamus can be availed of by the petitioner, the Court
of Appeals agreed with the SEC, viz.:
. . . [T]he [p]etitioner failed to establish a clear and legal right to the writ of
mandamus prayed for by him. . . . Mandamus will not issue to enforce a right
which is in substantial dispute or to which a substantial doubt exists . . . . The
principal function of the writ of mandamus is to command and expedite, and not
to inquire and adjudicate and, therefore it is not the purpose of the writ to
establish a legal right, but to enforce one which has already been established. 9
[citations omitted]
The Court of Appeals debunked petitioner's claim that he had acquired
ownership over the shares by virtue of novation, holding that respondents'
indorsement and delivery of the shares were pursuant to Articles 2093 and 2095
of the Civil Code and that petitioner's receipt of dividends was in compliance with
Article 2102 of the same Code. Petitioner's claim that he had acquired ownership
of the shares by virtue of prescription was likewise dismissed by Respondent
Court in this wise:
The prescriptive period for the action of Respondent[s] Guiok and Sy Lim to
recover the shares of stock from the [p]etitioner accrued only from the time they
paid their loans and the interests thereon and [made] a demand for their return.
10
Hence, the petitioner brought before us this Petition for Review on Certiorari in
accordance with Rule 45 of the Rules of Court. 11
Assignment of Errors
Petitioner submits, for the consideration of this Court, these issues: 12
(a) Whether the Securities and Exchange Commission had jurisdiction over the
complaint filed by the petitioner; and
(b) Whether the petitioner is entitled to the relief of mandamus as against the
respondent Go Fay & Co., Inc.
In addition, petitioner contends that it has acquired ownership of the shares
"through extraordinary prescription," pursuant to Article 1132 of the Civil Code,
and through respondents' subsequent acts, which amounted to a novation of the
contracts of pledge. Petitioner also claims that there was dacion en pago, in which
the shares of stock were deemed sold to petitioner, the consideration for which
was the extinguishment of the loans and the interests thereon. Petitioner likewise
claims that laches bars respondents from recovering the subject shares.
The Court's Ruling
The petition has no merit.
First Issue: Jurisdiction of the SEC
Claiming that the present controversy is intra-corporate and falls within the
exclusive jurisdiction of the SEC, petitioner relies heavily on Abejo v. De la Cruz,
13 which upheld the jurisdiction of the SEC over a suit filed by an unregistered
stockholder seeking to enforce his rights. He also seeks support from Rural Bank
of Salinas, Inc. v. Court of Appeals, 14 which ruled that the right of a transferee or
an assignee to have stocks transferred to his name was an inherent right flowing
from his ownership of the said stocks.
The registration of shares in a stockholder's name, the issuance of stock
certificates, and the right to receive dividends which pertain to the said shares are
all rights that flow from ownership. The determination of whether or not a
shareholder is entitled to exercise the above-mentioned rights falls within the
jurisdiction of the SEC. However, if ownership of the shares is not clearly
established and is still unresolved at the time the action for mandamus is filed,
then jurisdiction lies with the regular courts.
Sec. 5 of Presidential Decree No. 902-A sets forth the jurisdiction of the SEC as
follows:
Sec. 5. In addition to the regulatory and adjudicative functions of the Securities
and Exchange Commission over corporations, partnerships and other forms of
associations registered with it as expressly granted under existing laws and
decrees, it shall have original and exclusive jurisdiction to hear and decide cases
involving:
(a) Devices or schemes employed by or any acts of the board of directors,
business associates, its officers or partners, amounting to fraud and
misrepresentation which may be detrimental to the interest of the public and/or
of stockholders, partners, members of associations or organizations registered
with the Commission;
(b) Controversies arising out of intra-corporate or partnership relations, between
and among stockholders, members, or associates; between any or all of them
and the corporation, partnership or association of which they are stockholders,
members or associates, respectively; and between such corporation, partnership
or association and the State insofar as it concerns their individual franchise or
right to exist as such entity;
(c) Controversies in the election or appointment of directors, trustees, officers or
managers of such corporations, partnerships or associations.
(d) Petitions of corporations, partnerships or associations to be declared in the
state of suspension of payments in cases where the corporation, partnership or
association possesses property to cover all its debts but foresees the impossibility
of meeting them when they respectively fall due or in cases where the
corporation, partnership or association has no sufficient assets to cover its
liabilities, but is under the Management Committee created pursuant to this
decree. 15
Thus, a controversy "among stockholders, partners or associates themselves" 16
is intra-corporate in nature and falls within the jurisdiction of the SEC.
As a general rule, the jurisdiction of a court or tribunal over the subject matter is
determined by the allegations in the complaint. 17 In the present case, however,
petitioner's claim that he was the owner of the shares of stock in question has no
prima facie basis.
In his Complaint, petitioner alleged that, pursuant to the contracts of pledge, he
became the owner of the shares when the term for the loans expired. The
Complaint contained the following pertinent averments:
xxx xxx xxx
3. On [J]anuary 8, 1990, under a Contract of Pledge, Lim Tay received three
hundred (300) shares of stock of Go Fay & Co., Inc., from Sy Guiok as security
for the payment of a loan of [f]orty [t]housand [p]esos (P40,000.00) Philippine
currency, the sum of which was payable within six (6) months [with interest] at
ten percentum (10%) per annum from the date of the execution of the contract; a
copy of this Contract of Pledge is attached as Annex "A" and made part hereof;
4. On the same date January 8, 1980, under a similar Contract of Pledge, Lim
Tay received three hundred (300) shares of stock of Go Pay & Co., Inc. from
Alfonso Sy Lim as security for the payment of a loan of [f]orty [t]housand [p]esos
(P40,000.00) Philippine currency, the sum of which was payable within six (6)
months [with interest] at ten percentum (10%) per annum from the date of the
execution of the contract; a copy of this Contract of Pledge is attached as Annex
"B" and made part hereof;
5. By the express terms of the agreements, upon failure of the borrowers to pay
the stated amounts within the contract period, the pledge is foreclosed and the
shares of stock are purchased by [p]laintiff, who is expressly authorized and
empowered to transfer the duly endorsed shares of stock on the books of the
corporation to his own name; . . . 18 (emphasis supplied)
However, the contracts of pledge, which were made integral parts of the
Complaint, contain this common proviso:
3. In the event of the failure of the PLEDGOR to pay the amount within a period
of six (6) months from the date hereof, the PLEDGEE is hereby authorized to
foreclose the pledge upon the said shares of stock hereby created by selling the
same at public or private sale with or without notice to the PLEDGOR, at which
sale the PLEDGEE may be the purchaser at his option; and the PLEDGEE is
hereby authorized and empowered at his option, to transfer the said shares of
stock on the books of the corporation to his own name and to hold the certificate
issued in lieu thereof under the terms of this pledge, and to sell the said shares to
issue to him and to apply the proceeds of the sale to the payment of the said sum
and interest, in the manner hereinabove provided;
This contractual stipulation, which was part of the Complaint, shows that
plaintiff was merely authorized to foreclose the pledge upon maturity of the loans,
not to own them. Such foreclosure is not automatic, for it must be done in a
public or private sale. Nowhere did the Complaint mention that petitioner had in
fact foreclosed the pledge and purchased the shares after such foreclosure. His
status as a mere pledgee does not, under civil law, entitle him to ownership of the
subject shares. It is also noteworthy that petitioner's Complaint did not aver that
said shares were acquired through extraordinary prescription, novation or
laches. Moreover, petitioner's claim, subsequent to the filing of the Complaint,
that he acquired ownership of the said shares through these three modes is not
indubitable and still has to be resolved. In fact, as will be shown, such allegation-
has no merit. Manifestly, the Complaint by itself did not contain any prima facie
showing that petitioner was the owner of the shares of stocks. Quite the contrary,
it demonstrated that he was merely a pledgee, not an owner. Accordingly, it failed
to lay down a sufficient basis for the SEC to exercise jurisdiction over the
controversy. In fact, the very allegations of the Complaint and its annexes
negated the jurisdiction of the SEC.
Petitioner's reliance on the doctrines set forth in Abejo v. De la Cruz and Rural
Bank of Salinas, Inc. v. Court of Appeals is misplaced. In Abejo, he Abejo spouses
sold to Telectronic Systems, Inc. shares of stock in Pocket Bell Philippines, Inc.
Subsequent to such contract of sale, the corporate secretary, Norberto Braga,
refused to record the transfer of the shares in the corporate books and instead
asked for the annulment of the sale, claiming that he and his wife had a
preemptive right over some of the shares, and that his wife's shares were sold
without consideration or consent.
At the time the Bragas questioned the validity of the sale, the contract had
already been perfected, thereby demonstrating that Telectronic Systems, Inc. was
already the prima facie owner of the shares and, consequently, a stockholder of
Pocket Bell Philippines, Inc. Even if the sale were to be annulled later on,
Telectronic Systems, Inc. had, in the meantime, title over the shares from the
time the sale was perfected until the time such sale was annulled. The effects of
an annulment operate prospectively and do not, as a rule, retroact to the time the
sale was made. Therefore, at the time the Bragas questioned the validity of the
tranfers made by the Abejos, Telectronic Systems, Inc. was already a prima facie
shareholder of the corporation, thus making the dispute between the Bragas and
the Abejos "intra-corporate" in nature. Hence, the Court held that "the issue is
not on ownership of shares but rather the non-performance by the corporate
secretary of the ministerial duty of recording transfers of shares of stock of the
corporation of which he is secretary." 19
Unlike Abejo, however, petitioner's ownership over the shares in this case was
not yet perfected when the Complaint was filed. The contract of pledge certainly
does not make him the owner of the shares pledged. Further, whether
prescription effectively transferred ownership of the shares, whether there was a
novation of the contracts of pledge, and whether laches had set in were difficult
legal issues, which were unpleaded and unresolved when herein petitioner asked
the corporate secretary of Go Fay to effect the transfer, in his favor, of the shares
pledged to him.
In Rural Bank of Salinas, Melenia Guerrero executed deeds of assignment for the
shares in favor of the respondents in that case. When the corporate secretary
refused to register the transfer, an action for mandamus was instituted.
Subsequently, a motion for intervention was filed, seeking the annulment of the
deeds of assignment on the grounds that the same were fictitious and antedated,
and that they were in fact donations because the considerations therefor were
below the book value of the shares.
Like the Abejo spouses, the respondents in Rural Bank of Salinas were already
prima facie shareholders when the deeds of assignment were questioned. If the
said deeds were to be annulled later on, respondents would still be considered
shareholders of the corporation from the time of the assignment until the
annulment of such contracts.
Second Issue: Mandamus Will Not
Issue to Establish a Right
Petitioner prays for the issuance of a writ of mandamus, directing the corporate
secretary of respondent corporation to have the shares transferred to his name in
the corporate books, to issue new certificates of stock and to deliver the
corresponding dividends to him. 20
In order that a writ of mandamus may issue, it is essential that the person
petitioning for the same has a clear legal right to the thing demanded and that it
is the imperative duty of the respondent to perform the act required. It neither
confers powers nor imposes duties and is never issued in doubtful cases. It is
simply a command to exercise a power already possessed and to perform a duty
already imposed. 21
In the present case, petitioner has failed to establish a clear legal right.
Petitioner's contention that he is the owner of the said shares is completely
without merit. Quite the contrary and as already shown, he does not have any
ownership rights at all. At the time petitioner instituted his suit at the SEC, his
ownership claim had no prima facie leg to stand on. At best, his contention was
disputable and uncertain Mandamus will not issue to establish a legal right, but
only to enforce one that is already clearly established.
Without Foreclosure and
Purchase at Auction, Pledgor
Is Not the Owner of Pledged Shares
Petitioner initially argued that ownership of the shares pledged had passed to
him, upon Respondents Sy Guiok and Sy Lim's failure to pay their respective
loans. But on appeal, petitioner claimed that ownership over the shares had
passed to him, not via the contracts of pledge, but by virtue of prescription and
by respondents' subsequent acts which amounted to a novation of the contracts
of pledge. We do not agree.
At the outset, it must be underscored that petitioner did not acquire ownership of
the shares by virtue of the contracts of pledge. Article 2112 of the Civil Code
states:
The creditor to whom the credit has not been satisfied in due time, may proceed
before a Notary Public to the sale of the thing pledged. This sale shall be made at
a public auction, and with notification to the debtor and the owner of the thing
pledged in a proper case, stating the amount for which the public sale is to be
held. If at the first auction the thing is not sold, a second one with the same
formalities shall be held; and if at the second auction there is no sale either, the
creditor may appropriate the thing pledged. In this case he shall be obliged to give
an acquittance for his entire claim.
Furthermore, the contracts of pledge contained a common proviso, which we
quote again for the sake of clarity:
3. In the event of the failure of the PLEDGOR to pay the amount within a
period of six (6) months from the date hereof, the PLEDGEE is hereby
authorized to foreclose the pledge upon the said shares of stock hereby
created by selling the same at public or private sale with or without
notice to the PLEDGOR, at which sale the PLEDGEE may be the
purchaser at his option; and "the PLEDGEE is hereby authorized and
empowered at his option to transfer the said shares of stock on the
books of the corporation to his own name, and to hold the certificate
issued in lieu thereof under the terms of this pledge, and to sell the said
shares to issue to him and to apply the proceeds of the sale to the
payment of the said sum and interest, in the manner hereinabove
provided;
There is no showing that petitioner made any attempt to foreclose or sell the
shares through public or private auction, as stipulated in the contracts of pledge
and as required by Article 2112 of the Civil Code. Therefore, ownership of the
shares could not have passed to him. The pledgor remains the owner during the
pendency of the pledge and prior to foreclosure and sale, as explicitly provided by
Article 2103 of the same Code:
Unless the thing pledged is expropriated, the debtor continues to be the owner
thereof.
Nevertheless, the creditor may bring the actions which pertain to the owner of the
thing pledged in order to recover it from, or defend it against a third person.
No Ownership
by Prescription
Petitioner did not acquire the shares by prescription either. The period of
prescription of any cause of action is reckoned only from the date the cause of
action accrued.
Since a cause of action requires as an essential element not only a legal right of
the plaintiff and a correlative obligation of the defendant, but also an act or
omission of the defendant in violation of said legal right, the cause of action does
not accrue until the party obligated refuses, expressly or impliedly, to comply
with its duty." 23 Accordingly, a cause of action on a written contract accrues
when a breach or violation thereof occurs.
Under the contracts of pledge, private respondents would have a right to ask for
the redelivery of their certificates of stock upon payment of their debts to
petitioner, consonant with Article 2105 of the Civil Code, which reads:
The debtor cannot ask for the return of the thing pledged against the will of the
creditor, unless and until he has paid the debt and its interest, with expenses in
a proper case. 24
Thus, the right to recover the shares based on the written contract of pledge
between petitioner and respondents would arise only upon payment of their
respective loans. Therefore, the prescriptive period within which to demand the
return of the thing pledged should begin to run only after the payment of the loan
and a demand for the thing has been made, because it is only then that
respondents acquire a cause of action for the return of the thing pledged.
Prescription should not begin to run on the action to demand the return of the
thing pledged while the loan still exists. This is because the right to ask for the
return of the thing pledged will not arise so long as the loan subsists. In the
present case, the prescriptive period did not begin to run when the loan became
due. On the other hand, it is petitioner's right to demand payment that may be in
danger of prescription.
Petitioner contends that he can be deemed to have acquired ownership over the
certificates of stock through extraordinary prescription, as provided for in Article
1132 of the Civil Code which states:
Art. 1132. The ownership of movables prescribes through uninterrupted
possession for four years in good faith.
The ownership of personal property also prescribes through uninterrupted
possession for eight years, without need of any other condition. . . . .
Petitioner's argument is untenable. What is required by Article 1132 is
possession in the concept of an owner. In the present case, petitioner's
possession of the stock certificates came about because they were delivered to
him pursuant to the contracts of pledge. His possession as a pledgee cannot
ripen into ownership by prescription. As aptly pointed out by Justice Jose C.
Vitug:
Acquisitive prescription is a mode of acquiring ownership by a possessor through
the requisite lapse of time. In order to ripen into ownership, possession must be
in the concept of an owner, public, peaceful and uninterrupted. Thus, possession
with a juridical title, such as by a usufructory, a trustee, a lessee, agent or a
pledgee, not being in the concept of an owner, cannot ripen into ownership by
acquisitive prescription unless the juridical relation is first expressly repudiated
and such repudiation has been communicated to the other party. 25
Petitioner expressly repudiated the pledge, only when he filed his Complaint and
claimed that he was not a mere pledgee, but that he was already the owner of the
shares. Based on the foregoing, petitioner has not acquired the certificates of
stock through extraordinary prescription.
No Novation
in Favor of Petitioner
Neither did petitioner acquire the shares by virtue of a novation of the contract of
pledge. Novation is defined as "the extinguishment of an obligation by a
subsequent one which terminates it, either by changing its object or principal
conditions, by substituting a new debtor in place of the old one, or by
subrogating a third person to the rights of the creditor." 26 Novation of a contract
must not be presumed. "In the absence of an express agreement, novation takes
place only when the old and the new obligations are incompatible on every point."
27
In the present case, novation cannot be presumed by (a) respondents'
indorsement and delivery of the certificates of stock covering the 600 shares, (b)
petitioner's receipt of dividends from 1980 to 1983, and (c) the fact that
respondents have not instituted any action to recover the shares since 1980.
Respondents' indorsement and delivery of the certificates of stock were pursuant
to paragraph 2 of the contract of pledge which reads:
and the accrued interests thereon. Dacion en pago is a form of novation in which
a change takes place in the object involved in the original contract. Absent an
explicit agreement, petitioner cannot simply presume dacion en pago.
Laches Not
a Bar to Petitioner
Petitioner submits that "the inaction of the individual respondents with respect to
the recovery of the shares of stock serves to bar them from asserting rights over
said shares on the basis of laches." 31

2. The said certificates had been delivered by the PLEDGOR endorsed in
blank to be held by the PLEDGEE under the pledge as security for the
payment of the aforementioned sum and interest thereon
accruing. 28
This stipulation did not effect the transfer of ownership to petitioner. It was
merely in compliance with Article 2093 of the Civil Code, 29 which requires that
the thing pledged be placed in the possession of the creditor or a third person of
common agreement; and Article 2095, 30 which states that if the thing pledged
are shares of stock, then the "instrument proving the right pledged" must be
delivered to the creditor.
Laches has been defined as "the failure or neglect, for an unreasonable length of
time, to do that which by exercising due diligence could or should have been
done earlier; it is negligence or omission to assert a right within a reasonable
time, warranting a presumption that the party entitled to assert it either has
abandoned it or declined to assert it." 32
In this case, it is in fact petitioner who may be guilty of laches. Petitioner had all
the time to demand payment of the debt. More important, under the contracts of
pledge, petitioner could have foreclosed the pledges as soon as the loans became
due. But for still unknown or unexplained reasons, he failed to do so, preferring
instead to pursue his baseless claim to ownership.

Moreover, the fact that respondents allowed the petitioner to receive dividends WHEREFORE, the petition is hereby DENIED and the assailed Decision is
pertaining to the shares was not meant to relinquish ownership thereof. As AFFIRMED. Costs against petitioner.
stated by respondent corporation, the same was done pursuant to an agreement
between the petitioner and Respondents Sy Guiok and Sy Lim, following Article SO ORDERED.
2102 of the civil Code which provides:
Davide, Jr., Bellosillo, Vitug and Quisumbing, JJ., concur.
It the pledge earns or produces fruits, income, dividends, or interests, the creditor
shall compensate what he receives with those which are owing him; but if none
are owing him, or insofar as the amount may exceed that which is due, he shall
apply it to the principal. Unless there is a stipulation to the contrary, the pledge
shall extend to the interest and the earnings of the right pledged.

Novation cannot be inferred from the mere fact that petitioner has not, since
1980, instituted any action to recover the shares. Such action is in fact
premature, as the loan is still outstanding. Besides, as already pointed out,
novation is never presumed or inferred.

No Dacion en Pago
in Favor of Petitioner

Neither can there be dacion en pago, in which the certificates of stock are deemed
sold to petitioner, the consideration for which is the extinguishment of the loans
 A.M. No. P-O1-1449 February 24, 2003
CLEMENTINO IMPERIAL, petitioner,
vs.
MARIANO F. SANTIAGO, JR., Sheriff IV, RTC, Branch 139, Makati City,
respondent.
DECISION
PER CURIAM:
In a sworn letter-complaint dated November 26, 1998,1 Clementino Imperial,
President and Chairman of the Board of Laoang Shipping Corporation, charged
respondent Mariano F. Santiago, Jr., Sheriff IV of the Regional Trial Court of
Makati City (Branch 139) with Grave Abuse of Authority and Grave Misconduct
for the illegal foreclosure of a pledge on the vessel M/V Angela Ceferina.
In his Comment dated April 29, 1999, respondent denies the alleged illegal
foreclosure. He stressed that the foreclosure and auction sale was done in a legal
and appropriate manner and that he issued a Certificate of Sale dated July 9,
1998 attesting that by virtue of a contract of pledge executed on November 7,
1995 by Richard Tang Tepace, for and in behalf of Laoang Shipping Corporation,
respondent sold the vessel M/V Angela Ceferina in a public auction held on July
9, 1998 to Zoilo Uy, the highest bidder for Three Million Five Hundred Thousand
Pesos (P3,500,000.00), conducted in front of the main entrance of the Gusali ng
Katarungan, Zobel St., Makati City.2
In his Reply, dated June 14, 1999, complainant contends that the alleged valid
foreclosure is belied by a Certification dated November 15, 1998 of Atty. Engracio
M. Escasinas, Jr., Clerk of Court VII and Ex-Officio Sheriff, stating that: per
records of the court, the alleged foreclosure of pledge does not appear to have
been filed or properly docketed in the record; the prescribed filing and
commission on sale fees does not appear to have been paid; the public sale of the
vessel could not physically be done in front of the Gusali ng Katarungan in
Makati since the vessel could not be brought to said location; the pledge cannot
be legally foreclosed in Makati City since it was executed in the City of Manila; the
pledge does not conform to the legal requirements; the alleged publication of the
notice of the Sheriff’s sale did not pass through the raffle required before
publication by any newspaper could be had; there is no record in the Office of the
Clerk of Court and Ex-Officio Sheriff of the raffle first being done because no
petition had been filed with the said office; the posting of Sheriff’s sale does not
appear to have been certified to and does not comply with the requirements of
Certification of the posting of Affidavit; Richard Tepace is no longer the President
of Laoang Shipping Corporation since he was ousted as hold-over president on
April 6, 1998; Laoang Shipping Corporation which appears in the Registration of
Ownership to be the owner of the vessel, with address at Laoang, N. Samar, was
never notified; there was no notice made to MARINA where the vessel is
registered; respondent could not feign that he advised Zoilo Uy to pay the
necessary fees required by the Office of the Clerk of Court after the auction sale;
respondent issued a Certificate of Sale to Zoilo Uy dated July 9, 1998 without
ensuring that the said fees were actually and properly paid; and respondent
conspired with Richard Tepace and Zoilo Uy to deprive him (complainant) of his
vessel by way of a false Certificate of Sale.3
On January 22, 2001, the administrative case was re-docketed as a regular
administrative matter and referred to then Executive Judge Florentino A.
Thason, Jr., RTC (Branch 139) Makati City for investigation, report and
recommendation.4 In a Resolution, dated March 19, 2001, the Court referred the
case to the then First Vice Executive Judge Leticia P. Morales, RTC (Branch 140)
Makati City in lieu of Judge Tuason, Jr. because of the administrative case filed
by him against respondent, docketed as A.M. OCA IPI No. 00-791-P.5
After conducting the necessary investigation, Judge Morales submitted her
Report dated May 26, 2002. She found respondent guilty of Grave Abuse of
Authority and Grave Misconduct. She pointed out that respondent evidently
treated an extra-judicial foreclosure based on mortgage and a foreclosure based
on a pledge as similar, if not the same; that such error cannot be treated as
insignificant since the law treats the two securities as different, and it was
inexcusable negligence, if not gross ignorance of the law on the part of the
respondent to ignore such statutory differences. Judge Morales added that even
the foreclosure proceeding adopted by the respondent was invalid inasmuch as
the Certification of the Clerk of Court VII affirmed the non-existence of the
foreclosure, the filing and recording, as well as payment of the necessary fees;
and, that respondent in fact admitted his negligence as regards the payment of
the necessary filing and docket fees. However, Judge Morales did not recommend
a specific penalty to be meted out to the respondent.6
In its Memorandum dated August 30, 2002, the Office of the Court
Administrator (OCA) adopted the findings of the Investigating Judge and
recommended to the Court the dismissal of respondent from the service.
The Court agrees with the OCA.
Respondent claims that he conducted a valid foreclosure on the vessel M/V
Angela Ceferina as supported by an Affidavit of Publication,7 Certificate of
Posting8 and Certificate of Sale.9 However, a close scrutiny of the extant evidence
reveals otherwise.
The procedure for foreclosure of a pledge is set forth under Article 2112 of the
Civil Code, to wit:
"Art. 2112. The creditor to whom the credit has not been satisfied in due time,
may proceed before a Notary Public to the sale of the thing pledged. This sale
shall be made at a public auction, and with notification to the debtor and the
owner of the thing pledged in a proper case, stating the amount for which the
public sale is to be held. If at the first auction the thing is not sold, a second one
with the same formalities shall be held; and if at the second auction there is no
sale either, the creditor may appropriate the thing pledged. In this case he shall
be obliged to give an acquittance for his entire claim." (Underscoring supplied)
"A - As far as I know, I can also conduct foreclosure.
"Q.- In this case, you issued a Certificate of Sale on the same day, July 9, 1998,
allegedly on the same day when the auction sale was made?
"A - Auction sale was in the morning.
"Q - So, you issued the certificate of Sale even knowing that there was no docket
fees paid?
"A - That’s why I issued the certificate of Sale and told them to pay the required
fees.

Although it is only on February 12, 2001 that the Court in A.M. No. 01-1-01-0 "Q - So, what you did, you first issued the Certificate of Sale and you told them to
clarified that the procedure in the foreclosure of pledge before a notary public pay the legal fees?
does not require the submission of a petition for extra-judicial foreclosure before
the Executive Judge of the appropriate Regional Trial Court, through the Clerk of "A - Yes.
Court/Ex-Officio Sheriff, it is expressly provided for in Article 2112, as above-
"Q - When you issued the Certificate of Sale, the Certificate of Sale was not signed
quoted, that only a notary public can conduct a public auction after proper
by Engracio Escasinas, Jr.?
notice is sent to the debtor and owner of the thing pledged.
"A - Yes.
The fault of respondent could have been regarded as simple ignorance of the
proper procedure or an error of judgment on his part but respondent sheriff "Q - And he has not even seen that Certificate of Sale?
betrayed himself and confirmed the charges against him when he testified during
the investigation conducted by the Investigating Judge: "A - Yes.

"Q - As a Sheriff, you know that in pledges, only the Notary Public can "Q.- Nor the Certificate of Sale was even forwarded to the Office of the Clerk of
Court?
conduct foreclosure, not the Sheriff?
"A - Yes, sir. I told when they should pay - (interrupted)
"A - What I know, I can.
"Q - No, no, no. My question is, this Certificate of Sale was not even forwarded to
"Q - In this case, you conducted this alleged foreclosure and auction sale the Office of the Clerk of Court?
concerning the vessel mortgaged under R.A. - (interrupted)
"A - Yes.
"A - Pledge Contract.
"ATTY. SIRUELO:
"Q - How long have you been a Sheriff?
That will be all.
"A - Nine (9) to ten (10) years.
"COURT:
"Q- So, you can distinguish between Pledge and Chattel mortgage?
"Q - As a matter of procedure, do you not forward the sale to the Clerk of Court?
"A - Yes.
"A - I told them, ma’am, to go to the Office of the Clerk of Court to pay considering
"Q.- You know that in Pledges, only lawyers can conduct the foreclosure? that the Certificate of Sale will be registered.
"Q - As a Sheriff, is it not your duty to bring the Certificate of Sale there to be
noted by Atty. Engracio Escasinas, Jr.?
"A - It’s my fault, ma’am. I forgot to do it because of other tasks.10
In claiming that he followed the procedure required in the foreclosure of a chattel
mortgage, and in admitting before the Investigating Judge that he is well-aware
that the proper requirement of law is that a petition for foreclosure of mortgage,
real estate or chattel, must be filed first with the Clerk of Court before foreclosure
or auction may commence,11 he sealed his fate. This is because the records lay
bare the following facts:
1. Respondent totally ignored the specific reference in paragraph 4 of the Pledge
Agreement12 that Article 2112 of the Civil Code is the applicable law.
2. No petition for foreclosure of chattel mortgage was ever filed before the Clerk of
Court.13 Despite the lack of petition, respondent proceeded with the auction
sale.
3. The prescribed filing and commission on sale fees were not paid14 yet
respondent signed the certificate of sale merely because he trusted that Tepace
will pay the fees. The explanation of respondent that: "it’s only on my good faith
and that’s only my procedure because others usually pay"15 , is absolutely weak
and completely absurd.
4. The certificate of sale was not even forwarded to the Office of the Clerk of
Court, and bears only the signature of respondent.16
5. When the Investigating Judge inquired why he did not recall the certification
since no fees were paid, respondent replied that he simply forgot the
transaction.17 Forgetfulness or failure to remember is never a rational or
acceptable explanation.18
6. Respondent failed to controvert the amounts received by him totalling One
Hundred Sixty-Five Thousand Pesos (₱165,000.00), as shown by the unofficial
receipt issued and signed by him, to wit:
"PETITION FOR PUBLIC AUCTION PARTIAL RECEIPT
1. PUBLICATION ₱ 20,000.00
2. POSTING ₱ 5,000.00
3. NOTARIAL FEES ₱ 35,000.00
4. JUDICIAL FUNDS ₱ 70,000.00
5. SHERIFF’S FEES ₱ 35,000.00
RECEIVED the described amount from Mr. & Mrs. Uy for the implementation of
the Extra-Judicial Foreclosure of M/V Ceferina."19
Respondent and his counsel, Atty. Salvador D. Abong, did not appear in the
subsequent investigation despite being fully notified and given the opportunity to
explain on the amounts received. When the Investigating Judge required Process
Server Aldwin Atilon to call respondent, the latter refused to come. Respondent
instead told Atilon that the case should be submitted for resolution because he
does not intend to present additional evidence other than the ones previously
submitted and those admitted by him during the investigation.20
Per Certification of the Clerk of Court, respondent did not remit said amounts nor
did he secure the approval of the court.
Evidently, respondent grievously failed to comply with the requirements of Rule
141 of the Rules of Court, as follows:
"SEC. 3. Persons authorized to collect legal fees. - Except as otherwise provided in
this rule, the officers and persons hereinafter mentioned, together with their
assistants and deputies, may demand, receive, and take the several fees
hereinafter mentioned and allowed for any business by them respectively done by
virtue of their several offices, and no more. All fees so collected shall be forthwith
remitted to the Supreme Court. The fees collected shall accrue to the general
fund. However, all increases in the legal fees prescribed in amendments to this
rule shall pertain to the Judiciary Development Fund as established by law. The
persons herein authorized to collect legal fees shall be accountable officers and
shall be required to post bond in such amount as prescribed by law.
"SEC. 9. Sheriff, and other persons serving processes.-
xxx xxx xxx
"(h) For advertising a sale, besides cost of publication, fifty (P50.00) pesos;
xxx xxx xxx
"(I) For money collected by him by order, execution, attachment, or any other
process, judicial or extrajudicial, the following sums, to wit:
"1. On the first four thousand (P4,000.00) pesos, four (4%) per centum.
"2. On all sums in excess of four thousand (P4,000.00) pesos two (2%) per
centum.
"In addition to the fees hereinabove fixed, the party requesting the process of any
court. preliminary, incidental, or final, shall pay the sheriff’s expenses in serving
or executing the process, or safeguarding the property levied upon, attached or
seized, including kilometrage for each kilometer of travel, guards’ fees,
warehousing and similar charges, in an amount estimated by the sheriff, subject
to the approval of the court. Upon approval of said estimated expenses, the
interested party shall deposit such amount with the clerk of court and ex-officio
sheriff, who shall disburse the same to the deputy sheriff assigned to effect the
process, subject to liquidation within the same period for rendering a return on
the process. Any unspent amount shall be refunded to the party making the
deposit.1awphi1.nét A full report shall be submitted by the deputy sheriff
assigned with his return, and the sheriff’s expenses shall be taxed as costs
against the judgment debtor."21 (Underscoring supplied)
It is clear that under the rule, sheriffs are authorized to collect certain specified
fees in specified amounts. The sheriff has to estimate the expenses to be incurred
and upon the approval of the estimated expenses by the court, the interested
party has to deposit the amount with the Clerk of Court and the Ex-Officio
Sheriff. These expenses shall then be disbursed to the executing Sheriff subject
to his liquidation within the same period for rendering a return on the process or
writ. Any unspent amount shall be refunded to the party who made the deposit.
Respondent did not prepare an estimate of expenses to be incurred in the
auction, for which he should have sought the approval of the Court. He did not
render an accounting. He did not remit and report the amounts he received.22
He blatantly disregarded general auditing and accounting rules when he did not
issue an official receipt for the total amount he received. His willful failure to offer
any explanation on what happened to the money he received leads to the
inescapable conclusion that he misappropriated the same for his own personal
use.23
The Court has once held that when a judge’s inefficiency springs from a failure to
consider so basic and elemental a rule, a law or a principle in the discharge of his
duties, he is either too incompetent and undeserving of the position and title he
holds or he is too vicious that the oversight or omission was deliberately done in
bad faith and with grave abuse of judicial authority.24 There is no reason not to
apply the same principle to respondent.
By his conduct, respondent gravely abused his authority to conduct auction
sales. Respondent cannot feign ignorance of the proper procedure to follow in
case of pledge considering that he has been a sheriff for more than 10 years.25
He wielded authority where he had none and admitted disregarding the
procedure in the foreclosure of a chattel mortgage. Respondent knew his action
to be wrong yet persisted in doing the same. Such grave abuse of authority
amounts to grave misconduct.
Misconduct is a transgression of some established and definite rule of action,
more particularly, unlawful behavior or gross negligence by the public officer. To
warrant dismissal from the service, the misconduct must be grave, serious,
important, weighty, momentous and not trifling. The misconduct must imply
wrongful intention and not a mere error of judgment. The misconduct must also
have a direct relation to and be connected with the performance of his official
duties amounting either to maladministration or willful, intentional neglect or
failure to discharge the duties of the office.26 There must also be reliable evidence
showing that the judicial acts complained of were corrupt or inspired by an
intention to violate the law.27 All of these requisites are met in this
case.1a\^/phi1.net
Respondent grossly violated the yardstick of public service imposed in Section 1,
Article XI of our Constitution that a public office is a public trust; that public
officers and employees must serve with the highest degree of responsibility,
integrity, loyalty and efficiency; and that they must at all times remain
accountable to the people. No other office in the government service exacts a
greater demand for moral righteousness and uprightness from an employee than
in the judiciary.28
The Court will not tolerate any Court employee’s conduct, act or omission that
violates the norm of public accountability and diminishes or tends to diminish
the faith of the people in the judiciary.29 By the very nature of their functions,
sheriffs must conduct themselves with propriety and decorum, and above all
else, be above suspicion.30 The Court has repeatedly stressed that high
standards are expected of sheriffs, thus:
"At the grassroots of our judicial machinery, sheriffs and deputy sheriffs are
indispensably in close contact with the litigants, hence, their conduct should be
geared towards maintaining the prestige and integrity of the court, for the image
of a court of justice is necessarily mirrored in the "conduct, official or otherwise, of
the men and women who work thereat, from the judge to the least and lowest of
its personnel; hence, it becomes the imperative sacred duty of each and everyone
in the court to maintain its good name and standing as a temple of justice."31
Respondent’s conduct fell far too short of the standard required of court
employees. He allowed himself to be a pawn for fraud and deceit, sowing injustice
in exchange for One Hundred Sixty-Five Thousand Pesos (P165,000.00).
Grave misconduct is a malevolent act which threatens the very existence of the
system of administration of justice. Because of his misconduct, respondent does
not deserve to stay a minute longer in the judicial service as he seriously lacks
the integrity, uprightness and honesty demanded of an employee in the
judiciary.32

Clearly grave in character, said act is tainted by the element of corruption

punishable under Section 46 (b), (4) of Book V of the Executive Order No. 292,
otherwise known as the Administrative Code of 1987. Under Section 23, Rule
XIV of the Omnibus Civil Service Rules and Regulations, Grave Misconduct is
punishable with dismissal even in the first offense.1awphi1.nét This penalty is
reiterated in Civil Service Memorandum Circular No, 30, Series of 1989,33 the
prevailing rule at the time of the commission of the complained acts in 1998.

Section 9, Rule XIV of. the Omnibus Rules and the aforecited circulars likewise
provide that the penalty of dismissal from the service shall carry with it
cancellation of civil service eligibility, forfeiture of leave credits and retirement
benefits, and disqualification from any employment in the government service,
unless otherwise provided in the decision, per Section 58 of Civil Service
Memorandum Circular No. 19, Series of 1999.

WHEREFORE, Mariano F. Santiago, Jr., Sheriff IV of the Regional Trial Court of

Makati City (Branch 139) is found GUILTY of GRAVE MISCONDUCT. He is
DISMISSED from service with prejudice to re-employment in any government
agency and government-owned or controlled corporation and with forfeiture of all
retirement benefits, except accrued leave credits.

This decision shall take effect immediately.

SO ORDERED.

Davide, Jr., C.J., Bellosillo, Puno, Vitug, Mendoza, Panganiban, Quisumbing,

Sandoval-Gutierrez, Carpio, Austria-Martinez, Corona, Morales, Callejo, Sr. and
Azcuna, JJ., concur.

Ynares-Santiago, J., on leave.