SECOND DIVISION

[ G.R. No. 207004, June 06, 2018 ]

ASTRID A. VAN DE BRUG, MARTIN G. AGUILAR AND GLENN G. AGUILAR, PETITIONERS, VS. PHILIPPINE
NATIONAL BANK, RESPONDENT.

DECISION

CAGUIOA, J:

Before the Court is a petition[1] for review (Petition) under Rule 45 of the Rules of Court assailing
the Decision[2] of the Court of Appeals[3] (CA) dated March 23, 2012 in CA-G.R. CV No. 00708, which
granted the appeal of the respondent Philippine National Bank (PNB) and reversed the Decision[4]
dated December 10, 2004 of the Regional Trial Court, 6th Judicial Region, Branch 58, San Carlos
City, Negros Occidental (RTC) in Civil Case No. RTC-725 in favor of the petitioners. Likewise, the
Resolution[5] of the CA[6] dated April 1, 2013, denying the petitioners' motion for reconsideration,
is being assailed.

Facts and Antecedent Proceedings

The CA Decision states the following facts as culled from the records:
The late spouses Romulus[7] and Evelyn[8] Aguilar [the late spouses Aguilar] used to be borrowing
clients of x x x Philippine National Bank [PNB], Victoria Branch x x x. The late [spouses Aguilar's]
sugar crop loans, which were obtained sometime between the late 1970's and the early 1980's,
were secured by real estate mortgage over four registered parcels of land, namely: residential Lot
No. 3, Block 13, situated in Sagay, Negros Occidental [with an area of 342 square meters [9], and
agricultural Lots No[s]. 3587 [with an area of 225,594 square meters[10]], 3588 [with an], area of
19,283 square meters[11]] and 3749 [with an area of 181,935 square meters[12]], all situated at
Escalante, Negros Occidental. However, for failure of the late spouses Aguilar to pay their
obligations with [PNB], the mortgage was foreclosed in 1985 and subsequently, ownership of the
subject four pieces of property was consolidated under the name of [PNB].

With the enactment of RA 7202 on February 29, 1992, the late Romulus Aguilar wrote [PNB] on
July 5, 1995, and he stated: "Since our indebtedness with the PNB had been foreclosed, we are
asking your good Office for a reconsideration of our account based on the Sugar Restitution Law."
After the death of Romulus Aguilar, his spouse, the late Evelyn Aguilar, received a letter from [PNB]
dated September 17, 1997, during which occasion [PNB] informed the late Evelyn Aguilar that
while the subject loan account was covered by the provisions of RA 7202 and have been audited
by the Commission on Audit (COA), the late Evelyn Aguilar was still required to comply with the
following matters: (1) to arrange and implement restructuring of accounts within sixty (60) days
from receipt of the notice, (2) to signify her conformity to the computation of the account, and (3)
to submit the ten (10) year crop production for the period 1974/1975 to 1984/1985.
Plaintiffs-appellees Aguilar [the Aguilars] claimed that they complied with the stated
requirements, and that subsequently, [PNB] furnished them [with] Statements of Account, the
earliest of which was the COA audited statement as of December 15, 1996 and the latest was as
of November 30, 1999, which reflected a P2,236,337.91 total amount due.

[Based on Statement of Account as of November 30, 1999,[13] the accounts of the Aguilars with
the PNB were computed as follows:

1. RA 7202P1,043,656.36 (total principal of P270,351.62 plus 12% interest per annum

Accounts amounting to P773,304.74, without penalty)
2. Non-RA 7202P1,192,681.55 (total principal of P212,054.25 plus interest at regular rate
Accounts amounting to P829,304.12, with penalty of P151,323.18.][14]

Further, [the Aguilars] adduced that inasmuch as the subject agricultural [lots] were already
conveyed voluntarily by [PNB] to the Department of Agrarian Reform (DAR), they were advised by
[PNB] to follow-up the payment for these pieces of realty with the Land Bank of the Philippines
(LBP) in order for [PNB] to apply the proceeds of the sale to the account of the late spouses Aguilar.
According to [the Aguilars], they were likewise assured by [PNB] that if the proceeds from LBP
would exceed the obligations of the late spouses Aguilar, the excess amount would be returned
to [the Aguilars], including the subject residential property. On December 21, 1998, LBP issued the
Memorandum of Valuation of agricultural Lot No. 3749 for P1,254,328.17, and on November 23,
1999, for agricultural Lot No. 3587 in the amount of P1,957,684.31.

Following the November 23, 1999 Memorandum of Valuation, [the Aguilars] requested [PNB] to
commence restructuring of the loan account, and on three occasions, i.e., February 8, 2000, March
15, 2000 and April 24, 2000, one of the children of the late spouses Aguilar, x x x Glenn Aguilar, in
behalf of his siblings x x x Astrid Van de Brug and Martin Aguilar, wrote [PNB] and asked that they
be accorded the benefits of RA 7202. Through his letters, x x x Glenn Aguilar also made mention
of an allegedly similar case, docketed as Civil Case No. 7212 entitled Sps. Fred and Mildred Pfleider
vs. PNB, et al., then pending before RTC, Branch 45, Bacolod City, wherein [PNB] purportedly
entered into a compromise agreement with Sps. Pfleider, notwithstanding consolidation of the
foreclosed property under the bank's name.

On September 22, 2000, [PNB] replied in writing and stated, among other matters, that: "Since
PNB has already acquired the properties at the foreclosure sale, it can now exercise its rights as
owner of these properties, including the right to convey the same to the DAR and to receive the
proceeds thereof from Land Bank of the Philippines, without any right to the excess proceeds, if
any, inuring/accruing to your favor."

Hence, the case for implementation of RA 7202, with prayer for payment of P200,000.00 moral
damages, P200,000.00 exemplary damages, P100,000.00 attorney's fees plus P1,500.00 fee per
appearance and P25,000.00 litigation expenses, was filed by [the Aguilars] on January 3, 2001.
For its part, [PNB] emphasized that [the Aguilars] failed to comply with the requirements
enumerated based on its September 17, 1997 letter. Hence, [PNB] argued that [the Aguilars] have
no cause of action against [PNB] because whatever rights [the Aguilars] have under RA 7202 were
already forfeited when they failed to comply with the requirements.

The non-compliance by [the Aguilars] of the requirements was confirmed by the Chief of [PNB's]
Loans Department, x x x Edgardo Miraflor. While x x x Miraflor admitted that x x x Glenn Aguilar
tried to negotiate with [PNB] for the restructuring of the account of the late spouses Aguilar under
RA 7202, [the Aguilars] did not formally signify their conformity to [PNB's] recomputation of the
account as of December 15, 1996, which was audited and certified by the COA. Neither did [the
Aguilars] dispute the COA audited recomputation which disclosed that after recomputation based
on the provisions of RA 7202, there was no excess payment on the account of the late spouses
Aguilar. x x x Miraflor continued to add that while it was true that it was x x x Glenn Aguilar who
followed up the status of LBP's payment of the subject agricultural lands which were already
conveyed to the DAR, and that he advised x x x Glenn Aguilar to likewise negotiate with [PNB's]
Bacolod Business Center, x x x Miraflor was subsequently notified by the Bacolod Business Center
that pursuant to Department of Justice (DOJ) Opinion No. 91, Series of 1995, the foreclosed pieces
of property of [the Aguilars], which were already consolidated under the name of [PNB], could no
longer be returned to them.

[PNB] further contended that [the Aguilars] cannot invoke the compromise agreement it entered
into with Sps. Fred and Mildred Pfleider in Civil Case No. 7212 because [the Aguilars] were not
parties to the case.

By way of counterclaim, [PNB] prayed for P100,000.00 moral damages, P100,000.00 exemplary
damages, attorney's fees and litigation expenses.

During the rebuttal stage, x x x Glenn Aguilar claimed that [the Aguilars] did not sign the
restructuring agreement primarily because of the exclusion of the value of the agricultural lands,
which were already conveyed to the DAR, in the recomputation of the account of the late spouses
Aguilar.

After hearing, the [RTC] rendered the assailed Decision, the decretal portion whereof reads:
"WHEREFORE, in view of the foregoing, judgment is hereby rendered dismissing the Defendant's
counterclaim and ordering judgment in favor of the Plaintiffs and against the Defendant as follows:

1. To accord the Plaintiffs the benefits of R.A. 7202 and in particular to credit
to the Plaintiffs' account the proceeds from the VOS[15] of the agricultural
properties heretofore described as Lots 3585, 3749 and 3588, located at
Escalante City, Negros Occidental, with the excess thereof being delivered
to the Plaintiffs or the shortfall to be paid by the Plaintiffs in thirteen (13)
years with interest provided for by R.A. 7202, and upon full payment of the
account to return to the [P]laintiffs the title to and ownership of the
 abovementioned residential lot, Lot No. 3, Block 13, of the subdivision plan
Psd-33419, Sagay Cadastre, now covered by TCT No. T-203;

2. Ordering the [D]efendants (sic) to pay [the] [P]laintiffs P100,000.00 moral

damages, P50,000.00 exemplary damages, P50,000.00 attorney's fees and
litigation expenses of P10,000.00 and to pay the costs.

SO ORDERED."[16]

The RTC justified the reconveyance or restitution of the residential lot in Sagay City to the Aguilars
by crediting in their favor the proceeds of the Voluntary Offer to Sell (VOS) to the Department of
Agrarian Reform (DAR) of the two agricultural lots, which "reached to more than Three Million
Pesos[;] and in applying the proceeds thereof to the payment of their accounts, said outstanding
account [would] be fully paid and in addition to that [PNB] would still be obligated to return the
balance thereof which is more than P900,000.00 to the [Aguilars]."[17]

As to the Opinion of the Secretary of Justice, to the mind of the RTC, it refers only to foreclosed
properties which, thru public auction, the ownership thereof has passed to third persons.[18]
According to the RTC, it does not apply to the instant case because the subject foreclosed
properties' ownership has not passed to third persons but only to another government agency
that is also mandated to implement Republic Act No. (RA) 7202[19] or the Sugar Restitution Law.[20]

The RTC justified the judgment in favor of the Aguilars as in keeping with public policy behind RA
7202, which "was passed as a sort of social legislation and an urgent measure to uplift the plight
of sugar producers who were put to a great disadvantage, thus they suffered damages, among
which are non-payment of the sugar crop loans that led to foreclosure of their collaterals thereof
mainly 'due to actions taken by government agencies and in order to revive the economy in the
sugar-producing areas of the country',"[21] thus:

In plain and simple language what [PNB] has done in denying to the [Aguilars] the benefits of the
Sugar Restitution Law is against the spirit that created the said Law, i.e. to help the sugar
producers, the [Aguilars] herein included, who suffered due to the acts of government agencies.[22]
The RTC found PNB guilty of malice and bad faith in not pursuing its duty in helping the Aguilars
avail of the benefits of RA 7202 and, pursuant to Articles 19 and 21 of the Civil Code, justified the
award of moral and exemplary damages as well as attorney's fees and litigation expenses in favor
of the Aguilars.[23]

Aggrieved by the RTC Decision, PNB appealed to the CA. The CA granted the appeal and reversed
the RTC Decision.[24] In applying RA 7202, the CA found that the account of the late spouses Aguilar
qualified under the law because indisputably, their sugar crop loans were obtained within the
period covered by the law.[25] However, based on PNB's recomputation applying 12% per annum
interest, which was audited and certified by the Commission on Audit (COA), the Aguilars were not
entitled to restitution absent any excess payment after recomputation.[26] The CA did not credit
the proceeds of the VOS to the DAR in favor of the Aguilars, but it in effect considered the account
of the late spouses Aguilar as having been fully paid "through foreclosure of collateral" pursuant
to Section 6 of the Rules and Regulations Implementing RA 7202 (IRR).[27]

The dispositive portion of the CA Decision states:

WHEREFORE, premises considered, the APPEAL is hereby GRANTED. Accordingly, the Decision
appealed from is hereby REVERSED, and the Complaint for implementation of Republic Act (RA)
No. 7202, otherwise known as the Sugar Restitution Law, docketed as Civil Case No. RTC-725, is
hereby DISMISSED.

SO ORDERED.[28]

The Aguilars filed a Motion for Reconsideration,[29] which was denied by the CA in its Resolution[30]
dated April 1, 2013.

The Aguilars filed their Petition with the Court. PNB filed its Comment[31] dated October 9, 2013,
to which the Aguilars filed a Reply[32] dated October 22, 2013. PNB filed its Memorandum[33] dated
August 8, 2014 and the Aguilars filed their Memorandum[34] dated September 29, 2014.

Issue

Based on the Petition, the sole issue is whether the CA erred in not including the sums and
amounts which accrued to PNB from DAR's payment on account of the properties of the
Aguilars.[35]

The Court's Ruling

At the core of the instant case is RA 7202, which was approved on February 29, 1992, and its
declared policy is "to restitute the losses suffered by the sugar producers due to actions taken by
government agencies in order to revive the economy in the sugar-producing areas of the
country."[36]

As to the institutions covered, Section 3 of RA 7202 provides:

SEC. 3. The Philippine National Bank, the Republic Planters Bank, the Development Bank of the
Philippines and other government-owned and controlled financial institutions which have granted
loans to the sugar producers shall extend to accounts of said sugar producers incurred from Crop
Year 1974-1975 up to and including Crop Year 1984-1985 the following:

(a) Condonation of interest charged by the banks in excess of twelve percent (12%) per annum and
all penalties and surcharges;

(b) The recomputed loans shall be amortized for a period of thirteen (13) years inclusive of a three-
year grace period on principal effective upon the approval of this Act. The principal portion of the
loan will carry an interest rate oftwelve percent (12%) per annum and on the outstanding balance
effective when the original promissory notes were signed and funds released to the producer.

Section 4 of RA 7202 provides which accounts of sugar producers are covered, thus:

SEC. 4. Accounts of sugar producers pertaining to Crop Year 1974-1975 up to and including Crop
Year 1984-1985 which have been fully or partially paid, or may have been the subject of
restructuring and other similar arrangements with government banks shall be covered by the
provisions abovestated. The benefit of this Act shall not be extended to any sugar producer with
a pending sequestration or ill-gotten wealth case before any administrative or judicial body. Any
recovery shall be placed in escrow until the case has been finally resolved.

On the other hand, the IRR promulgated by the Bangko Sentral ng Pilipinas[37] (BSP) provides:

Sec. For sugar producers who obtained loans from the lending banks during the period covered,
4 the benefits provided herein shall be extended to those whose loans at the time of the
effectivity of the Act:

a. Are still outstanding; or

b. Had been partially or fully paid, whether in cash, from proceeds of sale of assigned sugar
quedans, through dacion en pago, or by way of execution against assets of the sugar
producer other than the loan collaterals; or

c. Had been subjected to foreclosure of loan collaterals whether or not the foreclosure is
a subject of litigation; or

d. Had been transferred or assigned to other government-owned and -controlled agencies

or institutions; or

e. Had been the subject of restructuring or other similar arrangements, whether with the
lending bank or with their assignees or transferees.[38]

Based on the foregoing, the entitlement of the Aguilars to the benefits of RA 7202 has been
correctly recognized by the CA, viz.:

In essence, the issue that [the CA] needs to resolve is whether or not [the Aguilars] were entitled
to the benefits of RA 7202. Nevertheless, [the CA] finds it vital to primarily establish whether the
account of [the Aguilars'] predecessors-in-interest, the late spouses Aguilar, was qualified under
RA 7202.

x x x x

Based on the foregoing provisions, it appeared that the account of the late spouses Aguilar
qualified under RA 7202 since indisputably, the sugar crop loans of the late spouses Aguilar, which
were considered fully paid upon foreclosure of the mortgaged pieces of property, were obtained
within the period covered by the law.

x x x x

Succinctly, the sugar producer concerned was entitled to the benefit of recomputation of his loan
account, and if warranted, to restitution of any excess payment on interests, penalties and
surcharges, pursuant to Section 3 of RA 7202.[39]

Indeed, the late spouses Aguilar had accounts[40] that were covered by RA 7202. The subject crop
loans of the late spouses Aguilar were "obtained sometime between the late 1970's and the early
1980's."[41]

Now that certain accounts of the late spouses Aguilar have been established to be covered by RA
7202, the next question would be: what benefits does the law confer upon the Aguilars?

As provided in Section 3 of RA 7202, quoted above, and Section 6 of the IRR, quoted below, the
Aguilars are entitled to: (1) condonation of interest charged in excess of 12% per annum and all
penalties and surcharges; (2) recomputation of their sugar crop loans, and if there is interest in
excess of 12% per annum, interests, penalties and surcharges, application of the excess payment
as an offset and/or as payment for the late spouses Aguilar's outstanding loan obligations; and (3)
restructuring or amortization of the recomputed loans for a period of 13 years inclusive of a three-
year grace period on the principal, effective upon the approval of RA 7202.

The CA found that PNB recomputed the RA 7202 accounts of the late spouses Aguilar, which were
audited and certified by the COA, and the recomputation resulted in the absence of any excess
payment, viz.:

Indeed, [PNB] recomputed the account of the late spouses Aguilar based on 12% per annum
interest rate, and the recomputation was audited and certified by the COA. Yet, the result of the
recomputation, as reflected on the COA audited Statement of Account, and on the attached
computation sheets, as of December 15, 1996, revealed:

(a) (b) (c)

Releases/Accounts Principal Actual Interest Recomputed Excess Payment (a-
Payment Interest at 12% p.a. b=c)
1975/76 P146,979.37 P11,893.55 P382,459.36 -0-
1976/77 95,372.25 764.67 238,103.64 -0-
1976/77 28,000.00 .00 69,381.52 -0-
TOTAL P270,351.62 P12,658.22 P689,944.52 -0-

Seemingly, absent any excess payment after the recomputation of the account of the late spouses
Aguilar based on 12% per annum interest rate, pursuant to Section 9 of the Rules and Regulations
Implementing RA 7202 vis-a-vis Section 3 of RA 7202, [the Aguilars] were not entitled to restitution
under RA 7202.[42]

Based on the foregoing, the CA denied the Aguilars' entitlement to restitution. The CA justified its
computation based on Sections 6, 7 and 9(b) of the IRR, to wit:
"SECTION 6. E.O. 31,[43] as amended by E.O. 114[44] provides as follows:
x x x x

'SECTION 2. In cases, however, where sugar producers have no outstanding loan balance with said
financial institutions as of the date of effectivity of RA No. 7202 (i.e. sugar producers who have fully
paid their loans either through actual payment or foreclosure of collateral, or who have partially
paid their loans and after the recomputation of the interest charges, they end up with excess
payment to said fmancial institutions), said producers shall be entitled to the benefits of
recomputation in accordance with Sections 3 and 4 of RA No. 7202, but the said financial
institutions, instead of refunding the interest in excess of twelve (12%) per cent per annum,
interests, penalties and surcharges, apply the excess payment as an offset and/or as payment for
the producers' outstanding loan obligations. Applications of restructuring banks under Section 6 of
RA No. 7202 shall be filed with the Central Monetary Authority of the Philippines within one (1)
year from application of excess payment.'

xxxx

"SECTION 7. Lending banks shall recompute the outstanding loans at twelve percent (12%) simple
interest per annum based on the original promissory notes and shall condone interest in excess of
twelve per cent (12%) and all penalties and surcharges that were not paid. Excess interest and all
penalties and surcharges which had been paid shall be applied against the outstanding loan
obligations of the sugar producers in accordance with Section 6 of these Implementing Rules. x x x

x x x x

"SECTION 9. The following sugar producers shall be entitled to restitution:

[a. Those have no loan accounts with the lending banks but have suffered trading losses; and]

b. Those who borrowed from the lending banks as enumerated in Section 4 of these
Implementing Rules and have net excess payments after recomputation of their loans as
defined in Section 2.k[45] and application of excess interest, penalties and surcharges against
their other outstanding loan obligations in accordance with Section 6 of these Implementing
Rules. x x x"[46] (Additional emphasis and underscoring supplied)
The above computation of the CA appears to be in accord with the above quoted provisions of the
IRR.

As defined under Section 2.p of the IRR, "EXCESS PAYMENT shall mean the overage of the excess
interest as defined in Section 2.n and penalties and surcharges as defined in Section 2.o after
applying them against the outstanding loan balance appearing in the books of the lending
banks."[47] Section 2.n provides: "EXCESS INTEREST shall mean interest charged and/or collected
by the lending bank over and above the twelve percent (12%) interest per annum on the amount
of the principal of loan as defined in Section 2.k as such amount is determined from the original
promissory note" while Section 2.o provides: "PENALTIES AND SURCHARGES shall mean all
penalties and surcharges charged and/or collected by the lending bank."[48]

Pursuant to the IRR definition of terms, there appears to be no excess interest with respect to the
RA 7202 accounts of the late spouses Aguilar because the actual interest payment or interest
collected amounted to only P12,658.22, as of December 15, 1996, while the recomputed interest
at 12% per annum totaled P689,944.52. Thus, with the actual interest collected not being more
than the recomputed interest of the principal of the loans of the late spouses Aguilar covered by
RA 7202 (amounting to P270,351.62),[49] there could be no excess payment and there would be
no amount that could be restituted to the Aguilars. This is clear from Section 9 of the IRR wherein
[only] sugar producers who have net excess payments after recomputation of their loans and
application of excess interests, penalties and surcharges against their outstanding loan obligations
shall be entitled to restitution.

On the matter of restitution, the IRR further provides:

Sec. Sugar producers with foreclosed collaterals which are covered by the CARL shall also be
13 entitled to restitution from the Sugar Restitution Fund and/or recomputation, condonation
and restmcturing.[50]

As defined by the IRR, "SUGAR RESTITUTION FUND shall refer to the ill-gotten wealth recovered
by the Government through the PCGG[51] or any other agency or from any other source within the
Philippines or abroad, and whatever assets or funds that may be recovered, or already recovered,
which have been determined by PCGG or any other competent agency of the Government to have
been stolen or illegally acquired from the sugar industry whether such recovery be the result of a
judicial proceeding or by a compromise agreement."[52]

To be clear, sugar producers, who were entitled to restitution, were given a period of 180 calendar
days from the effectivity of the IRR to file their claims for restitution of sugar losses with the BSP.[53]

Based on their Petition, the computation of the CA is disputed by the Aguilars because it did not
"include the sums and amounts which accrued to [PNB] from DAR's payment on account of[their]
properties."[54]

The Aguilars take the position that the total amount of P3,212,012.48, which PNB received from
the Land Bank of the Philippines (LBP) based on the Memorandum of Valuation of Lot 3587 located
at Magsaysay, Escalante City fixing the lot's value at P1,957,684.31[55] and the Memorandum of
Valuation of Lot 3749 located at Pinapugasan, Escalante City fixing the lot's value at
P1,254,328.17[56] pursuant to PNB's VOS to DAR of the said lots, should be deducted from their
total outstanding loan obligations (for RA 7202 and non-RA 7202 accounts) in the amount of
P2,236,337.91 as of the date of foreclosure of the collaterals as per Statement of Account marked
Exhibit "G."[57] If their position is upheld, there would be an overage of P975,674.57, which should
be returned to them by the terms of the IRR.[58] The Aguilars further claim that since two out of
the four mortgaged lots are already enough to cover their outstanding loan balance and there is
even an excess, then the other lots, in particular the residential land which is obviously not covered
by the Comprehensive Agrarian Reform Program (CARP), should be restored to their possession
and ownership.[59]

To this Court, this position of the Aguilars cannot be justified under RA 7202 and its IRR. To recall,
Section 6 of the IRR, in part, provides that:

x x x where sugar producers have no outstanding loan balance with said financial institutions as of
the date of effectivity of RA No. 7202 (i.e. sugar producers who have fully paid their loans x x x
through x x x foreclosure of collateral x x x), said producers shall be entitled to the benefits of
recomputation in accordance with Sections 3 and 4 of RA No. 7202, but the said financial
institutions, instead of refunding the interest in excess of twelve (12%) per cent per annum,
interests, penalties and surcharges, apply the excess payment as an offset and/or as payment for
the producers' outstanding loan obligations. x x x[60] (Emphasis supplied; underscoring omitted)
And, based on PNB's recomputation which the CA upheld, there is no excess payment made by
the late spouses Aguilar that has to be restituted to the Aguilars.

The Aguilars further implore the Court, as they did unsuccessfully with the CA, to compel PNB to
extend to them the accommodation that PNB made with spouses Frederick[61] and Mildred
Pfleider (the spouses Pfleider) wherein in the Restructuring and Compromise Agreement[62]
(Compromise Agreement) that PNB entered into with the spouses Pfleider in Civil Case No. 7212
before Branch 45 of the RTC ofBacolod City,[63] PNB credited in favor of the spouses Pfleider the
value of their agricultural lots that PNB had also foreclosed and transferred via VOS to DAR.[64] The
Aguilars argue that "[they] are similarly circumstanced as the Pfleiders[,] [and] [t]here was no
reason for PNB to treat [them] differently."[65]

PNB counters that RA 7202 "does not provide for the reconveyance of the foreclosed propertylies
to the qualified sugar producers" and "[w]hat the qualified sugar producers with foreclosed
property/ies were entitled to under R.A. No. 7202 was for the recomputation of their loan account
and if there were any excess payment/s, to claim with the x x x BSP x x x for restitution."[66] PNB
also posits that the foreclosure of the subject agricultural lots was done before the effectivity of
RA 7202 and when they were subjected to the CARP, PNB, being then the landowner/claimant,
had the right to claim and receive the CARP proceeds thereof.[67]

PNB cites DOJ Opinion No. 91, Series of 1995[68] (DOJ Opinion) where former DOJ Secretary
Teofisto T. Guingona, Jr. opined that:
x x x While the effect of Section 3 is to forestall foreclosure of mortgaged properties, the provision
does not in terms undo foreclosure sales already consummated as of the effectivity of R.A. No.
7202. And rightly so, because property rights have already vested after a consummated
foreclosure sale which the law (R.A. No. 7202) cannot disturb without violating the constitutional
guaranties of due process and non-impairment of contracts clause.[69]

PNB likewise cites that for purposes of recomputation under RA 7202, CARP proceeds of
foreclosed properties are not categorized as among the "LOAN PAYMENTS" to be credited to the
loan accounts of borrowers; and it is the "value realized or credited to payment of the sugar
producer's loan account from properties acquired thru x x x foreclosure of collaterals" that is part
of "LOAN PAYMENTS" pursuant to Section 2.1 of the IRR.[70]

In addition, PNB contends that the Aguilars are not similarly situated with the spouses Pfleider
based on the following:

x x x In deference to [s]pouses Pfleider, they first gave their conformity to the recomputation made
by PNB (as audited by COA) on their loan accounts without crediting therein as loan payments the
value of the CARP proceeds of the agricultural lots, converse to the demands of [the Aguilars].

x x x After recomputation of the crop loans and the condonation of interest in excess of x x x 12%
x x x per annum, as well as penalties and surcharges, [s]pouses Pfleider confirmed and
acknowledged as accurate, in all respect, the recomputed loan balance on their loans x x x[.]

x x x Thereafter, [s]pouses Pfleider signed the Restructuring and Compromise Agreement with PNB
based on the amount of the recomputation made by the latter. Thus, [s]pouses Pfleider were
allowed to restructure their account for a period of x x x 13 x x x years. In this regard, PNB agreed
that the value of the Escalante lots (agricultural properties) transferred by PNB to DAR, would be
deducted from the aggregate amount due on the loans upon settlement by DAR and/or LBP of the
reasonable and just compensation due PNB for the transfer to the Republic of the Philippines of
the titles over said lots.

x x x Here, petitioner Glenn Aguilar admitted that he did not signify his conformity to the re-
computation as audited and certified to by COA and refused to sign the restructuring agreement
because he was insisting that the CARP proceeds be first considered as loan payments and should
be deducted from the loan accounts.

x x x x

x x x It must also be noted that if the CARP proceeds are to be credited to [the late] [s]pouses
Aguilar's loan account in the recomputation, then, the restructuring agreement is no longer
needed as the CARP proceeds are more than enough to cover the net loan balance. If this is
allowed, there is nothing left to amortize. This is not the case of [s]pouses Pfleider from which [the
Aguilars] sought same consideration. Definitely, [the Aguilars'] demand is far different from the
circumstances obtaining insofar as the [s]pouses Pfleider are concerned, and in that case, there is
no sound reason to consider the case of the latter in the instant petition.[71]
Citing Articles 19 and 21 of the Civil Code, the RTC found that PNB was "guilty of malice and bad
faith in not pursuing its duty in helping [the Aguilars] avail of the benefits of said Sugar Restitution
Law"[72] and awarded P100,000.00 moral damages. The RTC further noted that:

[The Aguilars] also correctly cited the identical case of the Spouses Fred and Mildred Pfleider which
the defendant gave due course. While it is true that [the Aguilars] are not parties to the case nor
signatories to their Compromise Agreement and [PNB] cannot be compelled to give the same
treatment to [the Aguilars], considering that like the Spouses Pfleider, [the Aguilars] are also their
valued clients, at least [the Aguilars] deserve to be treated with fairness and equality.[73]

The CA did not rule categorically on the issue of whether the Aguilars should be entitled to the
same treatment by PNB as the spouses Pfleider because, according to the CA, "it was unnecessary
to dwell on other issues aired in the course of the Appeal" considering that the Aguilars were not
entitled to restitution absent any excess payment after the recomputation of the RA 7202
accounts of the late spouses Aguilar.[74]

Such issue is, however, before the Court, thus: Does PNB have an obligation to accord the Aguilars
the same treatment as it accorded the spouses Pfleider regarding the crediting of the VOS or CARP
proceeds of their respective agricultural lots against their respective sugar crop loans covered by
RA 7202?

The sources of obligations under Article 1157 of the Civil Code are: (1) law; (2) contracts; (3) quasi-
contracts; (4) acts or omissions punished by law; and (5) quasi-delicts. Immediately, sources (2),
(3) and (4) are inapplicable in this case. The Aguilars are not privies to the Compromise Agreement
between PNB and the spouses Pfleider. Regarding law, as PNB's source of obligation, the CA
correctly ruled that the Aguilars are not entitled to restitution under RA 7202. Thus, RA 7202
cannot be invoked as the statutory basis to compel PNB to treat the Aguilars similarly with the
spouses Pfleider.

Aside from Chapter 2, Quasi-Delicts, of Title XVII. - Extra-Contractual Obligations, Book IV of the
Civil Code, it is recognized that quasi-delict may arise under Chapter 2, Human Relations of the
Preliminary Title of the Civil Code.

In the landmark case of Velayo v. Shell Company of the Philippine Islands, Ltd.,[75] the Court ruled,
in effect, that the undue preference made by an insolvent debtor corporation in transferring its C-
54 plane in favor of a creditor corporation, which was its sister company, depriving its other
creditors of the opportunity to recover said plane, was in violation of Article 19 in relation to Article
21 of the Civil Code, and observed that:

x x x Chapter 2 of the PRELIMINARY TITLE of the Civil Code, dealing on Human Relations, provides
the following:

"Art. 19. Any person must, in the exercise of his rights and in the [performance] of his duties, act
with justice, give everyone his due, and observe honesty and good faith."
It maybe said that this article only contains a mere [declaration] of principles and while such
statement may be x x x essentially correct, yet We find that such declaration is implemented by
Article 21 and [sequence] of the same Chapter which prescribe the following:

"Art. 21. Any [person] who wilfully causes loss or injury to another in a manner that is contrary to
morals, good customs or public policy shall compensate the latter for the damage."

The Code Commission commenting on this article, says the following:

"Thus at one stroke, the legislator, if the foregoing rule is approved (as it was approved), would
vouchsafe adequate legal remedy for that untold numbers of moral wrongs which is impossible
for human foresight to provide for specifically in the statutes.

"But, it may be asked, would this proposed article obliterate the boundary line between morality
and law? The answer is that, in the last analysis, every good law draws its breath of life from
morals, from those principles which are written with words of fire in the conscience of man. If this
[premise] is admitted, then the proposed rule is a prudent earnest of justice in the face of the
impossibility of enumerating, one by one, all wrongs which cause damages. When it is reflected
that while codes of law and statutes have changed from age to age, the conscience of man has
remained fixed to its ancient moorings, one can not but feel that it is safe and salutary to
transmute, as far as may be, moral norms into legal rules, thus imparting to every legal system
that enduring quality which ought to be one of its superlative attributes.

"Furthermore, there is no belief of more baneful consequence upon the social order than that a
person may with impunity cause damage to his fellow-men so long as he does not break any law
of the State, though he may be defying the most sacred postulates of morality. What is more, the
victim loses faith in the ability of the government to afford protection or relief.

"A provision similar to the one under consideration is embodied in article 826 of the German Civil
Code.

"The same observations may be made concerning injurious acts that are contrary to public policy
but are not forbidden by statute. There are countless acts of such character, but have not been
foreseen by the lawmakers. Among these are many business practices that are unfair or
oppressive, and certain acts of landholders and employers affecting their tenants and employees
which contravene the public policy of social justice.

x x x (Report of the Code Commission on the Proposed Civil Code of the Philippines, p. 40-41).[76]
Also, in Heirs of Purisima Nala v. Cabansag,[77] the Court observed:
Preliminarily, the Court notes that both the RTC and the CA failed to indicate the particular
provision of law under which it (sic) held petitioners liable for damages. Nevertheless, based on
the allegations in respondent's complaint, it may be gathered that the basis for his claim for
damages is Article 19 of the Civil Code, which provides:
Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act
with justice, give everyone his due, and observe honesty and good faith.

The foregoing provision sets the standards which may be observed not only in the exercise of one's
rights but also in the performance of one's duties. When a right is exercised in a manner which
does not conform with the norms enshrined in Article 19 and results in damage to another, a legal
wrong is thereby committed for which the wrongdoer must be held responsible. But a right,
though by itself legal because recognized or granted by law as such, may nevertheless become the
source of some illegality. A person should be protected only when he acts in the legitimate exercise
of his right; that is, when he acts with prudence and in good faith, but not when he acts with
negligence or abuse. There is an abuse of right when it is exercised only for the purpose of
prejudicing or injuring another. The exercise of a right must be in accordance with the purpose for
which it was established, and must not be excessive or unduly harsh; there must be no intention
to injure another.[78]

In order to be liable for damages under the abuse of rights principle, the following requisites must
concur: (a) the existence of a legal right or duty; (b) which is exercised in bad faith; and (c) for the
sole intent of prejudicing or injuring another.[79]

It should be stressed that malice or bad faith is at the core of Article 19 of the Civil Code. Good
faith is presumed, and he who alleges bad faith has the duty to prove the same.[80] Bad faith, on
the other hand, does not simply connote bad judgment to simple negligence, dishonest purpose
or some moral obloquy and conscious doing of a wrong, or a breach of known duty due to some
motives or interest or ill will that partakes of the nature of fraud. Malice connotes ill will or spite
and speaks not in response to duty. It implies an intention to do ulterior and unjustifiable harm.[81]
To make PNB liable under the principle of abuse of rights, the Aguilars have the burden to prove
the requisites enumerated above. They claim that they are similarly circumstanced as the spouses
Pfleider and there was no reason for PNB to treat them differently.[82]

PNB has explained that there are differences in the circumstances of its two sugar crop loan
debtors which, to PNB, justify the different accommodations that it accorded to them. PNB insists
that the spouses Pfleider first gave their conformity to the recomputation made by PNB (as audited
by COA) on their loan accounts without crediting therein as loan payments the value of the CARP
proceeds of the agricultural lots.[83] After recomputation of the crop loans and condonation of
interest in excess of 12% per annum, penalties and surcharges, the spouses Pfleider confirmed
and acknowledged as accurate the recomputed balance on their loans and, thereafter they signed
the Compromise Agreement with PNB.[84] The spouses Pfleider were then allowed to restructure
their account for 13 years.[85] On PNB's part, it agreed that the value of the Escalante agricultural
lots transferred by PNB to DAR would be deducted from the aggregate amount due on the loans
upon settlement by DAR and/or LBP of the just compensation due PNB for the transfer of said lots
to the Republic of the Philippines.[86] The settlement agreement between PNB and the spouses
Pfleider was to the effect that PNB would credit as payment the CARP proceeds of the foreclosed
agricultural properties in the Compromise Agreement provided that the case filed against PNB was
withdrawn.[87]
According to PNB, the Aguilars, on the other hand, did not signify their conformity to the
recomputation as audited and certified by the COA and refused to sign the restructuring
agreement because they insisted that the CARP proceeds be first considered as loan payments
and should be deducted from their loan accounts.[88] PNB has taken the position that if the CARP
proceeds were to be credited to the loan accounts of the Aguilars in the recomputation, then, the
restructuring agreement would no longer be needed because the CARP proceeds were more than
enough to cover the net balance of their accounts and, if that was allowed, there would be nothing
to amortize.

PNB further contends that the Aguilars cannot invoke its Compromise Agreement with the spouses
Pfleider because: (1) the former are not parties thereto; (2) the principle of relativity of contract
would be violated; and (3) PNB 's freedom to enter into contracts would also be violated if PNB
would be compelled to accommodate the Aguilars.[89]

Given the foregoing explanation by PNB, it was incumbent upon the Aguilars, to make PNB liable
for damages based on the principle of abuse of rights, to prove that PNB acted in bad faith and
that its sole intent was to prejudice or injure them. The Aguilars, however, failed in this regard.

Also, the Court notes from the duly notarized Compromise Agreement between the spouses
Pfleider and PNB dated December 30, 1999[90] that the accounts of the former to the latter were
crop loans ("sugar and sugar-related loans") and, thus, covered by RA 7202,[91] unlike the accounts
of the Aguilars which included non-RA 7202 accounts, as mentioned in the narration of facts. Since
the Aguilars were delinquent in their accounts, including their non-RA 7202 accounts, and the
mortgaged properties of the Aguilars similarly secured the non-RA 7202 accounts, PNB had no
option but to foreclose the mortgage.

To recapitulate:
x x x A person should be protected only when he acts in the legitimate exercise of his right; that is,
when he acts with prudence and in good faith, but not when he acts with negligence or abuse.
There is an abuse of right when it is exercised only for the purpose of prejudicing or injuring
another. The exercise of a right must be in accordance with the purpose for which it was
established, and must not be excessive or unduly harsh; there must be no intention to injure
another.[92]

In order to be liable for damages under the abuse of rights principle, the following requisites must
concur: (a) the existence of a legal right or duty; (b) which is exercised in bad faith; and (c) for the
sole intent of prejudicing or injuring another.[93] In this case, the Aguilars failed to substantiate the
above requisites to justify the award of damages in their favor against PNB, who merely exercised
its legal right as a creditor pursuant to RA 7202.
WHEREFORE, the petition for review is hereby DENIED. The Court of Appeals Decision dated March
23, 2012 and, consequently, Resolution dated April 1, 2013 in CA-G.R. CV No. 00708 are hereby
AFFIRMED. SO ORDERED.
FIRST DIVISION

[ G.R. No. 190286, January 11, 2018 ]

RAMON E. REYES AND CLARA R. PASTOR, PETITIONERS, VS. BANCOM DEVELOPMENT CORP.,
RESPONDENT.

D E C I S I O N
SERENO, C.J.:

Before this Court is a Petition for Review on Certiorari[1] filed by Ramon E. Reyes and Clara R. Pastor
seeking to reverse the Decision[2] and the Resolution[3] of the Court of Appeals (CA) in CA-G.R. CV
No. 45959. The CA affirmed the ruling of the Regional Trial Court (RTC) holding petitioners jointly
and severally liable to respondent Bancom Development Corporation (Bancom) as guarantors of
certain loans obtained by Marbella Realty, Inc. (Marbella).

FACTS

The dispute in this case originated from a Continuing Guaranty[4] executed in favor of respondent
Bancom by Angel E. Reyes, Sr., Florencio Reyes, Jr., Rosario R. Du, Olivia Arevalo, and the two
petitioners herein, Ramon E. Reyes and Clara R. Pastor (the Reyes Group). In the instrument, the
Reyes Group agreed to guarantee the full and due payment of obligations incurred by Marbella
under an Underwriting Agreement with Bancom. These obligations included certain Promissory
Notes[5] issued by Marbella in favor of Bancom on 24 May 1979 for the aggregate amount of
P2,828,140.32.

It appears from the records that Marbella was unable to pay back the notes at the time of their
maturity. Consequently, it issued a set of replacement Promissory Notes[6] on 22 August 1979, this
time for the increased amount of P2,901,466.48. It again defaulted on the payment of this second
set of notes, leading to the execution of a third set[7] for the total amount of P3,002,333.84, and
finally a fourth set[8] for the same amount.

Because of Marbella's continued failure to pay back the loan despite repeated demands, Bancom
filed a Complaint for Sum of Money with a prayer for damages before the RTC of Makati on 7 July
1981.[9] The case, which sought payment of the total sum of P4,300,247.35, was instituted against
(a) Marbella as principal debtor; and (b) the individuals comprising the Reyes Group as guarantors
of the loan.

In their defense, Marbella and the Reyes Group argued that they had been forced to execute the
Promissory Notes and the Continuing Guaranty against their will.[10] They also alleged that the
foregoing instruments should be interpreted in relation to earlier contracts pertaining to the
development of a condominium project known as Marbella II.[11]

The Marbella II contracts were entered into by Bancom; the Reyes Group, as owners of the parcel
of land to be utilized for the condominium project along Roxas Boulevard; and Fereit Realty
Development Corporation (Fereit), a sister company of Bancom, as the construction developer
and project manager.[12] This venture, however, soon encountered financial difficulties. As a result,
the Reyes Group was allegedly forced to enter into a Memorandum of Agreement to take on part
of the loans obtained by Fereit from Bancom for the development of the project. Marbella, for its
part, was supposedly compelled to assume Fereit's obligation to cause the release of P2.8 million
in receivables then assigned to State Financing;[13] and subsequently to obtain additional financing
from Bancom in the same amount for that purpose.[14]

The above developments were cited by Marbella and the Reyes group in support of the allegation
that Bancom took advantage of their resultant financial distress. Bancom allegedly demanded the
execution of Promissory Notes and the Continuing Guaranty from the Reyes Group,[15] despite the
fact that additional financing became necessary only because of the failure of Fereit (Bancom's
sister company) to comply with its obligation.[16]

To bolster its claim that the promissory notes were issued in connection with Fereit's obligations,
Marbella, together with the Reyes Group, also presented a document entitled Amendment of
Memorandum of Agreement.[17] In this instrument, Fereit undertook to reimburse Marbella for
the P2.8 million the latter had paid, and for all penalties, fees, and charges incurred to obtain
additional financing.

THE RTC RULING

In a Decision dated 8 April 1991, the RTC held Marbella and the Reyes Group solidarily liable to
Bancom. The trial court ordered them to pay the amounts indicated on the Promissory Notes
dated 28 February 1980 in the total amount of P4,300,247.35 plus interest computed from 19
May 1981, the date of demand; and to pay penalties and attorney's fees as well.[18]

PROCEEDINGS BEFORE THE CA

Marbella and the Reyes Group appealed the RTC ruling to the CA.[19] They asserted that the trial
court erred in disregarding the terms of the earlier agreements they had entered into with Bancom
and Fereit.[20] The former also reiterated that the amounts covered by the Promissory Notes
represented additional financing secured from Bancom to fulfill Fereit's obligations. Hence, they
said they cannot be held liable for the payment of those amounts.[21]

In the course of the proceedings before the CA, Abella Concepcion Regala & Cruz moved to
withdraw its appearance in the case as counsel for Bancom.[22] The law firm asserted that it had
"totally lost contact" with its client despite serious efforts on the part of the former to get in touch
with its officers.[23] The law firm also alleged that it had "received reports that the client has
undergone a merger with another entity," thereby making its authority to represent the
corporation subject to doubt.[24]

In a Resolution dated 1 June 2004,[25] the CA granted the motion after noting that the copy of a
resolution sent to Bancom had been returned to the appellate court unclaimed. The CA held that
this failure of service supported the claim of Abella Concepcion Regala & Cruz that the latter had
lost all contact with its client.

THE CA RULING

In a Decision dated 25 June 2009,[26] the CA denied the appeal citing the undisputed fact that
Marbella and the Reyes Group had failed to comply with their obligations under the Promissory
Notes and the guaranty. The appellate court rejected the assertion that noncompliance was
justified by the earlier agreements entered into by the parties. The CA explained:

In this case, it is worth to note that it is an undisputed fact that defendants-appellants failed to
make good their alleged obligations under the Promissory Notes and Continuing Guaranty which
they issued in favor of BAN[C]OM. [The instruments'] genuineness and due execution are likewise
undisputed.

Defendants-appellants' only defense rests on the allegation that their non-payment of such
obligations is justified taking into consideration the terms of the Memorandum of Agreement
entered into by and among the plaintiff-appellee and defendants-appellants herein particularly
paragraph 13 thereof. Said the appellants in support hereof, since Bancom [which was in full
control of the financial affairs of Fereit] failed to cause the release of the aforesaid receivables
(P2,800,000) to State Financing by Fereit, Bancom should necessarily suffer the consequences
thereof - not the defendants-appellants.

Apparently, the thrust of defendants-appellants' defense points to Fereit's non-compliance with

paragraph 13 of the "Memorandum of Agreement." However, records show that defendants-
appellants did nothing to formally [assert] their rights against Fereit. Truly, this Court agrees with
the trial court's pronouncement that defendants-appellants' failure to avail of the remedies
provided by law, such as the filing of a third-party complaint against Fereit, necessarily indicates
that they themselves did not seriously consider Fereit's non-compliance as affecting their own
liability to BANCOM. This can be done for after all, Fereit is still a different entity with distinct and
separate corporate existence from that of BANCOM even granting that BANCOM is in full control
of the financial affairs of Fereit.

x x x x

Besides, the terms of the promissory notes and "Continuing Guaranty" x x x are clear and
unequivocal, leaving no room [for] interpretation. For not being contrary to law, morals, good
customs, public order and public policy, defendants' obligation has the force of law and should be
complied with in good faith.[27]
Of the individuals comprising the Reyes Group, only petitioners filed a Motion for Reconsideration
of the CA Decision.[28] They reiterated their argument that the Promissory Notes were not meant
to be binding, given that the funds released to Marbella by Bancom were not loans, but merely
additional financing. Petitioners also contended that the action must be considered abated
pursuant to Section 122 of the Corporation Code. They pointed out that the Certificate of
Registration issued to Bancom had been revoked by the Securities and Exchange Commission (SEC)
on 31 May 2004, and that no trustee or receiver had been appointed to continue the suit; in fact,
even Bancom's former counsel was compelled to withdraw its appearance from the case, as it
could no longer contact the corporation.

On 23 July 2009, petitioners filed a Supplement to their Motion for Reconsideration.[29] In support
of their argument on the abatement of the suit, they attached a Certificate of Corporate
Filing/Information issued by the SEC. The latter confirmed that Bancom's Certificate of
Registration[30] had been revoked on 26 May 2003 for noncompliance with the SEC's reportorial
requirements.

In a Resolution[31] dated 9 November 2009, the CA denied the Motion for Reconsideration, since
the points raised therein had already been passed upon in its earlier ruling.

PROCEEDINGS BEFORE THIS COURT

On 27 November 2009, petitioners filed the instant Petition for Review. They assert that the CA
committed a grievous error in refusing to declare the suit abated despite the obvious fact that
Bancom no longer exists. They likewise contend that the appellate court had incorrectly relied
upon the Promissory Notes and the Continuing Guaranty. It allegedly failed to take into account
the parties' earlier related agreements that showed that petitioners could not be held liable for
the debt.

In a Resolution[32] dated 17 February 2010, we ordered Bancom to comment on the Petition for
Review. The copy of the Resolution served at Bancom's address on record was, however, returned
unserved with the postal notation "RTS - non-existent address."[33] For this reason, we deemed the
filing of a comment waived.[34]

ISSUES

The following issues are presented to the Court for resolution:

1. Whether the present suit should be deemed abated by the revocation by the SEC of the
Certificate of Registration issued to Bancom

2. Whether the CA correctly ruled that petitioners are liable to Bancom for (a) the payment of the
loan amounts indicated on the Promissory Notes issued by Marbella; and (b) attorney's fees

OUR RULING

We DENY the Petition.

The revocation of Bancom's Certificate of Registration does not justify the abatement of these
proceedings.

Section 122[35] of the Corporation Code provides that a corporation whose charter is annulled, or
whose corporate existence is otherwise terminated, may continue as a body corporate for a
limited period of three years, but only for certain specific purposes enumerated by law. These
include the prosecution and defense of suits by or against the corporation, and other objectives
relating to the settlement and closure of corporate affairs.

Based on the provision, a defunct corporation loses the right to sue and be sued in its name upon
the expiration of the three-year period provided by law.[36] Jurisprudence, however, has carved
out an exception to this rule. In several cases, this Court has ruled that an appointed receiver,[37]
an assignee,[38] or a trustee[39] may institute suits or continue pending actions on behalf of the
corporation, even after the winding-up period. The rule was first enunciated in the 1939 case
Sumera v. Valencia,[40] in which we declared:
[I]f the corporation carries out the liquidation of its assets through its own officers and continues
and defends the actions brought by or against it, its existence shall terminate at the end of three
years from the time of dissolution; but if a receiver or assignee is appointed, as has been done in
the present case, with or without a transfer of its properties within three years, the legal interest
passes to the assignee, the beneficial interest remaining in the members, stockholders, creditors
and other interested persons; and said assignee may bring an action, prosecute that which has
already been commenced for the benefit of the corporation, or defend the latter against any other
action already instituted or which may be instituted even outside of the period of three years fixed
for the officers of the corporation.

For the foregoing considerations, we are of the opinion and so hold that when a corporation is
dissolved and the liquidation of its assets is placed in the hands of a receiver or assignee, the period
of three years prescribed by section 77 of Act No. 1459 known as the Corporation Law is not
applicable, and the assignee may institute all actions leading to the liquidation of the assets of the
corporation even after the expiration of three years.
In subsequent cases, the Court further clarified that a receiver or an assignee need not even be
appointed for the purpose of bringing suits or continuing those that are pending.[41] In Gelano v.
Court of Appeals,[42] we declared that in the absence of a receiver or an assignee, suits may be
instituted or continued by a trustee specifically designated for a particular matter, such as a lawyer
representing the corporation in a certain case. We also ruled in Clemente v. Court of Appeals[43]
that the board of directors of the corporation may be considered trustees by legal implication for
the purpose of winding up its affairs.

Here, it appears that the SEC revoked the Certificate of Registration issued to Bancom on 26 May
2003.[44] Despite this revocation, however, Bancom does not seem to have conveyed its assets to
trustees or to its stockholders and creditors. The corporation has also failed to appoint a new
counsel after the law firm formerly representing it was allowed to withdraw its appearance on 1
June 2004. Citing these circumstances, petitioners assert that these proceedings should be
considered abated.
We disagree.

It is evident from the foregoing discussion of law and jurisprudence that the mere revocation of
the charter of a corporation does not result in the abatement of proceedings. Since its directors
are considered trustees by legal implication,[45] the fact that Bancom did not convey its assets to a
receiver or assignee was of no consequence. It must also be emphasized that the dissolution of a
creditor-corporation does not extinguish any right or remedy in its favor. Section 145 of the
Corporation Code is explicit on this point:
Sec. 145. Amendment or repeal.- No right or remedy in favor of or against any corporation, its
stockholders, members, directors, trustees, or officers, nor any liability incurred by any such
corporation, stockholders, members, directors, trustees, or officers, shall be removed or impaired
either by the subsequent dissolution of said corporation or by any subsequent amendment or
repeal of this Code or of any part thereof. (Emphasis supplied)
As a necessary consequence of the above rule, the corresponding liability of the debtors of a
dissolved corporation must also be deemed subsisting. To rule otherwise would be to sanction the
unjust enrichment of the debtor at the expense of the corporation.[46]

As guarantors of the loans of Marbella, petitioners are liable to Bancom.

On the merits of the claim, we affirm the finding of the CA on the liability of petitioners. Having
executed a Continuing Guaranty in favor of Bancom, petitioners are solidarily liable with Marbella
for the payment of the amounts indicated on the Promissory Notes.

As the appellate court observed,[47] petitioners did not challenge the genuineness and due
execution of the promissory notes. Neither did they deny their nonpayment of Marbella's loans or
the fact that these obligations were covered by the guaranty. Their sole defense was that the
promissory notes in question were not binding, because the funds released to Marbella by Bancom
were not loans but merely additional financing. This financial accommodation was supposedly
meant to a1low Marbella to rectify the failure of Fereit to cause the release of receivables assigned
to another entity. In support of their allegations, petitioners cite certain provisions of the
Memorandum of Agreement dated 16 August 1977[48] and its Amendment.[49]

We reject these contentions.

The obligations of Marbella and the Reyes Group under the Promissory Notes and the Continuing
Guaranty, respectively, are plain and unqualified. Under the notes, Marbella promised to pay
Bancom the amounts stated on the maturity dates indicated.[50] The Reyes Group, on the other
hand, agreed to become liable if any of Marbella's guaranteed obligations were not duly paid on
the due date.[51] There is absolutely no support for the assertion that these agreements were not
meant to be binding.

We also note that even if the other agreements referred to by petitioners are taken into account,
the result would be the same. They would still be deemed liable, since the two contracts they cited
only establish the following premises: (a) Fereit took on the responsibility of causing the release
of certain receivables from State Financing; (b) Marbella assumed the performance of the
obligation of Fereit after the latter failed to fulfill its duty; (c) Bancom would grant Marbella
additional financing for that purpose, with the obligation to be paid within three years; and (d)
Fereit would reimburse Marbella for the expenses the latter would incur as a result of this
assumption of the obligation. Specifically on the duty of Marbella to pay back the additional
financing, the Amendment states:

1. Bancom hereby agrees to grant the additional financing requested by Marbella II in

the principal amount of TWO MILLION EIGHT HUNDRED TWENTY EIGHT
THOUSAND ONE HUNDRED FORTY & 32/100 (P2,828,140.32), Philippine Currency,
payable by Marbella II within three (3) years, under such terms and conditions as
may be mutually agreed upon by Bancom and Marbella II. The additional financing
herein requested by Marbella II shall be payable by Marbella II irrespective of
whether Marbella II realizes a net profit after tax on its Marbella II Condominium
Project.

2. In lieu of the obligations of Fereit under Paragraph 9 and 13 of the Memorandum

of Agreement, Fereit hereby agrees to reimburse Marbella II the principal sum of
P2,828,140.32 plus interest, fees and other charges which Marbella II shall pay to
Bancom in the settlement and/or liquidation of the additional financing. However,
penalties, fees and other charges resulting from the default of Marbella II with
respect to the additional financing shall be borne by Marbella II.

It is evident from the foregoing provisions that Bancom extended additional financing to Marbella
on the condition that the loan would be paid upon maturity. It is equally clear that the latter
obligated itself to pay the stated amount to Bancom without any condition. The unconditional
tenor of the obligation of Marbella to pay Bancom for the loan amount, plus interest and penalties,
is likewise reflected in the Promissory Notes issued in favor of the latter.[52] Marbella, in turn, was
granted the right to collect reimbursement from Fereit, an entirely distinct entity. While it was
averred that Bancom had complete control of Fereit's assets and activities, we note that no
sufficient evidence was presented in support of this assertion.

As to petitioners, the Continuing Guaranty evidently binds them to pay Bancom the amounts
indicated on the original set of Promissory Notes, as well as any and all instruments issued upon
the renewal, extension, amendment or novation thereof.[53] The Court notes that the final set of
Promissory Notes issued by Marbella in this case reflect the total amount of P3,002,333.84.[54] The
CA and the RTC thus ordered the payment of P4,300,247.35, which represents the principal
amount and all interest and penalty charges as of 19 May 1981, or the date of demand.

We affirm this ruling with the modification that petitioners are liable to pay Bancom the following
amounts: (a) P4,300,247.35; (b) interest accruing on the principal sum of P3,002,333.84 (and not
the entire amount of P4,300,247.35), from 19 May 1981, the date of demand, at the rates
identified below;[55] and (c) penalties accrued in relation thereto, with legal interest from maturity
date until fully paid.
Needless to state, the clear terms of these agreements cannot be negated and deemed non-
binding simply on the basis of the self-serving testimony of Angel Reyes, one of the guarantors of
the loan. The CA therefore correctly rejected the attempt of petitioners to renege on their
obligations. We also find the award of P500,000 for attorney's fees in order, pursuant to the
stipulation in the Promissory Notes allowing the recovery thereof. Nevertheless, in the interest of
equity and considering that petitioners are already liable for penalties, we deem it proper to
modify the stipulated rate of interest to conform to the legal interest rates under prevailing
jurisprudence.

WHEREFORE, the Petition for Review is hereby DENIED, and the Decision. dated 25 June 2009 and
the Resolution dated 9 November 2009 issued by the Court of Appeals in CA-G.R. CV No. 45959
are AFFIRMED with MODIFICATION.

Petitioners Ramon E. Reyes and Clara R. Pastor are jointly and severally liable with Marbella Manila
Realty, Inc., Angel E. Reyes, Sr., Florencio Reyes, Jr., Rosario R. Du and Olivia Arevalo for the
following amounts:

(a) P4,300,247.35, representing the principal sum and all interest and penalty charges as of 19
May 1981;

(b) legal interest on the principal sum of P3,002,333.84 at the rate of 12% per annum from 19
May 1981, the date of demand, until 30 June 2013, and at the rate of 6% per annum from 1
July 2013, until this Decision becomes final and executory;

(c) penalties equivalent to 20% of the obligation;

(d) legal interest on the penalty amount at the rate of 12% per annum from 19 May 1981, the
date of demand, until30 June 2013, and at the rate of 6% per annum from 1 July 2013, until
this Decision becomes final and executory;

(e) attorney's fees in the amount of P500,000; and

(f) legal interest of 6% per annum on all the foregoing monetary awards from date of finality of
this Decision until full payment thereof.

SO ORDERED.
FIRST DIVISION

[ G.R. No. 212472, January 11, 2018 ]

SPECIFIED CONTRACTORS & DEVELOPMENT, INC., AND SPOUSES ARCHITECT ENRIQUE O. OLONAN
AND CECILIA R. OLONAN, PETITIONERS, V. JOSE A. POBOCAN, RESPONDENT.

DECISION

TIJAM, J.:

This Petition for Review on Certiorari[1] under Rule 45 urges this Court to reverse and set aside the
November 27, 2013 Decision[2] and April 28, 2014 Resolution[3] of the Court of Appeals (CA) in CA-
G.R. CV No. 99994, and to affirm instead the June 4, 2012 Order[4] of the Regional Trial Court (RTC)
of Quezon City, Branch 92, in Civil Case No. Q-11-70338. The court a quo had granted the Motion
to Dismiss[5] of Specified Contractors & Development Inc. (Specified Contractors), and Spouses
Architect Enrique O. Olonan and Cecilia R. Olonan (collectively referred to as petitioners), thereby
dismissing the action for specific performance filed by respondent Jose A. Pobocan. The dismissal
of the case was subsequently set aside by the CA in the assailed decision and resolution.

It is undisputed that respondent was in the employ of Specified Contractors until his retirement
sometime in March 2011. His last position was president of Specified Contractors and its
subsidiary, Starland Properties Inc., as well as executive assistant of its other subsidiaries and
affiliates.

Architect Olonan allegedly[6] agreed to give respondent one (1) unit for every building Specified
Contractors were able to construct as part of respondent's compensation package to entice him
to stay with the company Two (2) of these projects that Specified Contractors and respondent
were able to build were the Xavierville Square Condominium in Quezon City and the Sunrise
Holiday Mansion Bldg. I in Alfonso, Cavite. Pursuant to the alleged oral agreement, Specified
Contractors supposedly ceded, assigned and transferred Unit 708 of Xavierville Square
Condominium and Unit 208 of Sunrise Holiday Mansion Bldg. I (subject units) in favor of
respondent.

In a March 14, 2011 letter[7] addressed to petitioner Architect Enrique Olonan as chairman of
Specified Contractors, respondent requested the execution of Deeds of Assignment or Deeds of
Sale over the subject units in his favor, along with various other benefits, in view of his impending
retirement on March 19, 2011.

When respondent's demand was unheeded, he filed a Complaint[8] on November 21, 2011 before
the RTC of Quezon City praying that petitioners be ordered to execute and deliver the appropriate
deeds of conveyance and to pay moral and exemplary damages, as well as attorney's fees.
On January 17, 2012, petitioners, instead of filing an answer, interposed a Motion to Dismiss [9]
denying the existence of the alleged oral agreement. They argued that, even assuming arguendo
that there was such an oral agreement, the alleged contract is unenforceable for being in violation
of the statute of frauds, nor was there any written document, note or memorandum showing that
the subject units have in fact been ceded, assigned or transferred to respondent. Moreover,
assuming again that said agreement existed, the cause of action had long prescribed because the
alleged agreements were supposedly entered into in 1994 and 1999 as indicated in respondent's
March 14, 2011 demand letter, supra, annexed to the complaint.

The RTC, in granting[10] the motion, dismissed the respondent's complaint in its June 4, 2012 Order.
While the RTC disagreed with petitioners that the action had already prescribed under Articles
1144[11] and 1145[12] of the New Civil Code, by reasoning that the complaint is in the nature of a
real action which prescribes after 30 years conformably with Article 1141[13], it nonetheless agreed
that the alleged agreement should have been put into writing, and that such written note,
memorandum or agreement should have been attached as actionable documents to respondent's
complaint.

On appeal, the CA reversed[14] the RTC's June 4, 2012 Order, reasoning that the dismissal of
respondent's complaint, anchored on the violation of the statute of frauds, is unwarranted since
the rule applies only to executory and not to completed or partially consummated contracts.
According to the CA, there was allegedly partial performance of the alleged obligation based on:
(1) the respondent's possession of the subject units; (2) the respondent's payment of
condominium dues and realty tax for Unit 708 Xavierville Square Condominium; (3) the
endorsement by petitioners of furniture/equipment for Unit 208 Sunrise Holiday Mansion I; and
(4) that shares on the rental from Unit 208 Sunrise Holiday Mansion I were. allegedly received by
the respondent and deducted from his monthly balance on the furniture/equipment account.

Petitioners countered that while there is no dispute that respondent had been occupying Unit 708
- previously Unit 803 - of Xavierville Square Condominium, this was merely out of tolerance in view
of respondent's then position as president of the company and without surrender of ownership.
Petitioners also insisted that Unit 208 of Sunrise Holiday Mansion I continues to be under their
possession and control. Thus, finding that the motion to dismiss was predicated on disputable
grounds, the CA declared in its assailed decision that a trial on the merits is necessary to determine
once and for all the nature of the respondent's possession of the subject units.

Aggrieved, petitioners sought reconsideration of the CA decision, but were unsuccessful. Hence,
the present petition raising three issues:

1. Whether or not the RTC had jurisdiction over the respondent's complaint considering that
the allegations therein invoked a right over the subject condominium units as part of his
compensation package, thus a claim arising out of an employer-employee relationship
cognizable by the labor arbiter;[15]
2. Whether or not the respondent's cause of action had already prescribed;[16] and
3. Whether or not the action was barred by the statute of frauds.[17]
Resolution of the foregoing issues calls for an examination of the allegations in the complaint and
the nature of the action instituted by respondent. As will be discussed later, there is merit in
petitioners' insistence that respondent's right of action was already barred by the statute of
limitations.

What determines the nature of the action and which court has jurisdiction over it are the
allegations in the complaint and the character of the relief sought.[18] In his complaint, respondent
claimed that petitioners promised to convey to him the subject units to entice him to stay with
their company. From this, respondent prayed that petitioners be compelled to perform their part
of the alleged oral agreement. The objective of the suit is to compel petitioners to perform an act
specifically, to execute written instruments pursuant to a previous oral contract. Notably, the
respondent does not claim ownership of, nor title to, the subject properties.

Not all actions involving real property are real actions. In Spouses Saraza, et al. v. Francisco[19], it
was clarified that:

x x x Although the end result of the respondent's claim was the transfer of the subject property to
his name, the suit was still essentially for specific performance, a personal action, because it
sought Fernando's execution of a deed of absolute sale based on a contract which he had
previously made.

Similarly, that the end result would be the transfer of the subject units to respondent's name in
the event that his suit is decided in his favor is "an anticipated consequence and beyond the cause
for which the action [for specific performance with damages] was instituted."[20] Had respondent's
action proceeded to trial, the crux of the controversy would have been the existence or non-
existence of the alleged oral contract from which would flow respondent's alleged right to compel
petitioners to execute deeds of conveyance. The transfer of property sought by respondent is but
incidental to or an offshoot of the determination of whether or not there is indeed, to begin with,
an agreement to convey the properties in exchange for services rendered.

Cabutihan v. Landcenter Construction & Development Corporation[21] explains thus:

A close scrutiny of National Steel and Ruiz reveals that the prayers for the execution of a Deed of
Sale were not in any way connected to a contract, like the Undertaking in this case. Hence, even if
there were prayers for the execution of a deed of sale, the actions filed in the said cases were not
for specific performance.

In the present case, petitioner seeks payment of her services in accordance with the undertaking
the parties signed.

It is axiomatic that jurisdiction over the subject matter of a case is conferred by law and is
determined by the allegations in the complaint and the character of the relief sought, irrespective
of whether the plaintiff is entitled to all or some of the claims asserted therein.[22] We therefore
find that respondent correctly designated his . complaint as one for specific performance
consistent with his allegations and prayer therein. Accordingly, respondent's suit is one that is
incapable of pecuniary estimation and indeed cognizable by the RTC of Quezon City where both
parties reside. As stated in Surviving Heirs of Alfredo R. Bautista v. Lindo:[23]

Settled jurisprudence considers some civil actions as incapable of pecuniary estimation, viz:

1. Actions for specific performance;

While the lack of jurisdiction of a court may be raised at any stage of an action, nevertheless, the
party raising such question may be estopped if he has actively taken part in the very proceedings
which he questions and he only objects to the court's jurisdiction because the judgment or the
order subsequently rendered is adverse to him.[24] In this case, petitioners' Motion to Dismiss,
Reply[25] to the opposition on the motion, and Sur-rejoinder[26] only invoked the defenses of
statute of frauds and prescription before the RTC. It was only after the CA reversed the RTC's grant
of the motion to dismiss that petitioners raised for the first time the issue of jurisdiction in their
Motion for Reconsideration.[27] Clearly, petitioners are estopped from raising this issue after
actively taking part in the proceedings before the RTC, obtaining a favorable ruling, and then
making an issue of it only after the CA reversed the RTC's order.

Even if this Court were to entertain the petitioners' belated assertion that jurisdiction belongs to
the labor arbiter as this case involves a claim arising from an employer-employee relationship,
reliance by petitioners on Domondon v. NLRC[28] is misplaced. In Domondon, the existence of the
agreement on the transfer of car-ownership was not in issue but rather, the entitlement of a
former employee to his entire monetary claims against a former employer, considering that the
said employee had not paid the balance of the purchase price of a company car which the
employee opted to retain. In the present case, the existence of the alleged oral agreement, from
which would flow the right to compel performance, is in issue.

As the Court has ascertained that the present suit is essentially for specific performance - a
personal action - over which the court a quo had jurisdiction, it was therefore erroneous for it to
have treated the complaint as a real action which prescribes after 30 years under Article 1141 of
the New Civil Code. In a personal action, the plaintiff seeks the recovery of personal property, the
enforcement of a contract, or the recovery of damages.[29] Real actions, on the other hand, are
those affecting title to or possession of real property, or interest therein.[30] As a personal action
based upon an oral contract, Article 1145 providing a prescriptive period of six years applies in this
case instead. The shorter period provided by law to institute an action based on an oral contract
is due to the frailty of human memory. Nothing prevented the parties from reducing the alleged
oral agreement into writing, stipulating the same in a contract of employment or partnership, or
even mentioning the same in an office memorandum early on.

While the respondent's complaint was ingeniously silent as to when the alleged oral agreement
came about, his March 14, 2011 demand letter annexed to his complaint categorically cites the
year 1994 as when he and Architect Olonan allegedly had an oral agreement to become "industrial
partners" for which he would be given a unit from every building they constructed. From this, Unit
208 of Sunrise Holiday Mansion I was allegedly assigned to him. Then he went on to cite his
resignation in October of 1997 and his re-employment with the company on December 1, 1999
for which he was allegedly given Unit 803 of the Xavierville Square Condominium, substituted later
on by Unit 708 thereof.

The complaint for specific performance was instituted on November 21, 2011, or 17 years from
the oral agreement of 1994 and almost 12 years after the December 1, 1999 oral agreement. Thus,
the respondent's action upon an oral contract was filed beyond the six-year period within which
he should have instituted the same.

Respondent argued that the prescriptive period should not be counted from 1994 because the
condominium units were not yet in existence at that time, and that the obligation would have
arisen after the units were completed and ready for occupancy. Article 1347[31] of the New Civil
Code is, however, clear that future things may be the object of a contract. This is the reason why
real estate developers engage in pre-selling activities. But even if we were to entertain
respondent's view, his right of action would still be barred by the statute of limitations.

Condominium Certificate of Title (CCT) No. N-18347[32] for Unit 708 of Xavierville Square
Condominium, copy of which was annexed to the complaint, was issued on September 11, 1997
or more than 13 years before respondent's March 14, 2011 demand letter. CCT No. CT-613[33] for
Unit 208 of Sunrise Holiday Mansion Building I; also annexed to the complaint, was issued on
March 12, 1996 or 14 years before respondent's March 14, 2011 demand letter. Indubitably, in
view of the instant suit for specific performance being a personal action funded upon an oral
contract which must be brought within six years from the accrual of the right, prescription had
already set in.

Inasmuch as the complaint should have been dismissed by the RTC on the ground of prescription,
which fact is apparent from the complaint and its annexes, it is no longer necessary to delve into
the applicability of the statute of frauds.

WHEREFORE, the petition is GRANTED. Accordingly, the Court of Appeals' November 27, 2013
Decision and April 28, 2014 Resolution in CA-G.R. CV No. 99994 are REVERSED and SET ASIDE. We
sustain the dismissal of Civil Case No. Q-11-70338, but on the ground that the action for specific
performance had already prescribed.

SO ORDERED.
SECOND DIVISION

[ G.R. No. 191937, August 09, 2017 ]

ORIENT FREIGHT INTERNATIONAL, INC., PETITIONER, V. KEIHIN-EVERETT FORWARDING COMPANY,

INC., RESPONDENT.

D E C I S I O N
LEONEN, J.:

Article 2176 of the Civil Code does not apply when the party's negligence occurs in the
performance of an obligation. The negligent act would give rise to a quasi-delict only when it may
be the basis for an independent action were the parties not otherwise bound by a contract.

This resolves a Petition for Review[1] on Certiorari under Rule 45 of the Rules of Court, assailing the
January 21, 2010 Decision[2] and April 21, 2010 Resolution[3] of the Court of Appeals, which
affirmed the Regional Trial Court February 27, 2008 Decision.[4] The Regional Trial Court found that
petitioner Orient Freight International, Inc.'s (Orient Freight) negligence caused the cancellation
of Keihin-Everett Forwarding Company, Inc.'s (Keihin-Everett) contract with Matsushita
Communication Industrial Corporation of the Philippines (Matsushita).[5]

On October 16, 2001, Keihin-Everett entered into a Trucking Service Agreement with Matsushita.
Under the Trucking Service Agreement, Keihin-Everett would provide services for Matsushita's
trucking requirements. These services were subcontracted by Keihin-Everett to Orient Freight,
through their own Trucking Service Agreement executed on the same day.[6]

When the Trucking Service Agreement between Keihin-Everett and Matsushita expired on
December 31, 2001, Keihin-Everett executed an In-House Brokerage Service Agreement for
Matsushita's Philippine Economic Zone Authority export operations. Keihin-Everett continued to
retain the services of Orient Freight, which sub-contracted its work to Schmitz Transport and
Brokerage Corporation.[7]

In April 2002, Matsushita called Keihin-Everett's Sales Manager, Salud Rizada, about a column in
the April 19, 2002 issue of the tabloid newspaper Tempo. This news narrated the April 17, 2002
interception by Caloocan City police of a stolen truck filled with shipment of video monitors and
CCTV systems owned by Matsushita.[8]

When contacted by Keihin-Everett about this news, Orient Freight stated that the tabloid report
had blown the incident out of proportion. They claimed that the incident simply involved the
breakdown and towing of the truck, which was driven by Ricky Cudas (Cudas), with truck helper,
Rubelito Aquino[9] (Aquino). The truck was promptly released and did not miss the closing time of
the vessel intended for the shipment.[10]
Keihin-Everett directed Orient Freight to investigate the matter. During its April 20, 2002 meeting
with Keihin-Everett and Matsushita, as well as in its April 22, 2002 letter addressed to Matsushita,
Orient Freight reiterated that the truck merely broke down and had to be towed.[11]

However, when the shipment arrived in Yokohama, Japan on May 8, 2002, it was discovered that
10 pallets of the shipment's 218 cartons, worth US$34,226.14, were missing.[12]

Keihin-Everett independently investigated the incident. During its investigation, it obtained a

police report from the Caloocan City Police Station. The report stated, among others, that at
around 2:00 p.m. on April 17, 2002, somewhere in Plaza Dilao, Paco Street, Manila, Cudas told
Aquino to report engine trouble to Orient Freight. After Aquino made the phone call, he informed
Orient Freight that the truck had gone missing. When the truck was intercepted by the police along
C3 Road near the corner of Dagat-Dagatan Avenue in Caloocan City, Cudas escaped and became
the subject of a manhunt.[13]

When confronted with Keihin-Everett's findings, Orient Freight wrote back on May 15, 2002 to
admit that its previous report was erroneous and that pilferage was apparently proven.[14]

In its June 6, 2002 letter, Matsushita terminated its In-House Brokerage Service Agreement with
Keihin-Everett, effective July 1, 2002. Matsushita cited loss of confidence for terminating the
contract, stating that Keihin-Everett's way of handling the April 17, 2002 incident and its
nondisclosure of this incident's relevant facts "amounted to fraud and signified an utter disregard
of the rule of law."[15]

Keihin-Everett, by counsel, sent a letter dated September 16, 2002 to Orient Freight, demanding
P2,500,000.00 as indemnity for lost income. It argued that Orient Freight's mishandling of the
situation caused the termination of Keihin-Everett's contract with Matsushita.[16]

When Orient Freight refused to pay, Keihin-Everett filed a complaint dated October 24, 2002 for
damages with Branch 10, Regional Trial Court, Manila. The case was docketed as Civil Case No. 02-
105018.[17] In its complaint, Keihin-Everett alleged that Orient Freight's "misrepresentation,
malice, negligence and fraud" caused the termination of its In-House Brokerage Service
Agreement with Matsushita. Keihin-Everett prayed for compensation for lost income, with legal
interest, exemplary damages, attorney's fees, litigation expenses, and the costs of the suit.[18]

In its December 20, 2002 Answer, Orient Freight claimed, among others, that its initial ruling of
pilferage was in good faith as manifested by the information from its employees and the good
condition and the timely shipment of the cargo. It also alleged that the contractual termination
was a prerogative of Matsushita. Further, by its own Audited Financial Statements on file with the
Securities and Exchange Commission, Keihin-Everett derived income substantially less than what
it sued for. Along with the dismissal of the complaint, Orient Freight also asserted counterclaims
for compensatory and exemplary damages, attorney's fees, litigation expenses, and the costs of
the suit.[19]
The Regional Trial Court rendered its February 27, 2008 Decision,[20] in favor of Keihin-Everett. It
found that Orient Freight was "negligent in failing to investigate properly the incident and make a
factual report to Keihin[-Everett] and Matsushita," despite having enough time to properly
investigate the incident.[21]

The trial court also ruled that Orient Freight's failure to exercise due diligence in disclosing the true
facts of the incident to Keihin-Everett and Matsushita caused Keihin-Everett to suffer income
losses due to Matsushita's cancellation of their contract.[22] The trial court ordered Orient Freight
"to pay [Keihin-Everett] the amount of [P] 1,666,667.00 as actual damages representing net profit
loss incurred" and P50,000.00 in attorney's fees.[23] However, it denied respondent's prayer for
exemplary damages, finding that petitioner did not act with gross negligence.[24]

Orient Freight appealed the Regional Trial Court Decision to the Court of Appeals. On January 21,
2010, the Court of Appeals issued its Decision[25] affirming the trial court's decision. It ruled that
Orient Freight "not only had knowledge of the foiled hijacking of the truck carrying the . . .
shipment but, more importantly, withheld [this] information from [Keihin-Everett]."[26]

The Court of Appeals ruled that the oral and documentary evidence has established both the
damage suffered by Keihin-Everett and Orient Freight's fault or negligence. Orient Freight was
negligent in not reporting and not thoroughly investigating the April 17, 2002 incident despite
Keihin-Everett's instruction to do so.[27] It further ruled that while Keihin-Everett sought to
establish its claim for lost income of P2,500,000.00 by submitting its January 2002 to June 2002
net income statement,[28] this was refuted by Orient Freight by presenting Keihin-Everett's own
audited financial statements. The Court of Appeals held that the trial court correctly arrived at the
amount of P1,666,667.00 as the award of lost income.[29]

The Court of Appeals denied Orient Freight's Motion for Reconsideration in its April 21, 2010
Resolution.[30]

On June 9, 2010, Orient Freight filed this Petition for Review on Certiorari under Rule 45 with this
Court, arguing that the Court of Appeals incorrectly found it negligent under Article 2176 of the
Civil Code.[31] As there was a subsisting Trucking Service Agreement between Orient Freight itself
and Keihin-Everett, petitioner avers that there was a pre-existing contractual relation between
them, which would preclude the application of the laws on quasi-delicts.[32]

Applying the test in Far East Bank and Trust Company v. Court of Appeals,[33] petitioner claims that
its failure to inform respondent Keihin-Everett about the hijacking incident could not give rise to a
quasi-delict since the Trucking Service Agreement between the parties did not include this
obligation. It argues that there being no obligation under the Trucking Service Agreement to
inform Keihin-Everett of the hijacking incident, its report to Keihin-Everett was done in good faith
and did not constitute negligence. Its representations regarding the hijacking incident were a
sound business judgment and not a negligent act.[34] Finally, it claims that the Court of Appeals
incorrectly upheld the award of damages, as the trial court had based its computation on, among
others, Keihin-Everett's profit and loss statement.[35]
On August 2, 2010, Keihin-Everett filed its Comment,[36] arguing that the petition does not contain
the names of the parties in violation of Rule 45, Section 4 of the Rules of Court. It contends that
the issues and the arguments raised in this petition are the same issues it raised in the Regional
Trial Court and the Court of Appeals.[37] It claims that the findings of fact and law of the Court of
Appeals are in accord with this Court's decisions.[38]

On October 7, 2010, Orient Freight filed its Reply.[39] It notes that a cursory reading of the petition
would readily show the parties to the case. It claims that what is being contested and appealed is
the application of the law on negligence by lower courts and, while the findings of fact by the lower
courts are entitled to great weight, the exceptions granted by jurisprudence apply to this case. It
reiterates that the pre-existing contractual relation between the parties should bar the application
of the principles of quasi-delict. Because of this, the terms and conditions of the contract between
the parties must be applied. It also claimed that the Regional Trial Court's computation of the
award included figures from respondent's Profit and Loss Statement, which the trial court had
allegedly rejected. It rendered the computation unreliable.[40]

This Court issued a Resolution[41] dated February 16, 2011, requiring petitioner to submit a
certified true copy of the Regional Trial Court February 27, 2008 Decision.

On March 31, 2011, petitioner filed its Compliance,[42] submitting a certified true copy of the
Regional Trial Court Decision.

The issues for this Court's resolution are:

First, whether the failure to state the names of the parties in this Petition for Review, in accordance
with Rule 45, Section 4 of the Rules of Court, is a fatal defect;

Second, whether the Court of Appeals, considering the existing contracts in this case, erred in
applying Article 2176 of the Civil Code;

Third, whether Orient Freight, Inc. was negligent for failing to disclose the facts surrounding the
hijacking incident on April 17, 2002, which led to the termination of the Trucking Service
Agreement between Keihin-Everett Forwarding Co., Inc. and Matsushita Communication Industrial
Corporation of the Philippines; and

Finally, whether the trial court erred in the computation of the awarded actual and pecuniary loss
by basing it on, among others, the Profit and Loss Statement submitted by Keihin-Everett
Forwarding Co., Inc.

The petition is denied.

I
The petition does not violate Rule 45, Section 4 of the Rules of Court[43] for failing to state the
names of the parties in the body. The names of the parties are readily discernable from the caption
of the petition, clearly showing the appealing party as the petitioner and the adverse party as the
respondent. The Court of Appeals had also been erroneously impleaded in the petition. However,
this Court in Aguilar v. Court of Appeals, et al.[44] ruled that inappropriately impleading the lower
court as respondent does not automatically mean the dismissal of the appeal. This is a mere formal
defect.[45]

II

Negligence may either result in culpa aquiliana or culpa contractual.[46] Culpa aquiliana is the "the
wrongful or negligent act or omission which creates a vinculum juris and gives rise to an obligation
between two persons not formally bound by any other obligation,"[47] and is governed by Article
2176 of the Civil Code:

Article 2176. Whoever by act or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre-
existing contractual relation between the parties, is called a quasi-delict and is governed by the
provisions of this Chapter.

Negligence in culpa contractual, on the other hand, is "the fault or negligence incident in the
performance of an obligation which already-existed, and which increases the liability from such
already existing obligation."[48] This is governed by Articles 1170 to 1174 of the Civil Code:[49]

Article 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.

Article 1171. Responsibility arising from fraud is demandable in all obligations. Any waiver of an
action for future fraud is void.

Article 1172. Responsibility arising from negligence in the performance of every kind of obligation
is also demandable, but such liability may be regulated by the courts, according to the
circumstances.

Article 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 the 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.

Article 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.

Actions based on contractual negligence and actions based on quasi-delicts differ in terms of
conditions, defenses, and proof. They generally cannot co-exist.[50] Once a breach of contract is
proved, the defendant is presumed negligent and must prove not being at fault. In a quasi-delict,
however, the complaining party has the burden of proving the other party's negligence.[51] In
Huang v. Phil. Hoteliers, Inc.:[52]

[T]his Court finds it significant to take note of the following differences between quasi-delict (culpa
aquilina) and breach of contract (culpa contractual). In quasi-delict, negligence is direct,
substantive and independent, while in breach of contract, negligence is merely incidental to the
performance of the contractual obligation; there is a pre-existing contract or obligation, In quasi-
delict, the defense of "good father of a family" is a complete and proper defense insofar as parents,
guardians and employers are concerned, while in breach of contract, such is not a complete and
proper defense in the selection and supervision of employees. In quasi-delict, there is no
presumption of negligence and it is incumbent upon the injured party to prove the negligence of
the defendant, otherwise, the former's complaint will be dismissed, while in breach of contract,
negligence is presumed so long as it can be proved that there was breach of the contract and the
burden is on the defendant to prove that there was no negligence in the carrying out of the terms
of the contract; the rule of respondeat superior is followed.[53] (Emphasis in the original, citations
omitted)

In Government Service Insurance System v. Spouses Labung-Deang,[54] since the petitioner's

obligation arose from a contract, this Court applied the Civil Code provisions on contracts, instead
of those of Article 2176:

The trial court and the Court of Appeals treated the obligation of GSIS as one springing from quasi-
delict. We do not agree. Article 2176 of the Civil Code defines quasi-delict as follows:

"Whoever by act or omission causes damages to another, there being fault or negligence, is
obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual
relation between the parties, is called a quasi-delict and is governed by the provisions of this
Chapter (italics ours)."

Under the facts, there was a pre-existing contract between the parties. GSIS and the spouses
Deang had a loan agreement secured by a real estate mortgage. The duty to return the owner's
duplicate copy of title arose as soon as the mortgage was released. GSIS insists that it was under
no obligation to return the owner's duplicate copy of the title immediately. This insistence is not
warranted. Negligence is obvious as the owners' duplicate copy could not be returned to the
owners. Thus, the more applicable provisions of the Civil Code are:

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

Since good faith is presumed and bad faith is a matter of fact which should be proved, we shall
treat GSIS as a party who defaulted in its obligation to return the owners' duplicate copy of the
title. As an obligor in good faith, GSIS is liable for all the "natural and probable consequences of
the breach of the obligation." The inability of the spouses Deang to secure another loan and the
damages they suffered thereby has its roots in the failure of the GSIS to return the owners'
duplicate copy of the title.[55] (Citations omitted)

Similarly, in Syquia v. Court of Appeals,[56] this Court ruled that private respondent would have
been held liable for a breach of its contract with the petitioners, and not for quasi-delict, had it
been found negligent:

With respect to herein petitioners' averment that private respondent has committed culpa
aquiliana, the Court of Appeals found no negligent act on the part of private respondent to justify
an award of damages against it. Although a pre-existing contractual relation between the parties
does not preclude the existence of a culpa aquiliana, We find no reason to disregard the
respondent's Court finding that there was no negligence.

....

In this case, it has been established that the Syquias and the Manila Memorial Park Cemetery, Inc.,
entered into a contract entitled "Deed of Sale and Certificate of Perpetual Care" on August 27,
1969. That agreement governed the relations of the parties and defined their respective rights
and obligations. Hence, had there been actual negligence on the part of the Manila Memorial Park
Cemetery, Inc., it would be held liable not for a quasi-delict or culpa aquiliana, but for culpa
contractual as provided by Article 1170 of the Civil Code[.][57]

However, there are instances when Article 2176 may apply even when there is a pre-existing
contractual relation. A party may still commit a tort or quasi-delict against another, despite the
existence of a contract between them.[58]

In Cangco v. Manila Railroad,[59] this Court explained why a party may be held liable for either a
breach of contract or an extra-contractual obligation for a negligent act:

It is evident, therefore, that in its decision in the Yamada case, the court treated plaintiff's action
as though founded in tort rather than as based upon the breach of the contract of carriage, and
an examination of the pleadings and of the briefs shows that the questions of law were in fact
discussed upon this theory. Viewed from the standpoint of the defendant the practical result must
have been the same in any event. The proof disclosed beyond doubt that the defendant's servant
was grossly negligent and that his negligence was the proximate cause of plaintiff's injury. It also
affirmatively appeared that defendant had been guilty of negligence in its failure to exercise
proper discretion in the direction of the servant. Defendant was, therefore, liable for the injury
suffered by plaintiff, whether the breach of the duty were to be regarded as constituting culpa
aquilina or culpa contractual. As Manresa points out . . . whether negligence occurs as an incident
in the course of the performance of a contractual undertaking or is itself (he source of an extra-
contractual obligation, its essential characteristics are identical. There is always an act or omission
productive of damage due to carelessness or inattention on the part of the defendant.
Consequently, when the court holds that a defendant is liable in damages for having failed to
exercise due care, either directly, or in failing to exercise proper care in the selection and direction
of his servants, the practical result is identical in either case . . ,

The true explanation of such cases is to be found by directing the attention to the relative spheres
of contractual and extra-contractual obligations. The field of non-contractual obligation is much
more broader [sic] than that of contractual obligation, comprising, as it does, the whole extent of
juridical human relations. These two fields, figuratively speaking, concentric; that is to say, the
mere fact that a person is bound to another by contract does not relieve him from extra-contractual
liability to such person. When such a contractual relation exists the obligor may break the contract
under such conditions that the same act which constitutes a breach of the contract would have
constituted the source of an extra-contractual obligation had no contract existed between the
parties.[60] (Emphasis supplied, citation omitted)

If a contracting party's act that breaches the contract would have given rise to an extra-contractual
liability had there been no contract, the contract would be deemed breached by a tort,[61] and the
party may be held liable under Article 2176 and its related provisions.[62]

In Singson v. Bank of the Philippine Islands,[63] this Court upheld the petitioners' claim for damages
based on a quasi-delict, despite the parties' relationship being contractual in nature:

After appropriate proceedings, the Court of First Instance of Manila rendered judgment dismissing
the complaint upon the ground that plaintiffs cannot recover from the defendants upon the basis
of a quasi-delict, because the relation between the parties is contractual in nature; because this
case does not fall under Article 2219 of our Civil Code, upon which plaintiffs rely; and because
plaintiffs have not established the amount of damages allegedly sustained by them.

The lower court held that plaintiffs' claim for damages cannot be based upon a tort or quasi-delict,
their relation with the defendants being contractual in nature. We have repeatedly held, however,
that the existence of a contract between the parties does not bar the commission of a tort by the
one against the order and the consequent recovery of damages therefor. Indeed, this view has
been in effect, reiterated in a comparatively recent case. Thus, in Air France vs. Carrascoso,
involving an airplane passenger who, despite his first-class ticket, had been illegally ousted from
his first-class accommodation, and compelled to take a seat in the tourist compartment, was held
entitled to recover damages from the air-carrier, upon the ground of tort on the latter's part, for,
although the relation between a passenger and the carrier is "contractual both in origin and nature
. . . the act that breaks the contract may also be a tort".[64] (Citations omitted)
However, if the act complained of would not give rise to a cause of action for a quasi-delict
independent of the contract, then the provisions on quasi-delict or tort would be inapplicable.[65]

In Philippine School of Business Administration v. Court of Appeals,[66] petitioner's obligation to

maintain peace and order on campus was based on a contract with its students. Without this
contract, the obligation does not exist. Therefore, the private respondents' cause of action must
be founded on the breach of contract and cannot be based on Article 2176:

Because the circumstances of the present case evince a contractual relation between the PSBA
and Carlitos Bautista, the rules on quasi-delict do not really govern. A perusal of Article 2176 shows
that obligations arising from quasi-delicts or tort, also known as extra-contractual obligations, arise
only between parties not otherwise bound by contract, whether express or implied. However, this
impression has not prevented this Court from determining the existence of a tort even when there
obtains a contract. In Air France vs. Carroscoso (124 Phil. 722), the private respondent was
awarded damages for his unwarranted expulsion from a first-class seat aboard the petitioner
airline. It is noted, however, that the Court referred to the petitioner-airline's liability as one arising
from tort, not one arising from a contract of carriage. In effect, Air France is authority for the view
that liability from tort may exist even if there is a contract, for the act that breaks the contract may
be also a tort. (Austro-America S.S. Co. vs. Thomas, 248 Fed. 231).

This view was not all that revolutionary, for even as early as 1918, this Court was already of a
similar mind. In Cangco vs. Manila Railroad (38 Phil. 780), Mr. Justice Fisher elucidated thus:

"The field of non-contractual obligation is much more broader [sic] than that of contractual
obligation, comprising, as it does, the whole extent of juridical human relations. These two fields,
figuratively speaking, concentric; that is to say, the mere fact that a person is bound to another by
contract does not relieve him from extra-contractual liability to such person. When such a
contractual relation exists the obligor may break the contract under such conditions that the same
act which constitutes a breach of the contract would have constituted the source of an extra-
contractual obligation had no contract existed between the parties."

Immediately what comes to mind is the chapter of the Civil Code on Human Relations, particularly
Article 21, which provides:

"Any person who wilfully causes loss or injury to another in a manner that is contrary to morals,
good customs or public policy shall compensate the latter for the damage." (Italics supplied)

Air France penalized the racist policy of the airline which emboldened the petitioner's employee
to forcibly oust the private respondent to cater to the comfort of a white man who allegedly "had
a better right to the seat." In Austro-American, supra, the public embarrassment caused to the
passenger was the justification for the Circuit Court of Appeals, (Second Circuit), to award damages
to the latter. From the foregoing, it can be concluded that should the act which breaches a contract
be done in bad faith and be violative of Article 21, then there is a cause to view the act as
constituting a quasi-delict.
In the circumstances obtaining in the case at bar, however, there is, as yet, no finding that the
contract between the school and Bautista had been breached thru the former's negligence in
providing proper security measures. This would be for the trial court to determine. And, even if
there be a finding of negligence, the same could give rise generally to a breach of contractual
obligation only. Using the test of Cangco, supra, the negligence of the school would not be relevant
absent a contract. In fact, that negligence becomes material only because of the contractual
relation between PSBA and Bautista. In other words, a contractual relation is a condition sine qua
non to the school's liability. The negligence of the school cannot exist independently on the
contract, unless the negligence occurs under the circumstances set out in Article 21 of the Civil
Code.[67] (Citations omitted)

In situations where the contractual relation is indispensable to hold a party liable, there must be
a finding that the act or omission complained of was done in bad faith and in violation of Article
21 of the Civil Code to give rise to an action based on tort.[68]

In Far East Bank and Trust Company v. Court of Appeals,[69] as the party's claim for damages was
based on a contractual relationship, the provisions on quasi-delict generally did not apply. In this
case, this Court did not award moral damages to the private respondent because the applicable
Civil Code provision was Article 2220,[70] not Article 21, and neither fraud nor bad faith was proved:

We are not unaware of the previous rulings of this Court, such as in American Express
International, Inc. vs. Intermediate Appellate Court (167 SCRA 209) and Bank of [the] Philippine
Islands vs. Intermediate Appellate Court (206 SCRA 408), sanctioning the application of Article 21,
in relation to Article 2217 and Article 2219 of the Civil Code to a contractual breach similar to the
case at bench. Article 21 states:

"Art. 21. Any person who willfully causes loss or injury to another in a manner that is contrary to
morals, good customs or public policy shall compensate the latter for the damage."

Article 21 of the Code, it should be observed, contemplates a conscious act to cause harm. Thus,
even if we are to assume that the provision could properly relate to a breach of contract, its
application can be warranted only when the defendant's disregard of his contractual obligation is
so deliberate as to approximate a degree of misconduct certainly no less worse [sic] than fraud or
bad faith. Most importantly, Article 21 is a mere declaration of a general principle in human
relations that clearly must, in any case, give way to the specific provision of Article 2220 of the
Civil Code authorizing the grant of moral damages in culpa contractual solely when the breach is
due to fraud or bad faith.

....

The Court has not in the process overlooked another rule that a quasi-delict can be the cause for
breaching a contract that might thereby permit the application of applicable principles on tort
even where there is a pre-existing contract between the plaintiff and the defendant (Phil. Airlines
vs. Court of Appeals, 106 SCRA 143; Singson vs. Bank of the Phil. Islands, 23 SCRA 1117; and Air
France vs. Carrascoso, 18 SCRA 155). This doctrine, unfortunately, cannot improve private
respondents' case for it can aptly govern only where the act or omission complained of would
constitute an actionable tort independently of the contract. The test (whether a quasi-delict can
be deemed to underlie the breach of a contract) can be stated thusly: Where, without a pre-
existing contract between two parties, an act or omission can nonetheless amount to an
actionable tort by itself, the fact that the parties are contractually bound is no bar to the
application of quasi-delict provisions to the case. Here, private respondents' damage claim is
predicated solely on their contractual relationship; without such agreement, the act or omission
complained of cannot by itself be held to stand as a separate cause of action or as an independent
actionable tort.[71] (Citations omitted)

Here, petitioner denies that it was obliged to disclose the facts regarding the hijacking incident
since this was not among the provisions of its Trucking Service Agreement with respondent. There
being no contractual obligation, respondent had no cause of action against petitioner:

Applying said test, assuming for the sake of argument that petitioner indeed failed to inform
respondent of the incident where the truck was later found at the Caloocan Police station, would
an independent action prosper based on such omission? Assuming that there is no contractual
relation between the parties herein, would petitioner's omission of not informing respondent that
the truck was impounded gives [sic] rise to a quasi-delict? Obviously not, because the obligation,
if there is any in the contract, that is to inform plaintiff of said incident, could have been spelled
out in the very contract itself duly executed by the parties herein specifically in the Trucking Service
Agreement. It is a fact that no such obligation or provision existed in the contract. Absent said
terms and obligations, applying the principles on tort as a cause for breaching a contract would
therefore miserably fail as the lower Court erroneously did in this case.[72]

The obligation to report what happened during the hijacking incident, admittedly, does not appear
on the plain text of the Trucking Service Agreement. Petitioner argues that it is nowhere in the
agreement. Respondent does not dispute this claim. Neither the Regional Trial Court nor the Court
of Appeals relied on the provisions of the Trucking Service Agreement to arrive at their respective
conclusions. Breach of the Trucking Service Agreement was neither alleged nor proved.

While petitioner and respondent were contractually bound under the Trucking Service Agreement
and the events at the crux of this controversy occurred during the performance of this contract, it
is apparent that the duty to investigate and report arose subsequent to the Trucking Service
Agreement. When respondent discovered the news report on the hijacking incident, it contacted
petitioner, requesting information on the incident.[73] Respondent then requested petitioner to
investigate and report on the veracity of the news report. Pursuant to respondent's request,
petitioner met with respondent and Matsushita on April 20, 2002 and issued a letter dated April
22, 2002, addressed to Matsushita.[74] Respondent's claim was based on petitioner's negligent
conduct when it was required to investigate and report on the incident:

The defendant claimed that it should not be held liable for damages suffered by the plaintiff
considering that the proximate cause of the damage done to plaintiff is the negligence by
employees of Schmitz trucking. This argument is untenable because the defendant is being sued
in this case not for the negligence of the employees of Schmitz trucking but based on defendant's
own negligence in failing to disclose the true facts of the hijacking incident to plaintiff Keihin and
Matsushita.[75]

Both the Regional Trial Court and Court of Appeals erred in finding petitioner's negligence of its
obligation to report to be an action based on a quasi-delict Petitioner's negligence did not create
the vinculum juris or legal relationship with the respondent, which would have otherwise given
rise to a quasi-delict. Petitioner's duty to respondent existed prior to its negligent act. When
respondent contacted petitioner regarding the news report and asked it to investigate the
incident, petitioner's obligation was created. Thereafter, petitioner was alleged to have performed
its obligation negligently, causing damage to respondent.

The doctrine "the act that breaks the contract may also be a tort," on which the lower courts relied,
is inapplicable here. Petitioner's negligence, arising as it does from its performance of its obligation
to respondent, is dependent on this obligation. Neither do the facts show that Article 21 of the
Civil Code applies, there being no finding that petitioner's act was a conscious one to cause harm,
or be of such a degree as to approximate fraud or bad faith:

To be sure, there was inaction on the part of the defendant which caused damage to the plaintiff,
but there is nothing to show that the defendant intended to conceal the truth or to avoid liability.
When the facts became apparent to defendant, the latter readily apologized to Keihin and
Matsushita for their mistake.[76]

Consequently, Articles 1170, 1172, and 1173 of the Civil Code on negligence in the performance
of an obligation should apply.

III

Under Article 1170 of the Civil Code, liability for damages arises when those in the performance
of their obligations are guilty of negligence, among others. Negligence here has been defined as
"the failure to observe that degree of care, precaution and vigilance that the circumstances just
demand, whereby that other person suffers injury."[77] If the law or contract does not provide for
the degree of diligence to be exercised, then the required diligence is that of a good father of a
family.[78] The test to determine a party's negligence is if the party used "the reasonable care and
caution which an ordinarily prudent person would have used in the same situation"[79] when it
performed the negligent act. If the party did not exercise reasonable care and caution, then it is
guilty of negligence.

In this case, both the Regional Trial Court and the Court of Appeals found that petitioner was
negligent in failing to adequately report the April 17, 2002 hijacking incident to respondent and
not conducting a thorough investigation despite being directed to do so. The trial court's factual
findings, when affirmed by the Court of Appeals, are binding on this Court and are generally
conclusive.[80]
The Regional Trial Court found that petitioner's conduct showed its negligent handling of the
investigation and its failure to timely disclose the facts of the incident to respondent and
Matsushita:

[Orient Freight] was clearly negligent in failing to investigate properly the incident and make a
factual report to Keihin and Matsushita. [Orient Freight] claimed that it was pressed for time
considering that they were given only about one hour and a half to investigate the incident before
making the initial report. They claimed that their employees had no reason to suspect that the
robbery occurred considering that the seal of the van remained intact. Moreover, the priority they
had at that time was to load the cargo to the carrying vessel on time for shipment on April 19,
200[2]. They claimed that they made arrangement with the Caloocan Police Station for the release
of the truck and the cargo and they were able to do that and the objective was achieved. This may
be true but the Court thinks that [Orient Freight] had enough time to investigate properly the
incident. The hijacking incident happened on April 17, 200[2] and the tabloid Tempo published the
hijacking incident only on April 19, 200[2]. This means that [Orient Freight] had about two (2) days
to conduct a diligent inquiry about the incident. It took them until May 15, 200[2] to discover that
a robbery indeed occurred resulting in the loss of ten pallets or 218 cartons valued at US
$34,226.14. They even denied that there was no police report only to find out that on May 15,
200[2] that there was such a report. It was [Orient Freight] 's duty to inquire from the Caloocan
Police Station and to find out if they issued a police report, Yet, it was plaintiff Keihin which
furnished them a copy of the police report. The failure of [Orient Freight] to investigate properly
the incident and make a timely report constitutes negligence. Evidently, [Orient Freight] failed to
exercise due diligence in disclosing the true facts of the incident to plaintiff Keihin and Matsushita.
As a result, plaintiff Keihin suffered income losses by reason of Matsushita's cancellation of their
contract which primarily was caused by the negligence of [Orient Freight].[81]

The Court of Appeals affirmed the trial court's finding of negligence:

From the foregoing account, it is evident that [Orient Freight] not only had knowledge of the foiled
hijacking of the truck carrying the subject shipment but, more importantly, withheld said
information from [Keihin-Everett], Confronted with the April 19, 2002 tabloid account thereof,
[Orient Freight] appears to have further compounded its omission by misleading [Keihin-Everett]
and Matsu[s]hita into believing that the subject incident was irresponsibly reported and merely
involved a stalled vehicle which was towed to avoid obstruction of traffic. Given that the police
report subsequently obtained by [Keihin-Everett] was also dated April 17, 2002, [Orient Freight's
insistence on its good faith on the strength of the information it gathered from its employees as
well as the timely shipment and supposed good condition of the cargo clearly deserve scant
consideration.[82]

Petitioner's argument that its acts were a "sound business judgment which the court cannot
supplant or question nor can it declare as a negligent act"[83] lacks merit. The Regional Trial Court
found that the circumstances should have alerted petitioner to investigate the incident in a more
circumspect and careful manner:
On this score, [Orient Freight] itself presented the circumstances which should have alerted
[Orient Freight] that there was more to the incident than simply a case of mechanical breakdown
or towing of the container truck to the police station. [Orient Freight] pointed to specific facts that
would naturally arouse suspicion that something was wrong when the container was found in the
premises of the Caloocan Police Station and that driver Ricky Cudas was nowhere to be found. The
police does [sic] not ordinarily impound a motor vehicle if the problem is merely a traffic violation.
More important, driver Ricky Cudas disappeared and was reported missing. When the Caloocan
Police chanced upon the container van, it was found straying at C-3 which is outside its usual route.
All these circumstances should have been enough for [Orient Freight] to inquire deeper on the
real circumstances of the incident.

....

[Orient Freight] talked to Rubelito Aquino and apparently failed to listen closely to the statement
given by their truck helper to the Caloocan Police. The truck helper recounted how the engine of
the truck stalled and the driver was able to start the engine but thereafter, he was nowhere to be
seen. By this circumstance alone, it should have become apparent to [Orient Freight] that the truck
driver gypped the truck helper into calling the company and had a different intention which was
to run away with the container van. It readily shows that Ricky Cudas intended to hijack the vehicle
by feigning or giving the false appearance of an engine breakdown. Yet, [Orient Freight] dismissed
the incident as a simple case of a unit breakdown and towing of vehicle allegedly due to traffic
violation. Under the circumstances, therefore, the defendant failed to exercise the degree of care,
precaution and vigilance which the situation demands.[84]

Despite the circumstances which would have cautioned petitioner to act with care while
investigating and reporting the hijacking incident, petitioner failed to do so. Petitioner is
responsible for the damages that respondent incurred due to the former's negligent performance
of its obligation.

IV

Articles 2200 and 2201 of the Civil Code provide for the liability for damages in contractual
obligations:

Article 2200. Indemnification for damages shall comprehend not only the value of the loss
suffered, but also that of the profits which the obligee failed to obtain.

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

In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all
damages which may be reasonably attributed to the non-performance of the obligation.
In Central Bank of the Philippines v. Court of Appeals,[85] this Court explained the principles
underlying Articles 2200 and 2201:

Construing these provisions, the following is what this Court held in Cerrano vs. Tan Chuco, 38 Phil.
392:

"... Article 1106 (now 2200) of the Civil Code establishes the rule that prospective profits may be
recovered as damages, while article 1107 (now 2201) of the same Code provides that the damages
recoverable for the breach of obligations not originating in fraud (dolo) are those which were or
might have been foreseen at the time the contract was entered into. Applying these principles to
the facts in this case, we think that it is unquestionable that defendant must be deemed to have
foreseen at the time he made the contract that in the event of his failure to perform it, the plaintiff
would be damaged by the loss of the profit he might reasonably have expected to derive from its
use.

"When the existence of a loss is established, absolute certainty as to its amount is not required.
The benefit to be derived from a contract which one of the parties has absolutely failed to perform
is of necessity to some extent, a matter of speculation, but the injured party is not to be denied
all remedy for that reason alone. He must produce the best evidence of which his case is
susceptible and if that evidence warrants the inference that he has been damaged by the loss of
profits which he might with reasonable certainty have anticipated but for the defendant's
wrongful act, he is entitled to recover. As stated in Sedgwick on Damages (Ninth Ed., par. 177):

'The general rule is, then, that a plaintiff may recover compensation for any gain which he can
make it appear with reasonable certainty the defendant's wrongful act prevented him from
acquiring, . . .' (See also Algarra vs. Sandejas, 27 Phil. Rep., 284, 289; Hicks vs. Manila Hotel Co., 28
Phil, Rep., 325.)" (At pp. 398-399.)[86]

The lower courts established that petitioner's negligence resulted in Matsushita's cancellation of
its contract with respondent. The Regional Trial Court found:

In the letter dated June 6, 2002, Matsushita pre-terminated its In-House Brokerage Service
Agreement with plaintiff Keihin for violation of the terms of said contract. Its President, KenGo
Toda, stated that because of the incident that happened on April 17, 2002 involving properties
which the plaintiff failed to inform them, Matsushita has lost confidence in plaintiff's capability to
handle its brokerage and forwarding requirements. There was clearly a breach of trust as
manifested by plaintiff's failure to disclose facts when it had the duty to reveal them and it
constitutes fraud. Moreover, the negligence of plaintiff personnel cannot be tolerated as
Matsushita is bound to protect the integrity of the company.[87]

It could be reasonably foreseen that the failure to disclose the true facts of an incident, especially
when it turned out that a crime might have been committed, would lead to a loss of trust and
confidence in the party which was bound to disclose these facts. Petitioner caused the loss of trust
and confidence when it misled respondent and Matsushita into believing that the incident had
been irresponsibly reported and merely involved a stalled truck.[88] Thus, petitioner is liable to
respondent for the loss of profit sustained due to Matsushita's termination of the In-House
Brokerage Service Agreement.

As regards the amount of damages, this Court cannot rule on whether the Regional Trial Court
erred in using the Profit and Loss Statement submitted by respondent for its computation. The
amount of the award of damages is a factual matter generally not reviewable in a Rule 45
petition,[89] The damages awarded by the Regional Trial Court, as affirmed by the Court of Appeals,
were supported by documentary evidence such as respondent's audited financial statement. The
trial court clearly explained how it reduced the respondent's claimed loss of profit and arrived at
the damages to be awarded:

The difference between the total gross revenue of plaintiff for 2002 as reported in the monthly
profit and loss statement of [P]14,801,744.00 and the audited profit and loss statement of the
amount of [P]10,434,144.00 represents 1/3 of the total gross revenues of the plaintiff for the six
months period. Accordingly, the net profit loss of [P]2.5 million pesos as reported in the monthly
profit and loss statement of the plaintiff should be reduced by 1/3 or the amount of [P]833,333.33.
Therefore, the net profit loss of the plaintiff for the remaining period of six months should only be
the amount of [P] 1,666,667.70 and not [P]2.5 million as claimed.[90]

Petitioner has not sufficiently shown why the computation made by the trial court should be
disturbed.

WHEREFORE, the petition is DENIED. The January 21, 2010 Decision and April 21, 2010 Resolution
of the Court of Appeals in CA-G.R. CV No. 91889 are AFFIRMED.

SO ORDERED.
THIRD DIVISION

[ G.R. No. 199455, June 27, 2018 ]

FEDERAL EXPRESS CORPORATION, PETITIONER, V. LUWALHATI R. ANTONINO AND ELIZA BETTINA

RICASA ANTONINO, RESPONDENTS.

DECISION

LEONEN, J.:

The duty of common carriers to observe extraordinary diligence in shipping goods does not
terminate until delivery to the consignee or to the specific person authorized to receive the
shipped goods. Failure to deliver to the person authorized to receive the goods is tantamount to
loss of the goods, thereby engendering the common carrier's liability for loss. Ambiguities in
contracts of carriage, which are contracts of adhesion, must be interpreted against the common
carrier that prepared these contracts.

This resolves a Petition for Review on Certiorari[1] under Rule 45 of the 1997 Rules of Civil
Procedure praying that the assailed Court of Appeals August 31, 2011 Decision[2] and November
21, 2011 Resolution[3] in CA-G.R. CV No. 91216 be reversed and set aside and that Luwalhati R.
Antonino (Luwalhati) and Eliza Bettina Ricasa Antonino (Eliza) be held liable on Federal Express
Corporation's (FedEx) counterclaim.

The assailed Court of Appeals August 31, 2011 Decision denied the appeal filed by FedEx and
affirmed the May 8, 2008 Decision[4] of Branch 217, Regional Trial Court, Quezon City, awarding
moral and exemplary damages, and attorney's fees to Luwalhati and Eliza.[5] In its assailed
November 21, 2011 Resolution, the Court of Appeals denied FedEx's Motion for
Reconsideration.[6]

Eliza was the owner of Unit 22-A (the Unit) in Allegro Condominium, located at 62 West 62nd St.,
New York, United States.[7] In November 2003, monthly common charges on the Unit became due.
These charges were for the period of July 2003 to November 2003, and were for a total amount
of US$9,742.81.[8]

On December 15, 2003, Luwalhati and Eliza were in the Philippines. As the monthly common
charges on the Unit had become due, they decided to send several Citibank checks to Veronica Z.
Sison (Sison), who was based in New York. Citibank checks allegedly amounting to US$17,726.18
for the payment of monthly charges and US$11,619.35 for the payment of real estate taxes were
sent by Luwalhati through FedEx with Account No. x2546-4948-1 and Tracking No. 8442 4588
4268. The package was addressed to Sison who was tasked to deliver the checks payable to
Maxwell-Kates, Inc. and to the New York County Department of Finance. Sison allegedly did not
receive the package, resulting in the non-payment of Luwalhati and Eliza's obligations and the
foreclosure of the Unit.[9]

Upon learning that the checks were sent on December 15, 2003, Sison contacted FedEx on
February 9, 2004 to inquire about the non-delivery. She was informed that the package was
delivered to her neighbor but there was no signed receipt.[10]

On March 14, 2004, Luwalhati and Eliza, through their counsel, sent a demand letter to FedEx for
payment of damages due to the non-delivery of the package, but FedEx refused to heed their
demand.[11] Hence, on April 5, 2004, they filed their Complaint[12] for damages.

FedEx claimed that Luwalhati and Eliza "ha[d] no cause of action against it because [they] failed to
comply with a condition precedent, that of filing a written notice of claim within the 45 calendar
days from the acceptance of the shipment."[13] It added that it was absolved of liability as Luwalhati
and Eliza shipped prohibited items and misdeclared these items as "documents."[14] It pointed to
conditions under its Air Waybill prohibiting the "transportation of money (including but not limited
to coins or negotiable instruments equivalent to cash such as endorsed stocks and bonds)."[15]

In its May 8, 2008 Decision,[16] the Regional Trial Court ruled for Luwalhati and Eliza, awarding
them moral and exemplary damages, and attorney's fees.[17]

The Regional Trial Court found that Luwalhati failed to accurately declare the contents of the
package as "checks."[18] However, it ruled that a check is not legal tender or a "negotiable
instrument equivalent to cash," as prohibited by the Air Waybill.[19] It explained that common
carriers are presumed to be at fault whenever goods are lost.[20] Luwalhati testified on the non-
delivery of the package. FedEx, on the other hand, claimed that the shipment was released without
the signature of the actual recipient, as authorized by the shipper or recipient. However, it failed
to show that this authorization was made; thus, it was still liable for the loss of the package.[21]

On non-compliance with a condition precedent, it ruled that under the Air Waybill, the prescriptive
period for filing an action was "within two (2) years from the date of delivery of the shipment or
from the date on which the shipment should have been delivered."[22] Luwalhati and Eliza's
demand letter made on March 11, 2004 was within the two (2)-year period sanctioned by the Air
Waybill.[23] The trial court also noted that they were given a "run-around" by FedEx employees,
and thus, were deemed to have complied with the filing of the formal claim.[24]

The dispositive portion of the Regional Trial Court May 8, 2008 Decision read:

WHEREFORE, judgment is hereby rendered in favor of plaintiffs Luwalhati R. Antonino and Eliza
Bettina Ricasa Antonino ordering the following:

1) The amount of P200,000.00 by way of moral damages;

2) The amount of P100,000.00 by way of exemplary damages; and
[3]) The amount of P150,000.00 as and for attorney's fees. Costs against defendant.
The counterclaim is ordered dismissed.

SO ORDERED.[25]

In its assailed August 31, 2011 Decision,[26] the Court of Appeals affirmed the ruling of the Regional
Trial Court.[27] According to it, by accepting the package despite its supposed defect, FedEx was
deemed to have acquiesced to the transaction. Thus, it must deliver the package in good condition
and could not subsequently deny liability for loss.[28] The Court of Appeals sustained the Regional
Trial Court's conclusion that checks are not legal tender, and thus, not covered by the Air Waybill's
prohibition.[29] It further noted that an Air Waybill is a contract of adhesion and should be
construed against the party that drafted it.[30]

The dispositive portion of the Court of Appeals August 31, 2011 Decision read:

WHEREFORE, premises considered, the present appeal is hereby DENIED. The assailed May 08,
2008 Decision of the Regional Trial Court, Branch 217, Quezon City in Civil case No. Q-04-52325 is
AFFIRMED. Costs against the herein appellant.

SO ORDERED.[31]

Following the Court of Appeals' denial[32] of its Motion for Reconsideration, FedEx filed the present
Petition.

For resolution of this Court is the sole issue of whether or not petitioner Federal Express
Corporation may be held liable for damages on account of its failure to deliver the checks shipped
by respondents Luwalhati R. Antonino and Eliza Bettina Ricasa Antonino to the consignee Veronica
Sison.

Petitioner disclaims liability because of respondents' failure to comply with a condition precedent,
that is, the filing of a written notice of a claim for non-delivery or misdelivery within 45 days from
acceptance of the shipment.[33] The Regional Trial Court found the condition precedent to have
been substantially complied with and attributed respondents' noncompliance to FedEx for giving
them a run-around.[34] This Court affirms this finding.

A provision in a contract of carriage requiring the filing of a formal claim within a specified period
is a valid stipulation. Jurisprudence maintains that compliance with this provision is a legitimate
condition precedent to an action for damages arising from loss of the shipment:

More particularly, where the contract of shipment contains a reasonable requirement of giving
notice of loss of or injury to the goods, the giving of such notice is a condition precedent to the
action for loss or injury or the right to enforce the carrier's liability. Such requirement is not an
empty formalism. The fundamental reason or purpose of such a stipulation is not to relieve the
carrier from just liability, but reasonably to inform it that the shipment has been damaged and
that it is charged with liability therefor, and to give it an opportunity to examine the nature and
extent of the injury. This protects the carrier by affording it an opportunity to make an
investigation of a claim while the matter is fresh and easily investigated so as to safeguard itself
from false and fraudulent claims.[35] (Citation omitted)

Petitioner's Air Waybill stipulates the following on filing of claims:

Claims for Loss, Damage, or Delay. All claims must be made in writing and within strict time limits.
See any applicable tariff, our service guide or our standard conditions for carriage for details.

The right to damages against us shall be extinguished unless an action is brought within two (2)
years from the date of delivery of the shipment or from the date on which the shipment should
have been delivered.

Within forty-five (45) days after notification of the claim, it must be documented by sending to us
[all the] relevant information about it.[36]

For their claim to prosper, respondents must, thus, surpass two (2) hurdles: first, the filing of their
formal claim within 45 days; and second, the subsequent filing of the action within two (2) years.

There is no dispute on respondents' compliance with the second period as their Complaint was
filed on April 5, 2004.[37]

In appraising respondents' compliance with the first condition, this Court is guided by settled
standards in jurisprudence.

In Philippine Airlines, Inc. v. Court of Appeals,[38] Philippine Airlines alleged that shipper Gilda Mejia
(Mejia) failed to file a formal claim within the period stated in the Air Waybill.[39] This Court ruled
that there was substantial compliance with the period because of the zealous efforts
demonstrated by Mejia in following up her claim.[40] These efforts coupled with Philippine Airlines'
"tossing around the claim and leaving it unresolved for an indefinite period of time" led this Court
to deem the requisite period satisfied.[41] This is pursuant to Article 1186 of the New Civil Code
which provides that "[t]he condition shall be deemed fulfilled when the obligor voluntarily
prevents its fulfillment":[42]

Considering the abovementioned incident and private respondent Mejia's own zealous efforts in
following up the claim, it was clearly not her fault that the letter of demand for damages could
only be filed, after months of exasperating follow-up of the claim, on August 13, 1990. If there was
any failure at all to file the formal claim within the prescriptive period contemplated in the air
waybill, this was largely because of PAL's own doing, the consequences of which cannot, in all
fairness, be attributed to private respondent.
Even if the claim for damages was conditioned on the timely filing of a formal claim, 'under Article
1186 of the Civil Code that condition was deemed fulfilled, considering that the collective action
of PAL's personnel in tossing around the claim and leaving it unresolved for an indefinite period of
time was tantamount to "voluntarily preventing its fulfillment." On grounds of equity, the filing of
the baggage freight claim, which sufficiently informed PAL of the damage sustained by private
respondent's cargo, constituted substantial compliance with the requirement in the contract for
the filing of a formal claim.[43] (Citations omitted)

Here, the Court of Appeals detailed the efforts made by respondent Luwalhati and consignee
Sison. It also noted petitioner's ambiguous and evasive responses, nonchalant handling of
respondents' concerns, and how these bogged down respondents' actions and impaired their
compliance with the required 45-day period:

Anent the issues concerning lack of cause of action and their so-called "run-around" matter, We
uphold the lower court's finding that the herein appellees complied with the requirement for the
immediate filing of a formal claim for damages as required in the Air Waybill or, at least, We find
that there was substantial compliance therewith. Luwalhati testified that the addressee, Veronica
Z. Sison promptly traced the whereabouts of the said package, but to no avail. Her testimony
narrated what happened thereafter, thus:

". . .
"COURT: All right. She was informed that it was lost. What steps did you take to find out or to
recover back this package?

"ATTY. ALENTAJAN:
"Q What did you do to Fedex?
". . .

WITNESS: First, I asked the secretary here to call Fedex Manila and they said, the record show that
it was sent to New York, Your Honor.

". . .
ATTY. ALENTAJAN:
"Q After calling Fedex, what did Fedex do?

"A None, sir. They washed their hands because according to them it is New York because
they have sent it. Their records show that New York received it, Sir.

"Q New York Fedex?

"A Yes, Sir.

"Q Now what else did you do after that?

"A And then I asked my friend Mrs. Veronica Sison to trace it, Sir.

". . .

"Q What did she report to you?

"A She reported to me that first, she checked with the Fedex and the first answer was they
were going to trace it. The second answer was that, it was delivered to the lady, her
neighbor and the neighbor completely denied it and as they show a signature that is
not my signature, so the next time she called again, another person answered. She
called to say that the neighbor did not receive and the person on the other line I think
she got his name, said that, it is because it is December and we usually do that just leave
it and then they cut the line and so I asked my friend to issue a sworn statement in the
form of affidavit and have it notarized in the Philippine Embassy or Consulate, Sir. That
is what she did.

"Q On your part here in the Philippines after doing that, after instructing Veronica Sison,
what else did you do because of this violation?

"A I think the next step was to issue a demand letter because any way I do not want to go
to Court, it is so hard, Sir."

The foregoing event show Luwalhati's own ardent campaign in following up the claim. To the
Court's mind, it is beyond her control why the demand letter for damages was only sent
subsequent to her infuriating follow-ups regarding the whereabouts of the said package. We can
surmise that if there was any omission at all to file the said claim within the prescriptive period
provided for under the Air Waybill it was mostly due to herein appellant's own behavior, the
outcome thereof cannot, by any chance, be imputed to the herein appellees.[44] (Grammatical
errors in the original)

Petitioner has been unable to persuasively refute Luwalhati's recollection of the efforts that she
and Sison exerted, and of the responses it gave them. It instead insists that the 45-day period
stated in its Air Waybill is sacrosanct. This Court is unable to bring itself to sustaining petitioner's
appeal to a convenient reprieve. It is one with the Regional Trial Court and the Court of Appeals in
stressing that respondents' inability to expediently file a formal claim can only be attributed to
petitioner hampering its fulfillment. Thus, respondents must be deemed to have substantially
complied with the requisite 45-day period for filing a formal claim.

II
The Civil Code mandates common carriers to observe extraordinary diligence in caring for the
goods they are transporting:

Article 1733. Common carriers, from the nature of their business and for reasons of public policy,
are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of
the passengers transported by them, according to all the circumstances of each case.

"Extraordinary diligence is that extreme measure of care and caution which persons of unusual
prudence and circumspection use for securing and preserving their own property or rights."[45]
Consistent with the mandate of extraordinary diligence, the Civil Code stipulates that in case of
loss or damage to goods, common carriers are presumed to be negligent or at fault,[46] except in
the following instances:

(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;

(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act or competent public authority.[47]

In all other cases, common carriers must prove that they exercised extraordinary diligence in the
performance of their duties, if they are to be absolved of liability.[48]

The responsibility of common carriers to exercise extraordinary diligence lasts from the time the
goods are unconditionally placed in their possession until they are delivered "to the consignee, or
to the person who has a right to receive them."[49] Thus, part of the extraordinary responsibility of
common carriers is the duty to ensure that shipments are received by none but "the person who
has a right to receive them."[50] Common carriers must ascertain the identity of the recipient.
Failing to deliver shipment to the designated recipient amounts to a failure to deliver. The
shipment shall then be considered lost, and liability for this loss ensues.

Petitioner is unable to prove that it exercised extraordinary diligence in ensuring delivery of the
package to its designated consignee. It claims to have made a delivery but it even admits that it
was not to the designated consignee. It asserts instead that it was authorized to release the
package without the signature of the designated recipient and that the neighbor of the consignee,
one identified only as "LGAA 385507," received it.[51] This fails to impress.

The assertion that receipt was made by "LGAA 385507" amounts to little, if any, value in proving
petitioner's successful discharge of its duty. "LGAA 385507" is nothing but an alphanumeric code
that outside of petitioner's personnel and internal systems signifies nothing. This code does not
represent a definite, readily identifiable person, contrary to how commonly accepted identifiers,
such as numbers attached to official, public, or professional identifications like social security
numbers and professional license numbers, function. Reliance on this code is tantamount to
reliance on nothing more than petitioner's bare, self-serving allegations. Certainly, this cannot
satisfy the requisite of extraordinary diligence consummated through delivery to none but "the
person who has a right to receive"[52] the package.

Given the circumstances in this case, the more reasonable conclusion is that the package was not
delivered. The package shipped by respondents should then be considered lost, thereby
engendering the liability of a common carrier for this loss.

Petitioner cannot but be liable for this loss. It failed to ensure that the package was delivered to
the named consignee. It admitted to delivering to a mere neighbor. Even as it claimed this, it failed
to identify that neighbor.

III

Petitioner further asserts that respondents violated the terms of the Air Waybill by shipping
checks. It adds that this violation exempts it from liability.[53]

This is untenable.

Petitioner's International Air Waybill states:

Items Not Acceptable for Transportation. We do not accept transportation of money (including but
not limited to coins or negotiable instruments equivalent to cash such as endorsed stocks and
bonds). We exclude all liability for shipments of such items accepted by mistake. Other items may
be accepted for carriage only to limited destinations or under restricted conditions. We reserve
the right to reject packages based upon these limitations or for reasons of safety or security. You
may consult our Service Guide, Standard Conditions of Carriage, or any applicable tariff for specific
details.[54] (Emphasis in the original)

The prohibition has a singular object: money. What follows the phrase "transportation of money"
is a phrase enclosed in parentheses, and commencing with the words "including but not limited
to." The additional phrase, enclosed as it is in parentheses, is not the object of the prohibition, but
merely a postscript to the word "money." Moreover, its introductory words "including but not
limited to" signify that the items that follow are illustrative examples; they are not qualifiers that
are integral to or inseverable from "money." Despite the utterance of the enclosed phrase, the
singular prohibition remains: money.

Money is "what is generally acceptable in exchange for goods."[55] It can take many forms, most
commonly as coins and banknotes. Despite its myriad forms, its key element is its general
acceptability.[56] Laws usually define what can be considered as a generally acceptable medium of
exchange.[57] In the Philippines, Republic Act No. 7653, otherwise known as The New Central Bank
Act, defines "legal tender" as follows:

All notes and coins issued by the Bangko Sentral shall be fully guaranteed by the Government of
the Republic of the Philippines and shall be legal tender in the Philippines for all debts, both public
and private: Provided, however, That, unless otherwise fixed by the Monetary Board, coins shall
be legal tender in amounts not exceeding Fifty pesos (P50.00) for denomination of Twenty-five
centavos and above, and in amounts not exceeding Twenty pesos (P20.00) for denominations of
Ten centavos or less.[58]

It is settled in jurisprudence that checks, being only negotiable instruments, are only substitutes
for money and are not legal tender; more so when the check has a named payee and is not payable
to bearer. In Philippine Airlines, Inc. v. Court of Appeals,[59] this Court ruled that the payment of a
check to the sheriff did not satisfy the judgment debt as checks are not considered legal tender.
This has been maintained in other cases decided by this Court. In Cebu International Finance
Corporation v. Court of Appeals,[60] this Court held that the debts paid in a money market
transaction through the use of a check is not a valid tender of payment as a check is not legal
tender in the Philippines. Further, in Bank of the Philippine Islands v. Court of Appeals,[61] this Court
held that "a check, whether a manager's check or ordinary check, is not legal tender."[62]

The Air Waybill's prohibition mentions "negotiable instruments" only in the course of making an
example. Thus, they are not prohibited items themselves. Moreover, the illustrative example does
not even pertain to negotiable instruments per se but to "negotiable instruments equivalent to
cash."[63]

The checks involved here are payable to specific payees, Maxwell-Kates, Inc. and the New York
County Department of Finance.[64] Thus, they are order instruments. They are not payable to their
bearer, i.e., bearer instruments. Order instruments differ from bearer instruments in their manner
of negotiation:

Under Section 30 of the [Negotiable Instruments Law], an order instrument requires an

indorsement from the payee or holder before it may be validly negotiated. A bearer instrument,
on the other hand, does not require an indorsement to be validly negotiated.[65]

There is no question that checks, whether payable to order or to bearer, so long as they comply
with the requirements under Section 1 of the Negotiable Instruments Law, are negotiable
instruments.[66] The more relevant consideration is whether checks with a specified payee are
negotiable instruments equivalent to cash, as contemplated in the example added to the Air
Waybill's prohibition.

This Court thinks not. An order instrument, which has to be endorsed by the payee before it may
be negotiated,[67] cannot be a negotiable instrument equivalent to cash. It is worth emphasizing
that the instruments given as further examples under the Air Waybill must be endorsed to be
considered equivalent to cash:[68]

Items Not Acceptable for Transportation. We do not accept transportation of money (including but
not limited to coins or negotiable instruments equivalent to cash such as endorsed stocks and
bonds). ... (Emphasis in the original)[69]
What this Court's protracted discussion reveals is that petitioner's Air Waybill lends itself to a great
deal of confusion. The clarity of its terms leaves much to be desired. This lack of clarity can only
militate against petitioner's cause.

The contract between petitioner and respondents is a contract of adhesion; it was prepared solely
by petitioner for respondents to conform to.[70] Although not automatically void, any ambiguity in
a contract of adhesion is construed strictly against the party that prepared it.[71] Accordingly, the
prohibition against transporting money must be restrictively construed against petitioner and
liberally for respondents. Viewed through this lens, with greater reason should respondents be
exculpated from liability for shipping documents or instruments, which are reasonably understood
as not being money, and for being unable to declare them as such.

Ultimately, in shipping checks, respondents were not violating petitioner's Air Waybill. From this,
it follows that they committed no breach of warranty that would absolve petitioner of liability.

WHEREFORE, the Petition for Review on Certiorari is DENIED. The assailed August 31, 2011
Decision and November 21, 2011 Resolution of the Court of Appeals in CA-G.R. CV No. 91216 are
AFFIRMED.

SO ORDERED.
SECOND DIVISION

[ G.R. No. 191458, July 03, 2017 ]

CHINATRUST (PHILS.) COMMERCIAL BANK, PETITIONER, V. PHILIP TURNER, RESPONDENT.

DECISION

LEONEN, J.:

Issues that were not alleged or proved before the lower court cannot be decided for the first time
on appeal. This rule ensures fairness in proceedings.

This Petition for Review assails the Court of Appeals' (a) December 14, 2009 Decision[1] affirming
the Regional Trial Court's Decision dated January 29, 2007 and (b) its March 2, 2010 Resolution[2]
denying petitioner Chinatrust (Philippines) Commercial Bank's (Chinatrust) Motion for
Reconsideration.[3] The Regional Trial Court set aside the Metropolitan Trial Court's dismissal[4] of
the complaint. It ordered Chinatrust to restore to the account of respondent Philip Turner (Turner)
the following amounts: 1) US$430 or P24,129.88, its peso equivalent as of September 13, 2004;
and 2) US$30 or P1,683.48, its peso equivalent as of September 13, 2004. It also ordered
Chinatrust to pay P20,000.00 as moral damages, P10,000.00 as exemplary damages, and
P5,000.00 as attorney's fees.

On September 13, 2004, British national Turner initiated via Chinatrust-Ayala Branch the
telegraphic transfer of US$430.00 to the account of "MIN TRAVEL/ESMAT AZMY, Account No.
70946017, Citibank, Heliopolis Branch" in Cairo, Egypt.[5] The amount was partial payment to
Turner's travel agent for his and his wife's 11-day tour in Egypt.[6] Turner paid a service fee of
US$30.00. Both amounts were debited from his dollar savings account with Chinatrust.[7]

On the same day, Chinatrust remitted the funds through the Union Bank of California, its paying
bank, to Citibank-New York, to credit them to the bank account of Min Travel/Esmat Azmy in
Citibank-Cairo, Egypt.[8] On September 17, 2004, Chinatrust received Citibank-Cairo's telex-notice
about the latter's inability to credit the funds it received because the "beneficiary name d[id] not
match their books (referred to as the 'discrepancy notice')."[9] In other words, the beneficiary's
name "Min Travel/Esmat Azmy" given by Turner did not match the account name on file of
Citibank-Cairo.[10] Chinatrust relayed this information to Turner on September 20, 2004, "the next
succeeding business day."[11]

Chinatrust claimed that it relayed the discrepancy to Turner and requested him to verify from his
beneficiary the correct bank account name.[12] On September 22, 2004, Turner allegedly informed
Chinatrust that he was able to contact Esmat Azmy, who acknowledged receipt of the transferred
funds. Turner, however, had to cancel his travel-tour because his wife got ill and requested from
Chinatrust the refund of his money.[13]
According to Chinatrust, it explained to Turner that since the funds were already remitted to his
beneficiary's account, they could no longer be withdrawn or retrieved without Citibank-Cairo's
consent. Turner was, thus, advised to seek the refund of his payment directly from his travel
agency.[14]

Turner allegedly insisted on withdrawing the funds from Chinatrust explaining that the travel
agency would forfeit fifty percent (50%) as penalty for the cancellation of the booking, as opposed
to the minimal bank fees he would shoulder if he withdrew the money through Chinatrust.[15]
Hence, Chinatrust required Turner to secure, at least, his travel agency's written certification
denying receipt of the funds so that it could act on his request. However, Turner purportedly failed
to submit the required certification despite repeated reminders.[16]

On October 28, 2004, Chinatrust received Citibank-Cairo's Swift telex reply, which confirmed
receipt of Chinatrust's telegraphic funds transfer and its credit to the bank account of Min Travel,
not "Min Travel/Esmat Azmy" as indicated by the respondent, as early as September 15, 2004.[17]
This information was relayed to Turner on October 29, 2004.[18]

Despite this official confirmation, Turner allegedly continued to insist on his demand for a
refund.[19]

On March 7, 2005, Turner filed a Complaint[20] against Chinatrust before the Metropolitan Trial
Court of Makati City, demanding the refund of his telegraphic transfer of P24,129.88 plus
damages.[21]

Upon further queries, Chinatrust received another telex on September 28, 2005 from Citibank-
Cairo confirming again and acknowledging receipt of Turner's remittance and its credit to the
account of Min Travel on September 15, 2004.[22]

After the parties had submitted their respective position papers in accordance with the Rules on
Summary Procedure, the Metropolitan Trial Court of Makati City, Branch 61 rendered a Decision[23]
on January 15, 2006, dismissing Turner's complaint for lack of merit as well as Chinatrust's
counterclaim. The Metropolitan Trial Court found sufficient evidence to prove that Chinatrust
complied with its contractual obligation to transmit the funds to Citibank-Cairo and that these
funds were actually credited to the intended beneficiary's account.[24]

Turner filed an appeal. On the substantive matters, Turner argued that the Metropolitan Trial
Court erred in ruling that he had no basis in claiming a refund from Chinatrust and in not awarding
him damages and attorney's fees.[25]

Branch 137, Regional Trial Court of Makati City rendered a Decision[26] on January 29, 2007,
reversing and setting aside the decision of the Metropolitan Trial Court. While it agreed with the
Metropolitan Trial Court's findings that the funds had been deposited to the account of the
beneficiary as early as September 15, 2004, the Regional Trial Court ruled that this was not
sufficient basis to absolve Chinatrust of any responsibility.[27] The trial court found insufficient
evidence to show that Chinatrust was not negligent in the performance of its obligation under the
telegraphic transfer agreement. It held that no "discrepancy notice" from Citibank-Cairo was even
presented in evidence.[28]

The Regional Trial Court further held that Chinatrust failed to render its services in a manner that
could have mitigated, if not prevented, the monetary loss, emotional stress, and mental anguish
that Turner suffered for six (6) weeks while waiting for his intended beneficiary's confirmation of
receipt of his money.[29] Hence, Chinatrust was found liable for the monetary loss suffered by
Turner and for damages. The Decision disposed as follows:

WHEREFORE, in view of all the foregoing, the Decision of the Metropolitan Trial Court of Makati
City, Branch 61, in Civil Case No. 87471, is hereby REVERSED and SET ASIDE, and a new one entered
finding for plaintiff-appellant PHILIP TURNER, and against defendant-appellee CHINA TRUST
(PHILS.) COMMERCIAL BANK CORPORATION by ordering the latter to pay, or restore to PHILIP
TURNER'S account with said Bank, the following amounts:

(1) US $ 430.00 or P24,129.88, the Peso equivalent at the rate of P56.1160/US $1.00, as of 13
September 2004; and

(2) US $ 30.00 or P1,683.48, the Peso equivalent at the rate of P56.1160/US $1.00, as of 13
September 2004.

The defendant-appellee bank is further ordered to pay plaintiff-appellant Philip Turner P20,000.00
as and for moral damages; P10,000.00 as and for exemplary damages; and P5,000.00 as and for
reasonable attorney's fees.

SO ORDERED.[30]

Chinatrust filed a motion for reconsideration, but it was denied by the Regional Trial Court in a
Resolution[31] dated June 4, 2007.

On July 4, 2007, Chinatrust filed a Petition for Review[32] under Rule 42 of the 1997 Rules of Civil
Procedure before the Court of Appeals.

In its Decision[33] dated December 14, 2009, the Court of Appeals dismissed the petition and
upheld the decision of the Regional Trial Court. Chinatrust's subsequent Motion for
Reconsideration[34] was likewise denied in the Court of Appeals' Resolution[35] dated March 2,
2010.

Hence, this Petition[36] was filed. In compliance with this Court's directive, respondent filed his
Comment,[37] to which petitioner filed its Reply.[38]

Petitioner stresses that based on the allegations in the Complaint, the real issue is "whether or not
the petitioner-bank has legally complied with its contractual obligation with respondent in
remitting his telegraphic fund to the latter's beneficiary account with Citibank-Cairo."[39] It reasons
that as respondent has failed to prove his allegation that his telegraphic transfer funds were not
received or credited to his intended beneficiary's Citibank-Cairo account, the Court of Appeals
should have dismissed respondent's complaint.[40]

Instead, the Court of Appeals adjudged petitioner liable for negligence: (1) when it did not
immediately refund the telexed funds to respondent upon receipt of the discrepancy notice from
Citibank-Cairo; and (2) when it did not immediately relay to Citibank-Cairo respondent's demand
for the cancellation of the transaction.[41] According to petitioner, this was erroneous because the
Court of Appeals ruled upon matters not alleged in the complaint or raised as an issue[42] and
awarded damages not prayed for in the complaint.[43]

Petitioner further argues that respondent demanded for the return of his money long after—and
not immediately after—he was informed of the discrepancy in the beneficiary's name. Moreover,
respondent made the demand (1) only because he had changed his mind about the tour because
his wife was ill, (2) after he had personally known that his beneficiary had received the transferred
funds, and (3) to avoid the 50% forfeiture penalty.[44]

Petitioner adds that Article 1172 of the Civil Code was erroneously applied by the Court of Appeals
because this provision refers to an obligor's negligence in performing the obligation. Here, the
"acts of negligence" attributed to petitioner were those that transpired after it had fully performed
its obligation to transfer the funds.[45]

Finally, petitioner contends that the Court of Appeals erred "when it unjustly enriched the
respondent by making the petitioner liable to refund the amount already legally transferred to,
and received by respondent's beneficiary, for his benefit."[46]

Respondent counters that the issues raised by petitioner are factual, which are not reviewable by
this Court.[47] He further denies that he disclosed to the petitioner that he was able to contact his
travel agency, which admitted that it had received the funds. On the contrary, respondent avers
that he "demanded for the return of his money when the petitioner informed him that the funds
could not be deposited to the beneficiary account."[48]

The issues for resolution are:

First, whether the Court of Appeals erred in affirming the Regional Trial Court's Decision, granting
the refund of respondent's US$430.00 telegraphic funds transfer despite its successful remittance
and credit to respondent's beneficiary Min Travel's account with Citibank-Cairo;

Second, whether petitioner Chinatrust (Philippines) Commercial Bank was negligent in the
performance of its obligation under the telegraphic transfer agreement; and
Finally, whether the subsequent acts of petitioner after compliance with its obligation can be
considered "negligent" to justify the award of damages by the Regional Trial Court, as affirmed by
the Court of Appeals.

The Regional Trial Court and the Court of Appeals erred in holding that petitioner was negligent in
failing to immediately address respondent's queries and return his money and was consequently
liable for the anguish suffered by respondent. They ruled on an issue that was not raised by
respondent in the lower court, thereby violating petitioner's right to due process.

It is an established principle that "courts cannot grant a relief not prayed for in the pleadings or in
excess of what is being sought by the party."[49] The rationale for the rule was explained in
Development Bank of the Philippines v. Teston,[50] where this Court held that it is improper to enter
an order which exceeds the scope of the relief sought by the pleadings:

The Court of Appeals erred in ordering [Development Bank of the Philippines] to return to
respondent "the P1,000,000.00" alleged down payment, a matter not raised in respondent's
Petition for Review before it. In Jose Clavano, Inc. v. Housing and Land Use Regulatory Board, this
Court held:

It is elementary that a judgment must conform to, and be supported by, both the pleadings and the
evidence, and must be in accordance with the theory of the action on which the pleadings are
framed and the case was tried. The judgment must be secudum allegata et probata.

Due process considerations justify this requirement. It is improper to enter an order which exceeds
the scope of relief sought by the pleadings, absent notice which affords the opposing party an
opportunity to be heard with respect to the proposed relief. The fundamental purpose of the
requirement that allegations of a complaint must provide the measure of recovery is to prevent
surprise to the defendant.[51] (Emphasis supplied, citations omitted)

The bank's supposed negligence in the handling of respondent's concerns was not among
respondent's causes of action and was never raised in the Metropolitan Trial Court. Respondent's
cause of action was based on the theory that the telexed funds transfer did not materialize, and
the relief sought was limited to the refund of his money and damages as a result of the purported
non-remittance of the funds to the correct beneficiary account.[52]

"[T]he purpose of an action . . . and the law to govern it ... is to be determined ... by the complaint
itself, its allegations and the prayer for relief."[53] The complaint states "the theory of a cause of
action which forms the bases of the plaintiff's claim of liability."[54]

A review of the Complaint filed before the Metropolitan Trial Court reveals that respondent
originally sued upon a breach of contract consisting in the alleged failure of petitioner to remit the
funds to his travel agency's account in Cairo-Egypt. Respondent's cause of action was based on
paragraphs 5 and 6 of his Complaint:

5. That after a few days, the plaintiff verified from the defendant whether the telegraphic transfer
was sent but the plaintiff was told that the fund was not applied to the intended account number
and name as "THE BENE TITLE DOES NOT MATCH WITH THEIR BOOKS";

6. That the plaintiff talked with the President of the defendant and asked what was meant by that
and was told that they did not succeed in sending the telegraphic transfer to the beneficiary
account[.][55]

Respondent further alleged:

10. That because of the refusal of the defendant to return the amounts given by the plaintiff, the
latter suffered sleepless nights, worry and anxiety because of his fear that he lost the money that
he entrusted to the defendant for transfer to the beneficiary account for which the plaintiff should
be awarded moral damages on the amount of P20,000.00;

11. That the defendant was guilty of gross negligence in failing to comply with its obligation to send
the telegraphic transfer to the intended beneficiary account;

12. That by way of example, the defendant should be ordered to pay exemplary damages in the
amount of P20,000.00.[56] (Emphasis supplied)

In both his Complaint and Position Paper,[57] respondent anchored his claim for refund and
damages on the "discrepancy notice" and the manager's explanation that the funds were not
successfully credited to the beneficiary's account. Respondent demanded for the return of his
money having the impression that the bank was not successful in remitting it.

The parties' pleadings and position papers submitted before the Metropolitan Trial Court raised
the factual issue of whether petitioner had complied with its obligation to remit the funds of the
respondent to his intended beneficiary's account with Citibank-Cairo. They likewise raised the legal
issue of whether respondent was entitled to rescind the contract.

Furthermore, during the preliminary conference, the following issues were defined: (a) "whether
or not the amount was remitted to the correct beneficiary's account," and (b) "whether or not the
parties are entitled to their respective claims."[58] This does not include the issue of negligence on
the part of petitioner in attending to respondent's queries or the purported one (l)-month delay
in the confirmation of the remittance.

The case was decided by the Metropolitan Trial Court pursuant to the Revised Rules on Summary
Procedure.[59] Accordingly, no trial was conducted as, after the conduct of a preliminary
conference, the parties were made to submit their position papers.[60] There was, thus, no
opportunity to present witnesses during an actual trial. However, Section 9 of the Revised Rules
on Summary Procedure calls for the submission of witnesses' affidavits together with a party's
position paper after the conduct of a preliminary conference:

Section 9. Submission of Affidavits and Position Papers. — Within ten (10) days from receipt of the
order mentioned in the next preceding section, the parties shall submit the affidavits of their
witnesses and other evidence on the factual issues defined in the order, together with their
position papers setting forth the law and the facts relied upon by them.

The determination of issues at the preliminary conference bars the consideration of other
questions on appeal.[61] This is because under Section 9 above, the parties were required to submit
their affidavits and other evidence on the factual issues as defined in the preliminary conference
order. Thus, either of the parties cannot raise a new factual issue on appeal, otherwise it would be
unfair to the adverse party, who had no opportunity to present evidence against it.

II

The Metropolitan Trial Court correctly absolved petitioner from liability and dismissed the
complaint upon its finding that the bank had duly proven that it had complied with its obligation
under the telegraphic transfer. It found that despite the earlier advice of Citibank-Cairo that the
beneficiary name did not match their files, Chinatrust and respondent Turner were subsequently
informed that the amount sent had been credited to the account of the beneficiary as early as
September 15, 2004.[62]

However, on appeal, the Regional Trial Court reversed the dismissal of the complaint. While the
Regional Trial Court affirmed the court a quo's ruling that indeed the funds were credited to the
intended beneficiary's account, it went further and touched upon an issue that was beyond the
cause of action framed by the respondent. It adjudged petitioner liable not because it failed to
perform its obligation to remit the funds but because it purportedly did not exercise due diligence
in attending to respondent's queries and demands with regard to the telegraphic funds transfer.
Specifically, it found petitioner negligent in its failure to promptly inform respondent that the
money was, in fact, credited to the account of the beneficiary.[63] According to the Regional Trial
Court, "it is but right that the [petitioner] bank be held liable for the monetary loss, as well as the
emotional stresses and mental anguish that [respondent] Turner had to go through as a result
thereof."[64] Hence, the Regional Trial Court awarded respondent's claims for refund and damages.

The Regional Trial Court also faulted the petitioner for not submitting in evidence the "discrepancy
notice," which according to the trial court "puts the . . . bank's position in a cloud of doubt."[65]

Contrary to the observation of the Regional Trial Court, however, the discrepancy notice's
existence and content were not the core of the controversy. In fact, they were never put in issue.
The discrepancy notice only came up because it was the basis for Turner's claim for refund insisting
that the funds were not credited to his travel agency's account. Hence, it is understandable that
both parties did not present it in evidence.
Similarly, the purported negligence of the bank personnel in attending to his concerns was neither
raised by respondent in any of his pleadings nor asserted as an issue in the preliminary conference.
Hence, it was improper for the Regional Trial Court to consider this issue on negligence in
determining the respective claims of the parties.

Basic rules of fair play, justice, and due process require that arguments or issues not raised in the
trial court may not be raised for the first time on appeal.[66]

In Philippine Ports Authority v. City of Iloilo:[67]

As a rule, a party who deliberately adopts a certain theory upon which the case is tried and decided
by the lower court will not be permitted to change theory on appeal. Points of law, theories, issues
and arguments not brought to the attention of the lower court need not be, and ordinarily will not
be, considered by a reviewing court, as these cannot be raised for the first time at such late stage.
Basic considerations of due process underlie this rule. It would be unfair to the adverse party who
would have no opportunity to present further evidence material to the new theory, which it could
have done had it been aware of it at the time of the hearing before the trial court. To permit
petitioner in this case to change its theory on appeal would thus be unfair to respondent, and
offend the basic rules of fair play, justice and due process.[68] (Citations omitted)

There is more reason for a reviewing court to refrain from resolving motu proprio an issue that
was not even raised by a party. This Court has previously declared that:

"[C]ourts of justice have no jurisdiction or power to decide a question not in issue" and that a
judgment going outside the issues and purporting to adjudicate something upon which the parties
were not heard is not merely irregular, but extrajudicial and invalid.[69] (Citations omitted)

As pointed out earlier, respondent's cause of action was anchored on the alleged non-remittance
of the funds to his travel agency's account or based on a breach of contract.

On appeal, however, the Regional Trial Court motu proprio found that petitioner was negligent in
addressing respondent's concerns, which justified the award of damages against it. This was unfair
to petitioner who had no opportunity to introduce evidence to counteract this new issue. The
factual bases of this change of theory would certainly require presentation of further evidence by
the bank in order to enable it to properly meet the issue raised.

III

The Regional Trial Court and the Court of Appeals erred in awarding damages to respondent.

Petitioner was not remiss in the performance of its contractual obligation to remit the funds. It
was established that the funds were credited to the account of Min Travel on September 15, 2004,
or two (2) days from respondent's application.[70]
Petitioner cannot likewise be faulted for the discrepancy notice sent by Citibank-Cairo, assuming
there was a mistake in its sending. It merely relayed its contents to respondent. Citibank-Cairo is
not an agent of petitioner but a beneficiary bank designated by respondent, upon the instruction
of the beneficiary, Min Travel.

The Regional Trial Court, as affirmed by the Court of Appeals, found petitioner negligent in
addressing the concerns and queries of respondent. It specifically faulted petitioner for failure to
submit any letters, tracers, cables, or other evidence of communication sent to Citibank-Cairo to
inquire about the status of the remittance and adjudged petitioner liable for the anxieties suffered
by respondent.[71]

The rule that factual findings of the Court of Appeals are not reviewable by this Court is subject to
certain exceptions such as when there is a misapprehension of facts and when the conclusions are
contradicted by the evidence on record.[72] Here, there is insufficient evidence to show negligence
on the part of petitioner.

The one (1)-month delay in receiving the telex reply from Citibank-Cairo does not sufficiently prove
petitioner's fault or negligence, especially since "[petitioner's communications were coursed thru
a third-party-correspondent bank, Union Bank of California."[73]

Furthermore, the lower courts overlooked the fact that respondent knew all along, or as early as
September 22, 2004, that his funds were already received by his beneficiary. Despite this, he
insisted on demanding the retrieval of the funds after he opted not to pursue with his travel
abroad.

Respondent did not specifically deny paragraphs 8 and 9 of petitioner's Answer with
Counterclaims, which alleged the following:

8. However, on September 22, 2004, the Plaintiff, despite being aware that his foregoing
remittance was already received by the beneficiary MIN TRAVEL, changed his mind, and
stated that he will no longer push though with his tour travel, and thus, requested for the
retrieval of said funds. Defendant relayed said request through the foregoing channel to
Citibank-Cairo. Considering that said fund was already transferred, Citibank-Cairo refused
to honor said request, and consider the transmittal closed and accomplished;

9. Plaintiff, however, insisted on demanding refund of said amount from the Defendant, who
politely denied such demand, and repeatedly explained to the Plaintiff that Citibank-Cairo
will not honor such request, and that there is nothing that the Defendant can do under the
circumstances[.][74]

The Affidavit of Rosario C. Astrologo (Astrologo), Branch Service Head, Chinatrust-Ayala Branch,
was never rebutted by respondent by submitting his counter evidence. Portions of it stated:
 7. On September 22, 2004, when he visited our branch office, which he has been doing
almost everyday, he mentioned to our Ms. Rina Chua, the bank's Senior Service Assistant,
Ayala Branch, that he [was] able to contact Mr. Esmat Azmy who already confirmed having
received the said remittance;

8. When I also talked to him, also on the same date, he, stated that he changed his mind and
will no longer push through with his said travel because his wife, who is supposed to
accompany him, became sick, injured, or something to such effect. He also mentioned that
if he will cancel his travel agreement, the travel agency will only return to him fifty
[percent] (50%) of his foregoing down-payment, but if he will be able to retrieve and
withdraw such remittance from the bank, he will only pay the bank charges, which is
minimal. He, therefore, insisted, that said fund be withdrawn and returned to him by the
bank;

9. He was also told that if such fund was already received by the travel agency and credited
to its bank account of said travel agency at Citibank, it cannot be returned anymore, and I
advised him to contact his travel agency and negotiate for the refund of his entire
proceeds. I do not know if he later made such plea to his travel agency for we were not
told what happened later. I promised, however, that we will relay his request for its
retrieval of such fund to Citibank, which we did thru various telexes[.][75]

The successful remittance was later confirmed by the telex-reply from Citibank-Cairo on October
28, 2004, stating that the funds were credited to the account of Min Travel on September 15,
2004.[76] This telex-reply confirms that petitioner indeed made a follow up with Citibank-Cairo
regarding the status of respondent's funds.

Moreover, the refusal of petitioner's personnel to accede to respondent's demand for a refund
cannot be considered an actionable wrong. Their refusal was due primarily to lack of information
or knowledge of the effective cancellation of the remittance and not from a deliberate intent to
ignore or disregard respondent's rights. When respondent insisted on asking for the refund, he
was repeatedly requested to submit a certification or, at least, a written denial from his beneficiary
that the funds were not in fact received. They cannot be faulted for wanting to verify with Citibank-
Cairo the status of the remittance before acting upon his request, especially since the funds have
actually been received by Citibank-Cairo. The written denial would also be the basis for petitioner's
demand upon Citibank-Cairo.

The Court of Appeals erred in ruling that petitioner had the duty to immediately return the money
to Turner together with the service fee upon the first instance that it relayed the discrepancy
notice to him. Turner could no longer rescind the telegraphic transfer agreement.

In Republic of the Philippines v. Philippine National Bank,[77] this Court described the nature of a
telegraphic transfer agreement:
"[C]redit" in its usual meaning is a sum credited on the books of a company to a person who
appears to be entitled to it. It presupposes a creditor-debtor relationship, and may be said to imply
ability, by reason of property or estates, to make a promised payment.

....

[A]s the transaction is for the establishment of a telegraphic or cable transfer, the agreement to
remit creates a contractual obligation and has been termed a purchase and sale transaction (9
C.J.S. 368). The purchaser of a telegraphic transfer upon making payment completes the
transaction insofar as he is concerned, though insofar as the remitting bank is concerned the
contract is executory until the credit is established.[78]

Thus, once the amount represented by the telegraphic transfer order is credited to the account of
the payee or appears in the name of the payee in the books of the receiving bank, the ownership
of the telegraphic transfer order is deemed to have been transmitted to the receiving bank. The
local bank is deemed to have fully executed the telegraphic transfer and is no longer the owner of
this telegraphic transfer order.

It is undisputed that on September 13, 2004, the funds were remitted to Citibank-New York
through petitioner's paying bank, Union Bank of California. Citibank-New York, in turn, credited
Citibank-Cairo, Egypt, Heliopolis Branch.

Moreover, it was established that the amount of US$430.00 was actually credited to the account
of Min Travel on September 15, 2004,[79] or merely two (2) days after respondent applied for the
telegraphic transfer and even before petitioner received its "discrepancy notice" on September
17, 2004. Chinatrust is, thus, deemed to have fully executed the telegraphic transfer agreement
and its obligation to respondent was extinguished.[80] Hence, respondent could no longer ask for
rescission of the agreement on September 22, 2004.

When the funds were credited to the account of Min Travel at Citibank-Cairo, ownership and
control of these funds were transferred to Min Travel. Thus, the funds could not be withdrawn
without its consent.

The Court of Appeals, in affirming the decision of the Regional Trial Court, held that petitioner was
obliged to immediately return the money to respondent as early as September 17, 2004 when it
received the "discrepancy notice" from Citibank-Cairo.[81] It held that petitioner's failure to do so
even upon respondent's demand constituted an actionable negligence under Article 1172.[82]

The Court of Appeals misappreciated the true import of the discrepancy notice when it held that
the notice was an "effective cancellation of the remittance by the Citibank-Cairo"[83] that gave rise
to the legal obligation of petitioner to return the funds to respondent.

The discrepancy notice does not mean that the funds were not received by the beneficiary bank.
On the contrary, what it implies is that these funds were actually received by Citibank-Cairo but it
could not apply it because the account name of the beneficiary indicated in the telex instruction
does not match the account name in its books. In short, it cannot find in its file the beneficiary
account name "Min Travel/Esmat Azmy" pursuant to the telex instruction, for which reason,
Citibank-Cairo asked for clarifications. Petitioner, in turn, had to clarify from respondent, because
it was respondent himself, upon instruction of his travel agency, who indicated such beneficiary's
name in his telegraphic transfer form. True enough, as later shown, the beneficiary account name
was not "Min Travel/Esmat Azmy" but only "Min Travel." Petitioner, therefore, had nothing to do
with the mismatch of the beneficiary name and could not be made liable for it.

The information initially relayed by Citibank-Cairo and received by petitioner on September 17,
2004—that the funds were not applied to the intended account because the beneficiary name did
not match its books—proved to be no longer true. This is because Citibank-Cairo later confirmed
that respondent's remittance was duly credited to the account of Min Travel on September 15,
2004.

As stated earlier, respondent's request for retrieval of the funds was because he changed his mind
about the travel rather than the discrepancy notice sent by Citibank-Cairo. The Affidavit of
Astrologo was never refuted.

The tour travel arrangement, which brought about the remittance of the funds, is a separate and
private arrangement between respondent and Min Travel. Respondent's change of mind and claim
for refund, therefore, should have been properly addressed to Min Travel, which already had
possession of the funds and not to petitioner, who was not privy to the arrangement.

WHEREFORE, the Petition is GRANTED. The Court of Appeals' Decision dated December 14, 2009
and Resolution dated March 2, 2010 are set aside and the Decision dated January 15, 2006 of the
Metropolitan Trial Court, Branch 61, Makati City is reinstated.

SO ORDERED.
SECOND DIVISION

[ G.R. No. 225402, September 04, 2017 ]

ENCARNACION CONSTRUCTION & INDUSTRIAL CORPORATION, PETITIONER, V. PHOENIX READY MIX

CONCRETE DEVELOPMENT & CONSTRUCTION, INC., RESPONDENT.

DECISION

PERLAS-BERNABE, J.:

Before the Court is a petition for review on certiorari[1] assailing the Decision[2] dated July 22, 2015
and the Resolution[3] dated June 29, 2016 of the Court of Appeals (CA) in CA-G.R. CV No. 102671,
which affirmed the Decision[4] dated December 4, 2013 of the Regional Trial Court of Imus, Cavite,
Branch 20 (RTC) in Civil Case No. 3547-10 granting the complaint for sum of money filed by
respondent Phoenix Ready Mix Concrete Development and Construction, Inc. (Phoenix) against
petitioner Encarnacion Construction & Industrial Corporation (ECIC), and dismissing the latter's
counterclaim for damages.

The Facts

On January 27 and March 25, 2009, Phoenix entered into two (2) separate Contract Proposals and
Agreements (Agreement)[5] with ECIC for the delivery of various quantities of ready-mix
concrete.[6] The Agreement was made in connection with the construction of the Valenzuela
National High School (VNHS) Marulas Building.[7] ECIC received the ready-mix concrete delivery in
due course. However, despite written demands from Phoenix, ECIC refused to pay. Hence, Phoenix
filed before the RTC the Complaint[8] for Sum of Money against ECIC for the payment of
P982,240.35, plus interest and attorney's fees.[9]

In its Answer with Counterclaim,[10] ECIC claimed that it opted to suspend payment since Phoenix
delivered substandard ready-mix concrete, such that the City Engineer's Office of Valenzuela (City
Engineer's Office) required the demolition and reconstruction of the VNHS building's 3rd floor.[11]
It contended that since the samples taken from the 3rd floor slab failed to reach the
comprehensive strength of 6,015 psi in 100 days,[12] the City Engineer's Office ordered the
dismantling of the VNHS building's 3rd floor, and thus, incurred additional expenses amounting to
P3,858,587.84 for the dismantling and reconstruction.[13]

The RTC Ruling

In a Decision[14] dated December 4, 2013, the RTC ordered ECIC to pay Phoenix the amount of
P865,410.00, with twelve percent (12%) interest per annum, reckoned from November 5, 2009,
the date ECIC received the demand, as well as P50,000.00 as attorney's fees, and the costs of
suit.[15]
Primarily, the RTC found that Phoenix fully complied with its obligation under their Agreement to
deliver the ready-mix concrete, with the agreed strength of 3000 and 3500 psi G-3/4 7D PCD,[16]
which ECIC used to complete the 3rd floor slab of the VNHS building.[17] Moreover, it pointed out
that the alleged sub-standard quality of the delivered ready-mix concrete did not excuse ECIC from
refusing payment, noting that under Paragraph 15 of the Agreement, any claim it has on the
quality and strength of the transit mixed concrete should have been made at the time of delivery.
Since ECIC raised the alleged defects in the delivered concrete only on June 16, 2009, or 48 days
after the last delivery date on April 29, 2009,[18] it considered ECIC to have waived its right to
question the quality of the delivered concrete under the principle of estoppel in pais.[19] It added
that under Paragraph 15 of the Agreement, ECIC does not have the right to suspend or refuse
payment once delivery has been made; thus, ECIC's refusal to pay despite demand constitutes
breach of their Agreement, entitling Phoenix to attorney's fees, but at the reduced amount of
P50,000.00.[20] Lastly, it reduced the rate of the stipulated interest from 18% to 12% per annum,
counted from November 5, 2009.[21]

Meanwhile, the RTC denied ECIC's counterclaim for failure to pay the necessary docket fees.[22]

Aggrieved, ECIC appealed[23] to the CA, arguing that it paid the necessary docket fees for its
counterclaim well within a reasonable time from its filing or on June 18, 2010[24] and that it did not
waive its right to question the strength of the delivered concrete which, based on various tests,
was substandard.[25]

The CA Ruling

In a Decision[26] dated July 22, 2015, the CA affirmed the RTC ruling holding ECIC liable for the
payment of the delivered ready-mix concrete.

At the outset, the CA agreed with ECIC that the docket fees for its counterclaim was paid well
within a reasonable time from the prescriptive date; thus, the RTC should not have automatically
dismissed its counterclaim.[27] Nonetheless, it ruled that ECIC is bound by their Agreement to pay
for the delivered ready-mix concrete. Moreover, it observed that before ECIC signed and bound
itself to the Agreement, it should have questioned the condition set under Paragraph 15, i.e., that
complaints about the quality of the concrete should be made upon delivery.[28] Further, there is
no showing that ECIC was at a disadvantage when it contracted with Phoenix so as to render the
Agreement void on the ground that it is a contract of adhesion. Thus, the CA concluded that ECIC's
failure to make any claim on the strength and quality of the ready-mix concrete upon delivery,
pursuant to Paragraph 15 of the Agreement, constitutes a waiver thereof on its part.[29]

Dissatisfied, ECIC moved[30] for reconsideration, which the CA denied in a Resolution[31] dated June
29, 2016; hence, this petition.

The Issue Before the Court

The essential issue for the Court's resolution is whether or not the CA erred in denying ECIC's
counterclaim for damages.

The Court's Ruling

The petition lacks merit.

In the present petition, ECIC maintains that it is entitled to its counterclaim because the
Agreement it signed with Phoenix, particularly Paragraph 15 thereof, is void for being a contract
of adhesion; and, the ready-mix concrete Phoenix delivered for the 3rd floor slab of the VNHS
building was substandard, causing it to incur additional expenses to reconstruct the building's 3 rd
floor.

A contract of adhesion is one wherein one party imposes a ready-made form of contract on the
other. It is a contract whereby almost all of its provisions are drafted by one party, with the
participation of the other party being limited to affixing his or her signature or "adhesion" to the
contract.[32] However, contracts of adhesion are not invalid per se as they are binding as ordinary
contracts.[33] While the Court has occasionally struck down contracts of adhesion as void, it did so
when the weaker party has been imposed upon in dealing with the dominant bargaining party and
reduced to the alternative of taking it or leaving it, completely deprived of the opportunity to
bargain on equal footing.[34] Thus, the validity or enforceability of the impugned contracts will have
to be determined by the peculiar circumstances obtained in each case and the situation of the
parties concerned.[35]

In this case, there is no proof that ECIC was disadvantaged or utterly inexperienced in dealing with
Phoenix. There were likewise no allegations and proof that its representative (and
owner/proprietor) Ramon Encarnacion (Encarnacion) was uneducated, or under duress or force
when he signed the Agreement on its behalf. In fact, Encarnacion is presumably an astute
businessman who signed the Agreement with full knowledge of its import. Case law states that
the natural presumption is that one does not sign a document without first informing himself of
its contents and consequences.[36] This presumption has not been debunked.

Moreover, it deserves highlighting that apart from the January 27 and March 25, 2009 Contract
Proposals and Agreements, ECIC and Phoenix had entered into three (3) similar Agreements under
the same terms and conditions[37] for the supply of ready-mix concrete. Thus, the Court is hard-
pressed to believe that Encarnacion had no sufficient opportunity to read and go over the
stipulations of the Agreement and reject or modify the terms had he chosen to do so.

Further, the Court finds that the terms and conditions of the parties' Agreement are plain, clear,
and unambiguous and thus could not have caused any confusion. Paragraph 15 of the Agreement
provides that:

x x x x Any claim on the quality, strength, or quantity of the transit mixed concrete delivered must
be made at the time of delivery. Failure to make the claim constitutes a waiver on the part of the
SECOND PARTY for such claim and the FIRST PARTY is released from any liability for any subsequent
claims on the quality, strength or [sic] the ready mixed concrete.[38]

Based on these terms, it is apparent that any claim that ECIC may have had as regards the quality
or strength of the delivered ready-mix concrete should have been made at the time of delivery.
However, it failed to make a claim on the quality of the delivered concrete at the stipulated time,
and thus, said claim is deemed to have been waived.

In this relation, the Court clarifies that the absence of the signature of Encarnacion on the second
page of the Agreement did not render these terms inoperative. This is because the first page of
the Agreement - on which the signature of Encarnacion appears - categorically provides that the
terms and conditions stipulated on the Agreement's reverse side form part of their contract and
are equally binding on them, viz.:

No terms and conditions shall be valid and binding except those stipulated herein and/or the reverse
side thereof. No modifications, amendments, assignments or transfer of this contract or any of the
stipulation herein contained shall be valid and binding unless agreed by writing between the
PARTIES herein.

x x x x[39] (Emphasis and underscoring supplied)

Thus, by having its representative affix his signature on the first page of the Agreement and
thereby accepting Phoenix's proposed contract, ECIC likewise signified its conformity to the
entirety of the stipulated terms and conditions, including the stipulations on the Agreement's
reverse side. Verily, ECIC positively and voluntarily bound itself to these terms and conditions and
cannot now claim otherwise.

Finally, it should be noted that ECIC failed to raise the alleged defect in the delivered concrete well
within a reasonable time from its discovery of the hairline cracks, as it notified Phoenix thereof
only 48 days after the last delivery date on April 29, 2009, and days after it was already notified
thereof by the City Engineer's Office.[40] The lack of justifiable explanation for this delay all the
more bolsters the conclusion that ECIC indeed waived its right to make its claim.

The other issues raised by ECIC on this matter are essentially factual in nature, and thus, not proper
for a petition for review on certiorari. Rule 45 of the Rules of Court, which governs this kind of
petition, requires that only questions of law should be raised.[41] Factual questions are not the
proper subject of an appeal by certiorari as it is not the Court's function to once again analyze and
calibrate evidence that has already been considered in the lower courts.[42] While there are
recognized exceptions to this rule that warrant review of factual findings, ECIC, as the party
seeking review, however, failed to demonstrate that a factual review is justified under the
circumstances prevailing in this case.[43]

In any event, the evidence on record do not support ECIC's claim that the hairline cracks that
appeared on the 3rd floor slab of the VNHS building resulted from the substandard quality of the
delivered ready-mix concrete. While it was shown that the City Engineer's Office inspected the site
and approved the structural design before the delivered concrete for the 3rd floor slab was poured,
and that the results of the test conducted by the Philippine Geoanalytics Testing Center[44] from
the samples taken showed that the hardened concrete failed to reach the required comprehensive
strength days after the pouring, ECIC, however, failed to account for the period that intervened
from the time the delivered concrete was poured to the time the hairline cracks were observed.
As the claiming party, it was incumbent upon ECIC to prove that the hairline cracks were truly
caused by the inferior quality of the delivered concrete. Besides, Phoenix offered a more plausible
explanation, i.e., that ECIC failed to observe the proper procedure for applying and curing the
delivered concrete during the intervening period. This resulted in what Phoenix's witness
described as "plastic (cement) shrinkage caused by the rapid evaporation of the water component
and other factors."[45]

All told, ECIC failed to convincingly prove its counterclaim against Phoenix and thus, the same was
correctly denied by the CA.

WHEREFORE, the petition is DENIED. The Decision dated July 22, 2015 and the Resolution dated
June 29, 2016 of the Court of Appeals in CA-G.R. CV No. 102671 are hereby AFFIRMED.

SO ORDERED.
FIRST DIVISION

[ G.R. No. 211564, November 20, 2017 ]

BENJAMIN EVANGELISTA, PETITIONER, V. SCREENEX,[1] INC., REPRESENTED BY ALEXANDER G, YU,

RESPONDENT.

DECISION

SERENO, C.J.:

This is a Petition[2] for Review on Certiorari seeking to set aside the Decision[3] and Resolution[4]
rendered by the Court of Appeals (CA) Manila, Fifth Division, in CA-G.R. SP No. 110680.

ANTECEDENT FACTS

The facts as summarized by the CA are as follows:

Sometime in 1991, [Evangelista] obtained a loan from respondent Screenex, Inc. which issued two
(2) checks to [Evangelista]. The first check was UCPB Check No. 275345 for P1,000,000 and the
other one is China Banking Corporation Check No. BDO 8159110 for P500,000. There were also
vouchers of Screenex that were signed by the accused evidencing that he received the 2 checks in
acceptance of the loan granted to him.

As security for the payment of the loan, [Evangelista] gave two (2) open dated checks: UCPB Check
Nos. 616656 and 616657, both pay to the order of Screenex, Inc. From the time the checks were
issued by [Evangelista], they were held in safe keeping together with the other documents and
papers of the company by Philip Gotuaco, Sr., father-in-law of respondent Alexander Yu, until the
former's death on 19 November 2004.

Before the checks were deposited, there was a personal demand from the family for [Evangelista]
to settle the loan and likewise a demand letter sent by the family lawyer.[5]

On 25 August 2005, petitioner was charged with violation of Batas Pambansa (BP) Blg. 22 in
Criminal Case Nos. 343615-16 filed with the Metropolitan Trial Court (MeTC) of Makati City,
Branch 61.[6] The Information reads:

That sometime in 1991, in the City of Makati, Metro Manila, Philippines, a place within the
jurisdiction of this Honorable Court, the above-named accused, did then and there, willfully,
unlawfully and feloniously make out, draw, and issue to SCREENEX INC., herein represented by
ALEXANDER G. YU, to apply on account or for value the checks described below:

Check No. Date Amount

United Coconut AGR 616656 12-22-04 P1,000,000.00
Planters Bank AGR 616657 12-22-04 500,000.00

said accused well knowing that at the time of issue thereof, said accused did not have sufficient
funds in or credit with the drawee bank for the payment in full of the face amount of such check
upon its presentment which check when presented for payment within ninety (90) days from the
date thereof, was subsequently dishonored by the drawee bank for the reason "ACCOUNT
CLOSED" and despite receipt of notice of such dishonor, the said accused failed to pay said payee
the face amount of said checks or to make arrangement for full payment thereof within five (5)
banking days after receiving notice.

CONTRARY TO LAW.[7]

Petitioner pleaded not guilty when arraigned, and trial proceeded.[8]

THE RULING OF THE MeTC

The MeTC found that the prosecution had indeed proved the first two elements of cases involving
violation of BP 22: i.e. the accused makes, draws or issues any check to apply to account or for
value, and the check is subsequently dishonored by the drawee bank for insufficiency of funds or
credit; or the check would have been dishonored for the same reason had not the drawer, without
any valid reason, ordered the bank to stop payment. The trial court pointed out, though, that the
prosecution failed to prove the third element; i.e. at the time of the issuance of the check to the
payee, the latter did not have sufficient funds in, or credit with, the drawee bank for payment of
the check in full upon its presentment.[9] In the instant case, the court held that while prosecution
witness Alexander G. Yu declared that the lawyer had sent a demand letter to Evangelista, Yu failed
to prove that the letter had actually been received by addressee. Because there was no way to
determine when the five-day period should start to toll, there was a failure to establish prima facie
evidence of knowledge of the insufficiency of funds on the part of Evangelista.[10] Hence, the court
acquitted him of the criminal charges.

Ruling on the civil aspect of the cases, the court held that while Evangelista admitted to having
issued and delivered the checks to Gotuaco and to having fully paid the amounts indicated therein,
no evidence of payment was presented.[11] It further held that the creditor's possession of the
instrument of credit was sufficient evidence that the debt claimed had not yet been paid.[12] In the
end, Evangelista was declared liable for the corresponding civil obligation.[13]

The dispositive portion of the Decision[14] reads:

WHEREFORE, judgment is rendered acquitting the accused BENJAMIN EVANGELISTA for failure of
the prosecution to establish all the elements constituting the offense of Violation of B.P. 22 for
two (2) counts. However, accused is hereby ordered to pay his civil obligation to the private
complainant in the total amount of ONE MILLION FIVE HUNDRED THOUSAND PESOS (P1,500,000)
plus twelve (12%) percent interest per annum from the date of the filing of the two sets of
Information until fully paid and to pay the costs of suit.

SO ORDERED.[15]

THE RULING OF THE RTC

Evangelista filed a timely Notice of Appeal[16] and raised two errors of the MeTC before the
Regional Trial Court (RTC) of Makati City, Branch 147. Docketed therein as Criminal Case Nos. 08-
1723 and 08-1724, the appeal posed the following issues: (1) the lower court erred in not
appreciating the fact that the prosecution failed to prove the civil liability of Evangelista to private
complainant; and (2) any civil liability attributable to Evangelista had been extinguished and/or
was barred by prescription.[17]

After the parties submitted their respective Memoranda,[18] the RTC ruled that the checks should
be taken as evidence of Evangelista's indebtedness to Gotuaco, such that even if the criminal
aspect of the charge had not been established, the obligation subsisted.[19] Also, the alleged
payment by Evangelista was an affirmative defense that he had the burden of proving, but that he
failed to discharge.[20] With respect to the defense of prescription, the RTC ruled in this wise:

As to the defense of prescription, the same cannot be successfully invoked in this appeal. The 10-
year prescriptive period of the action under Art. 1144 of the New Civil Code is computed from the
time the right of action accrues. The terms and conditions of the loan obligation have not been
shown, as only the checks evidence the same. It has not been shown when the loan obligation was
to mature such that there is no basis to show or from which to infer, when the cause of action
(non-payment of the loan) which would give the obligee the right to seek redress for the non-
payment of the obligation, accrued. In other words, the reckoning point of prescription has not
been established.

Prosecution witness Alexander G. Yu was not competent to state that the loan was contracted in
1991 as in fact, Yu admitted that it was a few months before his father-in-law (Philip Gotuaco) died
when the latter told him about accused's failure to pay his obligation. That was a few months
before November 19, 2004, date of death of his father-in-law.

At any rate, the right of action in this case is not upon a written contract, for which reason, Art.
1144, New Civil Code, on prescription does not apply.[21]

In a Decision[22] dated 18 December 2008, the RTC dismissed the appeal and affirmed the MeTC
decision in toto.[23] The Motion for Reconsideration[24] was likewise denied in an Order[25] dated 19
August 2009.

THE RULING OF THE CA

Evangelista filed a petition for review[26] before the CA insisting that the lower court erred in
finding him liable to pay the sum with interest at 12% per annum from the date of filing until full
payment. He further alleged that witness Yu was not competent to testify on the loan transaction;
that the insertion of the date on the checks without the knowledge of the accused was an
alteration that avoided the checks; and that the obligation had been extinguished by
prescription.[27]

Screenex, Inc., represented by Yu, filed its Comment.[28] Yu claimed that he had testified on the
basis of his personal dealings with his father-in law, whom Evangelista dealt with in obtaining the
loan. He further claimed that during the trial, petitioner never raised the competence of the
witness as an issue.[29] Moreover, Yu argued that prescription set in from the accrual of the
obligation; hence, while the loan was transacted in 1991, the demand was made in February 2005,
which was within the 10-year prescriptive period.[30] Yu also argued that while Evangelista claimed
under oath that the loan had been paid in 1992, he was not able to present any proof of
payment.[31] Meanwhile, Yu insisted that the material alteration invoked by Evangelista was
unavailing, since the checks were undated; hence, nothing had been altered.[32] Finally, Yu argued
that Evangelista should not be allowed to invoke prescription, which he was raising for the first
time on appeal, and for which no evidence was adduced in the court of origin.[33]

The CA denied the petition.[34] It held that (1) the reckoning time for the prescriptive period began
when the instrument was issued and the corresponding check returned by the bank to its
depositor;[35] (2) the issue of prescription was raised for the first time on appeal with the RTC;[36]
(3) the writing of the date on the check cannot be considered as an alteration, as the checks were
undated, so there was nothing to change to begin with;[37] (4) the loan obligation was never denied
by petitioner, who claimed that it was settled in 1992, but failed to show any proof of payment.[38]
Quoting the MeTC Decision, the CA declared:

[t]he mere possession of a document evidencing an obligation by the person in whose favor it was
executed, merely raises a presumption of nonpayment which may be overcome by proof of
payment, or by satisfactory explanation of the fact that the instrument is found in the hands of
the original creditor not inconsistent with the fact of payment.[39]

The dispositive portion reads:

WHEREFORE, premises considered, the petition is DENIED. The assailed August 19, 2009 Order of
the Regional Trial Court, Branch 147, Makati City, denying petitioner's Motion for Reconsideration
of the Court's December 18, 2008 Decision in Crim. Case Nos. 08-1723 and 08-1724 are AFFIRMED.

SO ORDERED.[40]

Petitioner filed a Motion for Reconsideration,[41] which was similarly denied in a Resolution[42]
dated 27 February 2014.
Hence, this Petition,[43] in which petitioner contends that the lower court erred in ordering the
accused to pay his alleged civil obligation to private complainant. In particular, he argues that the
court did not consider the prosecution's failure to prove his civil liability to respondent, and that
any civil liability there might have been was already extinguished and/or barred by prescription.[44]

Meanwhile, respondent filed its Comment,[45] arguing that the date of prescription was reckoned
from the date of the check, 22 December 2004. So when the complaint was filed on 25 August
2005, it was supposedly well within the prescriptive period of ten (10) years under Article 1144 of
the New Civil Code.[46]

OUR RULING

With petitioner's acquittal of the criminal charges for violation of BP 22, the only issue to be
resolved in this petition is whether the CA committed a reversible error in holding that petitioner
is still liable for the total amount of P1.5 million indicated in the two checks.

We rule in favor of petitioner.

A check is discharged by any other act which will

discharge a simple contract for the payment of
money.

In BP 22 cases, the action for the corresponding civil obligation is deemed instituted with the
criminal action.[47] The criminal action for violation of BP 22 necessarily includes the corresponding
civil action, and no reservation to file such civil action separately shall be allowed or recognized.[48]

The rationale for this rule has been elucidated in this wise:

Generally, no filing fees are required for criminal cases, but because of the inclusion of the civil
action in complaints for violation of B.P. 22, the Rules require the payment of docket fees upon
the filing of the complaint. This rule was enacted to help declog court dockets which are filled with
B.P. 22 cases as creditors actually use the courts as collectors. Because ordinarily no filing fee is
charged in criminal cases for actual damages, the payee uses the intimidating effect of a criminal
charge to collect his credit gratis and sometimes, upon being paid, the trial court is not even
informed thereof. The inclusion of the civil action in the criminal case is expected to significantly
lower the number of cases filed before the courts for collection based on dishonored checks. It is
also expected to expedite the disposition of these cases. Instead of instituting two separate cases,
one for criminal and another for civil, only a single suit shall be filed and tried. It should be stressed
that the policy laid down by the Rules is to discourage the separate filing of the civil action. The
Rules even prohibit the reservation of a separate civil action, which means that one can no longer
file a separate civil case after the criminal complaint is filed in court. The only instance when
separate proceedings are allowed is when the civil action is filed ahead of the criminal case. Even
then, the Rules encourage the consolidation of the civil and criminal cases. We have previously
observed that a separate civil action for the purpose of recovering the amount of the dishonored
checks would only prove to be costly, burdensome and time-consuming for both parties and would
further delay the final disposition of the case. This multiplicity of suits must be avoided.[49]
(Citations omitted)

This notwithstanding, the civil action deemed instituted with the criminal action is treated as an
"independent civil liability based on contract."[50]

By definition, a check is a bill of exchange drawn on a bank 'payable on demand.[51] It is a negotiable

instrument - written and signed by a drawer containing an unconditional order to pay on demand
a sum certain in money.[52] It is an undertaking that the drawer will pay the amount indicated
thereon. Section 119 of the NIL, however, states that a negotiable instrument like a check may be
discharged by any other act which will discharge a simple contract for the payment of money, to
wit:

Sec. 119. Instrument; how discharged. - A negotiable instrument is discharged:

(a) By payment in due course by or on behalf of the principal debtor;

(b) By payment in due course by the party accommodated, where the instrument is made or
accepted for his accommodation;

(c) By the intentional cancellation thereof by the holder;

(d) By any other act which will discharge a simple contract for the payment of money;

(e) When the principal debtor becomes the holder of the instrument at or after maturity in his
own right. (Emphasis supplied)

A check therefore is subject to prescription of actions upon a written contract. Article 1144 of the
Civil Code provides:

Article 1144. The following actions must be brought within ten years from the time the right of
action accrues:

1) Upon a written contract;

2) Upon an obligation created by law;
3) Upon a judgment. (Emphasis supplied)

Barring any extrajudicial or judicial demand that may toll the 10-year prescription period and any
evidence which may indicate any other time when the obligation to pay is due, the cause of action
based on a check is reckoned from the date indicated on the check.

If the check is undated, however, as in the present petition, the cause of action is reckoned from
the date of the issuance of the check. This is so because regardless of the omission of the date
indicated on the check, Section 17[53] of the Negotiable Instruments Law instructs that an undated
check is presumed dated as of the time of its issuance.

While the space for the date on a check may also be filled, it must, however, be filled up strictly in
accordance with the authority given and within a reasonable time.[54] Assuming that Yu had
authority to insert the dates in the checks, the fact that he did so after a lapse of more than 10
years from their issuance certainly cannot qualify as changes made within a reasonable time.

Given the foregoing, the cause of action on the checks has become stale, hence, time-barred. No
written extrajudicial or judicial demand was shown to have been made within 10 years which could
have tolled the period. Prescription has indeed set in.

Prescription allows the court to dismiss the case

motu proprio.

We therefore have no other recourse but to grant the instant petition on the ground of
prescription. Even if that defense was belatedly raised before the RTC for the first time on appeal
from the ruling of the MeTC, we nonetheless dismiss the complaint, seeking to enforce the civil
liability of Evangelista based on the undated checks, by applying Section 1 of Rule 9 of the Rules
of Court, to wit:

Section 1. Defenses and objections not pleaded. - Defenses and objections not pleaded either in a
motion to dismiss or in the answer are deemed waived. However, when it appears from the
pleadings or the evidence on record that the court has no jurisdiction over the subject matter, that
there is another action pending between the same parties for the same cause, or that the action
is barred by a prior judgment or by statute of limitations, the court shall dismiss the claim.

While it was on appeal before the RTC that petitioner invoked the defense of prescription, we find
that the pleadings and the evidence on record indubitably establish that the action to hold
petitioner liable for the two checks has already prescribed.

The delivery of the check produces the effect of

payment when through the fault of the creditor
they have been impaired

It is a settled rule that the creditor's possession of the evidence of debt is proof that the debt has
not been discharged by payment.[55] It is likewise an established tenet that a negotiable instrument
is only a substitute for money and not money, and the delivery of such an instrument does not, by
itself, operate as payment.[56] Thus, in BPI v. Spouses Royeca,[57] we ruled that despite the lapse of
three years from the time the checks were issued, the obligation still subsisted and was merely
suspended until the payment by commercial document could actually be realized.[58]

However, payment is deemed effected and the obligation for which the check was given as
conditional payment is treated discharged, if a period of 10 years or more has elapsed from the
date indicated on the check until the date of encashment or presentment for payment. The failure
to encash the checks within a reasonable time after issue, or more than 1 0 years in this instance,
not only results in the checks becoming stale but also in the obligation to pay being deemed
fulfilled by operation of law.

Art. 1249 of the Civil Code specifically provides that checks should be presented for payment
within a reasonable period after their issuance, to wit:

Art. 1249. The payment of debts in money shall be made in the currency stipulated, and if it is not
possible to deliver such currency, then in the currency which is legal tender in the Philippines.

The delivery of promissory notes payable to order, or bills of exchange or other mercantile
documents shall produce the effect of payment only when they have been cashed, or when through
the fault of the creditor they have been impaired.

In the meantime, the action derived from the original obligation shall be held in the abeyance.
(Emphasis supplied)

This rule is similarly stated in the Negotiable Instruments Law as follows:

Sec. 186. Within what time a check must be presented. — A check must be presented for payment
within a reasonable time after its issue or the drawer will be discharged from liability thereon to the
extent of the loss caused by the delay. (Emphasis supplied)

These provisions were the very same ones we cited when we discharged a check by reason of the
creditor's unreasonable or unexplained delay in encashing it. In Papa v. Valencia,[59] the
respondents supposedly paid the petitioner the purchase price of the lots in cash and in check.
The latter disputed this claim and argued that he had never encashed the checks, and that he
could no longer recall the transaction that happened 10 years earlier. This Court ruled:

Granting that petitioner had never encashed the check, his failure to do so for more than ten (10)
years undoubtedly resulted in the impairment of the check through his unreasonable and
unexplained delay.

While it is true that the delivery of a check produces the effect of payment only when it is cashed,
pursuant to Art. 1249 of the Civil Code, the rule is otherwise if the debtor is prejudiced by the
creditor's unreasonable delay in presentment. The acceptance of a check implies an undertaking
of due diligence in presenting it for payment, and if he from whom it is received sustains loss by
want of such diligence, it will be held to operate as actual payment of the debt or obligation for
which it was given. It has, likewise, been held that if no presentment is made at all, the drawer
cannot be held liable irrespective of loss or injury unless presentment is otherwise excused. This
is in harmony with Article 1249 of the Civil Code under which payment by way of check or other
negotiable instrument is conditioned on its being cashed, except when through the fault of the
creditor, the instrument is impaired. The payee of a check would be a creditor under this provision
and if its no-payment is caused by his negligence, payment will be deemed effected and the
obligation for which the check was given as conditional payment will be discharged.[60] (Citations
omitted and emphasis supplied)

Similarly in this case, we find that the delivery of the checks, despite the subsequent failure to
encash them within a period of 10 years or more, had the effect of payment. Petitioner is
considered discharged from his obligation to pay and can no longer be pronounced civilly liable
for the amounts indicated thereon.

WHEREFORE, the instant Petition is GRANTED. The Decision dated 1 October 2013 and Resolution
dated 27 February 2014 in CA-G.R. SP No. 110680 are SET ASIDE. The Complaint against petitioner
is hereby DISMISSED.

SO ORDERED.
THIRD DIVISION

[ G.R. No. 228087, January 24, 2018 ]

H. VILLARICA PAWNSHOP, INC., HL VILLARICA PAWNSHOP, INC., HRV VILLARICA PAWNSHOP, INC.
AND VILLARICA PAWNSHOP, INC., PETITIONERS, V. SOCIAL SECURITY COMMISSION, SOCIAL
SECURITY SYSTEM, AMADOR M. MONTEIRO, SANTIAGO DIONISIO R. AGDEPPA, MA. LUZ N. BARROS-
MAGSINO, MILAGROS N. CASUGA AND JOCELYN Q. GARCIA, RESPONDENTS.

DECISION

GESMUNDO, J.:

Condonation statutes—being an act of liberality on the part of the State—are strictly construed
against the applicants unless the laws themselves clearly state a contrary rule of interpretation.

This is a petition for review on certiorari under Rule 45 of the Rules of Court filed by petitioners H.
Villarica Pawnshop, Inc., HL Villarica Pawnshop, Inc., HRV Villarica Pawnshop, Inc. and Villarica
Pawnshop, Inc., (petitioners) seeking to reverse and set aside the Decision[1] dated February 26,
2016 and Resolution[2] dated November 2, 2016, of the Court of Appeals (CA) in CA-G.R. SP No.
140916, which affirmed the Resolution[3] dated November 6, 2013, and Order[4] dated January
21,2015, of the Social Security Commission (SSC) denying petitioners' claim for refund.

The Antecedents

Petitioners are private corporations engaged in the pawnshop business and are compulsorily
registered with the Social Security System (SSS) under Republic Act (R.A.) No. 8282,[5] otherwise
known as the Social Security Law of 1997.[6]

In 2009, petitioners paid their delinquent contributions and accrued penalties with the different
branches of the SSS in the following manner:

AMOUNT PAID
DELINQUENCY
PETITIONER (Contribution DATE PAID
PERIOD
and Penalty)
H. Villarica Jan. 2006 - Oct.
Pawnshop, Inc. 2006
P1,461,640.24 Apr. 23, 2009
Jul. 2007 - Dec.
2007
Apr. 2007- Jun.
P710,199.08. May 1, 2009
2007
 Mar. 2008 - Dec.
2008
H.L. Villarica Sept. 2005 - Dec. P2,544,525.28 Jun. 20, 2009
Pawnshop, Inc. 2006
HRV Villarica Jan. 2009 - May P132,176.32 May 18, 2009
Pawnshop, Inc. 2009
Villarica Pawnshop, Mar. 2000 - Jun. P68,922.03 Feb. 20, 2009
Inc. 2000
Jan. 2000 - Jun. P21,353.70 Feb. 26, 2009
2000
Jan. 2005 - Aug. P699,850.34 Mar. 2, 2009
2005
Jan. 1997 - Jan. P2,491,998.08 Apr. 7, 2009[7]
2009

On January 7, 2010, Congress enacted R.A. No. 9903, otherwise known as the Social Security
Condonation Law of 2009, which took effect on February 1, 2010. The said law offered delinquent
employers the opportunity to settle, without penalty, their accountabilities or overdue
contributions within six (6) months from the date of its effectivity.[8]

Consequently, petitioners thru its President and General Manager Atty. Henry P. Villarica, sent
separate Letters,[9] all dated July 26, 2010, to the different branches of the SSS seeking
reimbursement of the accrued penalties, which they have paid in 2009, thus:

Amount Claimed
1. Diliman Branch P860,452.62[10]
2. Manila Branch P1,005,805.28[11]
3. Caloocan P5,376.32[12]
Branch
4. San Francisco P3,119,400.15[13]
Del Monte Branch

Invoking Section 4 of R.A. No. 9903 and Section 2 (f) of the SSC Circular No. 2010-004 or the
Implementing Rules and Regulations of R.A. No. 9903 (IRR), petitioners claimed that the benefits
of the condonation program extend to all employers who have settled their arrears or unpaid
contributions even prior to the effectivity of the law.[14]

In a Letter[15] dated August 16, 2010, the SSS - San Francisco Del Monte Branch denied petitioner
Villarica Pawnshop, Inc.'s request for refund amounting to P3,119,400.15 stating that there was
no provision under R.A. No. 9903 allowing reimbursement of penalties paid before its
effectivity.[16]
In another Letter[17] dated September 16, 2010, petitioner HRV Villarica Pawnshop, Inc. was
likewise informed that its application for the refund of the accrued penalty had been denied
because R.A. No. 9903 does not cover accountabilities settled prior to its effectivity.[18]

In like manner, the applications for refund filed by petitioners H. Villarica Pawnshop, Inc. and HL
Villarica Pawnshop, Inc. were both denied in separate letters dated October 4, 2010[19] and
October 15, 2010,[20] respectively, for the same reason of being filed outside the coverage of R.A.
No. 9903.[21]

As a result, petitioners filed their respective Petitions[22] before the SSC seeking reimbursement of
the 3% per month penalties they paid in 2009 essentially claiming that they were entitled to avail
of the benefits under R.A. No. 9903 by reason of equity because "one of the purposes of the law
is to favor employers, regardless of the reason for the non-payment of the arrears in contribution;"
and that the interpretation of the SSS "is manifestly contrary to the principle that, in enacting a
statute, the legislature intended right and justice to prevail."

In its Answer[23] dated March 14, 2012, the SSS prayed for the dismissal of the petitions for utter
lack of merit. It maintained that petitioners were not entitled to avail of the condonation program
under R.A. No. 9903 because they were not considered delinquent at the time the law took effect
in 2010; and that there was nothing more to condone on the part of petitioners for they have
settled their obligations even before the enactment of the law. The SSS explained that the term
"accrued penalties" had been properly defined as unpaid penalties under the IRR and, considering
that laws granting condonation constitute acts of benevolence on the part of the State, they
should be strictly construed against the applicant.[24]

The SSC Ruling

In its Resolution[25] dated November 6, 2013, the SSC denied all the petitions for lack of merit. It
ruled that petitioners were not entitled to the benefits of the condonation program under R.A.
No. 9903 in view of the full payment of their unpaid obligations prior to the effectivity of the law
on February 1, 2010. As petitioners did not have unpaid contributions at the time the law took
effect, the SSC held that there could be no remission or refund in their favor. The dispositive
portion of the said resolution states:

WHEREFORE, all four (4) petitions filed by petitioners against the SSS are hereby DENIED for lack
of merit.

SO ORDERED.[26]

Petitioners filed a motion for reconsideration but it was denied by the SSC in an Order[27] dated
January 21, 2015.

Undeterred, petitioners appealed before the CA.

The CA Ruling

In its decision dated February 26, 2016, the CA affirmed the ruling of the SSC. It held that the intent
of the legislature in enacting R.A. No. 9903 was the remission of the three percent (3%) per month
penalty imposed upon delinquent contributions of employers as a necessary consequence of the
late payment or non-remittance of SSS contributions. The CA found that the IRR of R.A. No. 9903
used the word "unpaid" to emphasize the accrued penalty that may be waived therein, thus, it
presupposes that there was still an outstanding obligation at the time of the effectivity of the law,
which may be extinguished through remission. It highlighted that lawmakers did not include within
the sphere of R.A. No. 9903 those employers whose penalties have already been paid prior to its
effectivity. The CA added that it would be absurd for obligations that have already been
extinguished to be subjected to condonation.

Citing Mendoza v. People[28] (Mendoza), the CA further ruled that there was no violation of the
equal protection clause because there was a substantial distinction between those delinquent
employers who paid within the six (6) month period from the effectivity of the law and those who
paid outside of the said availment period. It underscored that only the former class was expressly
covered by R.A. No. 9903. The CA concluded that petitioners' stand, that those who paid prior to
the effectivity of R.A. No. 9903 can avail of the condonation and refund, would open the floodgates
to numerous claims for reimbursement before the SSS, which could lead to a depletion of its
resources to the detriment of the public's best interest. The fallo of the CA ruling reads:

WHEREFORE, foregoing considered, the instant petition is hereby DISMISSED. The Resolution
dated November 6, 2013 and the Order dated January 21, 2015 of the Social Security Commission
in SSC Case Nos. 11-19521-11, 11-19522-11, 11-19523-11 and 11-19524-11 are AFFIRMED.

SO ORDERED.[29]

Petitioners moved for reconsideration but it was denied by the CA in its resolution dated
November 2, 2016.[30]

Hence, this petition anchored on the following grounds:

A. WITH ALL DUE RESPECT, THE COURT OF APPEALS ERRED IN RULING THAT RA NO. 9903
DOES NOT INCLUDE PETITIONERS IN ITS COVERAGE, CONSIDERING THAT:

1. SECTION 4 OF RA NO. 9903 EXPRESSLY INCLUDES EMPLOYERS, SUCH AS

PETITIONERS, WHO SETTLED (THEIR) ARREARS IN CONTRIBUTIONS BEFORE THE
EFFECTIVITY OF THE LAW AND THUS, ARE ENTITLED TO A WAIVER OF THEIR
ACCRUED PENALTIES.

2. PRIOR TO RA NO. 9903, EMPLOYERS ARE REQUIRED TO SETTLE THEIR ARREARS IN

CONTRIBUTIONS SIMULTANEOUSLY WITH PAYMENT OF THE PENALTY, THUS
 RENDERING IT IMPOSSIBLE FOR PETITIONERS TO PAY THEIR ARREARS WITHOUT
PAYING THE PENALTY

B. WITH ALL DUE RESPECT, THE COURT OF APPEALS ERRED IN RULING THAT RESPONDENT
SSC CORRECTLY INTERPRETED THE TERM 'ACCRUED' UNDER THE SSS CONDONATION LAW
OF 2009 TO MEAN UNPAID. IF THIS INTERPRETATION WERE TO BE UPHELD, THOSE WHO
HAVE UNPAID ACCRUED PENALTIES WOULD BE IN A BETTER POSITION THAN THOSE WHO
DECIDED TO SETTLE BOTH THE ARREARS IN CONTRIBUTION AND THE ACCRUED PENALTIES.
CERTAINLY, THE LAW NEVER INTENDED INJUSTICE.[31]

Petitioners argue that the last proviso of Section 4 of R. A. No. 9903 "clearly extends the benefit of
the waiver" to employers who have settled their arrears before the effectivity of the law, hence,
to allow the refund of the corresponding penalties paid;[32] that the "equity provision" in Section
4 of R.A. No. 9903 should be interpreted to include a refund of penalties already paid if such law
is to be given any effect;[33] and that a refund should be allowed because there is no substantial
distinction between employers who paid their accrued penalties before and after the effectivity
of the R.A. No. 9903.[34]

In its Comment,[35] the SSC counters that since petitioners have already paid their unremitted
contributions and accrued penalties before the effectivity of R.A. No. 9903, there is nothing left to
be condoned or waived; that, at the time of their payment, there was no remission of accrued
penalty yet; that R.A. No. 9903 does not contain a provision allowing the reimbursement of
accrued penalty which was paid prior to its effectivity; that the CA correctly interpreted the term
"accrued penalty" to mean "unpaid" by using the definition provided in Section 1 (d) of the IRR;
and that the ruling in Mendoza had already recognized that Congress refused to allow a sweeping,
non-discriminatory condonation to all delinquent employers when it provided a fixed period for
the availment of the condonation program under R.A. No. 9903. [36]

In its Comment,[37] the SSS avers that the payments made by petitioners before the effectivity of
R.A. No. 9903 are valid payments which cannot be the subject of reimbursement; that petitioners
are no longer considered delinquent employers when R.A. No. 9903 took effect; that petitioners
erroneously interpreted the "equity provision" to include a right to a refund of penalties paid; and
that laws granting condonation constitute an act of benevolence and should be strictly construed
against the applicant.[38]

The Court's Ruling

The petition is bereft of merit.

Sections 2 and 4 of the R.A. No. 9903 specifically provide:

Section 2. Condonation of Penalty. — Any employer who is delinquent or has not remitted all
contributions due and payable to the Social Security System (SSS), including those with pending
cases either before the Social Security Commission, courts or Office of the Prosecutor involving
collection of contributions and/or penalties, may within six (6) months from the effectivity of this
Act:

(a) remit said contributions; or

(b) submit a proposal to pay the same in installments, subject to the implementing rules and
regulations which the Social Security Commission may prescribe: Provided, That the delinquent
employer submits the corresponding collection lists together with the remittance or proposal to
pay installments: Provided, further, That upon approval and payment in full or in installments of
contributions due and payable to the SSS, all such pending cases filed against the employer shall
be withdrawn without prejudice to the refiling of the case in the event the employer fails to remit
in full the required delinquent contributions or defaults in the payment of any installment under
the approved proposal.

xxxx

Section 4. Effectivity of Condonation. — The penalty provided under Section 22 (a) of Republic Act
No. 8282 shall be condoned by virtue of this Act when and until all the delinquent contributions
are remitted by the employer to the SSS: Provided, That, in case the employer fails to remit in full
the required delinquent contributions, or defaults in the payment of any installment under the
approved proposal, within the availment period provided in this Act, the penalties are deemed
reimposed from the time the contributions first become due, to accrue until the delinquent
account is paid in full: Provided, further, That for reason of equity, employers who settled arrears in
contributions before the effectivity of this Act shall likewise have their accrued penalties waived.
[emphases supplied]

On the other hand, Sections 1 and 2 of the IRR of R.A. No. 9903 state:

Section 1. Definition of Terms. — Unless the context of a certain provision of this Circular clearly
indicates otherwise, the term:

xxx

(d) "Accrued penalty" refers to the unpaid three percent (3%) penalty imposed upon any delayed
remittance of contribution m accordance with Section 22 (a) of R.A. No. 1161, as amended.

Section 2. Who may avail of the Program. — Any employer who is delinquent or has not remitted
all contributions due and payable to the SSS may avail of the Program, including the following:

(a) Those not yet registered with the SSS

(b) Those with pending or approved proposal under the Installment Payment Scheme of the SSS
(Circular No. 9-P) pursuant to SSC Resolution No. 380 dated 10 June 2002;
(c) Those with pending or approved application under the Program for Acceptance of Properties
Offered Through Dacion En Pago of the SSS (Circular No. 6-P) pursuant to SSC Resolution No. 29
dated 16 January 2002;

(d) Those with cases pending before the SSC, Courts or Office of the Prosecutor involving collection
of contributions and/or penalties;

(e) Those against whom judgment had been rendered involving collection of contributions and/or
penalties but have not complied with the judgment, and;

(f) Those who, before the effectivity of the Act, have settled all contributions but with accrued
penalty. [emphasis supplied]

Under R.A. No. 9903 and its IRR, an employer who is delinquent or has not remitted all
contributions due and payable to the SSS may avail of the condonation program provided that the
delinquent employer will remit the full amount of the unpaid contributions or would submit a
proposal to pay the delinquent contributions in installment within the six (6)-month period set by
law.

Under Section 4 of R.A. No. 9903, once an employer pays all its delinquent contributions within
the six month period, the accrued penalties due thereon shall be deemed waived. In the last
proviso thereof, those employers who have settled their delinquent contributions before the
effectivity of the law but still have existing accrued penalties shall also benefit from the
condonation program. In that situation, there is still something to condone because there are
existing accrued penalties at the time of the effectivity of the law. Section 1 (d) of the IRR defines
accrued penalties as those that refer to the unpaid three percent (3%) penalty imposed upon any
delayed remittance of contribution.

Accordingly, R.A. No. 9903 covers those employers who (1) have existing delinquent contributions
and/or (2) have accrued penalties at the time of its effectivity.

Evidently, there is nothing in R.A. No. 9903, particularly Section 4 thereof, that benefits an
employer who has settled their delinquent contributions and/or their accrued penalties prior to
the effectivity of the law. Once an employer pays all his delinquent contributions and accrued
penalties before the effectivity of R.A. No. 9903, it cannot avail of the condonation program
because there is no existing obligation anymore. It is the clear intent of the law to limit the benefit
of the condonation program to the delinquent employers.[39]

Also, the provisions of R.A. No. 9903 and its IRR state that employers may be accorded the benefit
of having their accrued penalties waived provided that they either remit their delinquent
contributions or submit a proposal to pay their delinquencies in installments (on the condition that
there will be no default in subsequent payments) within the "availment period" spanning six (6)
months from R.A. No. 9903's effectivity.
The Court finds that employers who have paid their unremitted contributions and already settled
their delinquent contributions as well as their corresponding penalties before R.A. No. 9903's
effectivity do not have a right to be refunded of the penalties already paid, which shall be discussed
in seriatim.

Verba legis interpretation of R.A. No. 9903

It is the duty of the Court to apply the law the way it is worded.[40] Basic is the rule of statutory
construction that when the law is clear and unambiguous, the court is left with no alternative but
to apply the same according to its clear language.[41] The courts can only pronounce what the law
is and what the rights of the parties thereunder are.[42] Fidelity to such a task precludes
construction or interpretation, unless application is impossible or inadequate without it.[43] Thus,
it is only when the law is ambiguous or of doubtful meaning may the court interpret or construe
its true intent.[44]

Parenthetically, the "plain meaning rule" or verba legis in statutory construction enjoins that if the
statute is clear, plain and free from ambiguity, it must be given its literal meaning and applied
without interpretation.[45] This rule of interpretation is in deference to the plenary power of
Congress to make, alter and repeal laws as this power is an embodiment of the People's sovereign
will.[46] Accordingly, when the words of a statute are clear and unambiguous, courts cannot deviate
from the text of the law and resort to interpretation lest they end up betraying their solemn duty
to uphold the law and worse, violating the constitutional principle of separation of powers.

Concomitantly, condonation or remission of debt is an act of liberality, by virtue of which, without

receiving any equivalent, the creditor renounces the enforcement of the obligation, which is
extinguished in its entirety or in that part or aspect of the same to which the remission refers.[47]
It is essentially gratuitous for no equivalent is received for the benefit given.[48] Relatedly, waiver
is defined as a voluntary and intentional relinquishment or abandonment of a known existing legal
right, advantage, benefit, claim or privilege, which except for such waiver the party would have
enjoyed; the voluntary abandonment or surrender, by a capable person, of a right known by him
to exist, with the intent that such right shall be surrendered and such person forever deprived of
its benefit; or such conduct as warrants an inference of the relinquishment of such right; or the
intentional doing of an act inconsistent with claiming it.[49] On the other hand, refund is an act of
giving back or returning what was received.[50] In cases of monetary obligations, a claim for refund
exists only after the payment has been made and, in the act of doing so, the debtor either
delivered excess funds or there exists no obligation to pay in the first place. This right arises either
by virtue of solutio indebiti as provided for in Articles 2154 to 2163 of the Civil Code or by provision
of another positive law, such as tax laws or amnesty laws.[51]

A plain reading of Section 4 of R.A. No. 9903 shows that it does not give employers who have
already settled their delinquent contributions as well as their corresponding penalties the right to
a refund of the penalties paid. What was waived here was the amount of accrued penalties that
have not been paid prior to the law's effectivity—it does not include those that have already been
settled.
The words "condoned", "waived" and "accrued" are unambiguous enough to be understood and
directly applied without any resulting confusion. As discussed earlier, the word ''condonation" is
the creditor's act of extinguishing an obligation by renunciation and the word "waive" is an
abandonment or relinquishment of an existing legal right. On the other hand, the term "accrue"
in legal parlance means "to come into existence as an enforceable claim."[52] Thus, the phrases
"shall be condoned" and "shall likewise have their accrued penalties waived" under Section 4 of
the R.A. No. 9903 can only mean that, at the time of its effectivity, only existing penalties may be
extinguished or relinquished. No further interpretation is necessary to clarify the law's
applicability.

Prospective application of R.A. No. 9903

Statutes are generally applied prospectively unless they expressly allow a retroactive application.
It is a basic principle that laws should only be applied prospectively unless the legislative intent to
give them retroactive effect is expressly declared or is necessarily implied from the language
used.[53] Absent a clear contrary language in the text and, that in every case of doubt, the doubt
will be resolved against the retroactive operation of laws.[54]

Here, R.A. No. 9903 does not provide that, prior to its effectivity, penalties already paid are
deemed condoned or waived. What Section 2 of the law provides instead is an availment period
of six (6) months after its effectivity within which to pay the delinquent contributions for the
existing and corresponding penalties to be waived or condoned. This only means that Congress
intends R.A. No. 9903 to apply prospectively only after its effectivity and until its expiration.

Interpretation in favor of social justice

Even if there is doubt as to the import of the term "accrued penalties," condonation laws—
especially those relating to social security funds—are construed strictly against the applicants.

Social justice in the case of the laborers means compassionate justice or an implementation of the
policy that those who have less in life should have more in law.[55] And since it is the State's policy
to "promote social justice and provide meaningful protection to [SSS] members and their
beneficiaries against the hazards of disability, sickness, maternity, old age, death, and other
contingencies resulting in loss of income or financial burden,"[56] Court should adopt a rule of
statutory interpretation which ensures the financial viability of the SSS.

Here, the State stands to lose its resources in the form of receivables whenever it condones or
forgoes the collection of its receivables or unpaid penalties. Since a loss of funds ultimately results
in the Government being deprived of its means to pursue its objectives, all monetary claims based
on condonation should be construed strictly against the applicants. In the case of SSS funds, the
Court in Social Security System v. Commission on Audit[57] had emphatically explained in this wise:

THE FUNDS contributed to the Social Security System (SSS) are not only imbued with public
interest, they are part and parcel of the fruits of the workers' labors pooled into one enormous
trust fund under the administration of the System designed to insure against the vicissitudes and
hazards of their working lives. In a very real sense, the trust funds are the workers' property which
they could turn to when necessity beckons and are thus more personal to them than the taxes
they pay. It is therefore only fair and proper that charges against the trust fund be strictly
scrutinized for every lawful and judicious opportunity to keep it intact and viable in the interest of
enhancing the welfare of their true and ultimate beneficiaries. [emphasis supplied]

To this end, the Court upholds and abides by this canon of interpretation against applicants of the
benefits of R.A. No. 9903 as a recognition to the constitutional policies of freeing the people from
poverty through policies that provide adequate social services[58] and affording full protection to
labor.[59] It is consistent with the congressional intent of placing a primary importance in helping
the SSS increase its funds through stimulating cash inflows by encouraging delinquent employers
to settle their accountabilities.[60] Thus, R.A. No. 9903 shall be understood as not to include a
refund of penalties paid before its effectivity.

It is the essence of judicial duty to construe statutes so as to avoid such a deplorable result of
injustice.[61] Simply put, courts are not to give words meanings that would lead to absurd or
unreasonable consequences.[62] This is to preserve the intention of Congress—the branch which
possesses the plenary power for all purposes of civil government.[63]

Logically, only existing obligations can be extinguished either by payment, loss of the thing due,
remission or condonation, confusion or merger or rights, compensation, novation, annulment of
contract, rescission, fulfillment of a resolutory condition, or prescription. Interpreting R.A. No.
9903 in such a way that it extinguishes an obligation which is already extinguished is simply absurd
and unreasonable.

Rule-making power of the SSS

The SSS (through the SSC)[64] is empowered to issue the necessary rules and regulations for the
effective implementation of R.A. No. 9903.[65] Quasi-legislative power is exercised by
administrative agencies through the promulgation of rules and regulations within the confines of
the granting statute and the doctrine of non-delegation of powers from the separation of the
branches of the government.[66]

Accordingly, with the growing complexity of modem life, the multiplication of the subjects of
governmental regulations, and the increased difficulty of administering the laws, the rigidity of the
theory of separation of governmental powers has, to a large extent, been relaxed by permitting
the delegation of greater powers by the legislative and vesting a larger amount of discretion in
administrative and executive officials, not only in the execution of the laws, but also in the
promulgation of certain rules and regulations calculated to promote public interest.[67] Stated
differently, administrative agencies are necessarily authorized to fill in the gaps of a statute for its
proper and effective implementation. Hence, the need to delegate to administrative bodies—the
principal agencies tasked to execute laws in their specialized fields—the authority to promulgate
rules and regulations to implement a given statute and effectuate its policies.[68]
In the instant case, Section 30 of the R.A. No. 8282 and Section 5 of R.A. No. 9903 gave the SSS the
power to promulgate rules and regulations to define the terms of social security-related laws that
may have a likelihood of being subjected to several interpretations. This is exactly what the SSS
did when it defined the term "accrued penalties'' to mean "unpaid penalties" so as to make it
unequivocal and prevent confusion as to the applicability of R.A. No. 9903. More importantly, since
the ascription of the meaning of "unpaid penalties" to "accrued penalties" bear a reasonable
semblance and justifiable connection, it should not be disturbed and altered by the courts.

Delinquent contributions and penalties may be paid separately

There is no existing statutory or regulatory provision which requires the simultaneous or joint
payment of corresponding penalties along with the payment of delinquent contributions.
Consequently, it is possible that a class of employers who have settled their delinquent
contributions but have not paid the corresponding penalties before the effectivity of R.A. No.
9903, may exist. As adequately pointed out by the SSC:[69]

It is worthy to note that there is no provision in RA 8282, as amended, nor in any SSS Circular or
Office Order that requires employers to settle their arrears in contributions simultaneously with
payment of the penalty. On the contrary, in its sincere effort to be a partner in nation[-]building,
along with the State's declared policy to establish, develop, promote and perfect a sound and
viable tax-exempt social security system suitable to the needs of the Philippines, the SSS is
empowered to accept, process and approve applications for installment proposal evincing that
employers are not required to settle their arrears in contributions simultaneously with the
payment of the penalty. [emphasis supplied]

The Court finds that the aforementioned assertion of the SSC is not without any legal basis as
Section 4 (c) of the R.A. No. 8282 provides:

Section 4. Powers and Duties of the Commission and SSS. -

xxxx

(6) To compromise or release, in whole or in part, any interest, penalty or any civil liability to SSS
in connection with the investments authorized under Section 26 hereof, under such terms
and conditions as it may prescribe and approved by the President of the Philippines; and xxx
(emphasis supplied)

Based on the foregoing, the SSS—through the SSC—is authorized to address any act that may
undermine the collection of penalties due from delinquent employers subject only to the condition
in Section 26 of the same law that the potential revenues being compromised "are not needed to
meet the current administrative and operational expenses." Thus, petitioners' claim that "a class
of employers who simply paid the arrears in contribution but did not settle their penalties due
does not exist"[70] is erroneous.
There is no violation of the equal protection clause

There is a substantial distinction between employers who paid prior and subsequent to R.A. No.
9903's effectivity. The equal protection clause guarantees that no person or class of persons shall
be deprived of the same protection of laws which is enjoyed by other persons or other classes in
the same place and in like circumstances.[71] However, the concept of equal protection does not
require a universal application of the laws to all persons or things without distinction; what it
simply requires is equality among equals as determined according to a valid classification.[72]

In other words, equal protection simply requires that all persons or things similarly situated should
be treated alike, both as to rights conferred and responsibilities imposed.[73] It does not forbid
discrimination as to things that are different.[74] Neither is it necessary that the classification be
made with mathematical nicety.[75] Congress is given a wide leeway in providing for a valid
classification;[76] especially when social or economic legislation is at issue.[77] Hence, legislative
classification may properly rest on narrow distinctions, for the equal protection guaranty does not
preclude the legislature from recognizing degrees of evil or harm, and legislation is addressed to
evils as they may appear.[78]

Correspondingly, the primordial duty of the Court is merely to apply the law in such a way that it
shall not usurp legislative powers by judicial legislation and that in the course of such application
or construction, it should not make or supervise legislation, or under the guise of interpretation,
modify, revise, amend, distort, remodel, or rewrite the law, or give the law a construction which
is repugnant to its terms.[79] In enacting a law, it is the sole prerogative of Congress—not the
Judiciary—to determine what subjects or activities it intends to govern limited only by the
provisions set forth in the Constitution.

Significantly, petitioners have already paid not only their delinquent contributions but also their
corresponding penalties before the enactment and effectivity of R.A. No. 9903. Because of this
observation, petitioners cannot anymore be considered as "delinquent" under the purview of R.A.
No. 9903 and are not within the class of "delinquent employers."[80] Simply put, they are not
similarly situated with other employers who are delinquent at the time of the law's effectivity.
Accordingly, Congress may treat petitioners differently from all other employers who may have
been delinquent.

Verily, this Court cannot—in the guise of interpretation—modify the explicit language of R.A. No.
9903 in waiving the collection of accrued penalties to also include claims for refund. It obviously
violates the Trias Politica Principle entrenched in the very fabric of democracy itself. While
violation of the equal protection clause may be a compelling ground for this Court to nullify an
arbitrary or unreasonable legislative classification, it may not be used as a basis to extend the scope
of a law to classes not intended to be covered.[81] Therefore, R.A. No. 9903, which waived
outstanding penalties, cannot be expanded to allow a refund of those which were already settled
before the law's effectivity.

Final note
Settling the contributions in arrears within the availment period only entitles delinquent
employers to a remission of their corresponding accrued and outstanding penalties—not a refund
of the penalties which have already been paid. There is nothing in R.A. No. 9903 which explicitly
imposes or even implicitly recognizes a positive or natural obligation on the part of the SSS to
return the penalties which have already been settled before its effectivity.

It is absurd to revive obligations that have already been extinguished by payment or performance
just to be re-extinguished by condonation or remission so that it may create a resulting obligation
on the basis of solutio indebiti. More importantly, there is no violation of the equal protection
clause because there is a substantial distinction in the classes of employers. Therefore, the Court
deems it fitting to deny petitioners' claim for refund for lack of substantial and legal basis.

WHEREFORE, the petition is DENIED. The February 26, 2016 Decision and November 2, 2016
Resolution of the Court of Appeals in CA G.R. SP No. 140916 are AFFIRMED in toto.

SO ORDERED.
FIRST DIVISION

[ G.R. No. 211876, June 25, 2018 ]

ASIAN TERMINALS, INC., PETITIONER, V. PADOSON STAINLESS STEEL CORPORATION, RESPONDENT.

DECISION

TIJAM, J.:

Before Us is a Petition for Review on Certiorari[1] under Rule 45 of the Rules of Court filed by
petitioner Asian Terminals, Inc. (ATI) assailing the Decision[2] dated July 23, 2013 and Resolution[3]
dated March 26, 2014 of the Court of the Appeals (CA) in CA-G.R. CV No. 99435, which affirmed
the Decision[4] dated July 16, 2012 of the Regional Trial Court (RTC) of Manila, Branch 41 in Civil
Case No. 06-115638.

Factual Antecedents

Respondent Padoson Stainless Steel Corporation (Padoson) hired ATI to provide arrastre,
wharfage and storage services at the South Harbor, Port of Manila. ATI rendered storage services
in relation to a shipment, consisting of nine stainless steel coils and 72 hot-rolled steel coils which
were imported on October 5, 2001 and October 30, 2001, respectively in favor of Padoson, as
consignee. The shipments were stored within ATI's premises until they were discharged on July
29, 2006.[5]

Meanwhile, the shipments became the subject of a Hold-Order[6] issued by the Bureau of Customs
(BOC) on September 7, 2001. This was an offshoot of a Customs case filed by the BOC against
Padoson due to the latter's tax liability over its own shipments. The Customs case, docketed as
Civil Case No. 01-102440, was pending with the RTC of Manila, Branch 173.[7]

For the storage services it rendered, ATI made several demands from Padoson for the payment of
arrastre, wharfage and storage services (heretofore referred to as storage fees), in the following
amounts: P540,474.48 for the nine stainless steel coils which were stored at ATI's premises from
October 12, 2001 to July 29, 2006; and P8,374,060.80 for the 72 hot-rolled steel coils stored at
ATI's premises from November 8, 2001 to July 29, 2006.[8]

The demands, however, went unheeded. Thus, on August 4, 2006, ATI filed a Complaint[9] with the
RTC of Manila, Branch 41 for a Sum of Money and Damages with Prayer for the Issuance of Writ
of Preliminary Attachment against Padoson, docketed as Civil Case No. 06-115638. ATI ultimately
prayed that Padoson be ordered to pay the following amounts: P8,914,535.28 plus legal interest,
representing the unpaid storage fees; P100,000.00 as exemplary damages; and P100,000.00 as
attorney's fees.
In its Answer with Compulsory Counterclaim with Opposition to Application for Writ of Preliminary
Attachment,[10] Padoson claimed among others, that: (1) during the time when the shipments
were in ATI's custody and possession, they suffered material and substantial deterioration; (2) ATI
failed to exercise the extraordinary diligence required of an arrastre operator and thus it should
be held responsible for the damages; (3) the Hold-Order issued by the BOC was merely a leverage
to claim Padoson's alleged unpaid duties; (4) relative to the Customs case pending with RTC,
Branch 173, Padoson filed a Motion for Ocular Inspection[11] and in the course of the inspection,
Sheriff Romeo V. Diaz (Sheriff Diaz) discovered that the shipments were found in an open area and
were in a deteriorating state; (5) due to this, Padoson was compelled to file a Manifestation and
Motion dated January 27, 2004 praying for the release of the shipments, which was in turn,
granted by the RTC on June 25, 2004;[12] (6) on April 17, 2006, the RTC issued a Resolution,[13]
granting Padoson's Motion for Issuance of Writ of Execution and accordingly issued the Writ of
Execution, allowing Padoson to take possession of the shipment; (7) Sheriff Diaz in his Sheriff's
Partial Return on Execution[14] dated August 8, 2006, stated that one of the nine steel coils which
were part of the shipments, were missing; and (8) That due to the deterioration of the 72 hot-
rolled steel coils, their value depreciated and when Padoson sold the same, he incurred a loss of
P13.8 Million in lost profits. As to the stainless steel coils, he incurred a total loss of P2,992,000.00
corresponding to the value of the one steel coil lost (P882,000.00) and the lost profits for the sale
of the remaining steel coils (P2,110,000.00).[15]

In its Answer to Compulsory Counterclaim, ATI countered that it exercise due diligence in the
storage of the shipments and that the same were withdrawn from its custody in the same
condition and quantity as when they they were unloaded from the vessel.[16]

Pre-trial was scheduled on August 12, 2009.[17] Thereafter, trial ensued.

During the trial, Padoson presented a certain Mr. Gregory Ventura (Ventura), who allegedly took
pictures of the shipments. The pictures, however, were not pre-marked during the pre-trial.
Consequently, the RTC issued an Order[18] dated September 8, 2011, disallowing the marking of
the said pictures and Ventura's testimony thereon. To assail the said order, Padoson filed a Petition
for Certiorari before the CA but the same was denied in the CA Decision[19] dated July 1, 2013,
which became final and executory on July 24, 2013.[20]

ATI called to the witness stand its Cash Billing Supervisor, Mr. Samuel Goutana (Goutana) to explain
how ATI computed the amount of storage fees prayed for in its Complaint against Padoson.[21]

On July 16, 2012, the RTC rendered its Decision,[22] dismissing ATI's complaint and Padoson's
counterclaim. The RTC held that although the computation of storage fees to be paid by Padoson
as prayed for in ATI's complaint to the tune of P8,914,535.28 plus legal interest, were "clear and
unmistakable" and which Padoson never denied, the liability to pay the same should be borne by
the BOC. Relying on the case of Subic Bay Metropolitan Authority v. Rodriguez, et al.[23] (SBMA),
the RTC reasoned out that by virtue of the Hold-Order over Padoson's shipments, the BOC has
acquired constructive possession over the same. Consequently, the BOC should be the one liable
to ATI's money claims. The RTC, however, pointed out that since ATI did not implead the BOC in
its complaint, the BOC cannot be held to answer for the payment of the storage fees.

ATI appealed the RTC decision, but the same was denied by the CA in its Decision[24] dated July 23,
2013. TheCA ruled that the RTC did not err in holding that Padoson's shipments were under the
BOC's constructive possession upon its issuance of the Hold-Order. The CA, likewise, ruled that
there is substantial evidence to prove that the shipments suffered loss and deterioration or
damage while they were stored in ATI's premises. But since the BOC had acquired constructive
possession over the shipments, the CA ruled that neither ATI could be held liable for damages nor
Padoson be held liable for the storage fees. Lastly, the CA pronounced that the RTC was correct in
holding that no relief may be given to both ATI and Padoson since the BOC was not impleaded in
ATI's complaint.

Aggrieved, ATI filed a Motion for Reconsideration,[25] stating among others, that: (1) the
documents attached to Padoson's Answer are inadmissible and insufficient to prove that the
shipments were damaged while in ATI's premises; (2) those documents were related to the
Customs case in which ATI was not impleaded as a party, and thus, was not given an opportunity
to contest them; (3) with respect to the photographs over the shipments allegedly taken on
January 16, 2004, the same should be inadmissible for lack of authentication; (4) that Padoson's
witness, a certain Mary Jane Lorenzo (Lorenzo), was not competent to testify on the photographs
since she admitted that she was not the one who took the photographs and that the same do not
indicate that they pertain to Padoson's shipment; (5) Sheriff Dizon's declaration in his Report on
Ocular Inspection that the shipments, were "already in a deteriorating condition," were merely
conclusory; and (6) Sheriff Dizon who prepared the Partial Return on Execution dated August 8,
2006, was not called to the witness stand to testify on the contents of the said Return.[26]

On March 26, 2014, the CA issued a Resolution[27] denying ATI's motion for reconsideration.

Hence, this petition for review on certiorari which submits the following arguments in support
thereof:

A. The [CA] erred in ruling that the Subject Shipments were in the constructive possession of
the [BOC];[28]

B. The [CA] erred in ruling that Padoson can no longer be held liable to ATI for arrastre,
wharfage and storage fees because of said constructive possession[;][29]

C. Padoson failed to establish that the Subject Shipments sustained damage while in ATI's
custody[;][30]

D. ATI is entitled to an award of damages[; and][31]

E. The instant case should be decided on its merits. It should not have been dismissed based
on the theory of constructive possession proposed by the trial court and adopted by the
[CA.][32]
Ruling of the Court

The petition is granted.

Essentially, the issue posed before us is whether or not the CA erred in affirming the RTC decision.

We answer in the affirmative.

While this Court is not a trier of facts, still when the inference drawn by the CA from the facts is
manifestly mistaken, as in the present case, we can, in the interest of justice, review the evidence
to allow us to arrive at the correct factual conclusions based on the record.[33]

The CA and the RTC misapplied the case of SBMA

In SBMA,[34] we dealt with the following issues: (1) which court has the exclusive original
jurisdiction over seizure and forfeiture proceedings; and (2) the propriety of the issuance by the
RTC of a Temporary Restraining Order against the BOC. In ruling that it is the BOC, and not the
RTC, which has exclusive original jurisdiction over seizure and forfeiture of the subject shipment,
this Court explained that:

The Collector of Customs sitting in seizure and forfeiture proceedings has exclusive jurisdiction to
hear and determine all questions touching on the seizure and forfeiture of dutiable goods.
Regional trial courts are devoid of any competence to pass upon the validity or regularity of seizure
and forfeiture proceedings conducted by the BOC and to enjoin or otherwise interfere with these
proceedings. x x x

x x x [T]he rule is that from the moment imported goods are actually in the possession or control
of the Customs authorities, even if no warrant for seizure or detention had previously been issued
by the Collector of Customs in connection with the seizure and forfeiture proceedings, the BOC
acquires exclusive jurisdiction over such imported goods for the purpose of enforcing the customs
laws, subject to appeal to the Court of Tax Appeals whose decisions are appealable to this Court.
x x x.[35] (Citations omitted and emphasis ours)

Nowhere in the SBMA case did we exclaim that the moment a Hold-Order has been issued, the
BOC acquires constructive possession over the subject shipment. On the contrary, what we stated
is that once the BOC is actually in possession of the subject shipment by virtue of a Hold-Order, it
acquires exclusive jurisdiction over the same for the purpose of enforcing the customs laws. In
fact, in SBMA, it is clear that the BOC's issuance of the Hold-Order was to direct the port officers
to hold the delivery of the shipment and to transfer the same to the security warehouse.[36] The
BOC, thus, had actual and not constructive possession over the subject shipment in said case. Here,
the actual possession over Padoson's shipment remained with ATI since they were stored at its
premises.
Likewise, in the SBMA case, We emphasize that the BOC's exclusive jurisdiction over the subject
shipment is for the purpose of enforcing customs laws, so as to render effective and efficient the
collection of import and export duties due the State.[37] It has nothing to do with the collection by
a private company, like ATI in this case, of the storage fees for the services it rendered to its client,
Padoson.

Further, there is no implication in the SBMA case that the BOC's mere issuance of a Hold-Over
directed against the subject shipment constitutes constructive possession, which may exculpate
the private consignee from its storage fee obligation with the arrastre operator.

Accordingly, there is no basis for the CA in holding that the RTC did not err in declaring that the
subject shipments were deemed placed under BOC's constructive possession by its issuance of a
Hold-Order over Padoson's shipment.

The alleged constructive possession by virtue of

BOC's Hold-Order of Padoson's shipment was not
even raised as an issue in this case

The matter concerning the BOC's alleged constructive possession was erroneously considered by
the RTC and the CA in their respective decisions. The records show that this matter was neither
alleged in Padoson's Answer nor was it raised in the stipulation of facts contained in the RTC's pre-
trial Order dated August 12, 2009. Padoson never made an assertion to the effect that it could not
be held liable for the storage fees because of the BOC's Hold-Order against its shipment. The
disclosure that Padoson's shipments were subject of the BOC's Hold-Order was never raised in
relation to Padoson's affirmative defense that it should not pay for the storage fees which arose
from its contract of services with ATI.[38] In fact, it was the RTC, through its July 16, 2012 Decision,
that brought up the concept of constructive possession by misapplying the SBMA case, as
explained earlier.

As held in LICOMCEN, Inc. v. Engr. Abainza:[39]

Although a pre-trial order is not meant to catalogue each issue that the parties may take up during
the trial, issues not included in the pre-trial order may be considered only if they are impliedly
included in the issues raised or inferable from the issues raised by necessary implication. The basis
of the rule is simple. Petitioners are bound by the delimitation of the issues during the pre-trial
because they themselves agreed to the same.[40] (Citation omitted)

As already elucidated, the theory of constructive possession espoused by the RTC and concurred
in by the CA cannot be deemed to be impliedly included in the issue raised by ATI in its complaint,
since it was not even touched upon in the RTC's pre-trial order.

Padoson, and not BOC, is liable to ATI for the

payment of storage fees for the services rendered
by ATI
First, granting, without admitting, that the BOC has constructive possession over Padoson's
shipment, this does not, in itself release Padoson from its obligation to pay the storage fees due
to ATI. It has been established that Padoson engaged ATI to perform arrastre, wharfage and
storage services over its shipments from October 12, 2001 and November 8, 2001, until it was
discharged from ATI's premises on July 29, 2006. Although Padoson's shipments were the subject
of BOC's Hold-Order dated September 7, 2001, the fact remains that it was Padoson, and not BOC,
that entered into a contract of service with ATI and consequently was the one who was benefited
therefrom.

The basic principle of relativity of contracts is that contracts can only bind the parties who entered
into it, and cannot favor or prejudice a third person, even if he is aware of such contract and has
acted with knowledge thereof.[41] Indeed, "[w]here there is no privity of contract, there is likewise
no obligation or liability to speak about."[42]

Guided by this doctrine, Padoson, cannot shift the burden of paying the storage fees to BOC since
the latter has never been privy to the contract of service between Padoson and ATI. To rule
otherwise would create an absurd situation wherein a private party may free itself from liability
arising from a contract of service, by merely invoking that the BOC has constructive possession
over its shipment by the issuance of a Hold-Order.

Second, the BOC's Hold-Order is not in any way related to the contract of service between ATI and
Padoson. Rather, it is directed at Padoson's shipment by reason of Padoson's tax liability and which
triggered the filing of the Customs Case. The BOC's exclusive jurisdiction over the shipment is solely
for the purpose of enforcing customs laws against Padoson's tax delinquency. The BOC's interest
over the shipment was limited to discharging its duty to collect Padoson's tax liability. Put a bit
differently, the BOC's Hold-Order is extraneous to Padoson's obligation to pay the storage fees in
favor of ATI. Even Padoson admitted that the Hold-Order was issued by the BOC merely as a
leverage to claim Padoson's alleged unpaid duties.[43] Clearly, Padoson has two monetary
obligations, albeit of different characters – one is its liability for storage fees with ATI based on its
contract of service, and the other is its tax liability with the BOC which is the subject of the Customs
case pending with the RTC.

Third, the RTC's pronouncement which was affirmed by the CA, to the effect that the BOC, and not
Padoson, should have been held liable for the storage fees had it been impleaded in ATI's
complaint, is erroneous. This presupposes that BOC is an indispensable party, which it is not

. In the consolidated case of PNB v. Heirs of Militar,[44] the Court explained that:

An indispensable party is one whose interest will be affected by the court's action in the litigation,
and without whom no final determination of the case can be had. The party's interest in the
subject matter of the suit and in the relief sought are so inextricably intertwined with the other
parties' that his legal presence as a party to the proceeding is an absolute necessity. In his absence
there cannot be a resolution of the dispute of the parties before the court which is effective,
complete, or equitable.
Conversely, a party is not indispensable to the suit if his interest in the controversy or subject
matter is distinct and divisible from the interest of the other parties and will not necessarily be
prejudiced by a judgment which does complete justice to the parties in court. He is not
indispensable if his presence would merely permit complete relief between him and those already
parties to the action or will simply avoid multiple litigation.[45] (Citations omitted)

In this case, the ultimate relief sought by ATI in its complaint for a sum of money with damages, is
the recovery of the storage fees from Padoson, which arose from the contract of service which
they have validly entered into. BOC, as explained earlier, was never privy to this contract. It was
Padoson who engaged ATI's storage services. It was Padoson who benefited from ATI's storage
services. It was Padoson who subsequently sold the shipments and suffered losses.

Recall too, that ATI was not a party to the Customs case filed by BOC against Padoson for the
latter's tax delinquency. BOC's interest over the shipment which is the subject matter of the
Customs case is merely to collect from Padoson its tax dues; it is separate and distinct from the
claim of ATI in its complaint for a sum of money – which is to demand from Padoson the payment
of storage fees based on their contract of service. The BOC's Hold-Order did not have the effect of
relieving Padoson from its contractual obligation with ATI.

These facts reveal that BOC's interest over the shipments is not inextricably intertwined with ATI's
collection suit against Padoson, so as to require its legal presence as a party to the proceeding. In
other words, complete relief can still be afforded to ATI without the presence of the BOC and the
case can still be decided on the merits without prejudicing BOC's rights. Thus, the BOC is not an
indispensable party to the complaint for a sum of money filed by ATI against Padoson.

Padoson failed to prove that its shipment

sustained damage while in ATI's custody

To substantiate its claim that ATI failed to exercise due diligence over the shipments causing them
to be in a dismal condition, Padoson presented photographs which were allegedly taken by
Ventura.

During the trial, however, the RTC observed that the said photographs were not pre-marked as
evidence and that the pre-trial orders did not contain a reservation for presentation of additional
evidence for Padoson. Consequently, in its September 8, 2011 Order, the RTC disallowed the
identification of the unmarked photographs. Padoson moved for a reconsideration of the order,
but it was denied. Its subsequent petition for certiorari was likewise denied by the CA in its Decision
dated July 1, 2013, which became final and executory. Thus, at the time the CA rendered its July
23, 2013 Decision, the RTC had already ruled that the photographs were inadmissible and were
not admitted in evidence. Yet, this fact was clearly disregarded by the CA when it promulgated its
assailed decision. This runs counter to the "rule that evidence which has not been admitted cannot
be validly considered by the courts in arriving at their judgments."[46]
Likewise, in support of its allegation of damage to the shipments, Padoson relied on the following
documents: Sheriffs Report on Ocular Inspection; Manifestation and Motion dated January 27,
2004; Resolution dated June 25, 2004; Resolution dated April 17, 2006; Sheriffs Partial Return on
Execution dated August 8, 2006; and the photographs allegedly taken on January 16, 2004. These
documents, however, relate to the Customs case. Notably, ATI was not impleaded and has no
participation in the Customs case.[47] As such, it would be unfair that ATI be bound by the RTC's
proceedings and findings of fact in the Customs case without giving it the chance to hear its side.
To rule otherwise would deprive ATI of due process. The essence of due process is the opportunity
to be heard, logically preconditioned on prior notice, before judgment is rendered.[48] Indeed,
"[n]o man shall be affected by any proceeding to which he is a stranger."[49]

In particular, the sheriffs declaration in the Sheriffs Report on Ocular Inspection that the steel coils
which were part of the shipment, were "already in a deteriorating condition," is a mere
uncorroborated conclusion for having no evidence to back it up. There is no showing that Sheriff
Diaz had personal knowledge of the original condition of the shipment, for him to arrive at the
conclusion that it deteriorated while it was docked at ATI's premises.[50] Mere allegation and
speculation is not evidence, and is not equivalent to proof.[51]

So too, the Sheriffs Partial Return on Execution is a document solely prepared by the sheriff.
Padoson, however, did not present Sheriff Diaz to testify on the contents thereof. Evidently, ATI
was not given a chance to cross-examine him to test the truthfulness of the allegations made in
the said Return.[52]

Anent the photographs on the shipment allegedly taken on January 16, 2004, the same were not
properly authenticated and identified.[53] "Indeed, photographs, when presented in evidence,
must be identified by the photographer as to its production and he must testify as to the
circumstances under which they were produced."[54] "The value of this kind of evidence lies in its
being a correct representation or reproduction of the original."[55] However, in this case, Padoson's
witness, Ms. Lorenzo simply admitted that she did not take the pictures and that the same do not
indicate that they pertain to the shipments.[56]

Additionally, we have observed from the records that Padoson did not present any evidence on
the supposed condition of the shipment at the time they were already discharged from the vessels.
As such, there can be no basis for Padoson to claim that its shipments deteriorated while they
were in ATI's possession and custody up to the time they were withdrawn from ATI's premises.
Thus, Padoson cannot impute negligence upon ATI.

Padoson is liable to pay the amount prayed for in

ATI's Complaint

In its complaint, ATI demanded from Padoson to pay the total amount of P8,914,535.28 plus legal
interest, representing the unpaid storage fees, consisting of the nine stainless steel coils and the
72 hot-rolled steel coils. During the trial, ATI's Cash Billing Supervisor, Goutana testified on the
breakdown of the said amount. As to the nine stainless steel coils, Goutana explained, thus:
Q: And for this particular cargo, Mr. witness, comprising of nine (9) stainless steel coils, what was
the metric ton of the said shipment?

A: For nine (9) coils, we have 36.725 metric tons, sir.

xxxx

Q: So how [did] you arrive at the amount of Five Hundred Forty Thousand Four Hundred Seventy
Four and Forty Eighty Centavos (P540,474.48), Mr. [W]itness?

A: Total metric tons 36.725 x 7.50, the rates and the number of days 1,752 plus 12% VAT, so we
arrived in the amount of Five Hundred Forty Thousand Four Hundred Seventy Four and Forty
Eighty Centavos (P540,474.48), sir.[57]

With respect to the 72 hot-rolled steel coils, Goutana narrated, thus:

Atty. Braceros:

And how did you come up with this particular total, Mr. Witness?

A: To arrive at this amount of Eight Million Three Hundred Seventy Four Thousand Sixty Pesos
and Eighty Centavos (P8,374,060.80), we have the metric ton – 577.920 metric tons x number
of days – 1725 days and the rate is 7.50 plus 12% VAT, sir.[58]

It bears stressing that the computation of the amount ATI sought from Padoson for the latter's
payment of storage fees has already been found by the RTC, which in turn was concurred in by the
CA, as "clear and unmistakable." In fact, as correctly observed by the RTC, even Padoson, has never
denied its obligation with ATI. Thus:

Deduced from the foregoing, the computation of the amounts sought to be paid by [ATI] are clear
and unmistakable. Notably, likewise, [Padoson] never denied such obligation, only that, it turned
the table against [ATI].[59] (Emphasis ours)

Clearly, in order to evade its liability, Padoson merely turned the table against ATI by arguing in
the RTC that due to the dismal condition of the shipment, ATI should be held liable. But, as We
have explained earlier, Padoson did hot adduce sufficient evidence to prove that ATI was negligent
in the storage of the shipment so as to entitle Padoson to recover damages. To put it differently,
Padoson's obligation with ATI for the storage fees and its computation thereon has already been
settled by the RTC and was no longer raised as an issue by Padoson. Thus, Padoson cannot now
renege on its obligation by merely attributing negligence to ATI.
Corollarily, as to the interest rate applicable, we explained in Nacar v. Gallery Frames, et al.,
that:[60]

II. With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan
or forbearance of money, the interest due should be that which may have been stipulated in
writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest

on the amount of damages awarded may be imposed at the discretion of the court at the rate of
6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages, except
when or until the demand can be established with reasonable certainty. Accordingly, where the
demand is established with reasonable certainty, the interest shall begin to run from the time the
claim is made judicially or extrajudicially (Art. 1169, Civil Code), but when such certainty cannot be
so reasonably established at the time the demand is made, the interest shall begin to run only
from the date the judgment of the court is made (at which time the quantification of damages
may be deemed to have been reasonably ascertained). The actual base for the computation of
legal interest shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the
rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be
12% per annum from such finality until its satisfaction, this interim period being deemed to be by
then an equivalent to a forbearance of credit.[61] (Citations omitted and italics in the original)

It should be noted, however, that the new rate of six percent (6%)[62] per annum could only be
applied prospectively and not retroactively. Consequently, the former rate of twelve percent
(12%) per annum legal interest shall apply only until June 30, 2013. Come July 1, 2013, the new
rate of six percent (6%) per annum shall be the prevailing rate of interest when applicable.[63]

Nonetheless, the need to determine whether the obligation involved in this case is a loan and
forbearance of money exists.

"The term 'forbearance,' within the context of usury law, has been described as a contractual
obligation of a lender or creditor to refrain, during a given period of time, from requiring the
borrower or debtor to repay the loan or debt then due and payable."[64] "Forbearance of money,
goods or credits, should therefore refer to arrangements other than loan agreements, where a
person acquiesces to the temporary use of his money, goods or credits pending happening of
certain events or fulfillment of certain conditions."[65] Consequently, if those conditions are
breached, said person is entitled not only to the return of the principal amount paid, but also to
compensation for the use of his money which would be the same rate of legal interest applicable
to a loan since the use or deprivation of funds therein is similar to a loan.[66]

This case, however, does not involve an acquiescence to the temporary use of a party's money but
merely a failure to pay the storage fees arising from a valid contract of service entered into
between ATI and Padoson.

Considering that there is an absence of any stipulation as to interest in the agreement between
the parties herein, the matter of interest award arising from the dispute in this case would actually
fall under the category of an "obligation, not constituting a loan or forbearance of money" as
aforecited. Consequently, this necessitates the imposition of interest at the rate of 6%. The six
percent (6%) interest rate shall further be imposed from the finality of the judgment herein until
satisfaction thereof, in light of our recent ruling in Nacar.[67]

Thus, guided by aforementioned disquisition, the rate of interest on the amount of P8,914,535.28,
representing the unpaid storage fees shall be twelve percent (12%) from August 4, 2006, the date
when ATI made a judicial demand by filing its complaint against Padoson, to June 30, 2013. From
July 1, 2013, the effective date of BSP-MB Circular No. 799, until full satisfaction of the monetary
award, the rate of interest shall be six percent (6%).[68]

ATI is not entitled to exemplary damages and

attorney's fees

Pursuant to Articles 2229[69] and 2234[70] of the Civil Code, exemplary damages may be awarded
only in addition to moral, temperate, liquidated, or compensatory damages. Since ATI is not
entitled to either moral, temperate, liquidated, or compensatory damages, then their claim for
exemplary damages is bereft of merit. It has been held that as a requisite for the award of
exemplary damages, the act must be accompanied by bad faith or done in wanton, fraudulent or
malevolent manner[71] — circumstances which are absent in this case.

Finally, considering the absence of any of the circumstances under Article 2208[72] of the Civil Code
where attorney's fees may be awarded, the same cannot be granted to ATI. From the foregoing,
we hold that the CA erred in affirming the RTC's decision. Accordingly, it is Padoson and not the
BOC, that is liable to ATI for the payment of storage fees on the basis of the contract of service
between Padoson and ATI.

WHEREFORE, premises considered, the petition is GRANTED. The Decision dated July 23, 2013 and
Resolution dated March 26, 2014 of the Court of Appeals in CA-G.R. CV No. 99435 are REVERSED
and SET ASIDE. Respondent Padoson Stainless Steel Corporation is ORDERED to pay Asian
Terminals Inc. the amount of P8,914,535.28, plus interest thereon at twelve percent (12%) per
annum, computed from August 4, 2006 to June 30, 2013, and six percent (6%) per annum, from
July 1, 2013, until full satisfaction of the judgment award.

SO ORDERED.
FIRST DIVISION

[ G.R. No. 200383, March 19, 2018 ]

NORMA M. DIAMPOC, PETITIONER, VS. JESSIE BUENAVENTURA AND THE REGISTRY OF DEEDS FOR
THE CITY OF TAGUIG, RESPONDENTS.

DECISION

DEL CASTILLO, J.:

This Petition for Review on Certiorari [1] seeks to set aside the February 21, 2011 Decision[2] and
May 6, 2011 Resolution[3] of the Court of Appeals (CA) in CA-G.R. CV No. 92453 which denied
herein petitioner's appeal and affirmed the December 20, 2007 Decision[4] of the Regional Trial
Court of Pasig City, Branch 268 (RTC) in Civil Case No. 70076.

Factual Antecedents

In July, 2004, petitioner Norma M. Diampoc and her husband Wilbur L. Diampoc (the Diampocs)
filed a Complaint[5] for annulment of deed of sale and recovery of duplicate original copy of title,
with damages, against respondent Jessie Buenaventura (Buenaventura) and the Registry of Deeds
for the Province of Rizal. The case was docketed before the RTC as Civil Case No. 70076.

The Diampocs alleged in their Complaint that they owned a 174-square meter parcel of land
(subject property) in Signal Village, Taguig City covered by Transfer Certificate of Title No. 25044
(TCT 25044); that Buenaventura became their friend; that Buenaventura asked to borrow the
owner's copy of TCT 25044 to be used as security for a P1 million loan she wished to secure; that
they acceded, on the condition that Buenaventura should not sell the subject property; that
Buenaventura promised to give them P300,000.00 out of the P1 million loan proceeds; that on
July 2, 2000, Buenaventura caused them to sign a folded document without giving them the
opportunity to read its contents; that Buenaventura failed to give them a copy of the document
which they signed; that they discovered later on that Buenaventura became the owner of a one-
half portion (87 square meters) of the subject property by virtue of a supposed deed of sale in her
favor; that they immediately proceeded to the notary public who notarized the said purported
deed of sale, and discovered that the said 87-square meter portion was purportedly sold to
Buenaventura for P200,000.00; that barangay conciliation proceedings were commenced, but
proved futile; that the purported deed of sale is spurious; and that the deed was secured through
fraud and deceit, and thus null and void. The Diampocs thus prayed that the purported deed of
sale be annulled find the annotation thereof on TCT 25044 be canceled; that the owner's duplicate
copy of TCT 25044 be returned to them; and that attorney's fees and costs of suit be awarded to
them.

In her Answer, Buenaventura claimed that the Diampocs have no cause of action; that the case is
a rehash of an estafa case they previously filed against her but which was dismissed; and that the
case is dismissible for lack of merit and due to procedural lapses.[6]

Ruling of the Regional Trial Court

After trial, the RTC rendered its December 20, 2007 Decision, pronouncing as follows:

Counsel for the plaintiffs presented two witnesses, namely: Norma Diampoc and Wilbur Diampoc.
Stripped off of its non-essentials, their testimonies are, summarized as follows:

1. MRS. NORMA DIAMPOC - The witness is one of the plaintiffs. She testifies that they are the
owners of the property x x x covered by Transfer Certificate of Title No. 25044 x x x; that sometime
in May 2000, defendant borrowed the original owner's duplicate copy of said title from the
plaintiffs to be used as collateral of her loan from a bank as she needed additional capital for her
store x x x; that they have agreed that after getting the proceeds of the loan of Php1,000,000.00,
defendant will give Php300,000.00 to plaintiff to be used for the repair of plaintiffs' second floor x
x x; it was further agreed by the parties that defendant will pay the entire amount of the loan and
the Php300,000.00 shall represent payment for the use of plaintiffs' title x x x; that in the morning
of July 3, 2000, while plaintiff Norma Diampoc was in the store of a certain Marissa Ibes, defendant
Jessie Buenaventura arrived and force her to sign a document without giving her a chance to read
the same x x x; that in the morning of November 19, 2002, Eng[r]. Perciliano Aguinaldo went to
the plaintiffs' house and conducted a survey of the subject property; that plaintiffs asked said
engineer why he was conducting a survey and the engineer replied that it was the instruction of
defendant Buenaventura as the said property has already been sold x x x; that Engineer Aguinaldo
showed plaintiff a document denominated as "Deed of Sale" x x x; that when plaintiffs signed the
Deed of Sale, the word "Vendor" was not yet written x x x; that plaintiffs did not appear before the
notary public who notarized the document and never received the amount of Php200,000.00 as
stated in the document x x x; that when they confronted the lawyer who notarized the document,
plaintiffs were advised to file a complaint before the Office of the Barangay x x x; that the Lupong
Tagapamayapa of the said Barangay issued a certificate to file action as the parties failed to settle
the case amicably x x x; that plaintiffs sent a letter of protest to Eng[r]. Aguinaldo x x x; that in
connection with the filing of the instant complaint, the witness executed a sworn statement x x x.

2. MR. WILBUR DIAMPOC – x x x He was presented to corroborate the testimony of his wife-co-
plaintiff Mrs. Norma Diampoc.

On May 19, 2005, defendant through counsel filed a Motion for Reconsideration praying that he
be allowed to participate in the trial. The Court in its Order dated August 22, 2005 gave defendant
last opportunity to present evidence in her behalf and allowed her to cross-examine the plaintiffs'
witnesses.

On cross-examination, the witnesses confirmed that they signed the subject deed of sale but did
not read the contents of the document they signed; that they never appeared before the Notary
Public to acknowledge the Deed of Sale; that they did not file a case against the Notary Public; that
they did not receive any consideration for the alleged sale; that they filed a complaint against
defendant only after they discovered that what they have signed was a Deed of Sale; that they did
not read the document before they affixed their signatures because they busted the defendant x
x x.

Counsel for the defendant on the other hand presented the defendant herself as his lone witness.
Jessie Buenaventura testified that spouses Diampoc sold to her a portion of their land consisting
of 87 square meters as evidenced by a Deed of Sale marked in evidence x x x; that the said deed
of sale was signed and acknowledged before a Notary Public, Atty. Pastor Mendoza on July 6, 2000
x x x; that spouses Diampoc filed a case against her for Estafa, Grave Threat, Coercion and
Falsification before the Prosecutor's Office of Rizal x x x; that said cases were dismissed x x x; that
because of the filing of the instant case, defendant spent litigation expenses x x x. On cross-
examination, defendant further testified that [she] personally gave the amount of Php200,000.00
to plaintiff Norma Diampoc before they went to the Notary Public x x x.

After evaluating the evidence on hand, the Court finds that plaintiffs fall short of the required
evidence to substantiate their allegations that subject Deed of Sale x x x is illegal and spurious.
'Deed of Sale being a public document, it is prima facie evidence of the facts stated therein'
(Domingo versus Domingo, 455 SCRA 555). Under the rule, the terms of a contract are rendered
conclusive upon the parties and evidence aliunde is not admissible to vary or contradict a complete
and enforceable agreement embodied in a document. (Rosario Textile Mills Corp. versus Home
Bankers Savings, 462 SCRA 88).

The pertinent provision of the New Civil Code reads:

'Art. 1159. Obligations arising from contracts have the force of law between the contracting parties
and should be complied with in good faith.'

WHEREFORE, foregoing premises considered, the above-captioned case is hereby DISMISSED for
insufficiency of evidence. No pronouncement as to costs.

SO ORDERED.[7]

Ruling of the Court of Appeals

Respondents filed an appeal before the CA, which denied the same, ruling as follows:

In beseeching the annulment of the notarized deed of sale, appellants impress upon Us that they
were deceived by Jessie (now 'appellee') into believing that they were signing papers for the
intended bank loan. They failed to read the contents of the document for it 'was folded', and Jessie
was in a hurry.
These specious arguments are devoid of judicial mooring.

As aptly declared by the court a quo, notarized documents, like the deed in question, enjoy the
presumption of regularity which can be overturned only by clear, convincing and more than merely
preponderant evidence. Miserably, appellants failed to discharge this burden.

Appellants are not illiterate, but educated persons who understood the meaning of the word
'vendor' printed [vividly] under their names. They could easily read such word before they could
affix their signatures. We are simply appalled by appellant Wilbur's pathetic explanation that it
was 'dark' at the time he signed the deed so that he failed to read the word 'vendor'.

Yet, even if they avouch to be illiterate, which they most certainly are not being high school
graduates themselves, the enunciations in Bernardo v. Court of Appeals come to mind –

'[G]ranting, without conceding, that private respondent and his wife were both illiterate, this still
does not save the day for them. As stressed in Tan Tua Sia v. Yu Biao Sontua, 56 Phil. 711, cited in
Mata v. Court of Appeals - ....The rule that one who signs a contract is presumed to know its contents
have been applied even to contracts of illiterate persons on the ground that if such persons are
unable to read, they are negligent if they fail to have the contract read to them. If a person cannot
read the instrument, it is as much his duty to procure some reliable persons to read and explain it
to him, before he signs it, x x x and his failure to obtain a reading and explanation of it is such gross
negligence as will estop him from avoiding it on the ground that he was ignorant of its contents.'
xxx

Verily, the fact that appellants used only one community tax certificate cannot emasculate the
evidentiary weight of the notarized deed. The notary public may have been lax in his duty of
requiring two community tax certificates front the appellants, but this will not adversely affect the
validity of the notarized deed.

Invariably, appellants cannot now be allowed to disavow the contractual effects of the notarized
deed. It is true that parol evidence may be admitted to challenge the contents of such agreement
'where a mistake or imperfection of the writing, or its failure to express the true intent and
agreement of the parties, or the validity of the agreement is put in issue by the pleadings.'
However, such evidence must be clear and convincing and of such sufficient credibility as to
overturn the written agreement. The flimsy protestations of the parties are not substantiated by
compelling evidence which would warrant a reversal of the impugned judgment.

As borne out by the notarized deed, a perfected contract of sale was forged between the parties.
Appellants received in full the payment of P200,000.00, having sold to appellee a portion of their
lot. If the terms of the deed were not in consonance with their expectations, they should have
objected to it and insisted on the provisions they wanted. Courts are not authorized to extricate
parties from the necessary consequences of their acts, and the fact that the contractual
stipulations may turn out to be financially disadvantageous will not relieve parties thereto of their
obligations.

With this discourse, appellants' recourse falls through. The claim for payment of damages
necessarily fails.

WHEREFORE, the Appeal is hereby DENIED. The Decision dated 20 December 2007 of the Regional
Trial Court, Pasig City, Branch 268, in Civil Case No. 70076, is AFFIRMED.

SO ORDERED.[8] (Emphasis in the original)

Petitioner filed a Motion for Reconsideration,[9] which was denied via the May 6, 2011 Resolution.
Hence, the instant Petition.

In a January 25, 2016 Resolution,[10] this Court resolved to dispense with the filing of respondent
Buenaventura's comment, and petitioner manifested[11] her willingness to submit the case for
resolution on the basis of the pleadings on record.

Issues

Petitioner claims that –

A. THE COURT OF APPEALS ERRED IN APPLYING THE PRIMA FACIE PRESUMPTION OF REGULARITY
OF NOTARIZED DOCUMENTS AND UPHOLDING THE VALIDITY OF THE NOTARIZED DEED OF SALE
NOTWITHSTANDING THE UNDISPUTED FACT THAT THERE WERE IRREGULARITIES IN THE
EXECUTION AND NOTARIZATION OF THE DEED OF SALE.

B. THE COURT OF APPEALS ERRED IN RULING THAT THERE WAS A VALID CONTRACT OF SALE.[12]

Petitioner's Arguments

Seeking reversal of the assailed CA dispositions, nullification of the subject deed of sale,
cancellation of Entry No. 5381 on the back of TCT 25044, the return of the owner's duplicate copy
of TCT 25044, and payment of attorney's fees and costs of suit, petitioner argues that while a
notarized document enjoys the presumption of regularity, this does not apply to the subject deed
of sale as it was not signed before the notary public, and was notarized in the absence of petitioner
and her husband; that Buenaventura failed to present as her witness the notary public who
notarized the deed of sale; that Buenaventura herself failed to show that she was present at the
notarization; that there was only one Community Tax Certificate used for both petitioner and her
husband; that with the irregularities pointed out, the prima facie presumption of regularity no
longer applies to the subject deed of sale; that she and her husband never intended to sell the
subject property; that while she and her husband were not illiterate, still what matters is that
Buenaventura deceived them into signing the subject document without reading it through
assurances that what they were signing was an authorization for the purpose of obtaining a bank
loan; that she and her husband had no reason to distrust Buenaventura as the purported loan was
previously agreed upon; that Buenaventura failed to prove that she paid the purported
consideration of P200,000,00 for the supposed sale, as she did not present any receipt therefor;
and that in view of these facts, the deed of sale should be annulled and voided.

Our Ruling

The Court denies the Petition.

Petitioners arguments center on the claim that the deed of sale suffers from defects relative to its
notarization, which thus render the deed ineffective, if not null and void. Petitioner claims that the
deed was not signed by the parties before the notary public; that it was notarized in her and her
husband's absence; that there was only one Community Tax Certificate used for both petitioner
and her husband; and that Buenaventura failed to present the notary public as her witness.

It must be remembered, however, that "the absence of notarization of the deed of sale would not
invalidate the transaction evidenced therein"; it merely "reduces the evidentiary value of a
document to that of a private document, which requires proof of its due execution and
authenticity to be admissible as evidence,"[13] "A defective notarization will strip the document of
its public character and reduce it to a private instrument. Consequently, when there is a defect in
the notarization of a document, the clear and convincing evidentiary standard normally attached
to a duly-notarized document is dispensed with, and the measure to test the validity of such
document is preponderance of evidence."[14]

x x x Article 1358 of the Civil Code requires that the form of a contract that transmits or
extinguishes real rights over immovable property should be in a public document, yet the failure
to observe the proper form does not render the transaction invalid. The necessity of a public
document for said contracts is only for convenience; it is not essential for validity or enforceability.
Even a sale of real property, though not contained in a public instrument or formal writing, is
nevertheless valid and binding, for even a verbal contract of sale or real estate produces legal
effects between the parties. Consequently, when there is a defect in the notarization of a
document, the clear and convincing evidentiary standard originally attached to a duly-notarized
document is dispensed with, and the measure to test the validity of such document is
preponderance of evidence.[15]

x x x Nevertheless, the defective notarization of the deed does not affect the validity of the sale of
the house. Although Article 1358 of the Civil Code states that the sale of real property must appear
in a public instrument, the formalities required by this article is not essential for the validity of the
contract but is simply for its greater efficacy or convenience, or to bind third persons, and is merely
a coercive means granted to the contracting parties to enable them to reciprocally compel the
observance of the prescribed form. Consequently, the private conveyance of the house is valid
between the parties.[16] Thus, following the above pronouncements, the remaining judicial task,
therefore, is to determine if the deed of sale executed by and between the parties should be
upheld. The RTC and the CA are unanimous in declaring that the deed should be sustained on
account of petitioner's failure to discredit it with her evidence. The CA further found that
petitioner and her husband received in full the consideration of P200,000.00 for the sale. As far as
the lower courts are concerned, the three requirements of cause, object, and consideration
concurred. This Court is left with no option but to respect the lower courts' findings, for its
jurisdiction in a petition for review on certiorari is limited to reviewing only errors of law since it is
not a trier of facts. This is especially so in view of the identical conclusions arrived at by them.

Indeed, petitioner and her husband conceded that there was such a deed of sale, but only that
they were induced to sign it without being given the opportunity to read its contents - believing
that the document they were signing was a mere authorization to obtain a bank loan. According
to petitioner, the document was "folded" when she affixed her signature thereon; on the other
hand, her husband added that at the time he signed the same, it was "dark". These circumstances,
however, did not prevent them from discovering the true nature of the document; being high
school graduates and thus literate, they were not completely precluded from reading the contents
thereof, as they should have done if they were prudent enough, Petitioner's excuses are therefore
flimsy and specious.

Petitioner and her husband's admission that they failed to exercise prudence can only be fatal to
their cause. They are not unlettered people possessed with a modicum of intelligence; they are
educated property owners capable of securing themselves and their property from unwarranted
intrusion when required. They knew the wherewithal of property ownership. Their failure to thus
observe the care and circumspect expected of them precludes the courts from lending a helping
hand, and so they must bear the consequences flowing from their own negligence.
The rule that one who signs a contract is presumed to know its contents has been applied even to
contracts of illiterate persons on the ground that if such persons are unable to read, they are
negligent if they fail to have the contract read to them. If a person cannot read the instrument, it
is as much his duty to procure some reliable persons to read and explain it to him, before he signs
it, as it would be to read it before he signed it if he were able to do so and his failure to obtain a
reading and explanation of it is such gross negligence as will estop him from avoiding it on the
ground that he was ignorant of its contents.[17] It is also a well-settled principle that "the law will
not relieve parties from the effects of an unwise, foolish or disastrous agreement they entered
into with all the required formalities and with full awareness of what they were doing. Courts have
no power to relieve them from obligations they voluntarily assumed, simply because their
contracts turn out to be disastrous deals or unwise investments. Neither the law nor the courts
will extricate them from an unwise or undesirable contract which they entered into with all the
required formalities and with full knowledge of its consequences."[18]

WHEREFORE, the Petition is DENIED. The February 21, 2011 Decision and May 6, 2011 Resolution
of the Court of Appeals in CA-G.R. CV No. 92453 are AFFIRMED in toto.

SO ORDERED.
FIRST DIVISION

[ G.R. No. 194189, September 14, 2017 ]

RAFAEL ALMEDA, EMERLINA ALMEDA-LIRIO, ALODIA ALMEDA-TAN, LETICIA ALMEDA-MAGNO,

NORMA ALMEDA-MATIAS AND PUBLIO TIBI,, PETITIONERS, VS. HEIRS OF PONCIANO ALMEDA IN
SUBSTITUTION OF ORIGINAL DEFENDANT PONCIANO ALMEDA, INTESTATE ESTATE OF SPOUSES
PONCIANO AND EUFEMIA PEREZ-ALMEDA AND THE REGISTER OF DEEDS OF TAGAYTAY CITY,
RESPONDENTS,

CESAR SANTOS, ROSANA SANTOS, NORMAN SANTOS AND FERDINAND SANTOS, UNWILLING
PLAINTIFFS/PETITIONERS.

DECISION
TIJAM, J.:

This Petition for Review on Certiorari[1] assails the May 25, 2010 Decision[2] of the Court of Appeals
(CA) in CA-G.R. CV No. 86953, denying Rafael Almeda (Rafael), Emerlina Almeda-Lirio (Emerlina),
Alodia Almeda-Tan (Alodia), Leticia Almeda-Magno (Leticia), Norma Almeda-Matias (Norma) and
Publio Tibi's (Publio) (collectively, the petitioners) appeal from the Order[3] dated September 2,
2004 of the Regional Trial Court (RTC) of Tagaytay City, Branch 18, in Civil Case No. TG-1643, which
dismissed their Complaint for Nullity of Contracts, Partition of Properties and Reconveyance of
Title with Damages, and the CA Resolution[4] dated October 13, 2010 denying petitioners' Motion
for Reconsideration.

The Facts

Spouses Venancio Almeda (Venancio) and Leonila Laurel-Almeda (Leonila) were the parents of
nine children: Ponciano L. Almeda (Ponciano), Rafael, Emerlina, Alodia, Leticia, Norma, Benjamin
Almeda and Severina Almeda-Santos (Severina) and Rosalina Almeda-Tibi (Rosalina), Publio's
deceased wife.[5]

On May 19, 1976, a Power of Attorney[6] was executed by Venancio and Leonila, who were then
80 and 81 years old respectively,[7] granting Ponciano, among others, the authority to sell the
parcels of land covered by Original Certificate of Title (OCT) Nos. O-197 and O-443 of the Office of
the Register of Deeds for Tagaytay City, which Leonila inherited[8] from her parents.

OCT Nos. O-197 and O-443 were registered in the name of "Leonila L. Almeda married to Venancio
Almeda." OCT No. O-197[9] embraced four (4) parcels of land with an aggregate area of 95,205
square meters more or less, to wit: Lot 10 (48,512 sq m), Lot 17 (37,931 sq m), Lot 30 (8,047 sq
m) and Lot 32 (715 sq m); and OCT No. O-443[10] covered Lot 9 measuring 33,946 sq m, more or
less.

Venancio died at the age of 90 on February 27, 1985; Leonila died eight years later on April 3,
1993, aged 97.[11] Within the year of Leonila's death on April 17, 1993,[12] Rafael, Emerlina, Alodia,
Leticia and Norma filed a notice of adverse claim with the Register of Deeds of Tagaytay City over
their parents' properties.[13]

On October 10, 1996, a Complaint for Nullity of Contracts, Partition of Properties and
Reconveyance of Titles with Damages,[14] docketed as Civil Case No. TG-1643, was filed before the
RTC of Tagaytay City by the petitioners against Ponciano and his wife Eufemia Perez Almeda
(Eufemia) and the Register of Deeds of Tagaytay City, with Severina's surviving spouse, Cesar
Santos and children, Rosana, Norman and Ferdinand, as unwilling plaintiffs.[15] Petitioners alleged
that the parties were the only heirs of the late spouses Venancio and Leonila who died without
leaving any will and without any legal obligation.[16]

In support of their Complaint, petitioners claimed that Ponciano, taking advantage of his being the
eldest child and his close relationship with their parents, caused the simulation and forgery of the
following documents:[17]

(1) Deed of Absolute Sale dated June 9, 1976, over Lot 30 under OCT No. O-197, executed by
Ponciano as Venancio and Leonila's attorney-in-fact, in favor of Julian Y. Pabiloña, Virginia Go,
Gemma Tan Ongking, Arthur C. Chua and Lee Hiong Wee (Pabiloña, et al.), for the price of
P160,940.00;[18] and

(2) Deed of Absolute Sale dated October 3, 1978, executed by Venancio and Leonila in favor of
Ponciano, over the remaining lots under OCT No. O-197 and Lot 9 under OCT No. O-443, and over
Lots 6, 4 and 9-A with a total area 71,520 sq m which then had no technical description, for the
total consideration of P704,243.77.[19]

By virtue of the aforesaid Deeds of Absolute Sale, OCT Nos. O-197 and O-443 were cancelled, the
former with respect only to Lots 10 and 17. Resultantly, Transfer Certificate of Title (TCT) Nos. T-
15125, T-24806, T-24807, T-24808 and T-24809,[20] all of the Registry of Deeds for Tagaytay City,
were issued to Ponciano,[21] while TCT No. T-10330 of the same Registry[22] was issued to Julian Y.
Pabiloña, Virginia Go, Gemma Tan Ongking, Arthur C. Chua and Lee Hiong Wee.[23]

According to petitioners, their parents did not sign the October 3, 1978 Deed of Absolute Sale
(1978 Deed) in favor of Ponciano and their signatures may have been forged. They also averred
that their parents did not receive due consideration for the transaction, and if Ponciano succeeded
in making them sign said 1978 Deed, they did so without knowledge of its import. Petitioners,
however, would not claim rights and interest legally transferred to third parties.[24]

Petitioners further alleged that Ponciano withheld from them the existence of the 1978 Deed in
his favor, and when they learned of it and demanded partition, Ponciano merely promised to cause
the same at a proper time. When petitioners could no longer wait, they filed their notice of adverse
claim with the Register of Deeds.[25]

Petitioners, thus, prayed that the 1978 Deed in favor of Ponciano be declared null and void; that
OCT No. O-197 be partitioned among the heirs of Venancio and Leonila; that the derivative titles
obtained by Ponciano under his name be reconveyed to petitioners; that the Register of Deeds for
Tagaytay City be ordered to cancel said derivative titles and to restore title to the property in the
name of Venancio and Leonila; that the unwilling plaintiffs be ordered to share in the expenses of
the suit; and that Ponciano and his wife be ordered to pay moral and exemplary damages,
attorney's fees and the costs of litigation.[26]

In their Answer,[27] Ponciano and his wife, Eufemia, denied that the 1978 Deed was simulated or
forged, asserting its genuineness and execution for valuable consideration from which some of
the petitioners, including Rafael, received substantial pecuniary benefits. They asserted that
Ponciano no longer participated in the division of the estate of Venancio and Leonila whose assets
amounted to millions of pesos. They accused petitioners of not coming to court with clean hands,
claiming the latter may have themselves resorted to falsification of documents to transfer said
assets in their names and subsequently to other persons. Ponciano and Eufemia also averred that
petitioners were guilty of laches.

Ponciano died on October 16, 1997 and was substituted by his wife and children.[28]

Petitioners presented the lone testimony of Emerlina.[29] After Ponciano's heirs/substitutes

(private respondents) failed to present their evidence despite several opportunities given them,
the RTC considered the case submitted for decision.[30]

In the course of the trial, two other documents figured in the dispute, which petitioners likewise
impugned, showing:
(1) an Agreement to Sell[31] dated November 9, 1976 whereby Venancio and Leonila agreed to sell
to Ponciano the parcels of land covered by OCT Nos. O-197 and O-443, as well as Lots 6, 4 and 9-
A, for the total price of P1 Million with P200,000.00 as down payment and the balance payable in
one year without interest; and

(2) a Deed of Sale with Mortgage[32] (Deed with Mortgage) dated November 11, 1977, which
expressly superseded the Agreement to Sell dated November 9, 1976, whereby Venancio and
Leonila sold to Ponciano the parcels of land covered by OCT Nos. 0-197 and 0-443, as well as Lots
6, 4 and 9-A, for P1 Million, with the payment of the P700,000.00 balance secured by the said
properties. This Deed wih Mortgage was expressly superseded by the 1978 Deed in favor of
Ponciano.

On September 2, 2004, the RTC issued an Order[33] dismissing petitioners' complaint. The
dispositive portion of the order reads:

WHEREFORE, premises considered, the same is hereby ordered DISMISSED.

SO ORDERED.[34]
The RTC held that the questioned documents, having been notarized and executed in the presence
of two instrumental witnesses, enjoy the presumption of regularity, and petitioners failed to
overcome this presumption by clear and convincing evidence. It stressed that petitioners failed to
present any proof of simulation or forgery of the subject documents.

In an Order[35] dated November 29, 2005, the RTC denied petitioners' Motion for Reconsideration.

Petitioners brought the case to the CA on appeal which was denied in the assailed Decision[36]
dated May 25, 2010, the dispositive portion of which reads:

IN VIEW OF ALL THESE, the Appeal is DENIED. The Order a quo is AFFIRMED.

SO ORDERED.[37]

The CA held that petitioners failed to discharge their burden of proving the purported forgery with
clear and convincing evidence. The CA stressed that such evidence was especially needed in this
case given that the assailed documents, being notarized, enjoy the presumption of regularity and
of due execution and authenticity. The CA noted that petitioners merely relied on Emerlina's
testimony that the questioned signatures were forged.[38]

The CA further stressed that mere variance in the genuine and disputed signatures is not proof of
forgery.[39] To establish forgery, said the appellate court, presentation of documents bearing the
genuine signatures of Venancio and Leonila was required, for comparison with the alleged false
signatures.[40] The CA held that petitioners' failure to submit such documents was fatal as it was
necessary for petitioners to show not only the material differences between the signatures, but
also (1) the extent, kind and significance of the variation; (2) that the variation was due to the
operation of a different personality and not merely an expected and inevitable variation found in
the genuine writing of the same writer; and (3) that the resemblance was the result of a more or
less skillful imitation and not merely a habitual and characteristic resemblance which naturally
appears in a genuine writing.[41]

Petitioners' Motion for Reconsideration[42] was subsequently denied in the Resolution[43] dated
October 13, 2010.

Dissatisfied with the outcome of its appeal, petitioners filed the instant petition, asserting that the
CA's ruling was contrary to the evidence, the law and existing jurisprudence.

The Court's Ruling

The petition lacks merit.

Factual findings of the RTC, as

affirmed by the CA, deserve a high
degree of respect

Well-entrenched is the rule that the Supreme Court's role in a petition under Rule 45 is limited to
reviewing or reversing errors of law allegedly committed by the appellate court.[44] Equally settled
is the rule that this Court is not a trier of facts.[45]

In Spouses Villaceran, et al. v. De Guzman,[46] the Court held that:

The issue of the genuineness of a deed of sale is essentially a question of fact. It is settled that this
Court is not duty-bound to analyze and weigh again the evidence considered in the proceedings
below. This is especially true where the trial court's factual findings are adopted and affirmed by
the CA as in the present case. Factual findings of the trial court, affirmed by the CA, are final and
conclusive and may not be reviewed on appeal.[47]

At any rate, to remove any doubt as to the correctness of the assailed ruling, We have examined
the records and, nonetheless, reached the same conclusion.[48]

Notarized documents enjoy the

presumption of regularity

A notarized Deed of Absolute Sale has in its favor the presumption of regularity, and it carries the
evidentiary weight conferred upon it with respect to its due execution.[49] It is admissible in
evidence without further proof of its authenticity and is entitled to full faith and credit upon its
face.[50] Thus, a notarial document must be sustained in full force and effect so long as he who
impugns it does not present strong, complete and conclusive proof of its falsity or nullity on
account of some flaws or defects.[51]

Absent evidence of falsity so clear, strong and convincing, and not merely preponderant, the
presumption of regularity must be upheld.[52] The burden of proof to overcome the presumption
of due execution of a notarial document lies on the party contesting the same.[53]

Forgery is not presumed

Furthermore, as a rule, forgery cannot be presumed.[54] An a1legation of forgery must be proved

by clear, positive and convincing evidence, and the burden of proof lies on the party alleging
forgery.[55]

Petitioners failed to overcome the

presumption of due execution

Since petitioners are assailing the genuineness of the 1978 Deed, they evidently have the burden
of making out a clear-cut case that the questioned document is bogus.[56] Both the trial and
appellate courts concluded that petitioners failed to discharge this burden. We agree.
The Complaint, at the outset, did not allege in definite terms that Venancio and Leonila's
signatures on the 1978 Deed were forged. It stated:

VIII

That [petitioners'] parents did not sign said documents of sale purportedly to transfer rights, titles
and interest in favor of defendants, and, in fact their signatures thereon may have been forged,
and, that they did not receive due consideration thereof, and, said documents are merely
simulated if ever defendant [Ponciano] succeeded in making them [sign] the same without
knowledge of the import thereof, likewise, in making them appear as having executed and affixed
their signatures on said controversial documents although the transactions were inexistent.[57]
(Emphasis ours)

Likewise, Emerlina's testimony, upon which petitioners' case was built, is unclear and uncertain as
to the supposed forgery. Emerlina testified that the vendors' signatures appearing on the 1978
Deed did not belong to her parents, Venancio and Leonila.[58] Subsequently, however, she testified
that if the latter did affix their signatures, they did not know what they signed.[59] Still further to
her testimony, Emerlina declared that she could not say if the signatures indeed belonged to her
parents.[60] Eventually, she conceded to having two alternative answers to the question of forgery:
first, that Venancio and Leonila did not sign the document, and second, that it is possible that they
signed it but without knowing the consequences of their action.[61]

The uncertainty in petitioners' stance, as echoed in Emerlina's testimony, clearly militates against
their claim of forgery.

Furthermore, it is undeniable that Emerlina stands to benefit from a judgment annulling the 1978
Deed. Her testimony denying the validity of the sale, having been made by a party who has an
interest in the outcome of the case, is not as reliable as written or documentary evidence.
Moreover, self-serving statements are inadequate to establish one's claims. Proof must be
presented to support the same.[62]

To establish forgery, the extent, kind and significance of the variation in the standard and disputed
signatures must be demonstrated; it must be proved that the variation is due to the operation of
a different personality and not merely an expected and inevitable variation found in the genuine
writing of the same writer; and it should be shown that the resemblance is a result of a more or
less skillful imitation and not merely a habitual and characteristic resemblance which naturally
appears in a genuine writing.[63] Emerlina's uncorroborated testimony failed to demonstrate,
based on the foregoing criteria, that the questioned signatures were forgeries.

Indeed, petitioners failed to present the requisite proof of falsity and forgery of the notarized 1978
Deed to overcome the presumption of regularity and due execution.
Visual comparison of the questioned
and admittedly genuine signatures
reveal prominent similarities

Section 22, Rule 132 of the Rules of Court explicitly authorizes the court, by itself, to make a
comparison of the disputed handwriting with writings admitted or treated as genuine by the party
against whom the evidence is offered, or proved to be genuine to the satisfaction of the judge.[64]

Petitioners assert that the 1976 Power of Attorney[65] executed in favor of Ponciano, which bore
the true and genuine signatures of Venancio and Leonila, could have been used as basis for
comparison with the questioned signatures to determine their authenticity.[66]

Comparing these two sets of signatures, the Court finds prominent similarities as to indicate the
habitual and characteristic writing of Venancio and Leonila. Leonila's signature on the 1978 Deed,
in particular, appears almost the same as her signature on the 1976 Power of Attorney. Venancio's
signature on the 1978 Deed was not as smooth as his signature on the 1976 Power of Attorney,
but the similarities in the angles and slants cannot be ignored.

To support their claim of forgery, petitioners described the questioned signatures as "wiri-wiri,"
or containing "wild strokes."[67] The Court, however, does not find such wild strokes in the
questioned signatures. Leonila's was nearly as smooth as her signature on the 1976 Power of
Attorney. Venancio's signature gives the impression that it had been affixed by a less than steady
but determined hand, and though not as fluid as his previous signature, reveals the characteristic
imprint of his handwriting. Indeed, the resemblance in the questioned and standard signatures
are more prominent or pronounced than the apparent variance which could be attributed to the
signatories' old age.

In fine, the apparent dissimilarities in the signatures are overshadowed by the striking similarities
and, therefore, fail to overcome the presumption of validity in favor of a notarized document.[68]

Presumption of competence was not

adequately refuted

"The law presumes that every person is fully competent to enter into a contract until satisfactory
proof to the contrary is presented."[69] The party claiming absence of capacity to contract has the
burden of proof and discharging this burden requires that clear and convincing evidence be
adduced.[70]

Petitioners have not satisfactorily shown that their parents' mental faculties were impaired as to
deprive them of reason or hinder them from freely exercising their own will or from
comprehending the provisions of the sale in favor of Ponciano.

Petitioners assert that their parents were "uliyanin" or forgetful, of advanced age and "at times"
sickly during the time of the execution of the 1978 Deed in favor of Ponciano.[71]
Mere forgetfulness, however, without evidence that the same has removed from a person the
ability to intelligently and firmly protect his property rights, will not by itself incapacitate a person
from entering into contracts.

In Mendezona v. Ozamiz,[72] the Court affirmed a vendor's capacity to contract despite a doctor's
revelation that the former was afflicted with certain infirmities and was, at times, forgetful, holding
that:

The revelation of Dr. Faith Go did not also shed light on the mental capacity of Carmen Ozamiz on
the relevant day – April 28, 1989 when the Deed of Absolute Sale was executed and notarized. At
best, she merely revealed that Carmen Ozamiz was suffering from certain infirmities in her body and
at times, she was forgetful, but there was no categorical statement that Carmen Ozamiz succumbed
to what respondents suggest as her alleged "second childhood" as early as 1987. The petitioners'
rebuttal witness, Dr. William Buot, a doctor of neurology, testified that no conclusion of mental
incapacity at the time the said deed was executed can be inferred from Dr. Faith Go's clinical notes
nor can such fact be deduced from the mere prescription of a medication for episodic memory
loss.[73] (Emphasis ours)

In this case, petitioners' claim that Venancio and Leonila were forgetful and at times sickly was not
even supported by medical evidence. It was based solely on Emerlina's testimony, which failed to
demonstrate that Venancio and Leonila's mental state had prevented them from freely giving their
consent to the 1978 Deed or from understanding the nature and effects of their disposition.

It is settled that a person is not incapacitated to enter into a contract merely because of advanced
years or by reason of physical infirmities, unless such age and infirmities impair his mental faculties
to the extent that he is unable to properly, intelligently and fairly understand the provisions of said
contract, or to protect his property rights.[74]

Petitioners' reliance on the case of Domingo v. CA[75] is misplaced. There, the Court declared a
deed of sale null and void given that the seller was already of advanced age and senile at the time
of its execution, thus:

The unrebutted testimony of Zosima Domingo shows that at the time of the alleged execution of
the deed, Paulina was already incapacitated physically and mentally. She narrated that Paulina
played with her waste and urinated in bed. Given these circumstances, there is in our view
sufficient reason to seriously doubt that she consented to the sale of and the price for her parcels
of land. x x x.[76]

No similar circumstances, indicating senility and clear incapacity to contract, have been alleged or
proved in the instant case.

"A person is presumed to be of sound mind at any particular time and the condition is presumed
to exist, in the absence of proof to the contrary."[77] In this case, petitioners failed to discharge
their burden of proving, by clear and convincing evidence, that their parents were mentally
incompetent to execute the 1978 Deed in favor of Ponciano.

Undue influence was not proved

"There is undue influence when a person takes improper advantage of his power over the will of
another, depriving the latter of a reasonable freedom of choice."[78]

Other than petitioners' general allegation that Ponciano unduly took advantage of his being the
eldest child and his close relationship with their parents, no other circumstance or evidence has
been presented to show how Ponciano exerted his undue influence or how Venancio and Leonila
were thereby deprived of the freedom to exercise sufficient judgment in selling the subject
properties to Ponciano.

"[U]ndue influence that vitiated a party's consent must be established by full, clear and convincing
evidence, otherwise, the latter's presumed consent to the contract prevails."[79]

Lack or inadequacy of consideration

was not established

While maintaining that the 1978 Deed was a forgery, petitioners also insist that the deed was
simulated. The incompatibility of these two contentions does not help petitioners' case. Forgery
suggests that no consent was given to the transaction, while simulation indicates a mutual
agreement albeit to deceive third persons.

Simulation has been defined as the declaration of a fictitious will, made deliberately by mutual
agreement of the parties, in order to produce the appearances of a juridical act which does not
exist or is different from that which was really executed, for the purpose of deceiving third
persons. Accordingly, simulation exists when: (a) there is an outward declaration of will different
from the will of the parties; (b) the false appearance was intended by mutual agreement of the
parties; and (c) their purpose is to deceive third persons.[80]

None of the foregoing requisites have been shown to exist in this case.

In claiming that the 1978 Deed was simulated, petitioners assert that there was no consideration
and the vouchers supposedly showing Ponciano's payment of P704,243.77 should not be
considered as evidence since private respondents failed to offer them, having been deemed to
have waived their presentation of evidence. Petitioners likewise argue that the price, in said
amount, was unconscionable.[81]

That the vouchers were not offered in evidence will not serve to strengthen petitioners' theory of
simulation. The notarized 1978 Deed shows on its face that the properties were sold for the price
of P704,243.77. The 1978 Deed also appears to have gone through the procedure of registration,
leading to the issuance of TCT in Ponciano's name.

In Mendezona,[82] the appellate court ruled that the assailed deed of absolute sale was a simulated
contract since the petitioners therein, in whose favor the deed was executed, failed to prove that
the consideration was actually paid. This Court disagreed with the CA's ruling, holding that:

Contrary to the erroneous conclusions of the appellate court, a simulated contract cannot be
inferred from the mere non-production of the checks. It was not the burden of the petitioners to
prove so. It is significant to note that the Deed of Absolute Sale dated April 28, 1989 is a notarized
document duly acknowledged before a notary public. As such, it has in its favor the presumption
of regularity, and it carries the evidentiary weight conferred upon it with respect to its due
execution. It is admissible in evidence even without further proof of its authenticity and is entitled
to full faith and credit upon its face.

Payment is not merely presumed from the fact that the notarized Deed of Absolute Sale dated April
28, 1989 has gone through the regular procedure as evidenced by the transfer certificates of title
issued in petitioners' names by the Register of Deeds. In other words, whosoever alleges the fraud
or invalidity of a notarized document has the burden of proving the same by evidence that is clear,
convincing, and more than merely preponderant. Therefore, with this well-recognized statutory
presumption, the burden fell upon the respondents to prove their allegations attacking the validity
and due execution of the said Deed of Absolute Sale. Respondents failed to discharge that burden;
hence, the presumption in favor of the said deed stands. But more importantly, that notarized deed
shows on its face that the consideration of One Million Forty Thousand Pesos (P1,040,000.00) was
acknowledged to have been received by Carmen Ozamiz.

x x x x

Considering that Carmen Ozamiz acknowledged, on the face of the notarized deed, that she received
the consideration at One Million Forty Thousand Pesos (P1,040,000.00), the appellate court should
not have placed too much emphasis on the checks, the presentation of which is not really necessary.
Besides, the burden to prove alleged non-payment of the consideration of the sale was on the
respondents, not on the petitioners. Also, between its conclusion based on inconsistent oral
testimonies and a duly notarized document that enjoys presumption of regularity, the appellate
court should have given more weight to the latter. Spoken words could be notoriously unreliable
as against a written document that speaks a uniform language.[83] (Citations omitted and emphasis
ours)

Contending that the price paid by Ponciano for the properties was unconscionably low, petitioners
point to the alleged sale of Lot 30, measuring 8,047 sq m, by Pabiloña, et al.[84] to Cityland, Inc., on
September 18, 1992 for P12,070,500.00.[85]

Petitioners, however, have not demonstrated how the alleged selling price for Lot 30 in 1992
proves that the price paid by Ponciano under the 1978 Deed was unconscionable.
Furthermore, it is beyond dispute that the Deed of Absolute Sale in favor of Ponciano was executed
in 1978, or nearly 14 years before the alleged sale of Lot 30 to Cityland, Inc. Given the obvious
difference in the time of transaction, the prevailing market conditions, and the size of the
properties, petitioners cannot sweepingly conclude that the price paid by Ponciano in 1978 was
unconscionable on the basis of the 1992 sale of Lot 30.

In Ceballos v. Intestate Estate of the Late Mercado,[86] the Court had occasion to rule:

Harping on the alleged unconscionably low selling price of the subject land, petitioner points out
that it is located in a tourist area and golf haven in Cebu. Notably, she has failed to prove that on
February 13, 1982, the date of the sale, the area was already the tourist spot and golf haven that
she describes it to be. In 1990, the property might have been worth ten million pesos, as she
claimed; however, at the time of the sale, the area was still undeveloped. Hence, her contention
that the selling price was unconscionably low lacks sufficient substantiation.[87] (Citations omitted)

With more reason should the Court, in this case, hold that petitioners failed to substantiate their
claim of an unconscionable selling price, considering that they have not shown any evidence of
either the condition of the subject properties in 1978 or other factors affecting their valuation,
which may possibly indicate the gross inadequacy of the price paid by Ponciano.

Petitioners would have this Court appreciate, as additional indications of simulation of the 1978
Deed, the alleged late registration thereof in 1993 or 15 years after the sale, and the Tax
Declarations that were allegedly still in Leonila's name up to the time the Complaint was filed.[88]
These contentions, however, do not suffice to constitute the strong, positive and convincing
evidence that will overcome the presumption of due execution of a notarized document.

In any event, records show that the 1978 Deed was in fact registered in 1984, during Venancio
and Leonila's lifetime. Both OCT No. O-197[89] and OCT No. O-443[90] bear an annotation referring
to the 1978 Deed, inscribed on November 12, 1984, and based on such annotation, new transfer
certificates of title were issued in lieu of OCT No. O-197 and OCT No. O-443 in Ponciano's name;
TCT No. 15125,[91] in particular, appears to have been issued on November 12, 1984. By such
registration and by obtaining certificates of title in his name, Ponciano had clearly asserted his
ownership over the properties. Thus, that the Tax Declarations were still in Leonila's name cannot
be the basis to conclude that the 1978 Deed was a simulation.

A contract or conduct apparently honest and lawful must be treated as such until it is shown to be
otherwise by either positive or circumstantial evidence. A duly executed contract enjoys the
presumption of validity, and the party assailing its regularity has the burden to prove its simulation.
Indeed, it is settled that notarized documents carry the presumption of due execution, lending
truth to the statements therein contained and to the authenticity of the signatures thereto
affixed.[92] Petitioners have failed to adduce the requisite clear and convincing evidence to
overturn this presumption.
Alleged defects in the notarization
were raised only before this Court

Petitioners argue that the parties' Acknowledgment of the 1978 Deed before the Notary Public,
Federico Magdangal, whose notarial commission was for Makati City, was done outside the latter's
"territorial limits" because the property is in Tanauan, Batangas. Furthermore, while the
Acknowledgment was done in Makati City, its printed text expressly states that the parties
personally appeared before the Notary Public in Tanauan, Batangas.[93] Petitioners also assert that
their parents were residents of Tanauan, Batangas, and given their advanced age, would not have
gone to Makati on the same day that the 1978 Deed was executed, to have the same notarized.[94]

Petitioners further assert that while the Acknowledgment indicated that Ponciano exhibited his
residence certificate to the Notary Public, it did not reflect any identification document from
Venancio and Leonila. They argue that the absence of such document contravened the Notary
Public's statement that Venancio and Leonila were known to him.[95]

As private respondents have pointed out, however, these claims were only raised for the first time
before this Court.[96]

"It is well-settled that issues not raised in the court a quo cannot be raised for the first time on
appeal in the Supreme Court without violating the basic rules of fair play, justice and due
process."[97] Due process dictates that when a party who adopts a certain theory upon which the
case is tried and decided by the lower court, he should not be allowed to change his theory on
appeal. The reviewing court will not consider a theory of the case which has not been brought to
the lower court's attention; a new theory cannot be raised for the first time at such late stage.[98]
Thus, We cannot bend backwards to examine the issue belatedly raised by petitioners at this late
stage in the proceedings.

Granting the Acknowledgment was defective, the same will merely strip the document of its public
character and reduce it to a private instrument.[99] It remains incumbent upon petitioners to prove,
by preponderance of evidence, their allegation that the deed of sale was forged even though that
document no longer enjoys any significantly weighted presumption as to its validity.[100]

The Court has explained "preponderance of evidence" thus:

"Preponderance of evidence" is the weight, credit, and value of the aggregate evidence on either
side and is usually considered to be synonymous with the term "greater weight of the evidence"
or "greater weight of the credible evidence." Preponderance of evidence is a phrase which, in the
last analysis, means probability of the truth. It is evidence which is more convincing to the court as
worthy of belief than that which is offered in opposition thereto.[101] (Italics ours)

Petitioners have argued that their evidence is of greater weight since private respondents did not
at all present any evidence, particularly, to prove the notarization of the 1978 Deed and the
genuineness of their parents' signatures thereon.[102]

We are not convinced. Time and again, this Court has ruled that:

In civil cases, it is a basic rule that the party making allegations has the burden of proving them by a
preponderance of evidence. The parties must rely on the strength of their own evidence and not
upon the weakness of the defense offered by their opponent. This rule holds true especially when
the latter has had no opportunity to present evidence because of a default order. Needless to say,
the extent of the relief that may be granted can only be so much as has been alleged and proved
with preponderant evidence required under Section 1 of Rule 133.[103] (Citations omitted and
emphasis ours) The same principle applies here where private respondents were considered to
have waived the presentation of their evidence at trial. "Ei incumbit probatio qui dicit, non qui
negat. He who asserts, not he who denies, must prove."[104] "We have consistently applied the
ancient rule that if the plaintiff, upon whom rests the burden of proving his cause of action, fails
to show in a satisfactory manner facts on which he bases his claim, the defendant is under no
obligation to prove his exception or defense."[105] Thus, petitioners' evidence must stand on its
own merit and must be scrutinized for veracity and probative value. It is not rendered conclusive
simply because it was not met with evidence from the defense. Section 1, Rule 133 of the Revised
Rules of Court states how preponderance of evidence is determined, viz:
In determining where the preponderance or superior weight of evidence on the issues involved
lies, the court may consider all the facts and circumstances of the case, the witnesses' manner of
testifying, their intelligence, their means and opportunity of knowing the facts to which [they] are
testifying, the nature of the facts to which they testify, the probability or improbability of their
testimony, their interest or want of interest, and also their personal credibility so far as the same
may legitimately appear upon the trial. The court may also consider the number of witnesses,
though the preponderance is not necessarily with the greater number. (Emphasis ours)
Considering all the circumstances of this case and all evidence adduced in support of the
complaint, We find that even by the standard of preponderance of evidence, petitioners have
failed to establish the alleged simulation or forgery of the 1978 Deed.

As previously explained, petitioners' claim of forgery is built on Emerlina's testimony which we

have found to be both uncertain and self-serving. More importantly, a visual comparison of the
disputed and admittedly genuine signatures of Venancio and Leonila has led this Court to find
striking similarities that negate petitioners' claim of forgery. Petitioners have likewise failed to
substantiate their claims that their parents were mentally incapable of executing the 1978 Deed,
that Ponciano exerted undue influence on their parents, and that there was no consideration for
the sale or that it was unconscionable.

All told, We find that the CA did not err in upholding the RTC's decision to dismiss petitioners'
complaint. WHEREFORE, the petition is DENIED. The Decision dated May 25, 2010 and Resolution
dated October 13, 2010 of the Court of Appeals in CA-G.R. CV No. 86953 are AFFIRMED.
SO ORDERED.
SECOND DIVISION

[ G.R. No. 208638, January 24, 2018 ]

SPOUSES FRANCISCO ONG AND BETTY LIM ONG, AND SPOUSES JOSEPH ONG CHUAN AND
ESPERANZA ONG CHUAN, PETITIONERS, V. BPI FAMILY SAVINGS BANK, INC., RESPONDENT.

DECISION

REYES, JR., J:

This is a Petition for Review under Rule 45 of the Rules of Court, as amended, seeking to reverse
and set aside the Decision[1] dated January 31, 2013 and Resolution[2] dated August 16, 2013 of
the Court of Appeals (CA) in CA-G.R. CV No. 92348

The Facts

Spouses Francisco Ong and Betty Lim Ong and Spouses Joseph Ong Chuan and Esperanza Ong
Chuan (collectively referred to as the petitioners) are engaged in the business of printing under
the name and style "MELBROS PRINTING CENTER.[3]

Sometime in December 1996, Bank of Southeast Asia's (BSA) managers, Ronnie Denila and
Rommel Nayve, visited petitioners' office and discussed the various loan and credit facilities
offered by their bank. In view of petitioners' business expansion plans and the assurances made
by BSA's managers, they applied for the credit facilities offered by the latter.

Sometime in April 1997, they executed a real estate mortgage (REM) over their property situated
in Paco, Manila, covered by Transfer Certificate of Title No. 143457, in favor of BSA as security for
a P15,000,000.00 term loan and P5,000,000.00 credit line or a total of P20,000,000.00.

With regard to the term loan, only P10,444,271.49 was released by BSA (the amount needed by
the petitioners to pay out their loan with Ayala life assurance, the balance was credited to their
account with BSA).

With regard to the P5,000,000.00 credit line, only P3,000,000.00 was released. BSA promised to
release the remaining P2,000,000.00 conditioned upon the payment of the P3,000,000.00 initially
released to petitioners.

Petitioners acceded to the condition and paid the P3,000,000.00 in full. However, BSA still refused
to release the P2,000,000.00. Petitioners then refused to pay the amortizations due on their term
loan.
Later on, BPI Family Savings Bank (BPI) merged with BSA, thus, acquired all the latter's rights and
assumed its obligations. BPI filed a petition for extrajudicial foreclosure of the REM for petitioners'
default in the payment of their term loan.

In order to enjoin the foreclosure, petitioners instituted an action for damages with Temporary
Restraining Order and Preliminary Injunction against BPI praying for P23,570,881.32 as actual
damages; P1,000,000.00 as moral damages; P500,000.00 as attorney's fees, litigation expenses
and costs of suit.

On November 10, 2008, the trial court rendered its Decision,[4] disposing, thus:

WHEREFORE, in view of all the foregoing, the Court hereby resolves in favor of the plaintiffs and
against the defendant bank for the latter to pay the former the above-cited sum of
Php20,469,498.00 by way of actual damages and Php500,000.00 by way of attorney's fees.

No pronouncement as to costs.

SO ORDERED.[5]

BPI thereafter appealed to the CA averring that the court a quo erred when it ruled that petitioners
were entitled to damages. BPI posited that petitioners are liable to them on the principal balance
of the mortgage loan agreement.

The CA reversed the decision of the lower court and ruled in favor of BPI, the dispositive portion
of which states:

WHEREFORE, in the light of the foregoing, the assailed Decision dated 10 November 2008 of the
Regional Trial Court, Branch 49, Manila, in Civil Case No. 02-105189 is hereby REVERSED and SET
ASIDE. The Complaint for Damages below is DISMISSED for lack of merit.

SO ORDERED.

Petitioners filed a Motion for Reconsideration but the same was denied by the CA in a Resolution
dated August 16, 2013, viz.:

Finding no new matter of substance which would warrant the modification much less the reversal
of the assailed decision, plaintiffs-appellees' motion for reconsideration is hereby DENIED for lack
of merit.

SO ORDERED.[6]

Aggrieved, petitioners filed the present petition.

The Issues
 I. WHETHER OR NOT THERE WAS ALREADY AN EXISTING AND BINDING CONTRACT BETWEEN
PETITIONERS AND BSA WITH REGARD TO THE OMNIBUS CREDIT LINE;

II. WHETHER OR NOT BSA INCURRED DELAY IN THE PERFORMANCE OF ITS OBLIGATIONS;

III. WHETHER OR NOT PETITIONERS ARE ENTITLED TO DAMAGES; and

IV. WHETHER OR NOT BPI CAN FORECLOSE THE MORTGAGE ON THE LAND OF HEREIN
PETITIONERS.[7]

Ruling of the Court

The Court finds merit in the petition.

In fine, petitioners contend that the CA in its assailed decision erred in ruling that that there was
no perfected contract between the parties with respect to the omnibus credit line and that being
so, no delay could be attributed to BPI, the successor-in-interest of BSA. Petitioners likewise
pointed out that it was error for the CA to delve into the matter regarding existence or perfection
of a contract, especially when such issue was never raised by BPI in any of its pleadings or
proceedings in the lower court.

As a rule, a contract is perfected upon the meeting of the minds of the two parties. It is perfected
by mere consent, that is, from the moment that there is a meeting of the offer and acceptance
upon the thing and the cause that constitute the contract.[8]

In the case of Spouses Palada v. Solidbank Corporation, et al.,[9] this Court held that under Article
1934 of the Civil Code, a loan contract is perfected only upon the delivery of the object of the
contract. In that case, although therein petitioners applied for a P3,000,000.00 loan, only the
amount of P1,000,000.00 was approved by therein respondent bank because petitioners became
collaterally deficient. Nonetheless, the loan contract was deemed perfected on March 17, 1997,
the date when petitioners received the P1,000,000.00 loan, which was the object of the contract
and the date when the REM was constituted over the property.[10]

Applying this to the case at bench, there is no iota of doubt that when BSA approved and released
the P3,000,000.00 out of the original P5,000,000.00 credit facility, the contract was perfected.

The conclusion reached by the appellate court that only the term loan of P15,000,000.00 was
proved to have materialized into an actual contract while the P5,000,000.00 omnibus line credit
remained non-existent is ludicrous. A careful perusal of the records reveal that the credit facility
that BSA extended to petitioners was a credit line of P20,000,000.00 consisting of a term loan in
the sum of P15,000,000.00 and a revolving omnibus line of P3,000,000.00 to be used in the
petitioner's printing business. In separate Letters both dated January 31, 1997, BSA approved the
term loan and the credit line. Such approval and subsequent release of the amounts, albeit
delayed, perfected the contract between the parties.
Loan is a reciprocal obligation, as it arises from the same cause where one party is the creditor
and the other the debtor.[11] The obligation of one party in a reciprocal obligation is dependent
upon the obligation of the other, and the performance should ideally be simultaneous. This means
that in a loan, the creditor should release the full loan amount and the debtor repays it when it
becomes due and demandable.[12]

In this case, BSA did not only incur delay in releasing the pre-agreed credit line of P5,000,000.00
but likewise violated the terms of its agreement with petitioners when it deliberately failed to
release the amount of P2,000,000.00 after petitioners complied with their terms and paid the first
P3,000,000.00 in full. The default attributed to petitioners when they stopped paying their
amortizations on the term loan cannot be sustained by this Court because long before they sent a
Letter to BSA informing the latter of their refusal to continue paying amortizations, BSA had
already reneged on its obligation to release the amount previously agreed upon, i.e., the
P5,000,000.00 covered by the credit line.

Article 1170 of the Civil Code enumerates the instances when parties to a contract may be held
liable for damages, viz.:

Article 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.

It bears stressing that petitioners entered into a credit agreement with BSA to enable them to buy
machineries and equipment for their printing business. On its face, it can be gleaned that the
purpose of the credit agreement with BSA was indeed to assist and finance petitioner's business
by way of providing additional funds as working capital or revolving fund.[13]

The direct consequences therefore of the acts of BSA are: the machinery and equipment that were
essential to petitioners' business and requisite for its operations had to be procured so late in time
and had crippled the printing of school supplies, hence, petitioners were constrained to cancel
purchase orders of their clients to petitioners' damage.[14]

BSA claims that the release of the amount covered by the credit line was subject to the "availability
of funds" thus only a part of the proceeds of the entire omnibus line was released.

Assuming for the sake of discussion that the funds at the time were insufficient to cover the entire
P5,000,000.00, BSA should have at least informed petitioners in advance so that the latter could
have resorted to other means to secure the amount needed for their printing business. The
omnibus line was approved and became effective on January 1997 yet BSA did not allow
petitioners to draw from the line until November 1997. Moreover, BSA downgraded petitioners'
drawdown to only P3,000,000.00 despite the clear wordings of their credit agreement whereby
petitioners were allowed to draw any portion or all of the omnibus line not to exceed
P5,000,000.00. The almost 10 months delay in releasing the amount applied for by petitioners
negates good faith on the part of BSA.
BPI insists that it acted in good faith when it sought extrajudicial foreclosure of the mortgage and
that it was not responsible for acts committed by its predecessor, BSA. Good faith, however, is not
an excuse to exempt BPI from the effects of a merger or consolidation, viz.:

Section 80. Effects of merger or consolidation. - The merger or consolidation shall have the
following effects:

1. The constituent corporations shall become a single corporation which, in case of merger, shall
be the surviving corporation designated in the plan of merge; and, in case of consolidation, shall
be the consolidated corporation designated in the plan of consolidation;

xxxx

4. The surviving or the consolidated corporation shall thereupon and thereafter possess all the
right, privileges, immunities and franchises of each of the constituent corporations; and all
property, real or personal, and all receivable due on whatever account, including subscriptions to
shares and other choses in action, and all and every other interest of, or belonging to, or due to
each constituent corporation, shall be deemed transferred to and vested in such surviving or
consolidated corporation without further act or deed; and

5. The surviving or consolidated corporation shall be responsible and liable for all the liabilities and
obligations of each of the constituent corporations in the same manner as if such surviving or
consolidated corporation had itself incurred such liabilities or obligations; and any pending claim,
action, or proceeding brought by or against any of such constituent corporations may be
prosecuted by or against the surviving or consolidated corporation. The rights of creditors or liens
upon the property of any of such constituent corporations shall not be impaired by such merger
or consolidation. Applying the pertinent provisions of the Corporation Code, BPI did not only
acquire all the rights, privileges and assets of BSA but likewise acquired the liabilities and
obligations of the latter as if BPI itself incurred it.

Moreover, Section 1(e) of the Articles of Merger dated November 21, 2001 provides that all
liabilities and obligations of BSA shall be transferred to and become the liabilities and obligations
of BPI in the same manner as if it had itself incurred such liabilities or obligations.[15]

Pursuant to such merger and consolidation, BPI's right to foreclose the mortgage on petitioner's
property depends on the status of the contract and the corresponding obligations of the parties
originally involved, that is, the agreement between its predecessor BSA and petitioner.

Since BSA incurred delay in the performance of its obligations and subsequently cancelled the
omnibus line without petitioners' consent, its successor BPI cannot be permitted to foreclose the
loan for the reason that its successor BSA violated the terms of the contract even prior to
petitioners' justified refusal to continue paying the amortizations.
The trial court pointed out that based on the evidence presented by petitioners, the latter
conformed to the acquisition of the loan precisely because BSA promised them working capital for
the expansion of their business, viz.:

Clear from the plaintiffs' evidence actually presented and marked is the fact that plaintiffs
conformed to the acquisition of the loan principally upon the promise by BSA that the working
capital would be made available to plaintiffs on time for the opening of classes, for plaintiffs to be
able to secure their machineries and meet the orders of their clients.[16]

The subsequent refusal of BSA in releasing the maximum amount agreed upon, transgressed the
very purpose of petitioners in availing the credit facility. Clearly, given the nature of petitioners'
business, time is of the essence as they needed to have the orders ready before opening of classes.

To emphasize the injury caused to the petitioners due to the bank's delay and subsequent refusal
to release the omnibus loan, the petitioners testified as follows:

And the 4.2 was released... When we originally received the Php 4. 2 Million, we could not push
through with our plan in our business, sir.
Q The fact that the bank did not allow you to avail of the omnibus line, what is the effect to
your business?

A Because I have already manufactured the notebooks for St. Michael and I already sent
them to supermarkets and family stores like SM and Gaisano and they have PO coming,
I cannot deliver the goods because of lack of funds. They kept calling and confirming
about their PO Because of this my reputation is going down.

(TSN dated November 28, 2002 pp. 28-29)

Witness: And the 4.2 was released... When we originally received the Php 4. 2 Million, we could
not push through with our plan in our business, sir.

Court: Why?
Witness: Because it was not sufficient and money came to us very late with the lines of our plans,
because we are supposed to manufacture notebooks, school items in time for the school
opening in June, and it was delayed, your Honor. We continued paying our amortization
for two years. We paid almost 7 million.

(TSN dated September 24, 2007 pp. 13 and 14)

Q How important is your working capital to your business?

A The omnibus line is the most important in the business.
Court: The question is, why is it important?
A: Because I need capital for my business to replenish my supply and to pay the labor and
materials

Atty. and when you said the proceeds of the omnibus line was released only on November 10,
Cinco: 1997, how did this affect your business?
A: My business suffered badly because I already got the orders from the department stores
and book stores.

(TSN dated September 17, 2004 pp. 43-44)[17]

The CA, on the other hand, is of the opinion that the delay and damages claimed by the petitioners
are mere cloaks to hide their obligations in the mortgage loan agreement.

The Court disagrees.

No evidence was ever presented in the lower courts showing that the petitioners defaulted in
paying their amortizations on the term loan prior to their refusal which was mainly grounded on
BSA's failure to release the amount covered by the omnibus line. Petitioners' continuous payment
of amortizations even during the period between January 1997 and November 1997 (when BSA
incurred delay in releasing the omnibus line credit) is inconsistent with the appellate court's
finding that petitioners intended to hide their obligations in the mortgage loan agreement.
Petitioners' refusal to continue paying was only prompted by BSA's refusal to abide by the terms
of the contract. Thus, it would be the height of injustice to allow BPI to foreclose on the mortgage
despite violation of its predecessor BSA of its principal obligation.

In the case of Development Bank of the Philippines v. Guariña Agricultural and Realty Development
Corp.,[18] the Court ruled that a debtor cannot incur delay unless the creditor has fully performed
its reciprocal obligation, viz.:

It is true that loans are often secured by a mortgage constituted on real or personal property to
protect the creditor's interest in case of the default of the debtor. By its nature, however, a
mortgage remains an accessory contract dependent on the principal obligation, such that
enforcement of the mortgage contract will depend on whether or not there has been a violation
of the principal obligation. While a creditor and a debtor could regulate the order in which they
should comply with their reciprocal obligations, it is presupposed that in a loan the lender should
perform its obligation - the release of the full loan amount - before it could demand that the
borrower repay the loaned amount. In other words, Guariña Corporation would not incur in delay
before DBP fully performed its reciprocal obligation.[19]

Since the credit facility that BSA extended to petitioners was a credit line total of P20,000,000.00,
its refusal to release the balance on the omnibus line prevented full performance of its obligation
to petitioners. There being no release of the full loan amount, no default could be attributed to
petitioners. In other words, foreclosure was premature.

In Metropolitan Bank v. Wong,[20] the Court declared:

While the law recognizes the right of a bank to foreclose a mortgage upon the mortgagor's failure
to pay his obligation, it is imperative that such right be exercised according to its clear mandate.
Each and every requirement of the law must be complied with, lest, the valid exercise of the right
would end. It must be remembered that the exercise of a right ends when the right disappears,
and it disappears when it is abused especially to the prejudice of others.[21]

BPI was remiss in its duty of looking into the transaction involving the mortgage it sought to
foreclose. As BSA's successor-in-interest, it cannot feign ignorance of transactions entered into by
the former especially when it seeks to benefit from the same by foreclosing the mortgage thereon.

Anent the propriety of awarding damages, the Court upholds the ruling of the trial court that
actual damages in the amount of P2,772,000.00 is proper. Said amount is the computed total
difference in interest paid to other sources and that which should have only been paid to BSA had
the latter complied with the terms of the agreement. However, with regard to the claim of
damages representing petitioners' unrealized profits of P23,570,881.32, the Court agrees with the
CA that petitioners failed to prove with a reasonable degree of certainty, premised upon
competent proof and on the best evidence obtainable, the actual amount of loss. Although
petitioners were able to present in evidence purchase orders, company records and checks, the
Court agrees with the appellate court that these are insufficient as they are self-serving. Although
petitioners claimed that these orders were cancelled, no other evidence was adduced to prove
such fact of cancellation.

The law allows the grant of exemplary damages to set an example for the public good. The banking
system has become an indispensable institution in the modern world and plays a vital role in the
economic life of every civilized society. Whether as mere passive entities for the safe-keeping and
saving of money or as active instruments of business and commerce, banks have attained an
ubiquitous presence among the people, who have come to regard them with respect and even
gratitude and most of all, confidence. For this reason, banks should guard against injury
attributable to negligence or bad faith on its part.[22] Thus, the Court finds it proper to likewise
award exemplary damages in the amount of P100,000.00.

Finally, as to the matter concerning attorney's fees, the Court finds the P500,000.00 awarded by
the trial court to be excessive and should accordingly be reduced to P300,000.00.

WHEREFORE, in light of the foregoing, the petition is hereby GRANTED. The Decision dated January
31, 2013 of the Court of Appeals in CA-G.R. CV No. 92348 is hereby REVERSED and SET ASIDE. The
questioned extrajudicial foreclosure of real estate mortgage is likewise declared VOID. Respondent
BPI Family Savings Bank, Inc. is hereby ORDERED to pay petitioners Spouses Francisco Ong and
Betty Lim Ong and Spouses Joseph Ong Chuan and Esperanza Ong Chuan the amount of
P2,772,000.00 as actual or compensatory damages; P100,000.00 as exemplary damages;
P300,000.00 as attorney's fees; and interest of six percent (6%) per annum on all the amounts of
damages reckoned from the finality of this decision. SO ORDERED.

SECOND DIVISION

[ G.R. No. 220517, June 20, 2018 ]

LOLITA ESPIRITU SANTO MENDOZA AND SPS. ALEXANDER AND ELIZABETH GUTIERREZ, PETITIONERS,
VS. SPS. RAMON, SR. AND NATIVIDAD PALUGOD, RESPONDENTS.

DECISION
CAGUIOA, J:

Before the Court is a petition for review on certiorari (Petition) under Rule 45 of the Rules of Court
assailing the Decision[1] dated April 29, 2015 (Decision) of the Court of Appeals[2] (CA) in CA-G.R.
CV No. 102904, denying the appeal of petitioners for lack of merit, and the CA[3] Resolution[4] dated
September 10, 2015, denying petitioners' motion for reconsideration. The CA Decision affirmed
the Decision[5] dated March 14, 2013 in favor of respondents and Order[6] dated May 8, 2014,
denying petitioners' motion for reconsideration, of the Regional Trial Court of Bacoor, Cavite,
Branch 19 (RTC) in Civil Case No. BCV 2004-217.

The Facts and Antecedent Proceedings

The CA Decision's brief narration of facts and proceedings before the RTC follows:
[Petitioner] Lolita Espiritu Santo Mendoza (Lolita, for brevity) and Jasminia Palugod (Jasminia, for
brevity) were close friends. Lolita was a businesswoman engaged in selling commodities and
houses and lots, while Jasminia was then working as a Supervisor in the Philippine Long Distance
Telephone Company (PLDT). In 1991, Lolita and Jasminia bought the subject lot [with an area of
120 sq. m.[7]] on installment for one (1) year until they decided to pay the balance in full. [The lot
is located in Sagana Remville[8] Homes, Habay, Bacoor, Cavite.[9] In 1995, Jasminia became afflicted
with breast cancer. Sometime in 1996, Lolita and Jasminia constructed a residential house on the
subject lot. Although Lolita has no receipts, she shared in the cost of the construction of the house
from her income in the catering business and selling of various products. [Jasminia, based on a
certification[10], was separated from employment on December 30, 1998, and on January 18, 1999,
she received her retirement pay[11] in the amount of P1,383,773.59.[12]] On May 11, 2004, Jasminia
executed a Deed of [Absolute] Sale in favor of Lolita, who eventually mortgaged [on November 19,
2004[13]] the subject property to [petitioner] Elizabeth Gutierrez as a security for a loan in the
amount of Php800,000.00.

On the other hand, [respondents spouses Ramon, Sr. and Natividad Palugod] alleged that their
daughter, the late Jasminia, acquired the property located in Sagana Homes, Habay, Bacoor[,]
Cavite. Prior to and after the said acquisition of the subject property, Jasminia was living with
[petitioner] Lolita, a lesbian. Jasminia was an employee of PLDT who rose to the rank of Traffic
Supervisor before her separation from service. [Petitioner] Lolita has no work or means of
livelihood of her own and was fully dependent on Jasminia. Unfortunately, Jasminia was afflicted
with Stage IV breast cancer with multiple bone metastasis. When she was nearing her death, she
told her mother, [respondent] Natividad Palugod, that her house and lot shall go to her brother
Ramonito Palugod, but [petitioner] shall be allowed to stay therein. [Jasminia died on September
26, 2004 at the Philippine General Hospital.[14]] Meanwhile, Lolita, taking advantage of her
relationship with Jasminia, caused the latter to sign a Deed of Absolute Sale in her favor.
Thereafter, Lolita, aided by her brother Wilfredo Mendoza as witness, entered it for registration
with the Office of the Registry of Deeds. Thus, TCT (Torrens [sic] Certificate of Title) No. T-308560
in the name of Jasminia was cancelled and TCT No. T-1077041 was issued in the name of Lolita.

[Respondents], upon learning from the Office of the Registry of Deeds that Jasminia's certificate
of title has been cancelled, executed an Affidavit of Adverse Claim of their right and interest over
the property as the only compulsory and legitimate heirs of Jasminia. However, [petitioner] Lolita,
knowing fully well of the impending suit, made it appear that she mortgaged the property to
[petitioners] Spouses Gutierrez as a security for a loan amounting to Php800,000.00.

Thus, [respondents] filed a complaint for Declaration of Nullity of the Deed of Absolute Sale and
the Deed of Real Estate Mortgage with the RTC of Bacoor[,] Cavite.

On March 14, 2013, the RTC of Bacoor, Cavite, Branch 19, rendered the assailed Decision in favor
of [respondents]. The RTC declared that there can be no contract unless the following concur: (a)
consent; (2) object certain; and (3) cause of the obligation. [Respondents] were able to prove by
preponderance of evidence that the Deed of Sale involved no actual monetary consideration.
[Petitioner] Lolita, in her testimony, admitted that the sale was without monetary consideration.
The RTC ruled that the Deed of Sale is void for being simulated, hence, the Deed of Real Estate
Mortgage executed therein by [petitioner] Lolita in favor of [petitioners] Spouses Gutierrez is
likewise void, since, in a real estate mortgage, it is essential that the mortgagor be the absolute
owner of the property to be mortgaged.

[The dispositive portion of the RTC Decision states:

WHEREFORE, premises considered, the judgment is hereby rendered in favor of the [respondents]
Sps. Ramon, Sr. and Natividad Palugod and against the [petitioners] Lolita Espiritu Santo Mendoza
and Sps. Alexander and Elizabeth Gutierrez as follows:

1. That the Deed of Absolute Sale dated May 11, 2004 purportedly executed
by x x x Jasminia Palugod in favor of [petitioner] Lolita Espiritu Santo
Mendoza as null and void;

2. That the Deed of Real Estate Mortgage dated November 19, 2004 executed
by [petitioner] Lolita Espiritu Santo Mendoza in favor of [petitioners]
Spouses Alexander and Elizabeth Gutierrez as null and void;
 3. To cancel the Transfer Certificate of Title No. T-1077041 in the name of
[petitioner] Lolita Espiritu Santo Mendoza and to reinstate Transfer
Certificate of Title No. 308560 in the name of Jasminia P. Palugod;

4. Declaring [respondents] as the lawful owner[s] of the subject property by

succession as the only and compulsory heirs of the late Jasminia P. Palugod;
and

5. Ordering [petitioners], jointly and severally, to pay [respondents] the

amount of Php200,000.00 in attorney's fees.

SO ORDERED.[15]]
[Petitioners] filed [a] motion for reconsideration, but the RTC, in the assailed Order dated May 8,
2014, denied the same for lack of merit.

Aggrieved, [petitioners] interposed [an] appeal [before the CA].[16]

The CA Ruling

The CA denied petitioners' appeal for lack of merit. The CA ruled that respondents, being the only
surviving heirs of Jasminia[17] Paloma Palugod (Jasminia), have the legal personality to question the
validity of the deed of sale between Jasminia and petitioner Lolita Espiritu Santo Mendoza
(petitioner Lolita).[18] The CA found no cogent reason to deviate from the finding of the RTC that
the deed of sale is null and void for being absolutely simulated since it did not involve any actual
monetary consideration.[19] The CA likewise agreed with the RTC's finding that the real estate
mortgage between petitioner Lolita and petitioners spouses Alexander and Elizabeth Gutierrez is
null and void because the mortgagor was not the absolute owner of the mortgaged property.[20]
The dispositive portion of the CA Decision reads as follows:
WHEREFORE, the appeal is DENIED for lack of merit. The assailed March 14, 2013 Decision and
May 8, 2014 Order of the RTC of Bacoor, Cavite, Branch 19, in Civil Case No. BCV 2004-217, are
AFFIRMED.

SO ORDERED.[21]
Petitioners filed a motion for reconsideration, which was denied by the CA in its Resolution[22]
dated September 10, 2015.

Hence, the present Petition. The Court in its Resolution[23] dated January 13, 2016 denied the
Petition for failure to sufficiently show any reversible error in the challenged CA Decision and
Resolution as to warrant the exercise of the Court's appellate jurisdiction. Petitioners filed a
Motion for Reconsideration[24] dated March 28, 2016. Respondents opposed the Motion for
Reconsideration and filed an Opposition/Comment[25] dated April 20, 2016. In its Resolution[26]
dated October 3, 2016, the Court granted petitioners' Motion for Reconsideration, reinstated the
Petition and required respondents to comment on the Petition. Respondents filed their
Comment[27] dated February 4, 2017. Petitioners filed a Reply[28] dated July 10, 2017.
Issues

The Petition raises the following issues:

1. Whether the CA erred in not upholding as applicable to the case the legal principle
that a written contract is for a valuable consideration despite the utter failure to
prove beyond a selective appreciation of the transcript of stenographic notes that
there was indeed no consideration;

2. Whether the CA erred in not upholding as applicable to this case the legal principle
that inadequacy of monetary consideration does not render a conveyance null and
void; and

3. Whether the CA erred when it affirmed the finding of the RTC that petitioners-
mortgagees are jointly liable with petitioner-mortgagor despite the lack of
evidence against their innocence contrary to the legal principle that innocent
parties must not be held liable for damages.[29]

The Court's Ruling

The Petition is meritorious.

While petitioners couch the issues based on erroneous application of certain legal principles -
presumption and adequacy of consideration of contracts, they inherently involve a determination
of the correctness of the finding by both the CA and the RTC that respondents have established
by preponderance of evidence the lack of consideration of the disputed deed of sale. Necessarily,
questions of fact must be hurdled in the resolution of the issues raised by petitioners.

As a rule, the factual findings of the CA affirming those of the RTC are final and conclusive, and
they cannot be reviewed by the Court which has jurisdiction to rule only on questions of law in
Rule 45 petitions to review.[30]

The Court in Pascual v. Burgos[31] reiterated that:

A question of fact requires this [C]ourt to review the truthfulness or falsity of the allegations of the
parties.[32] This review includes assessment of the "probative value of the evidence presented."[33]
There is also a question of fact when the issue presented before this [C]ourt is the correctness of
the lower courts' appreciation of the evidence presented by the parties.[34]

There are, however, recognized exceptions where the Court may review questions of fact. These
are: (1) when the factual conclusion is a finding grounded entirely on speculations, surmises and
conjectures; (2) when the inference is manifestly mistaken, absurd or impossible; (3) when there
is abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when
the findings of fact are conflicting; (6) when the CA went beyond the issues of the case in making
its findings, which are further contrary to the admissions of both the appellant and the appellee;
(7) when the CA's findings are contrary to those of the trial court; (8) when the conclusions do not
cite the specific evidence on which they are based; (9) when the facts set forth in the petition as
well as in the petitioner's main and reply briefs are not disputed by the respondents; (10) when
the CA's findings of fact, supposedly premised on the absence of evidence, are contradicted by
the evidence on record;[35] or (11) when the CA manifestly overlooked certain relevant facts not
disputed by the parties, which, if properly considered, would justify a different conclusion.[36]

As will be demonstrated below, the Court's review of the factual findings of the courts below is
justified by the fourth, tenth and eleventh exceptions the assailed judgments of the CA and the
RTC are based on a misapprehension of facts; the findings of fact of the CA and the RTC,
supposedly premised on the absence of evidence, are contradicted by the evidence on record;
and the CA as well as the RTC manifestly overlooked certain relevant facts not disputed by the
parties, which, if properly considered, would justify a different conclusion.

At the heart of the present controversy between respondents spouses Ramon, Sr. (respondent
Ramon) and Natividad Palugod (respondent Natividad), the parents of the late Jasminia and her
"close friend"[37] petitioner Lolita is the (unilateral) Deed of Absolute Sale[38] (DAS) notarized on
May 11, 2004 executed by Jasminia in favor of petitioner Lolita, the validity of which is the central
issue in this case. The DAS partly states:
I, JASMINIA PALOMA PALUGOD x x x hereinafter referred to as the VENDOR, FOR AND IN
CONSIDERATION of the sum of FOUR HUNDRED THOUSAND PESOS (P400,000.00) Philippine
Currency, receipt of which is hereby acknowledged and confessed, have SOLD, TRANSFERRED, and
CONVEYED, absolutely and perpetually to LOLITA ESPIRITU SANTO MENDOZA x x x hereinafter
referred to as the VENDEE, her heirs, successors, and assigns, my ONE HUNDRED TWENTY (120)
SQUARE METERS lot located at Habay, Bacoor, Cavite, including all improvements found therein x
x x.[39]
Both the RTC and the CA declared the DAS void on the ground that it was fictitious or simulated
on account of lack of consideration. According to the RTC, petitioner Lolita "admitted that she has
no receipts showing the staggered payment of P400,000.00 or any agreement made between her
and Jasminia as to the consideration of the subject property."[40] On the other hand, the CA stated
that:
Although, on its face, the Deed of Sale appears to be supported by valuable consideration, since it
states that Lolita paid the purchase price of Php400,000.00 for the subject property. However,
based on the testimony of [petitioner] Lolita, it has been proven that she gave no consideration
therefor. Having proven that the price, as reflected in the Deed of Sale is simulated, it is beyond
doubt that the sale is null and void. Article 1471 of the New Civil Code provides that "If the price
is simulated, the sale is void, x x x." Thus, [respondents] are the lawful owners of the subject
property by intestate succession as the only and compulsory heirs of the late Jasminia.[41]
Both the RTC and the CA relied on the following testimony of petitioner Lolita:
ATTY. ARANDIA: Also, in the presence of Atty. Bongon [the notary public], did you pay Jasminia the
consideration on the Deed of Absolute Sale?

WITNESS: No, sir.

ATTY. ARANDIA: There was none?

WITNESS: Yes, sir.[42]

To the lower courts, the above-quoted testimony of petitioner Lolita, plus the absence of receipts,
is the unrebutted proof of the DAS' lack of consideration.

In their motion for reconsideration before the CA and in their Petition, petitioners argue, however,
that petitioner Lolita's principal proof that she did purchase the subject property is the DAS itself
while the evidence against her by respondents are all verbal averments, which are mere
conjectures and even hearsay.[43]

While petitioner Lolita concedes that she did not pay the consideration for the purchase of the
subject property before Notary Public Atty. Jesus Bongon[44], she asserts that the payment was
made prior to the notarization of the DAS as shown in her testimony taken on February 23,
2010.[45] She likewise argued this point before the CA in petitioners' motion for reconsideration.[46]

The lower courts, as will be explained below, failed to properly consider the foregoing argument
and evidence that petitioner Lolita raised and adduced. The outcome of the case would have been
different had the lower courts given them the due consideration they deserved.

As correctly pointed out by petitioner Lolita, the DAS is itself the proof that the sale of the property
is supported by sufficient consideration. This is anchored on the disputable presumption of
consideration inherent in every contract. Thus, Article 1354 of the Civil Code provides: "Although
the cause is not stated in the contract, it is presumed that it exists and is lawful, unless the debtor
proves the contrary."

This disputable presumption is reiterated in the Rules of Court (Rules). Section 3, Rule 131 of the
Rules provides:
SEC. 3. Disputable presumptions. - The following presumptions are satisfactory if uncontradicted,
but may be contradicted and overcome by other evidence:

x x x x

(r) That there was a sufficient consideration for a contract[.]

In Mangahas v. Brobio,[47] the Court explained how the presumption of sufficient consideration
can be overcome, to wit:
A contract is presumed to be supported by cause or consideration.[48] The presumption that a
contract has sufficient consideration cannot be overthrown by a mere assertion that it has no
consideration. To overcome the presumption, the alleged lack of consideration must be shown by
preponderance of evidence.[49] The burden to prove lack of consideration rests upon whoever
alleges it, which, in the present case, is respondent.[50]
Guided by the above provisions of the Civil Code and the Rules as well as jurisprudence, petitioners
stand to benefit from the disputable presumption of consideration with the presentation of the
DAS. Indeed, they can rely on the DAS as proof that it has consideration - "FOR AND IN
CONSIDERATION of the sum of FOUR HUNDRED THOUSAND PESOS (P400,000.00) Philippine
Currency, receipt of which is hereby acknowledged and confessed."[51]

With the presumption in favor of petitioner Lolita who is the vendee, it became incumbent upon
respondents to present preponderant evidence to prove lack of consideration. Respondents' mere
assertion that the DAS has no consideration is inadequate.

Regarding the determination of preponderance of evidence, Section 1, Rule 133 of the Rules
provides:
SECTION 1. Preponderance of evidence, how determined. - In civil cases, the party having the
burden of proof must establish his case by a preponderance of evidence. In determining where
the preponderance or superior weight of evidence on the issues involved lies, the court may
consider all the facts and circumstances of the case, the witnesses' manner of testifying, their
intelligence, their means and opportunity of knowing the facts to which they are testifying, the
nature of the facts to which they testify, the probability or improbability of their testimony, their
interest or want of interest, and also their personal credibility so far as the same may legitimately
appear upon the trial. The court may also consider the number of witnesses, though the
preponderance is not necessarily with the greater number.
The basic rule in civil cases is:
x x x that "the party having the burden of proof must establish his case by a preponderance of
evidence."[52] By "preponderance of evidence is meant simply evidence which is of greater weight,
or more convincing than that which is offered in opposition to it."[53] x x x

x x x x

"Where the evidence on an issue of fact is in equipoise or there is doubt on which side the evidence
preponderates[,] the party having the burden of proof fails upon that issue."[54] Therefore, as
"neither party was able to make out a case, neither side could establish its cause of action and
prevail with the evidence it had. They are thus no better off than before they proceeded to litigate,
and, as a consequence thereof, the courts can only leave them as they are. In such cases, courts
have no choice but to dismiss the complaints/petitions."[55]
While the RTC ruled that "[respondents] established by a preponderance of evidence that the
Deed of Sale dated May 11, 2004 involved no actual monetary consideration, executed by Jasminia
in favor of [petitioner] Lolita,"[56] it relied not on the testimony of the lone witness for respondents,
respondent Natividad, but on the testimony of petitioner Lolita admitting that "in the presence of
the Notary Public, Atty. Bongon, the sale was in fact without consideration"[57] and "she has no
receipts showing the staggered payment of P400,000.00 or any agreement made between her
and Jasminia as to the consideration of the subject property."[58] Thus, the RTC Decision made no
mention of the pertinent testimony of respondent Natividad wherein she controverted the
presumption of consideration.

The CA echoed the finding of the RTC and stated: "A perusal of the records of the case reveals that
[respondents] were able to establish by a preponderance of evidence that the Deed of Sale is
absolutely simulated, since, it did not involved (sic) any actual monetary consideration."[59] The CA
then quoted the testimony of petitioner Lolita where she admitted that the consideration of the
DAS was not paid in the presence of Atty. Bongon. The CA, like the RTC, did not advert to the
testimonial evidence adduced by respondents through respondent Natividad.

Since preponderance of evidence is the required quantum of proof in this case, the evidence of
respondents, who are the plaintiffs before the RTC, must be weighed against the petitioners'
evidence, and a determination of which one has superior weight must be made.

As mentioned earlier, respondents relied solely on the testimony of respondent Natividad. A

careful reading of the testimony of respondent Natividad, the mother of Jasminia, reveals that
respondents' evidence on the lack of consideration of the DAS can be inferred from the following:
[Atty. Edgardo Arandia, respondents' counsel, to witness respondent Natividad]

ATTY. ARANDIA
Q Why did you say that they were living as if they were husband and wife?

WITNESS
A They were living in that house and Lolita Mendoza is a lesbian "tomboy", sir.

ATTY. ARANDIA
Q And who was spending for their everyday living?

WITNESS
A Jasminia, sir.

ATTY. ARANDIA
Q Why? Was (sic) Lolita has no income of her own?

WITNESS
A No, sir. She has none.

ATTY. ARANDIA
Q What was the occupation or job of Jasminia at that time?

WITNESS
A My daughter is a Supervisor at the PLDT, sir.

ATTY. ARANDIA
Q You are telling us that Lolita was purely dependent from Jasminia?

WITNESS
A Yes, sir.
xxxx

ATTY. ARANDIA
Q What did you talk about?

WITNESS
A She [Jasminia] told me that the house and lot is for Ramonito and she requested not to evict
Lolita from the house and I said "yes" we will not asked (sic) Lolita to leave the house, sir.[60]
Respondent Natividad further testified as follows:
ATTY. ARANDIA:
Mrs. Palugod, what can you say on this Deed of Absolute Sale marked as Exhibit "F"?

WITNESS:
That's not true because in fact my daughter when she's still alive had been telling me that the
said house and lot will be given to her brother Ronnie and we will not ask Lolita Mendoza to
vacate or to leave the place, sir.

xxxx

ATTY. ARANDIA:
Mrs. Palugod, what else did you discover with the Office of the Register of Deeds for the
Province of Cavite in connection with this property of Jasmina in addition to its transfer from
the name of your daughter to the name of Lolita?

WITNESS:
We also discovered that the Deed of Sale is not true and that is a fake "gawa-gawa lang po",
sir.[61]
In fine, respondent Natividad simply reiterated the allegations in the "Sinumpaang Salaysay ng
Paghahabol (Affidavit of Adverse Claim)" dated November 24, 2004 that she and her husband,
respondent Ramon, executed, to wit:
Nalagay sa pangalan ni Lolita Espiritu Santo Mendoza ang titulong lupa't-bahay sang-ayon sa isang
Deed of Absolute Sale na lumalabas ay binili niya iyon sa aming namayapang anak na si Jasminia
sa halagang P400,000.00 piso daw;

Wala pong katotohanan ang nasabing bilihan sapagkat iyon ay isang hindi tatoo at isang simulated
or fictitious na bilihan lamang dahil imposibleng bayaran [ni] Lolita ang anak [namin] dahil sila ay
nagsasama bilang mag-asawa (tomboy po si Lolita) at si Lolita ay walang hanapbuhay at umaasa
lamang sa aming anak nasi Jasminia. Ang katotohanan pa nga, ay na[n]g magkasakit ang aming
anak, lahat ng ginagastos sa pagpapagamot sa kanya ay galing sa kanyang mga kapatid na ibinibigay
[namin] kay Lolita. Bukod pa doon, bago siya namatay ay ibinilin niya sa amin n[a] huwag paaalisin
si Lolita sa bahay kung iyon ay manahin [namin] at hindi kailanman iyon ay ipinagbili sa kanya;

Kung kaya[']t bilang tanging tagapagmana at sa ilalim ng batas ay kami na ang may-ari ng nasabing
lupa[']t bahay, ay aming isinasagawa ang sinumpaang salaysay na ito upang patunayang lahat ang
nakasaad sa itaas x x x.[62]
On the other hand, petitioner Lolita disputed the assertion that she has no income and means of
livelihood, and presented documents in support thereof, to wit:
[Atty. Lawrence[63] Rubio, petitioners' counsel, to petitioner Lolita]

ATTY. RUBIO:
Miss witness, can you tell us your occupation?

WITNESS:
I am a businesswoman, sir.

ATTY. RUBIO:
Can you tell us what kind of business are you engaged into?

WITNESS:
I am engaged in selling food, catering services. I am also engaged in selling house and lot, sir.

ATTY. RUBIO:
Your (sic) are telling us that you are engaged into selling as agent. Do you have any proof to
show that you are engaged in such business?

WITNESS:
Yes sir, I have.

ATTY. RUBIO:
What are those documents, madame witness?

WITNESS:
I have documents coming from the offices wherein I was able to sell house and lot and also
documents coming from other offices wherein I transacted business catering with them, sir.

ATTY. RUBIO:
Madame witness, I am showing to you Exhibit "3["][64] and "3-A",[65] is this the one that I am
(sic) referring to?

WITNESS:
Yes sir.

xxxx

ATTY. RUBIO:
When we say occupation, we are talking of income. Can you tell us if you receive any income
from this occupation?
WITNESS:
Yes sir.

ATTY. RUBIO:
Can you show us any proof that you had received any income from this business or occupation
that you mentioned?

WITNESS:
I have a statement of account, I invested the money with the bank. I also bought a house and
lot and I invested money with MMG, sir.

ATTY. RUBIO:
I am showing to you a document previously marked as Exhibit "4"[66]. Can you tell us if you
are referring to this document that you mentioned?

WITNESS:
Yes sir.

ATTY. RUBIO:
How about Exhibits "5"[67] & "6"[68]?

WITNESS:
Yes sir.

xxxx

COURT:
By the way, what are those properties owned by the defendants?

ATTY. RUBIO:
Your honor, these are savings accounts from banks.

COURT:
How many savings accounts does she have?

ATTY. RUBIO:
She has one from China Bank and the Memorandum of Agreement which the witness
identified were investments from holdings company which she has invested, your honor.

COURT:
How much was her investments in those companies and what are those companies? She
mentioned that she invested with the MMG, is it not? So, how much was she invested (sic)
with MMG?
WITNESS:
Four Hundred Thousand Pesos (PhP400,000.00) and another Two Hundred Thousand pesos
(PhP200,00.00) (sic), your honor.

COURT:
What else? Aside from MMG, do you invest your money to other investing company?

WITNESS:
At China Bank, your honor.

COURT:
Was it investment or deposit?

WITNESS:
Deposit, your honor.[69]
The foregoing testimony of petitioner Lolita and the documentary evidence in support thereof
show that she had income and the means to pay the consideration stated in the DAS. These
documentary evidence - (1) Certification from E.B. Loredo Realty Corporation dated January 6,
2005 that petitioner Lolita had been a sales agent of the said realty corporation from January 2001
up to December 2002 (Exh. "3"); (2) Certification from Cesar C. Cruz & Partners Law Offices dated
December 22, 2004 that petitioner Lolita was supplying food consisting of lunch and snacks to the
employees of the said law office from 1982 to 1988 (Exh. "3-A"); (3) Certification from Chinabank,
SM City Bacoor Branch dated December 16, 2004 that since 1998 petitioner Lolita maintained
accounts with the said bank under TD#168020017540, TD#168020018239, SA#2680029315 and
SA#2680873817 (Exh. "4"); (4) Notarized Memorandum of Agreement between MMG
International Holdings Co., Ltd. (MMG) and Jasminia Palugod &/or Lolita Mendoza (Capitalist)
dated June 26, 2002 wherein the Capitalist turned over P800,000.00 for MMG to use as capital for
six months at 2.5% monthly compensation, expiring on December 26, 2002 (Exh. "5"); and (6)
Notarized Memorandum of Agreement between MMG and Lolita Mendoza (Capitalist) dated June
26, 2002 wherein the Capitalist turned over P200,000.00 for MMG to use as capital for six months
at 2.5% monthly compensation, expiring on December 26, 2002 (Exh. "6") - were all unrebutted
by respondents. For their part, both the CA and the RTC totally ignored them.

As to the consideration of the DAS, both the RTC and the CA concluded that since Lolita admitted
in her testimony, as quoted earlier, that she did not pay the consideration of the DAS before the
notary public, the DAS lacks consideration. However, petitioner Lolita offered the following
explanation:
RE-DIRECT-EXAMINATION:

[Atty. Rubio to petitioner Lolita]

ATTY. RUBIO:
 During the hearing last June 30, 2009 you were asked by the counsel or (sic) the plaintiff "Did
you pay Jasminia for the consideration of the Deed of Absolute Sale? You answered, No, sir."
As appearing on the Transcript of Stenographic Notes of the same date. My question madame
witness is, can you clarify why you were not able to pay the consideration?

xxxx

ATTY. RUBIO:
My question madame witness is, since you were not able to pay her at that time, when did
you pay her?

xxxx

WITNESS:
I paid in 2002, sir.

xxxx

ATTY. RUBIO:
Madame witness, you answered 2002, can you tell us when the Deed of Absolute Sale was
executed?

WITNESS:
May 11, 2004, sir.

ATTY. RUBIO:
You paid Jasminia the consideration of the property before the execution of the Deed of
Absolute Sale?

WITNESS:
Yes sir.

ATTY. RUBIO:
Can you tell us the circumstances how you paid Jasminia the consideration of the property
subject of this case?

xxxx

ATTY. RUBIO:
Can you tell us the manner of payment, madame witness?

xxxx

WITNESS:
 Whenever Jasminia needs money since she's having her treatment so I gave her the amount
of TWENTY THOUSAND PESOS (Php20,000.00) sometimes FORTY THOUSAND PESOS
(Php40,000.00) until it reached the amount of TWO HUNDRED THOUSAND PESOS
(Php200,000.00), sir.

xxxx

ATTY. RUBIO:
You only paid Php200,000.00 that time[.]

WITNESS:
Because that's the only money left with me and the other Php200,000.00 was borrowed by
Jasminia from my sister in Australia, sir.

xxxx

COURT:
What transpired during the meeting between your sister and Jasminia when you said you
were present?

WITNESS:
That my sister will lend money to Jasminia, you honor.

COURT:
Do you know how much money is she going to lend to Jasminia?

WITNESS:
Two Hundred Thousand Pesos (Php200,000.00), your honor.

xxxx

ATTY. RUBIO:
After agreeing to let Jasminia borrow money from your sister, what happened next?

WITNESS:
She was given first Fifty thousand Pesos (Php50,000.00), sir.

COURT:
When was that?

WITNESS:
That was also in the year 2002, you honor.

COURT:
 Was it during the meeting wherein Jasminia and your sister talked about this loan?

WITNESS:
Yes your honor.

COURT:
So, immediately your sister lend her Php50,000.00?

WITNESS:
Yes your honor.

ATTY. RUBIO:
What about the balance of Php150,000.00?

WITNESS:
When she returned to Australia she's sending money to my mother including the money that
Jasmin[ia] is (sic) asking, sir.

xxxx

COURT:
By the way, when your sister gave Jasminia the amount of Php50,000.00, was there any
receipt prepared to show that your sister indeed lend (sic) money in the amount of
Php50,000.00?

WITNESS:
There's none, your honor.

COURT:
How about the other money that your sister sent to your mother in order to give to Jasminia,
were there any receipts?

WITNESS:
None also you honor.

xxxx

RE-CROSS EXAMINATION:

[Atty. Arandia to petitioner Lolita]

ATTY. ARANDIA:
Miss. (sic) Mendoza, you mentioned that you paid Jasminia Palugod Php200,000.00 in partial
payment of the property the subject matter in this case and according to you the payment
 was on a staggered basis way back in 2002. Now, my question is, do you have receipts
showing that you paid Jasminia Php200,000.00 on staggered basis?

WITNESS:
None, sir.[70]
From the foregoing, it is evident to the Court that petitioner Lolita's proof of payment of the DAS'
consideration was her sworn testimony. Testimony, given under oath, and subjected to cross-
examination is proof.[71] Unfortunately, both the CA and the RTC brushed this aside only because
the RTC zeroed in on the lack of receipts.

Since the evidence of the parties are mainly testimonial, it behooved the RTC, as well as the CA,
to weigh the version of respondents against that of petitioners. The Court is called upon to do the
same in order to determine which evidence preponderates.

Before the narrations of respondent Natividad and petitioner Lolita are pitted against each other
to determine which one preponderates over the other, the Court notes the glaring inconsistencies
in respondent Natividad's testimony:

1. According to respondent Natividad, Jasminia used her retirement pay to buy the lot and
constructed the house in Sagana Remville, Habay, Bacoor, Cavite, to wit:
[Atty. Arandia to respondent Natividad]

ATTY. ARANDIA
Q Was Jasminia able to retire from PLDT before her death?

WITNESS
A Yes, sir.

xxxx

ATTY. ARANDIA

xxxx

Q Do you know if Jasminia able (sic) to get her retirement benefit from PLDT?

xxxx

WITNESS
A Yes, sir. She was able to receive it.

ATTY. ARANDIA
Q Do you know what Jasminia did on her retirement benefit?
WITNESS
A Yes, sir.

ATTY. ARANDIA
Q What?

WITNESS
A She bought a lot and constructed a house, sir.

ATTY. ARANDIA
Q And that property or lot you are saying now is the same property located in Sagana Remville,
Habay, Bacoor, Cavite?

WITNESS
A Yes, sir.[72]
Respondent Natividad's account could not have happened because Jasminia received her
retirement pay equivalent to P1,383,773.59 on January 18, 1999 based on the Receipt, Release
and Quitclaim (Exh. "8"[73]) that Jasminia executed on even date, which was after the purchase of
the subject lot and the construction of the subject house.

Indeed, petitioner Lolita disputed respondent Natividad's version, to wit:

[Atty. Rubio to petitioner Lolita]

ATTY. RUBIO:
x x x Madame witness, during the hearing dated November 27, 2007, when the plaintiff
testified you were present in Court?

WITNESS:
Yes sir.

ATTY. RUBIO:
So, when the witness was asked: "Do you know what Jasminia did on her retirement
benefit?["] And the witness answered: "Yes, sir.". "What?["], asked by counsel and the witness
answered: "She bought a lot and constructed a house, sir." Can you tell us, what can you say
about this testimony?

WITNESS:
That's not true, sir.

ATTY. RUBIO:
Why?

WITNESS:
Because we bought that lot in 1991 and the house was constructed in February of 1996, sir.[74]
2. According to respondent Natividad, Jasminia's retirement pay was used by Jasminia and
petitioner Lolita for their trips to Hong Kong, Norway and Australia, to wit:
[Atty. Arandia to respondent Natividad]

ATTY. ARANDIA
Q Do you know if Jasminia and Lolita went abroad from that retirement benefit?

xxxx

WITNESS
A They went to Hong Kong, Australia and Norway, sir.

COURT
Q Why do you know that they went to those places?

WITNESS
A Because we were living in the same house and I was with them when they went to Hong Kong,
Your Honor.

COURT
Q So, do you mean to say that you were living with Lolita and Jasminia in their house at Sagana
Remville, Habay, Bacoor, Cavite?

WITNESS
A Not me, only the two of them, Your Honor.[75]
On the other hand, petitioner Lolita's version is as follows:
ATTY. ARANDIA:
And from this separation benefit which Jasminia received from PLDT you even went wither
(sic) in Europe, in Hong Kong and in Australia?

WITNESS:
That's not true, sir. At the time we went to Europe and Hong Kong, Jasminia had not yet
separated from PLDT and in fact we went together with her mother at the time we went in
those places, sir.

COURT:
Do you still recall what year was that when you, Jasminia and together with her mother went
to Europe?

WITNESS:
In Europe, that was May, 1997, you honor.

COURT:
How about in Hong Kong?
WITNESS:
In Hong Kong, that was September, 1995, your honor.

COURT:
How about in Australia?

WITNESS:
In Australia, that was in March, 1999, your honor.

COURT:
So, that was after her separation?

WITNESS:
Yes your honor.

ATTY. ARANDIA:
With all these tours and trips with these countries which you mentioned, it was Jasminia who
spent for the travel?

WITNESS:
In Hong Kong, it was her mother who paid. In Norway, the three (3) tickets were sent by her
brother because we had an invitation to go to Norway so that we will (sic) be able to get a
Visa.

COURT:
In other words, the expenses came from the brother of Jasminia?

WITNESS:
Yes you honor, but I paid my ticket when we reached Norway.

ATTY. ARANDIA:
And what is the name of the brother of Jasminia in Norway?

WITNESS:
Ramonito Palugod, sir.

ATTY. ARANDIA:
And according to you, you reimbursed the ticket given to you upon arrival in Norway?

WITNESS:
Yes sir, I paid it in dollar.

ATTY. ARANDIA:
 To whom did you pay?

WITNESS:
To Ramonito, sir.

ATTY. ARANDIA:
How much did you pay Ramonito?

WITNESS:
One Thousand Dollars ($1,000.00), sir.

ATTY. ARANDIA:
Do you have receipt that you have actually reimbursed Ramonito for that ticket?

WITNESS:
None, sir.[76]
3. According to respondent Natividad, her daughter Jasminia could not possibly travel from Bacoor
to Pasay City where the DAS was notarized because she had a brace and her bone is "napupulbos
na."[77] Her testimony in this aspect is reproduced below:
ATTY. ARANDIA:
On the second page of this Exhibit "F" is the acknowledgment portion wherein it is stated
here that it was allegedly acknowledged before the Notary Public in Pasay City and this Deed
of Absolute Sale appears to have been executed on May 11, 2004. My question is, during the
time, May 11, 2004 can Jasmina travel from Bacoor to Pasay City to acknowledge this Deed
of Sale before a Notary Public?

xxxx

WITNESS:
On the said date and time my daughter cannot possibly travel from Bacoor in going to Pasay
City because during that time she already had a bone cancer and she had a brace and her
bone is "napupulbos na", sir.[78]
To dispute respondent Natividad's account, petitioner Lolita presented Dr. Teresa Sy Ortin (Dr.
Ortin), a Radiation Oncologist at Makati Medical Center, who issued a Medical Certificate[79] dated
December 20, 2004. Dr. Ortin's testimony follows:
[Atty. Lawrence Rubio to Dr. Ortin]
ATTY. RUBIO:
Madam witness, can you recall your employment in the year May 11, 2004? Where were you
employed at that time?
WITNESS:
I'm a Radiation Oncologist at Makati Medical Center. I'm a cancer specialist, sir.
xxxx
ATTY. RUBIO:
x x x Can you remember a patient by the name of Jasminia Palugod?
WITNESS:
Yes, sir. I have her records with me.
ATTY. RUBIO:
Can you tell us what is the nature of her illness?
WITNESS:
She had breast cancer. I treated her for several times and the last treatment was on April 16, 2004
for which she received treatment for the period April 16 to May 13, 2004, sir.
ATTY. RUBIO:
I have here a Medical Certificate dated December 20, 2004. I am showing to you this document.
Can you tell us what is the relation of this document to the one you have mentioned?
WITNESS:
Actually, I have a copy of that on my record and this certifies that she came to us for treatment, in
my clinic.
xxxx
ATTY. RUBIO:
x x x During that time, madam witness, April 16, 2004 to May 13, 2004, how often does (sic) your
patient Jasminia Palugod came (sic) to Makati Medical Center?
WITNESS:
She was treated daily, because our schedule of radiation therapy is everyday, from 8:00 to 5:00.
So, it's a total of eighteen (18) treatments. So, that is over four (4) weeks.
ATTY. RUBIO:
During that time, do you know who was with her?
WITNESS:
I remember as her companion... I don't know her name but I recognize her face.
ATTY. RUBIO:
For the record, your Honor, may I state that the witness is pointing to the defendant Lolita
Mendoza as the companion of patient Jasminia Palugod at the time the patient is being assisted
at the Makati Medical Center.
COURT:
Noted.[80]
On cross-examination, Dr. Ortin further testified:
[Atty. Arandia to Dr. Ortin]

ATTY. ARANDIA:
How long is the radiation treatment being conducted for each exposure?

WITNESS:
About fifteen (15) minutes, sir.

ATTY. ARANDIA:
After exposing the patient on radiation therapy, what is the effect thereof on her physical
condition?

WITNESS:
 Radiation therapy is a local treatment, so the side effect should end on where the radiation
is directed. For example, there were exposure on the arms, other parts of the body would not
have any significant side effect.

ATTY. ARANDIA:
In the case of Ms. Palugod, who was according to you, afflicted with cancer which has
metastasized. So what part of her body was subjected to radiation exposure therapy?

WITNESS:
According to the records, it was in the thoraxic spine.

ATTY. ARANDIA:
What would be the effect of that radiation on the patient after exposure?

WITNESS:
The side effect is very minimal. You may feel a little weak but as you can see most of our
patients are treated in my clinic as out patient. They don't need to be confined. Most of our
patients can walk around and able to do their other duties after treatment.

ATTY. ARANDIA:
Will they feel weakness after the therapy?

WITNESS:
Yes, but not very significant for us to require them to stay in the hospital.

ATTY. ARANDIA:
In the case of Ms. Palugod considering that her cancer has already metastasized. I will assume
that during those times, Ms. Palugod was weak already?

xxxx

WITNESS:
I remember she was coming on a wheelchair and her main problem at that time, the reason
for the radiation, is that because she was in pain.

ATTY. ARANDIA:
On wheelchair. Meaning to say that she was weak to walk by herself?

WITNESS:
Yes, sir.

ATTY. ARANDIA:
And that her weakness will be aggravated after weeks of radiation therapy?
WITNESS:
Not significantly.

ATTY. ARANDIA:
What do you mean, "not significantly["]?

WITNESS:
It's not going to be extremely weak that you need to confine her because of the problem?

COURT:
What would be the end result of that radiation treatment to a person afflicted by cancer?
Would she be cured or would she be strong after each treatment?

WITNESS:
The main problem why she was referred to us was because she was in extreme pain, and
radiation is supposed to regress the pain and makes her to feel better.

COURT:
During this treatment, and you said that it was on a daily basis, after being treated for at least
fifteen (15) minutes of radiation, what should be the effect to Ms. Palugod?

WITNESS:
After few days of treatment, we expect her to be relieved....

COURT:
From the pain that she is suffering.

WITNESS:
Yes. Her treatment started on April 16 and on April 30, she claimed that she felt some relief
from her back pain.

xxxx

ATTY. ARANDIA:
x x x Ordinarily, if the patient like Ms. Palugod, who has been suffering from cancer which has
metastasized and who was undergoing radiation therapy, would it be natural for that patient
like Ms. Palugod to go to a notary public to acknowledge a document?

xxxx

WITNESS:
I don't think there's problem with that. For patients who are terminally ill, we advise them to
take care of things, important decisions that they have to decide on. So, I don't think that
should be a problem for patients who are suffering from illness with that concern.
ATTY. ARANDIA:
For all the treatments that you had been undertaken to Ms. Palugod, was she always
accompanied by somebody?

WITNESS:
Yes, as far as I can remember.

ATTY. ARANDIA:
So in other words, she cannot come to your office without being assisted by another person?

WITNESS:
Probably, not.

ATTY. ARANDIA:
What do you mean, "probably, not"?

WITNESS:
Because she has a very advance disease, I don't think, anybody would want her to go for
treatment by herself, especially because of her disease, it affected her bone, and she was in
pain, probably, she would not be able to travel by herself.

ATTY. ARANDIA:
What about the mental capacity of the witness, in your assessment, how was Ms. Palugod
during that time? Was her mental capacity affected by her illness?

xxxx

WITNESS:
In my clinical assessment, there is no reason to prove that her mental capacity has been
affected. If we notice something, the usual is we talk to the patient and we would request
additional test, and there is no such evaluation in our record, so I would think that at that
time, in our clinical judgment, her disease does not affect her mental capacity or function.[81]
Based on Dr. Ortin's clear, categorical and compelling testimony, Jasminia was not physically
incapable of traveling from Bacoor, Cavite to Makati Medical Center and to Pasay City for the
acknowledgment of the DAS before the Notary Public and she was not mentally incapacitated to
know the import thereof.

Given the significant inconsistencies in the testimony of respondent Natividad, the credibility of
her testimony is, to the Court, doubtful. To be sure, a witness' credibility is determined by the
probability or improbability of his testimony. As well, the witness' means and opportunity of
knowing the facts that he is testifying to are relevant. The improbability of respondent Natividad's
assertions is demonstrated by the evidence, both documentary and testimonial, that petitioner
Lolita adduced to rebut the same. Put simply, respondent Natividad's observations are those of an
outsider because she was not living with her daughter during the period at issue and cannot be
relied upon.

The RTC and the CA also did not even mention the glaring inconsistencies noted above, which if
properly considered, would have seriously affected the outcome of the case.

In addition, the lower courts misapprehended the admission by petitioner Lolita that she did not
pay the consideration before the Notary Public. They excised from their judgments petitioner
Lolita's sworn testimony as to how the consideration was paid by her. The portion of petitioner
Lolita's testimony that the lower courts quoted in their respective Decisions does not even
indubitably show that no consideration had been paid. What petitioner Lolita admitted was that
the consideration was not paid "before the Notary Public," and, as correctly pointed out by her,
there is no legal requirement that the consideration of a sale be paid in the very presence of the
Notary Public before whom the deed of sale is acknowledged.

Given the foregoing, contrary to the findings of the CA and the RTC, which evidently arose from
their misapprehension and non-consideration of relevant facts, respondents have not discharged
their burden of proof to rebut either the presumption of sufficient consideration of the DAS or the
evidence of petitioner Lolita. In fine, respondents failed to establish their cause of action by
preponderance of evidence.

All told, petitioners' evidence has superior weight. While petitioner Lolita could not present
receipts to show her payments to the late Jasminia, her sworn testimony which in certain portions
were corroborated by pertinent documents, remains more credible than that of respondent
Natividad. Indeed, the lack of receipts may be explained by the "close friendship" between
petitioner Lolita and Jasminia. The non-admission by petitioner Lolita of the "husband and wife"
relationship that she shared with Jasminia and her being a "lesbian or tomboy," as respondent
Natividad claimed, is of no moment. Whatever transpired between her and Jasminia is a private
matter, which the Court would not even speculate on. As to the gender identity and sexual
preference of petitioner Lolita, that is likewise a private matter.

Even from a pure evaluation of only the parties' testimonial evidence, wherein doubts on the
truthfulness of their respective narrations of the relevant facts are perceived and there may be
difficulty in determining who between respondent Natividad and petitioner Lolita is the more
credible witness and in which side the testimonial evidence preponderates, the evidence of the
parties should, at the very least, be held to be in equipoise. That being the situation, respondents,
who have the burden of proof in the present case, fail upon their cause of action. Following Rivera
v. CA[82] quoted above, as neither party was able to make out a case, neither side having
established his/her cause of action, the Court can only leave them where they are and it has no
choice but to dismiss the complaint, as the lower courts should have done.

Consequently, the DAS executed by Jasminia in favor of petitioner Lolita over the subject property
is valid, the presumption that it has sufficient consideration not having been rebutted. The same
holds true regarding the Real Estate Mortgage between petitioner Lolita and petitioners spouses
Alexander and Elizabeth Gutierrez.

WHEREFORE, the Petition is hereby GRANTED. The Decision of the Court of Appeals dated April 29,
2015 and its Resolution dated September 10, 2015 in CA-G.R. CV No. 102904 as well as the
Decision dated March 14, 2013 and Order dated May 8, 2014 of the Regional Trial Court of Bacoor,
Cavite, Branch 19 in Civil Case No. BCV 2004-217 are REVERSED AND SET ASIDE. The complaint
filed in Civil Case No. BCV 2004-217 is DISMISSED for lack of cause of action.

SO ORDERED.

FIRST DIVISION

[ G.R. No. 215387, April 23, 2018 ]

NORTHERN MINDANAO INDUSTRIAL PORT AND SERVICES CORPORATION, PETITIONER, V. ILIGAN

CEMENT CORPORATION, RESPONDENT.

DECISION

DEL CASTILLO, J.:

Assailed in this Petition for Review on Certiorari[1] are the March 18, 2014 Decision[2] of the Court
of Appeals (CA) in CA-G.R. SP No. 03789-MTN, which set aside the August 6, 2009 Order[3] of the
Regional Trial Court of Iligan City, Branch 3 (RTC) in Civil Case No. 7201, and the CA's October 17,
2014 Resolution[4] denying herein petitioner's motion for reconsideration.
Factual Antecedents

As narrated by the CA, the facts are as follows:

xxx Iligan Cement Corporation (ICC) is a domestic corporation x x x engaged in the manufacturing
and distribution of cement and other building materials.

x x x Northern Mindanao Industrial & Port Services Corporation (NOMIPSCO) is likewise a domestic
corporation xxx involved, among others, in the arrastre or stevedoring business.

On 27 June 2007, ICC invited NOMIPSCO to a pre-bidding conference for a two-year cargo handling
contract. Apart from NOMIPSCO, RC Barreto Enterprises, MN Seno Marketing, VIRLO Stevedoring
and Oroport also joined the conference.

In the course of the conference, ICC, through Nestor Camus (Camus), required the participants to
submit their respective technical proposals and commercial bids on or before 5 July 2007. xxx

NOMIPSCO thereafter submitted its proposal in which it offered the lowest bid of P1.788 per a
[sic] 40 kilogram bag.

ICC awarded the cargo handling contract to Europort Logistics and Equipment Incorporated
(Europort).

On 2 September 2008, NOMIPSCO filed a Complaint[5] for Damages and Attorney's fees against ICC
[alleging] that, as per information from an ICC employee, its bid folder was marked as "no bid
submitted'[;] that Camus, upon inquiry, revealed that, the bid award was based on x x x the
recommendation of the end-user; and x x x a new company policy x x x to prioritize new
contractors [which] were never made known to the bidders. x x x NOMIPSCO further claimed that
ICC was guilty of bad faith when it still invited NOMIPSCO to join the pre-bidding conference
despite prior knowledge of its status as an old contractor. NOMIPSCO, thus, contended that the
acts of ICC amounted to an abuse of its rights or authority, the same acts that led NOMIPSCO to
suffer great losses and unearned income.

On 9 October 2008, ICC filed an Answer with Compulsory Counterclaims[6] wherein it x x x

countered that NOMIPSCO had no cause of action since its complaint failed to state a cause of
action. ICC stressed that for abuse of right to exist there must be: 1) an act which is legal; 2) but
which is contrary to morals, good customs, public order, or public policy; and 3) it is done with
intent to injure.' ICC argued that in the instant controversy the last two requisites were wanting. x
xx

On 6 August 2009, the RTC rendered an Order denying ICC's affirmative and special defenses -
complaint failed to state a cause of action and defective verification. The dispositive portion of the
order reads –
WHEREFORE, premises considered, the prayer for the dismissal of the complaint as it states no
cause of action is denied for lack of merit.

The acting clerk of Court is directed to set the case for pre-trial and referral of the case to the
mediation center.

SO ORDERED.

On 29 September 2009, [ICC] filed a Motion for Reconsideration.[7] In its Motion, [ICC] maintained
that NOMIPSCO lacked a cause of action and that the Complaint 1) failed to state a cause of action;
xxx

On 24 May 201C, the RTC issued an Order[8] denying [ICC's] Motion for Reconsideration. x x x[9]

Ruling of the Court of Appeals

Respondent ICC instituted an original Petition for Certiorari[10] before the CA, docketed as CA-G.R.
SP No. 03789-MIN, arguing that the RTC committed grave abuse of discretion in not dismissing
Civil Case No. 7201 for failure to state a cause of action and Jack of cause of action.

On March 18, 2014, the CA rendered the assailed Decision, declaring as follows:

The petition is meritorious.

xxxx

Considering exclusively the allegations of the above Complaint, the Court finds that NOMIPSCO
has no legal right to impute to ICC an abuse of its right or authority in the bidding selection or to
impugn the validity of the cargo handling contract executed between the latter and Europort.

In its Complaint, NOMIPSCO mainly anchored its right to institute this action on the fact that it
won the bidding had it not for the alleged abuse of rights of ICC. However, as correctly argued by
ICC, 'NOMIPSCO's right as a bidder is only to be considered in the evaluation of the entity to handle
the stevedoring requirements’ and that it has no right to dictate as to whom the award should be
granted. It bears stressing that an advertisement to possible bidders is simply an invitation to make
proposals, and that an advertiser is not bound to accept the [lowest] bidder unless the contrary
appears. Moreover, ICC has the unprecedented right to reject bids and it cannot be compelled by
a party who called the bids to accept its proposal and execute a contract in its favor. Considering
that NOMIPSCO was not selected as the winner and that ICC cannot be legally obliged to accept
its bid, the former therefore has no legal right against the latter. Considering that the existence of
a legal right is wanting, it is thus ineluctable that the 2 September 2008 Complaint failed to state
a cause of action.

The above disquisitions render a discussion on the second issue of ICC unnecessary.
All told, this Court finds grave abuse of discretion on the part of the RTC in denying the dismissal
of NOMIPSCO's complaint. x x x

WHEREFORE, the instant petition for certiorari is GRANTED.

Accordingly, the assailed Order dated 6 August 2009 of the Regional Trial Court, 12 th Judicial
Region, Branch 3, Iligan City, is hereby ordered SET ASIDE.

SO ORDERED.[11] (Citations omitted)

Petitioner sought to reconsider but to no avail. Hence, the present Petition.

Meanwhile, the proceedings continued on to trial. Petitioner's key witnesses testified in court.

Issues

In an April 18, 2016 Resolution,[12] this Court resolved to give due course to the Petition, which
contains the following assignment of errors:

I. WHETHER X X X THE COURT OF APPEALS ERRED IN FINDING THAT RTC-03 COMMITTED GRAVE
ABUSE OF DISCRETION AMOUNTING TO LACK OF JURISDICTION WHEN IT (RTC-03) DENIED THE
MOTION TO DISMISS AND MOTION FOR RECONSIDERATION OF ICC, BOTH RAISING THE ISSUE
THAT NOMIPSCO HAS NO CAUSE OF ACTION AGAINST ICC.

1.1. WHETHER X X X THE ISSUE RAISED BY ICC TO SUPPORT THE DISMISSAL OF THE COMPLAINT
INVOLVES EVIDENTIARY ISSUE THAT SHOULD BE VENTILATED DURING THE TRIAL OF THE CASE.

1.2. WHETHER X X X ICC WAIVED THE ISSUE ON CAUSE OF ACTION WHEN IT PARTICIPATED IN THE
TRIAL.

2. WHETHER X X X AN ISSUE NOT PRESENTED BEFORE RTC-03 (IN RESOLVING THE MOTION TO
DISMISS AND MOTION FOR RECONSIDERATION) BE BROUGHT BEFORE, AND CONSIDERED BY, THE
COURT OF APPEALS IN RESOLVING THE ISSUE OF GRAVE ABUSE OF DISCRETION.[13]

Petitioner's Arguments

In praying that the assailed CA dispositions be set aside and that Civil Case No. 7201 be instead
reinstated, petitioner basically argues in its Petition and Reply[14] that while respondent had the
right to accept or reject bids for its project, it exercised said right in bad faith to petitioner's
prejudice, in that the bidding process was a mere ruse for respondent to secure petitioner's lowest
bid in order to use it as basis or leverage for setting its contract price with Europort; respondent
had no intention to award the contract to the bid participants, but to Europort, and the bidding
process was intended merely to elicit the lowest bid which respondent would use to set its
contract price with Europort.
Petitioner argues that respondent's bad faith can be seen from the fact that respondent made it
appear that petitioner did not submit its bid, the folder in which the commercial and technical bids
were kept was stamped with "No Bid Submitted" as to petitioner; that Europort, which eventually
won the project, was not a participant in the bidding process; that respondent awarded the project
on the basis of criteria, parameters, and policies that were not disclosed to petitioner prior to the
bidding; and that Europort had no corporate and legal personality when it executed the cargo
handling contract with respondent.

Petitioner further contends that under Article 19 of the Civil Code[15] which enunciates the
principle of abuse of rights, when a right is exercised in a manner that disregards legal norms and
standards, thus resulting in damage to another, a legal wrong is committed for which the guilty
party may be held accountable; that respondent abused its rights and thus violated Article 19 and
other laws; that petitioner thus has a cause of action against respondent; and that the issue of bad
faith as a component of petitioner's cause of action requires proof and thus may only be resolved
after trial on the merits.

Respondent's Arguments

Respondent, on the other hand, counters in its Comment[16] that petitioner remains without cause
of action, which makes its case dismissible; that petitioner's claim that respondent made it appear
that the former did not submit a bid is pure hearsay and speculation as no documentary or
testimonial evidence was attached to the complaint/pleadings, nor was any submitted in court, to
prove this allegation; that for the same foregoing reasons, petitioner's claim that the bid was
grounded on policies that were not disclosed to the bidders has no basis; that even if preference
is given to new contractors as a matter of policy, this does not constitute an abuse of respondent's
right since "preference" does not mean exclusion of other contractors; that petitioner's argument
that Europort was not a corporate entity at the time and that respondent used the bidding for the
sole purpose of obtaining the optimum contract price are unfounded and have no legal basis; that
petitioner has no. right to dictate who should be the winning bidder for respondent's cargo
handling contract, since advertisements for bidders are simply invitations to make proposals, and
an advertiser is not bound to accept the highest or lowest bidder unless the contrary appears; that
there was thus no abuse of respondent's rights; and that respondent's participation in the trial
does not result in waiver of its right to seek dismissal of the case on the basis of lack or absence of
cause of action.

Our Ruling

The Court denies the Petition.

Petitioner's cause of action in Civil Case No. 7201 rests on the theory that respondent, in bad faith,
used the bidding process for the cargo handling contract as a mere ruse to elicit the lowest bid
which it would use to set its contract price with Europort; that respondent made it appear that
petitioner did not submit a bid, when in fact it did; that respondent awarded the project on the
basis of criteria, parameters, and policies that were not disclosed to petitioner prior to the bidding;
and that respondent awarded the contract to Europort, which did not participate in the bidding
and had no corporate and legal personality when it executed the cargo handling contract with
respondent.

A review of the record and the evidence, however, reveals that petitioner's allegations do not
reconcile with the facts and evidence on record; on the contrary, it appears that petitioner is
twisting and inventing facts, circumstances, and documents that did not in fact take place nor
exist.

Contrary to what petitioner would have this Court believe, it appears that there was a bona fide
bidding process for respondent's designated cargo handling contract, and the project or contract
was awarded to one of the participating bidders, which – for whatever reason – eventually
changed its corporate name during the bidding process, prompting the execution of the awarded
cargo handling contract under its new corporate name instead of the old one used during the
submission of bids.

Thus, it appears that one of the five bidders that participated in the subject bidding, Oroport, was
eventually chosen by respondent – although it did not necessarily submit the lowest bid. At or
about the time that Oroport and respondent were consummating the cargo handling contract,
Oroport changed its corporate name to Europort Logistics and Equipment Incorporated, or
Europort. As a result, the cargo handling contract executed was between respondent and
Europort, the new name of Oroport. This is not proscribed by law. The fact that the original bidder
and winner was Oroport, and the resulting cargo handling contract was between respondent and
Europort–Oroport's derivative – has no bearing; in legal contemplation, Oroport and Europort are
one and the same.

x x x. The effect of the change of name was not a change of the corporate being, for, as well stated
in Philippine First Insurance Co., Inc. v. Hartigan: 'The changing of the name of a corporation is no
more the creation of a corporation than the changing of the name of a natural person is begetting
of a natural person. The act, in both cases, would seem to be what the language which we use to
designate it imports – a change of name, and not a change of being.'

xxxx

x x x. A change in the corporate name does not make a new corporation, whether effected by a
special act or under a general law. It has no effect on the identity of the corporation, or on its
property, rights, or liabilities. The corporation, upon the change in its name, is in no sense a new
corporation, nor the successor of the original corporation. It is the same corporation with a
different name, and its character is in no respect changed.[17]

As to the claim that respondent made it appear that petitioner did not submit a bid when in fact
it did, the evidence and testimonies of the witnesses do not bear this out. Thus, while petitioner
claims that its bid folder was marked as "no bid submitted," it did not attach a copy of said bid
folder to its complaint below. Nor was the bid folder document introduced during trial. And an
examination of the transcripts of the testimonies of its witnesses[18] equally fails to elicit even a
faint shadow of truth to its claim of being deliberately excluded from the bidding process; indeed,
the opposite is true: petitioner participated in the bidding process and its bid was considered,
along with the others' bids.

On the claim that respondent awarded the project on the basis of criteria, parameters, and policies
that were not disclosed to petitioner prior to the bidding, particularly that the award would be
given to a new contractor and will be based on the recommendation of the end-user, the evidence
does not bear this out. On the contrary, one of the witnesses, Alex Sagario, who worked for the
end-user component of the contract as Pack House Manager of ICC, testified that there was no
consultation prior to the award,[19] which thus belies petitioner's claim that undisclosed policies
became the basis for the award.

On the claim that it became the policy of respondent to award the contract to a new contractor,
the Court finds nothing wrong with this. This is the prerogative of respondent, and petitioner had
no right to interfere in the exercise thereof. The CA is correct in saying that an advertisement to
possible bidders is simply an invitation to make proposals, and that an advertiser is not bound, to
accept the lowest bidder unless the contrary appears; respondent had the right to reject bids, and
it cannot be compelled to accept a bidder's proposal, and execute a contract in its favor. Indeed,
under Article 1326 of the Civil Code, ''advertisements for bidders are simply invitations to make
proposals, and the advertiser is not bound to accept the highest or lowest bidder, unless the
contrary appears." "[A]s the discretion to accept or reject bids and award contracts is of such wide
latitude, courts will not interfere, unless it is apparent that such discretion is exercised arbitrarily,
or used as a shield to a fraudulent award. The exercise of that discretion is a policy decision that
necessitates prior inquiry, investigation, comparison, evaluation, and deliberation."[20]

Article 1326 of the Civil Code, which specifically tackles offer and acceptance of bids, provides that
advertisements for bidders are simply invitations to make proposals, and that an advertiser is not
bound to accept the highest bidder unless the contrary appears. In the present case, Section 4.3
of the ASBR explicitly states that APT reserves the right to reject any or all bids, including the
highest bid. Undoubtedly, APT has a legal right to reject the offer of Dong-A Consortium,
notwithstanding that it submitted the highest bid.

In Leoquinco v. The Postal Savings Bank and C & C Commercial Corporation v. Menor, we explained
that this right to reject bids signifies that the participants of the bidding process cannot compel
the party who called for bids to accept the bid or execute a deed of sale in the former's favor. x x
x[21] (Citations omitted)

Finally, the insistence on Europort's ineligibility on account of its supposed non-participation in

the bidding process, despite petitioner's knowledge and admission of the fact that Europort
underwent a change of corporate name during the period material to this case – which explains
why the entity to which the cargo handling contract was awarded appears to be a total stranger
to the bidding process, is a clear attempt to muddle the issues and confuse this Court in the vain
hope of influencing its judgment – by stretching an irrelevant issue and capitalizing on a perceived
technicality that has no material bearing whatsoever in the resolution of the case.

Thus, far from having a cause of action upon which to base its claim for damages, petitioner's
complaint is based on false assumptions and non-existent facts, tending to deceive and mislead
this Court to the belief that respondent committed a so-called 'abuse of rights' against it, when in
fact there is none. This is certainly contemptible, and petitioner is warned that any more attempt
at stretching this case and manipulating the facts will be dealt with severely. It has wasted the
Court's time enough. Its claim is illusory, to say the least; this has become evident not only from a
reading of the allegations of the complaint and its annexes as well as the other pleadings, but also
from the testimonial and documentary evidence presented by petitioner itself during trial.

WHEREFORE, the Petition is DENIED. The March 18, 2014 Decision and October 17, 2014
Resolution of the Court of Appeals in CA-G.R. SP No. 03789-MIN are AFFIRMED in toto.

SO ORDERED.

THIRD DIVISION

[ G.R. No. 191652, September 13, 2017 ]

TEAM IMAGE ENTERTAINMENT, INC., AND FELIX S. CO, PETITIONERS, V. SOLAR TEAM
ENTERTAINMENT, INC., RESPONDENT.

[G.R. No. 191658, September 13, 2017]

SOLAR TEAM ENTERTAINMENT, INC., PETITIONER, V. TEAM IMAGE ENTERTAINMENT, INC., AND
FELIX S. CO, RESPONDENTS.

DECISION

LEONEN, J.:
A judgment upon a compromise is rendered based on the parties' reciprocal concessions. With all
the more reason should a judgment upon a compromise be complied with in good faith
considering that the parties themselves crafted its terms.

These are consolidated Petitions for Review on Certiorari assailing the December 10, 2009
Decision[1] and March 17, 2010 Resolution[2] of the Court of Appeals in CA-G.R. SP No. 104961. The
Court of Appeals held that both parties—Team Image Entertainment, Inc. (Team Image) and Solar
Team Entertainment, Inc. (Solar Team)—violated the Compromise Agreement they had entered
into in connection with a civil case for accounting[3] filed before Branch 59, Regional Trial Court,
Makati City. Team Image was specifically ordered to pay Solar Team P2,000,000.00 in liquidated
damages for failing to settle its monetary obligation to Solar Team within the period provided in
the Compromise Agreement.[4] Further, the Court of Appeals allowed Team Image to suspend
payments under the Compromise Agreement because Solar Team failed to withdraw the
complaint-in-intervention it had earlier filed against Team Image's President, Felix S. Co (Co),
contrary to their agreement to dismiss all actions they had filed against each other.[5]

Solar Team owned movies, films, telenovelas, television series, programs, and coverage specials
that it aired over block times in several television stations.[6] It derived profits by selling advertising
spots to interested business enterprises.[7]

On April 24, 1996, Solar Team entered into a Marketing Agreement with Team Image,[8] which
agreed to act as Solar Team's exclusive marketing agent by selling advertising spots to business
enterprises on behalf of Solar Team.[9]

According to Solar Team, Team Image breached their Marketing Agreement by failing to disclose
the names of the entities to which Team Image sold advertising spots. Further, Team Image
allegedly represented itself as the owner of Solar Team's television programs, series, and
telenovelas, hence collecting the proceeds of the sale without remitting them to Solar Team. For
these reasons, Solar Team demanded that Team Image render an accounting of all the
transactions the latter had entered into pursuant to the Marketing Agreement and that it remit all
the proceeds it had received in selling Solar Team's television programs, series, and telenovelas.[10]

When Team Image refused to render an accounting, Solar Team filed against Team Image and its
President, Co, a Complaint for Accounting and Damages before the Regional Trial Court of
Makati.[11] The case was raffled to Branch 59, presided by Judge Winlove M. Dumayas (Judge
Dumayas).[12]

On January 17, 2002, the trial court rendered a Decision,[13] finding that Team Image breached the
Marketing Agreement. According to the trial court, Team Image only had the authority to sell
advertisement spots on behalf of Solar Team, not to collect any sales proceeds. Thus, it ordered
Team Image to render an accounting of all its transactions and collections under the Marketing
Agreement. The dispositive portion of this Decision read:
WHEREFORE, judgment is hereby rendered in favor of [Solar Team] and against [Team Image and
Felix S. Co]. as follows:

a. Ordering [Team Image and Felix S. Co] jointly and severally to immediately render
an accounting within fifteen (15) days from receipt of this decision, on all its sales
and collections on the television properties of [Solar Team] mentioned in Annex "A"
of the complaint, from date of the agency agreement (Exhibit "A") on April 24, 1996
until the filing of the complaint;

b. Directing [Team Image and Felix S. Co] jointly and severally to make available to
[Solar Team] or its authorized representatives) accountant[s] or auditors, within
fifteen (15) days from receipt hereof, all their books of accounts and records on all
their sales and collections on [Solar Team's] aforesaid television properties[; and]

c. Ordering [Team Image and Felix S. Co] jointly and severally to pay [Solar Team] the
sum of Php50,000.00 for attorney's fee; and Php200,000.00 for moral, exemplary[,]
nominal and temperate damages; and cost[s] of suit.

SO ORDERED.[14]

More than a year after or on April 28, 2003, Solar Team and Team Image entered into a
Compromise Agreement,[15] submitting it to the trial court for approval. In essence, the parties
agreed on the payment terms and their division of receivables from the media company VTV
Corporation, which had purchased advertising spots from Team Image as Solar Team's marketing
agent. For purposes of accounting and auditing these receivables, the parties hired SyCip Gorres
Velayo and Company (SGV and Co.) as auditor.

With respect to other business ventures that the parties may have jointly undertaken, paragraph
18 of the Compromise Agreement stated that the parties must submit a certification of the
existence of these receivables:

18. To further assure each one of them, both parties shall within ten (10) days from the date of
execution of this agreement, submit to one another, certification and/or reasonable and available
proof of the existence of said receivables.[16]

The parties likewise agreed to waive all their claims against each other and to cause the provisional
dismissal of all the criminal and civil actions that they had filed against each other. Paragraphs 21
and 22 of the Compromise Agreement provided:

21. This agreement constitutes the final repository of all the prior understanding agreements and
contracts of the parties and shall operate as total waiver and discharge of any or all claims,
counterclaims, causes of action, claims and demands of whatever kind and nature which each may
have against the other, including their respective heirs[,] assigns[,] and successors-in-interest
arising out of any of all matters, cause or thing, whether directly or indirectly, related with the
Marketing Agency Agreement dated 24 April 1996.

22. By virtue hereof, the parties have agreed, as they hereby agree to immediately provisionally
dismiss all actions, whether civil or criminal, they may have filed against the other, and after SGV
shall have finally completed the audit and accounting tasked upon it, the results of which is final
and binding upon the parties, all said civil and/or criminal actions shall be permanently dismissed
by the parties.[17]

Further, the parties agreed to the immediate issuance of a writ of execution and payment of
liquidated damages in case of breach of the Compromise Agreement. Paragraph 24 of the
Compromise Agreement stated:

24. In the event SGV shall have made a final determination of the respective accountability of the
parties and any of the parties fail to comply with the same, or in the event any of the parties is
remiss or reneges from [its] commitment/s as specified in this Agreement or breaches the
warranties and/or representation as contained herein, then the aggrieved party shall be entitled
to an immediate issuance of a writ of execution to enforce compliance thereof and the guilty party
shall pay the innocent party the sum of P2 Million Pesos by way of liquidated damages and/or
penalty and shall, likewise, shoulder all the expenses in enforcing this compromise agreement by
a writ of execution. Moreover, the innocent party shall have the right to invoke the principle of
reciprocity of obligations in contracts as provided for by law.[18]

Finding the provisions of the Compromise Agreement not contrary to law, morals, or public policy,
the trial court approved and rendered judgment based on the Compromise Agreement in its
Decision[19] dated April 30, 2003.

The parties subsequently filed motions for issuance of a writ of execution on account of the other's
alleged violation of the Compromise Agreement.

The first motion for issuance of a writ of execution was filed by Team Image on April 26, 2004.[20]
Team Image prayed that the trial court allow it to suspend payments to Solar Team under the
Compromise Agreement due to the alleged failure of Solar Team's Chief Executive Officer, William
Tieng (Tieng), to collect receivables from VTV Corporation. In addition, Solar Team allegedly failed
to submit to Team Image a certification on the existence of the receivables from VTV Corporation,
in violation of paragraph 18 of the Compromise Agreement.

In its Order[21] dated April 29, 2004, the trial court allowed Team Image to suspend payments to
Solar Team '"until after [the trial court] shall have resolved [the April 26, 2004 motion for issuance
of a writ of execution]."[22] The trial court subsequently issued a Writ of Execution on May 28,
2004.[23] However, in its Order[24] dated November 23, 2004, the trial court granted Solar Team's
Motion for Reconsideration; thus, it set aside its previous order allowing suspension of payment
and quashed the writ of execution. The dispositive portion of the November 23, 2004 Order read:
ORDER

Finding the Motion for Reconsideration filed by [Solar Team] to be impressed with merit, the same
is hereby GRANTED.

Accordingly, the Order of the Court dated April 30, 2004 is hereby RECONSIDERED and set aside
and the Writ of Execution dated May 28, 2004 is hereby QUASHED.[25]

Team Image moved to reconsider the November 23, 2004 Order.[26]

In the meantime, on October 6, 2005, Team Image filed a second motion[27] for issuance of a writ
of execution and suspension of payments (October 6, 2005 Motion) due to Solar rerun's alleged
violation of paragraphs 21 and 22 of the Compromise Agreement. According to Team Image, Solar
Team failed to cause the dismissal of its complaint-in-intervention in a collection case filed against
Team Image,[28] with Solar Team actively participating in the civil case after the execution of the
Compromise Agreement.

In its Order[29] dated November 3, 2005, the trial court granted the October 6, 2005 Motion, issuing
a writ of execution to enforce payment by Solar Team of P2,000,000.00 in liquidated damages and
allowing Team Image to suspend payments to Solar Team. The dispositive portion of the
November 3, 2005 Order read:

WHEREFORE, premises considered, the Court hereby . . . GRANTS [Team Image's] motion for the
issuance of a writ of execution along with their prayer for an order allowing suspension of payment
and Orders [Solar Team] to comply with paragraphs 21 and 22 of the compromise agreement
executed by the parties herein.

Accordingly, let a writ of execution be issued against [Solar Team] to enforce payment of the sum
of P2 Million Pesos as liquidated damages pursuant to paragraph 24 of the compromise
agreement.

SO ORDERED.[30]

Solar Team moved for a partial reconsideration of the November 3, 2005 Order.[31]

On December 6, 2005, Solar Team filed its own motion[32] for issuance of a writ of execution due
to Team Image's alleged violation of paragraph 20 of the Compromise Agreement.[33] Solar Team
claimed that Team Image failed to submit documents necessary for the auditing and accounting
of receivables to SGV and Co., the appointed auditor under the Compromise Agreement.

Meanwhile, in its Order[34] dated April 7, 2006, the trial court denied both Team Image's Motion
for Reconsideration of the November 23, 2004 Order and Solar Team's Motion for Partial
Reconsideration of the November 3, 2005 Order. The trial court found that Team Image filed the
Motion for Reconsideration beyond the reglementary period. As for Solar Team, the trial court
found that it had failed to comply with its obligation to cause the dismissal of all pending cases
that it had filed against Team Image. Hence, Solar Team was ordered to pay Team Image
P2,000,000.00 in liquidated damages per paragraph 24 of the Compromise Agreement. The
dispositive portion of the April 7, 2006 Order read:

WHEREFORE, premises considered, this Court resolves to DENY [Team Image's] Motion for
Reconsideration dated August 22, 2005 from the Order of this Court dated November 23, 2004.
[Solar Team's] Motion for Partial Reconsideration dated November 19, 2005 from the Order of
this Court dated November 3, 2005 is, likewise, DENIED for lack of merit.

SO ORDERED.[35]

On December 5, 2007, Team Image filed before the trial court its third motion[36] for issuance of
writ of execution with prayer for suspension of payments (December 5, 2007 Motion). Team Image
argued that Solar Team's Tieng violated anew paragraphs 21 and 22 of the Compromise
Agreement by failing to cause the dismissal of the criminal cases he had earlier filed against Team
Image's Co. On December 18, 2007, Team Image filed an Omnibus Motion[37] with prayer for
issuance of a writ of execution and suspension of payments (December 18, 2007 Omnibus
Motion), this time, for Solar Team's Tieng to return to Team Image a total of P25,862,750.00. This
amount allegedly included the collections in excess of the P26,000,000.00 fixed in the Compromise
Agreement; the P2,891,226.97 supposedly collected by a certain Ma. Fe Barreiro (Barreiro) [38]
without Solar Team's authority but actually redounded to Tieng's benefit; and a total of
P8,500,000.00 in post-dated checks still in possession of Tieng. Thus, Team Image reiterated its
prayer for the trial court to implement the November 3, 2005 Order directing Solar Team to pay
Team Image liquidated damages.[39]

In its Order[40] dated January 9, 2008, the trial court ordered the implementation of the November
3, 2005 Order to enforce payment of liquidated damages by Solar Team for failure to cause the
dismissal of its complaint-in-intervention in the collection case filed against Team Image. A Writ of
Execution[41] was subsequently issued on January 16, 2008, directing the sheriff to implement the
November 3, 2005 Order.

Two (2) days after or on January 18, 2008, Solar Team filed a motion to defer the implementation
of the January 16, 2008 Writ of Execution.[42] Solar Team likewise filed a motion to hold in
abeyance the implementation of the Letters of Garnishment issued pursuant to the January 16,
2008 Writ of Execution.[43]

Acting on Team Image's December 5, 2007 Motion and December 18, 2007 Omnibus Motion in
the Order[44] dated January 21, 2008, the trial court directed Solar Team, through Tieng, to cause
the dismissal of the criminal cases filed against Co pursuant to paragraphs 21 and 22 of the
Compromise Agreement.

Further, the trial court found that Tieng indeed had excess collections from VTV Corporation. In
his complaint for sum of money filed against VTV Corporation, Tieng allegedly admitted that he
had collected P22,971,572.03 from VTV Corporation, an amount which exceeded the
P10,275,547.48 disclosed in paragraph 4 of the Compromise Agreement.[45]

The trial court likewise found that contrary to Solar Team's representation in paragraph 5 of the
Compromise Agreement,[46] the P2,891,226.97 supposedly collected by Barreiro without Solar
Team's authority actually redounded to Tieng's benefit.[47]

Based on these findings, the trial court ordered Solar Team to return the excess amounts and
incorrect charges and to pay Team Image a total of P8,000,000.00 in liquidated damages for
breaching four (4) warranties made in the Compromise Agreement. The dispositive portion of the
January 21, 2008 Order read:

WHEREFORE, PREMISES CONSIDERED, this Court hereby grants [Team Image and Felix S. Co's] 1)
Motion for the issuance of writ of execution for violation of paragraphs 21 and 22 of the
compromise agreement with prayer for an order allowing continuance of suspension of payment
of obligation/s, if any, as per paragraph 24 thereof dated December 5, 2007; and 2) Omnibus
motion for the issuance of an order directing William Tieng to return to [Team Image and Felix S.
Co]; (a) overpayment under the compromise agreement (b) marketing commission falsely charged
against the share of [Team Image and Felix S. Co] in the VTV operations and (c) for writ of execution
and suspension of payment, if any dated December 18, 2007.

Accordingly, [Team Image and Felix S. Co] are hereby authorized to suspend payment of their
obligation, if any, pursuant to paragraph 24 of the compromise agreement and that:

ON THE FIRST MOTION

a) William Tieng is hereby ordered to dismiss and/or cause the dismissal of Criminal Case Nos.
07-1235 and 07-1236 now pending before the Regional Trial Court of Parañaque City, Metro
Manila; and

b) Let a writ of execution issue to enforce the payment to [Team Image and Felix S. Co] the sum
of TWO MILLION (PhP2,000,000.00) PESOS as liquidated damages on account of William
Tieng's breach of warranties and representations under paragraphs 21 and 22 of the
compromise agreement.

ON THE SECOND MOTION

a) William Tieng is hereby ordered to pay/return to [Team Image and Felix S. Co] the sum of
TWENTY[-]FIVE MILLION EIGHT HUNDRED SIXTY[-]TWO THOUSAND SEVEN HUNDRED FIFTY
and 00/100 (PhP25,862,750.00) PESOS broken down as: PhP17,362,750.00 cash amount
received by William Tieng and PhP8,500,000.00, total amount of checks still in the possession
of William Tieng;
b) William Tieng is hereby ordered to turn over to [Solar Team] the amount of TWO MILLION
EIGHT HUNDRED NINETY[-] ONE THOUSAND TWO HUNDRED TWENTY[-]SIX and 97/100
(Php2,891,226.97) PESOS and for SGV to pay [Team Image and Felix S. Co's] share thereon;

c) Let a writ of execution issue to enforce payment of the sum of FOUR MILLION
(Php4,000,000.00) PESOS by way of liquidated damages on account of TIENG's aforesaid two
(2) breaches of warranty and representation under the first ground hereof and; and another
FOUR MILLION (PhP4,000,000.00) PESOS by way of liquidated damages on account of TIENG's
aforesaid two (2) breaches of warranty and representation under the second ground her of
or a total of EIGHT MILLION (PhP8,000,000.00) PESOS, all pursuant to paragraph 24 of the
Compromise Agreement.

SO ORDERED.[48]

A Motion for Reconsideration of the January 21, 2008 Order was filed by Solar Team.[49] When the
trial court ordered the deputy sheriff to deliver the garnished amount to Team Image through a
certified bank check, Solar Team likewise filed a Motion for Reconsideration.[50]

In its Omnibus Order[51] dated May 19, 2008, the trial court acted on Team Image's December 18,
2007 Omnibus Motion. According to the trial court, the only remedy allowed under the
Compromise Agreement is the filing of a motion for issuance of a writ of execution and that the
orders allowing Team Image to suspend payments were merely temporary and did not exonerate
or release Team Image and Co from their obligation.[52] It then found that Team Image and Co
were "clearly in default in the payment of their obligation"[53] under the Compromise Agreement.
Therefore, the trial court set aside all its previous orders that allowed Team Image to suspend
payments, i.e., the November 3, 2005 and January 21, 2008 Orders.

Furthermore, acting on Solar Team's Motion for Reconsideration, the trial court reversed and set
aside its January 21, 2008 Order where it declared that Solar Team made excess collections from
VTV Corporation. The trial court reversed itself, and said that it was "premature to declare that
there was overpayment made to [Solar Team] or William Tieng"[54] because the appointed auditor,
SGV and Co., had not yet finalized the required audit.

Nevertheless, the trial court reiterated that Solar Team violated the Compromise Agreement when
it failed to cause the dismissal of the complaint in intervention it had filed against Team Image.
The trial court ordered Solar Team to pay Team Image P2,000,000.00 in liquidated damages and
to deposit the amount before the Office of the Clerk of Court of the Regional Trial Court of Makati.

The dispositive portion of the May 19, 2008 Omnibus Order read:

WHEREFORE, PREMISES CONSIDERED, this Court hereby resolves the parties' motions, as follows:

1. [Solar Team's] Urgent Omnibus Motion dated January 18, 2008 praying that:
 1) the implementation of the Writ of Execution dated January 10, 2008 be held in abeyance is
hereby DENIED for being moot and academic;

2) a Writ of Execution be issued against [Team Image] to enforce payment of the sum of TWO
MILLION (Php2,000,000.00) PESOS and the unpaid obligation of [Team Image] pursuant to
paragraph 24 of the compromise agreement is GRANTED, The previous Orders of this Court
allowing suspension of payment are hereby RECONSIDERED AND SET ASIDE;

2.
3. [Solar Team's] Urgent Motion dated January 21, 2008 praying that the Letters of
Garnishment be recalled and/or their implementation be held in abeyance is
hereby DENIED for being moot and academic;

4. [Solar Team's] Motion for Reconsideration dated January 28, 2008 is hereby
GRANTED. The Order dated January 21, 2008 is hereby RECONSIDERED and SET
ASIDE;

5. [Solar Team's] Omnibus Motion dated March 27, 2008 seeking that [Solar Team]
be allowed to deposit the amount of P2 Million Pesos to the Office of the Clerk of
Court - Regional Trial Court of Makati City is GRANTED.

6. Finally, [Team Image and Felix S. Co's] prayer to cite [Solar Team's William Tieng]
and his counsels for direct contempt is hereby DENIED for lack of merit.

Accordingly, [Solar Team] is hereby ordered to deposit the amount of P2 Million Pesos to the Office
of the Clerk of Court - Regional Trial Court of Makati City within ten (10) days from receipt of this
Order, the same will be released only after final determination of the obligations of [Team Image
and Felix S. Co] pursuant to the compromise agreement and after the issue on the violation of the
same agreement by [Solar Team] for its failure to cause the dismissal of Civil Case No. 97-024 has
been resolved with finality.

On the other hand, [Team Image and Felix S. Co] are hereby ordered to pay [Solar Team] as follows:

1) the sum of TWO MILLION (Php2,000,000.00) PESOS as liquidated damages for their failure to
pay [Solar Team] the value of the dishonored checks despite its demand after the April 30, 2004
Order allowing the suspension of payment to [Solar Team] was set aside by the November 23,
2004 Order of this Court.

2) the sum of EIGHT MILLION FIVE HUNDRED THOUSAND (P8,500,000.00) PESOS representing the
value of the seventeen (17) dishonored checks which has remained unpaid as provided under
paragraph 7 of the compromise agreement.

Let a writ of execution issue against [Team Image and Felix S. Co] to enforce the payment of the
sum of TWO MILLION (Php2,000,000.00) PESOS as liquidated damages and EIGHT MILLION FIVE
HUNDRED THOUSAND (P8,500,000.00) PESOS representing the value of the said seventeen (17)
dishonored checks or a total of TEN MILLION FIVE HUNDRED THOUSAND (P10,500,000.00),
pursuant to paragraphs 7 and 24 of the compromise agreement.

SO ORDERED.[55]

Team Image filed a Motion for Reconsideration of the May 19, 2008 Omnibus Order, which the
trial court denied in its August 8, 2008 Order,[56] the dispositive portion of which read:

WHEREFORE, premises considered, this Court resolves to DENY [Solar Team's] Motion to Consider
[Team Image and Felix S. Co's] Motion for Reconsideration as Not Filed dated July 2, 2008. [Team
Image and Felix S. Co's] Motion for Reconsider[a]tion dated June 17, 2008 is likewise DENIED for
utter lack of merit.

Accordingly, let the Writ as ordered by this Court to be issued per its Order dated May 19, 2008
be now issued and implemented in the manner provided for under Rule 39, Section 8 of the Rules
of Court and according to its aforesaid terms.

SO ORDERED.[57]

Team Image filed a Petition for Certiorari before the Court of Appeals to assail the May 19, 2008
and August 8, 2008 Orders of the trial court.[58]

The issue for the Court of Appeals' resolution was whether or not the trial court gravely abused its
discretion:

First, in ordering the Clerk of Court to keep in the trial court's custody the deposited P2,000,000.00
in liquidated damages instead of ordering Solar Team Entertainment, Inc. to pay the amount
directly to Team Image Entertainment, Inc.;

Second, in disallowing Team Image Entertainment, Inc. from suspending payments because the
Compromise Agreement allegedly did not allow suspension of payments;

Third, in ruling that a criminal case cannot be the subject of a compromise;

Fourth, in refusing to rule on whether or not Solar Team Entertainment, Inc.'s William Tieng made
excess collections from VTV Corporation; and

Finally, in holding that only a maximum of P2,000,000.00 in liquidated damages may be claimed
under the Compromise Agreement regardless of the number of violations.[59]

On the first action, the Court of Appeals held that the trial court gravely abused its discretion in
ordering the Clerk of Court to keep in custodia legis the P2,000,000.00 liquidated damages
deposited by Solar Team for its failure to dismiss the complaint-in-intervention it had filed against
Team Image. By keeping this amount in court custody instead of ordering the Clerk of Court to
deliver it to Team Image, the trial court allegedly stayed the execution of a final and executory
judgment.[60]

On the second action, the Court of Appeals ruled that the Compromise Agreement allowed for
suspension of payments, paragraph 24[61] of which stated that the "principle of reciprocity" under
the Civil Code applied to the parties. The Court of Appeals stated that Team Image was not obliged
to pay its monetary obligations under the Compromise Agreement since Solar Team violated
several of its provisions such as submitting the required certification of receivables and dismissing
the cases earlier filed against Team Image.[62]

Nevertheless, the Court of Appeals found 'that the trial court November 23, 2004 Order which
allowed the suspension of Team Image's payments was merely temporary. When the trial court
set aside this Order, Team Image should have resumed paying its obligations to Solar Team until
November 3, 2005, when the trial court granted Team Image's second motion to suspend
payments. By failing to resume its payment in the interim, Team Image and Co were in default
from November 23, 2004 to November 3, 2005.[63]

On the third action, the Court of Appeals said that criminal liability cannot be the subject of a
compromise; hence, Solar Team cannot be deemed to have violated the Compromise Agreement
when it failed to cause the dismissal of the criminal cases against Co.[64]

On the fourth action, the Court of Appeals refused to resolve the issue of grave abuse of discretion
because doing so would allegedly preempt the proceedings before Branch 57, Regional Trial Court,
Makati City where Solar Team sued VTV Corporation for P18,617,915.81 in advertising spot
fees.[65]

On the last action, the Court of Appeals held that only a maximum of P2,000,000.00 in liquidated
damages may be paid under the Compromise Agreement, paragraph 24[66] of which still
maintained that liquidated damages are payable in case of failure to comply with "commitments"
and in case of "breaches [of] warranties." The use of plural "commitments" and "breaches,"
observed the Court of Appeals, meant that P2,000,000.00 is payable for collective breaches of the
Compromise Agreement. In the words of the Court of Appeals, "the totality of infractions or the
number of violations would not be relevant and liquidated damages would be pegged at Two
Million (P2,000,000.00) Pesos for the total violations."[67]

In its December 10, 2009 Decision,[68] the Court of Appeals partly granted Team Image's Petition
for Certiorari, disposing the case in this wise:

WHEREFORE, premises considered, the petition is PARTLY GRANTED and resolved as follows:

The implementation of the Writ of Execution dated January 10, 2008 is AFFIRMED.
The payment by [Team Image] of TWO MILLION (Php2,000,000.00) PESOS pursuant to paragraph
24 of the Compromise Agreement for its failure to settle its obligation within the period from
November 23, 2004 to November 3, 2005 is AFFIRMED.

The suspension of payment granted in the Order dated November 3, 2005 STAYS until respondent
Solar Team Entertainment, Inc. withdraws the complaint-in-intervention in Civil Case No. 97-024
before Branch 137, Regional Trial Court of Makati City.

The denial of the recall of the issued Letters of Garnishment is AFFIRMED.

The order to deposit the amount of P2 Million Pesos to the Office of the Clerk of Court Regional
Trial Court of Makati City is REVERSED and SET ASIDE. The garnished amount of Two (P2M) Million
pesos representing liquidated damages is ordered released from the custody of the Clerk of Court
of the Regional Trial Court of Makati City and delivered to [Team Image].

The reversal of the order which requires [Solar Team's] William Tieng to cause the dismissal of
Criminal Case Nos. 07-1235 and 07-1236 is AFFIRMED.

The reversal of the order requiring [Solar Team's] William Tieng to pay the sum of TWO MILLION
(Php2,000,000.00) PESOS as liquidated damages on account of its failure to dismiss Crim. Case
Nos. 07-1235 and 07-1236 is AFFIRMED.

The reversal of the order requiring [Solar Team's] William Tieng to return the sum of TWENTY[-
]FIVE MILLION EIGHT HUNDRED SIXTY[-]TWO THOUSAND SEVEN HUNDRED FIFTY and 00/100
PESOS (PhP25,862,750.00) on account of [Solar Team's] alleged admission in its pleading in Civil
Case No. 05-603 despite the pendency of the SGV audit is AFFIRMED.

The reversal of the order requiring [Solar Team's] William Tieng to turn over the amount of TWO
MILLION EIGHT HUNDRED NINETY[-]ONE THOUSAND TWO HUNDRED TWENTY[-]SIX and 97/100
(Php2,891,226.97) PESOS to [Solar Team] is AFFIRMED.

The reversal of the order requiring [Solar Team's] William Tieng to pay a total of EIGHT MILLION
PESOS (PhP8,000,000.00) PESOS, pursuant to paragraph 24 of the Compromise Agreement for
alleged breaches of warranty and representation is AFFIRMED.

SO ORDERED.[69]

Team Image and Solar Team filed their separate Motions for Reconsideration,[70] both of which
were denied in the Resolution[71] dated March 17, 2010.

Separate Petitions for Review on Certiorari were filed by Team Image and Co[72] and Solar Team.[73]
The Petitions were thereafter consolidated.[74] Comments[75] and Replies[76] had likewise been tiled
by the parties.
The issues for this Court's resolution are the following:

First, whether or not the Court of Appeals erred in finding no grave abuse of discretion on the part
of the trial court when the latter declared Team Image Entertainment, Inc. in default for failing to
resume payments from November 23, 2004 to November 3, 2005;

Second, whether or not the Court of Appeals erred in finding no grave abuse of discretion on the
part of the trial court when the latter declared Solar Team Entertainment, Inc. to have violated the
Compromise Agreement for failing to withdraw the complaint-in-intervention it had earlier filed
in a collection case against Team Image Entertainment, Inc.;

Third, whether or not the Court of Appeals erred in finding no grave abuse of discretion on the
part of the trial court when the latter declared that Solar Team Entertainment, Inc. did not violate
the Compromise Agreement for failing to cause the dismissal of the criminal cases for estafa filed
by Solar Team Entertainment, Inc.'s William Tieng against Team Image Entertainment, Inc.'s Felix
S. Co;

Fourth, whether or not the Court of Appeals erred in finding no grave abuse of discretion in the
trial court's reversal of its earlier order that required Solar Team Entertainment, Inc.'s William
Tieng to turn over P25,862,750.00. to Team Image Entertainment, Inc. as overpayments and
P2,891,226.97 to Solar Team Entertainment, Inc. as amounts collected by William Tieng from VTV
Corporation; and,

Finally, whether or not only a maximum of P2,000,000.00 in liquidated damages may be awarded
under the Compromise Agreement.

On the first issue, Team Image argues that the Court of Appeals erred in affirming the trial court's
May 19, 2008 Order declaring Team Image to have defaulted in paying its obligation under the
Compromise Agreement. Team Image maintains that the trial court, in its own November 3, 2005
Order, stated that Team Image was entitled to suspend payments under the Compromise
Agreement because Solar Team did not withdraw the complaint-in-intervention it had earlier filed
against Team Image. Team Image's liability under the Compromise Agreement, if any, only became
due and demandable on April 7, 2006 when the trial court set aside the November 3, 2005 Order,
not on February 19, 2005 as erroneously found by the trial court in its subsequent May 19, 2008
Order.[77]

On the second issue, Team Image maintained that Solar Team violated the Compromise
Agreement because the latter failed to withdraw the complaint-in-intervention it had filed in ABC
v. Team Image, a collection case against Team Image. The trial court's November 3, 2005 and April
7, 2006 Orders that ordered Solar Team to withdraw its complaint-in-intervention were affirmed
on certiorari by the Court of Appeals in CA-G.R. SP No. 94102 and on appeal by this Court in G.R.
No. 183848. While Solar Team filed a Motion for Reconsideration in G.R. No. 183848, the Motion
was already denied with finality. Thus, Solar Team's argument that it cannot withdraw its
complaint-in-intervention pending the resolution of its Motion for Reconsideration "rest[s] on a
shaky and slim foundation[.]"[78]

On the third issue, Team Image argues that the Court of Appeals erred in declaring that criminal
liability cannot be the subject of a compromise. Team Image maintains that there was nothing in
the Compromise Agreement which was contrary to law, morals, or public policy. Further, courts
encourage judgments based on compromise, the only exceptions being matters relating to: (a)
civil status of persons; (b) the validity of a marriage or a legal separation; (c) any ground for legal
separation; (d) future support; (e) the jurisdiction of courts; and, (f) future legitime.[79] Paragraph
24 of the Compromise Agreement that required Solar Team to dismiss all cases it had filed against
Team Image and Co does not fall within these exceptions. Consequently, Solar Team must cause
the dismissal of the criminal cases it filed against Team Image and Co per paragraph 24 of the
Compromise Agreement.[80]

On the fourth issue, Team Image maintains that the Court of Appeals erred in affirming the reversal
of trial court's earlier Orders requiring Solar Team's Tieng to turn over a total of P25,862,750.00
in excess collections from VTV Corporation to Team Image for equal division among the parties.
Team Image argues that contrary to Solar Team and Tieng's representation in paragraph 4 of the
Compromise Agreement, Tieng collected more than P10,275,547.48 from VTV Corporation.
Specifically, Tieng received P22,971,527.03 from VTV Corporation as he alleged in his Complaint
in Civil Case No. 05-603 pending before Branch 57 of the trial court. In addition, the P2,891,226.97
supposedly collected by Barreiro without Solar Team's authority actually redounded to the benefit
of Tieng; hence, the amount should likewise be returned for equal distribution between Solar
Team and Team Image.[81]

On the fifth issue, Team Image argues that the Court of Appeals erred in affirming the reversal by
the trial court of its earlier Order for Solar Team to pay a total of P8,000,000.00 in liquidated
damages: According to Team Image, it is clear from paragraph 24 of the Compromise Agreement
that a writ of execution may issue for every violation of the Compromise Agreement. Hence, for
every writ of execution, a corresponding award of liquidated damages to the aggrieved party must
be paid. Team Image contends that the maximum amount of P2,000,000.00 in liquidated damages
allowed to be awarded would "result in a serious crisis whereby one party will contravene and/or
breach with impunity any of [its] representations and warranties, and worst, even all of them, with
only a relatively small amount of penalty compared [to] the actual amount which is the subject
matter of the entire compromise agreement."[82]

Arguing on the first issue, Solar Team counters that Team Image defaulted in its payments under
the Compromise Agreement as was earlier found by the trial court. Between November 23, 2004,
when the trial court set aside its initial order allowing suspension of payments, and November 3,
2005, when the trial court again allowed suspension of payments, there was an almost one (1)-
year period when Team Image should have resumed its payments to Solar Team. Team Image,
thus, defaulted in its payments during this almost one (1)-year period and the Court of Appeals
correctly affirmed the November 3, 2005 and April 7, 2006 Orders directing Team Image to pay
Solar Team P2,000,000.00 in liquidated damages for violation of the Compromise Agreement.[83]
On the second issue, Solar Team maintains that it did not violate the Compromise Agreement
when it failed to withdraw the complaint-in intervention it had filed in ABC v. Team Image. Solar
Team alleges that the issue of whether or not it indeed violated the Compromise Agreement is
currently pending before this Court in a Petition for Review docketed as Solar Team v. Hon.
Dumayas, G.R. No. 183848. Consequently, the Court of Appeals should not have resolved this issue
in deference to this Court's ''supreme authority."[84]

On the third issue, Solar Team echoes the Court of Appeals' pronouncement that criminal liability
cannot be the subject of a compromise. A crime being a violation of public law, the aggrieved party
is the public in general, not a private individual. Consequently, neither Team Image nor Solar Team,
both being private entities, may agree to cause the dismissal of the criminal cases they filed against
each other because they are both mere witnesses, not parties, in the criminal cases.[85]

On the fourth issue, Solar Team maintains that Team Image's claim of overpayments is premature
considering that the appointed auditing firm, SGV and Co., has not yet finalized its accounting
report as required under paragraph 24 of the Compromise Agreement. Further, Tieng's supposed
admission that he received P22,971,572.03 from VTV Corporation was, at best, an extrajudicial
admission not made in the present case. This admission cannot be used against him and the Court
of Appeals correctly affirmed the trial court orders that set aside the earlier directives for Solar
Team to return Team Image's alleged overpayments.[86]

On the fifth issue, Solar Team reiterates the Court of Appeals' pronouncement that only a
maximum of P2,000,000.00 in liquidated damages may be awarded based on the Compromise
Agreement. Solar Team argues that nothing in the Compromise Agreement provided that each
breach would correspond to an award of liquidated damages. Furthermore, paragraph 24 used
"breaches of warranties" and "commitments,'' meaning, "there can be as many orders of
compliance as there are proven breaches,"[87] but only a maximum of P2,000,000.00 in liquidated
damages, regardless of the number of supposed breaches, may be awarded.[88]

This Court partially grants the respective Petitions for Review on Certiorari filed by Team Image
and Solar Team.

Under the Compromise Agreement, Team Image acknowledged and agreed to pay a total of
P26,000,000,00 representing marketing commissions collectible from VTV Corporation. Team
Image also agreed to pay half of the professional fees of SGV and Co., the auditing firm hired to
determine the final amounts payable by the parties under the Compromise Agreement. The
specific payment terms were provided in paragraphs 6 to 9 of the Compromise Agreement:

6. After crediting for the moment the amount of P7,384,320.51 mentioned in paragraph 4 hereof,
as having been collected by William Tieng from VTV, the parties agree that there remains, for the
moment, a balance of EIGHTEEN MILLION SIX HUNDRED FIFTEEN THOUSAND SIX HUNDRED
SEVENTY[-]NINE AND 49/100 PESOS (P18,615,679.49) which Felix Co [and/or Team Image] agree
to jointly and severally pay William Tieng in the following manner and schedule:

P3,267,000.00 - by a 50[-]day postdated check from date of signing, which amount Felix Co [and/or
Team Image] represent to be his own collectibles from Duty Free Philippines, Inc. The encashment
of said check shall not be dependent upon Felix Co's/[Team Image's] ability to collect from Duty
Free Philippines, Inc.

P349,428.37 - to be withdrawn from the joint account of William Tieng and Felix S. Co with
Philippine Bank of Communications; Provided, That, Felix S. Co shall jointly sign a withdrawal slip
or document to effect or authorize the withdrawal thereof.

P983,826.06 to be taken from the earlier collections of SGV deposited with International Exchange
Bank; Provided, That Felix S. Co and William Tieng shall jointly sign a withdrawal slip or document
for the withdrawal of the same,

The total of the above sums is FOUR MILLION SIX HUNDRED THOUSAND TWO HUNDRED FIFTY[-
]FOUR AND 43/100 (P4,600,254.43).

7. Felix Co/[Team Image] shall jointly and severally pay and liquidate the remaining balance of
FOURTEEN MILLION FIFTEEN THOUSAND FOUR HUNDRED TWENTY[-]FIVE AND 06/100 PESOS
(P14,015,425.06) in the following manner:

P1,015,425.06 - on or before 60 days from date of signing this agreement; Provided, That, Felix
Co/[Team Image] shall issue the corresponding postdated check therefor; and

P13,000,000.00 - to be paid in twenty[-]six (26) equal monthly installments of P500,000.00 each

beginning 30 July 2003 and every 30th of the month thereafter until fully liquidated, Provided, That,
Felix Co/[Team Image] shall issue the corresponding postdated checks therefor.

8. Felix Co/[Team Image] likewise agree, to jointly and severally immediately reimburse William
Tieng, upon the execution of this agreement, fifty percent (50%) of the amount of TWO HUNDRED
SEVENTY[-]EIGHT THOUSAND SIX HUNDRED SEVENTY PESOS (P278,670.00) which the latter had
paid to Sycip Gorres & Velayo (SGV), by way of the latter's professional fee or the sum of One
Hundred Thirty[]Nine Thousand Three Hundred Thirty[-]Five (P139,335) Pesos.

9. Felix Co further agrees to recompense William Tieng the amount of P600,000.00, subject
matters of I.S. No. 99-F-3526 and P2,225,244.59, subject matter of I.S. No. 99-F-3525, both of the
Office of the City Prosecutor, Parañaque City, Metro Manila, or the total amount of P2,825,244.59
by way of postdated checks in five (5) equal monthly installments of P565,048.92 each
installments, the same to commence on 15 July 2003 and every 15th day of the month thereafter,
Provided, That, the parties agree to submit these accounts to SGV for the final determination of
the nature of the consideration of these checks, i.e., whether or not the same represent over-
payment on the capital contribution of Felix S. Co into Solar Team Entertainment, Inc. (STEI) to
purchase TV programs/materials owned by Solar Entertainment Corporation and/or from other
suppliers and/or personal indebtedness of Felix S. Co to William Tieng, Provided, That, SGV shall
finish said accounting or on before 01 July 2003, and, Provided, Finally, that, in the event SGV shall
determine before the due date of any of the five (5) postdated checks herein mentioned, that said
amounts of the two (2) aforementioned checks are over payment on the capital contribution of
Felix Co, then Felix S. Co shall have the right to stop the payment of the checks which have not
been presented for payment and William Tieng shall immediately return to Felix S. Co the
amount/s of the check/s so far encashed.[89]

The table below summarizes Team Image's monetary obligations and the periods or conditions
required for their performance:

Basis under the

Period or condition required for
Obligation Compromise
performance of obligation
Agreement
Payment of P3,267,000.00 Fifty (50) days from date of signing the Paragraph 6
through a postdated check Compromise Agreement
Withdrawal of P349,428.37 from No period or condition provided, i.e., Paragraph 6
the joint account of William Tieng a pure obligation demandable at
and Felix S. Co once[90]
Withdrawal of P983,826.06 from Upon the joint signing of a withdrawal Paragraph 6
earlier collections of SGV and Co. slip by William Tieng and Felix S. Co or
any document authorizing the
withdrawal
Payment of P1,015,425.06 On or before 60 days from date of Paragraph 7
signing the Compromise Agreement
Payment of P13,000,000.00 To be paid in twenty-six (26) equal Paragraph 7
monthly installments of P500,000.00
each beginning 30 July 2003 and every
30th of the month thereafter until fully
liquidated
Reimburse William Tieng Immediately, i.e., upon the execution Paragraph 8
P139,335.00 representing 50% of of the Compromise Agreement on
SGV and Co.'s professional fees April 28, 2003
A total of P2,825,244.59 By way of postdated checks in five (5) Paragraph 9
representing the amounts subject equal monthly installments of
matters of I.S. No. 99-F-3526 and P565,048.92 each installments, the
I.S. No. 99-F-3525, both of the same to commence on 15 July 2003
Office of the City Prosecutor, and every 15th day of the month
Parañaque City, Metro Manila thereafter
Based on the periods and conditions provided in paragraphs 6 to 9, except for the payment of
P13,000,000.00, Team Image should have already performed its monetary obligations under the
Compromise Agreement by April 26, 2004, when it filed its first motion for issuance of writ of
execution and suspension of payment. For instance, 50 days from the signing of the Compromise
Agreement on April 28, 2003 would fall on June 17, 2003. Hence, by June 17, 2003, Team Image
should have already paid Solar Team P3,267,000.00 in post-dated checks. Another obligation
would be for Team Image to pay Solar Team P1,015,425.06 within 60 days from the signing of the
Compromise Agreement, the 60th day being June 27, 2003.[91] There is no proof, however, that
Team Image complied with these obligations within the required periods. That Team Image filed
a motion for suspension of payments further demonstrates that it had not fully paid its obligations
under the Compromise Agreement.

While it is true that the trial court granted the Motion for Suspension of Payments in its April 29,
2004 Order, this Order was subsequently set aside on November 23, 2004. Until the trial court
granted Team Image's second motion for suspension of payments on November 3, 2005, Team
Image had almost a year to resume payments. However, Team Image did not do so. The Court of
Appeals, therefore, correctly held that Team Image was in default for failure to resume payments
under the Compromise Agreement. Team Image violated paragraphs 6 to 9 of the Compromise
Agreement.

II

Paragraphs 21 and 22 of the Compromise Agreement are again provided below:

21. This agreement constitutes the final repository of all the prior understanding agreements and
contracts of the parties and shall operate as total waiver and discharge of any or all claim,
counterclaims, causes of action, claims and demands of whatever kind and nature which each may
have against the other, including their respective heirs[,] assigns[,] and successors-in-interest
arising out of any of all matters, cause or thing, whether directly or indirectly, related with the
Marketing Agency Agreement dated 24 April 1996.

22. By virtue hereof, the parties have agreed, as they hereby agree to immediately provisionally
dismiss all actions, whether civil or criminal, they may have filed against the other, and after SGV
shall have finally completed the audit and accounting tasked upon it, the results of which is final
and binding upon the parties, all said civil and/or criminal actions shall be permanently dismissed
by the parties.

Paragraph 22 requires both Team Image and Solar Team to "immediately provisionally dismiss all
actions, whether civil or criminal, they may have filed against each other." They shall cause the
permanent dismissal of the actions "after [SGV and Co.] shall have finally completed the audit and
accounting tasked upon it."

When the Compromise Agreement was executed on April 28, 2003, there was a pending collection
case filed by ABC Television against Team Image when Solar Team filed a complaint-in-
intervention. It does not appear that Solar Team filed a motion to dismiss the complaint-in-
intervention it had filed against Team Image; hence, Solar Team violated paragraph 22 of the
Compromise Agreement.

That the term "provisional dismissal," in its technical sense, only applies to criminal cases[92] is not
an argument for Solar Team to refuse to withdraw the complaint-in-intervention. It does not
appear that Team Image and Solar Team meant to use the term in its technical sense. Considering
that the parties agreed in paragraph 21 that the Compromise Agreement "shall operate as total
waiver and discharge of any or all claims, counterclaims, causes of action, claims and demands of
whatever kind and nature which each may have against the other," the parties intended to
terminate all the cases they filed against each other.

The pendency of the Motion for Reconsideration filed by Solar Team in Solar Team v. Hon.
Dumayas, G.R. No. 183848, may no longer be invoked because it had already been denied with
finality. Even if G.R. No. 183848 remained active, it originated from a Petition for Certiorari
questioning the interlocutory Order of November 3, 2005, a suit that can proceed separately from
the main case.[93] It merely continued the certiorari proceedings before the Court of Appeals;
hence, this Court need not await the resolution of G.R. No. 183848 before resolving whether or
not Solar Team violated the Compromise Agreement for failing to withdraw its complaint-in-
intervention against Team Image.

III

However, despite paragraphs 21 and 22 of the Compromise Agreement, Solar Team cannot be
deemed to have violated it for failing to cause the dismissal of the criminal cases for estafa Tieng
filed against Co. It is settled that criminal liability cannot be the subject of a compromise.[94] "[A]
criminal case is committed against the People, and the offended party may not waive or extinguish
the criminal liability that the law imposes for its commission."[95] This explains why "a compromise
is not one of the grounds prescribed by the Revised Penal Code for the extinction of criminal
liability."[96]

None of the cases cited by Team Image supports its argument that criminal liability may be subject
of a compromise. Chavez v. Presidential Commission on Good Government[97] and Benedicto v.
Board of Administrators,[98] ironically cited by Team Image, are both clear that compromise is
encouraged only in civil cases. Chavez explicitly stated that "[w]hile a compromise in civil suits is
expressly authorized by law, there is no similar general sanction as regards criminal liability."[99]

Team Image confused the Presidential Commission on Good Government's power to grant
criminal immunity[100] with the act of compromising criminal liability. Granting criminal immunity
is allowed because no criminal case has yet been filed in court, and therefore, there is no criminal
liability to compromise. On the other hand, compromising criminal liability presupposes that a
criminal case has already been filed in court, the dismissal of which is already based on the sound
discretion of the trial court.[101] In other words, the dismissal cannot be automatic, regardless of
the agreement between the private complainant and the accused to dismiss the case. As
discussed, the real offended party in a criminal case is the State and the outcome of the criminal
case cannot be based on the will of the private complainant who is a mere witness for the
prosecution.

The cases involved here are cases not under the jurisdiction of the Presidential Commission on
Good Government. Chavez and Benedicto, therefore, do not apply.

All told, the Court of Appeals correctly found no grave abuse of discretion on the part of the trial
court when it held that Team Image and Solar Team cannot agree on the dismissal of the criminal
cases. Solar Team did not violate the Compromise Agreement when Tieng failed to cause the
dismissal of the criminal cases for estafa he had filed against Co.

IV

Furthermore, it was premature for Team Image to claim that it made overpayments to Solar Team
when Tieng allegedly admitted to receiving from VTV Corporation the amount of P22,971,572.03,
significantly more than the P10,275,547.48 provided in paragraph 4 of the Compromise
Agreement.

Paragraphs 3, 4, and 5 of the Compromise Agreement provide:

3. The parties agree that William Tieng is entitled to initially receive the amount of TWENTY[-]SIX
MILLION PESOS (P26,000,000.00), Philippine Currency, as stipulated and embodied in their
handwritten memorandum of agreement executed on 05 May 1998, out of the sales and
collections made by [Team Image]/Felix S. Co as marketing agent of [Solar Team]. This is so
because, [Team Image]/Felix S. Co have admitted having earlier collected at least the sum of at
least P26M, hence, to equalize the sharing of Felix S. Co and William Tieng on the proceeds of the
sales. William Tieng should also receive the sum of at least P26M.

4. William Tieng acknowledges that VTV had made payments in the total sum of TEN MILLION TWO
HUNDRED SEVENTY[-]FIVE THOUSAND FIVE HUNDRED FORTY[-]SEVEN AND 48/100 PESOS
(10,275,547[.]48) Philippine Currency, from the contracts with VTV for the airing over IBC-13 of
the TV programs/materials belonging to either Solar Entertainment Corporation, or Solar Films,
Inc., or Solar Team Entertainment, Inc., out of which, TWO MILLION EIGHT HUNDRED NINETY[-
]ONE THOUSAND TWO HUNDRED TWENTY[-]SIX AND 97/100 (P2,891,226.97) was collected and
paid to Ma. Fe Barriero as what she represented to be marketing commissions, thus leaving a
balance of SEVEN MILLION THREE HUNDRED EIGHTY[-]FOUR THOUSAND THREE HUNDRED
TWENTY AND 51/100 (P7,384,320.51). An accounting shall he made by VTV to determine how
much of this amount of P7,384,320.51, pertain to programs/materials owned by [Solar Team].
Upon such determination, the amount pertaining to the programs/materials owned by [Solar
Team] (which company is owned 50/50 by Felix Co and William Tieng) shall be credited to it and
shall be credited to William Tieng as part of the amount he is entitled to receive stated and
referred to in paragraph 3 hereof:
5. William Tieng represents and warrants that the aforesaid sum of P2,891,226.97 which is charged
as marketing commissions are unauthorized collections which, did not redound to the benefit of
the parties from their joint operation as stated in the paragraph immediately preceding, but to the
personal gain and advantage of their marketing agent, Maria Fe Barriero, hence, earnest efforts
shall be exerted by said William Tieng to collect the same from the offending party. After said
collection or in the event that said amount shall be proved to have redounded to the benefit of
said William Tieng, then William Tieng shall turn-over the said amount to [Solar Team] and
thereafter SGV shall determine the share of Felix S. Co thereon which shall be paid immediately to
the latter.[102]

Under paragraphs 4 and 5 of the Compromise Agreement, there must first be an audit and
accounting by SGV and Co. before there can be a final determination of the share of Team Image
from the collectibles from VTV Corporation. There is no showing that SGV and Co. had already
completed its audit and accounting when Team Image filed a motion for the issuance of a writ of
execution.

The supposed admission of Tieng in Civil Case No. 05-603 that he received P22,971,572.03 is not
a judicial admission contemplated under Rule 129, Section 4 of the Rules of Court.[103] Rule 129,
Section 4 requires that the admission be made in the same case. The admission of Tieng was made
in a different case. Therefore, the admission in Civil Case No. 05-603 cannot be made basis to
contend that Tieng misrepresented the amounts he stated in paragraph 4 of the Compromise
Agreement. The Court of Appeals correctly held that it was premature for Team Image to claim
overpayments.

Paragraph 24 of the Compromise Agreement is reiterated below:

24. In the event SGV shall have made a final determination of the respective accountability of the
parties and any of the parties fail to comply with the same, or in the event any of the parties is
remiss or reneges from [its] commitment/s as specified in this Agreement or breaches the
warranties and/or representation as contained herein, then the aggrieved party shall be entitled
to an immediate issuance of a writ of execution to enforce compliance thereof and the guilty party
shall pay the innocent party the sum of P2 Million Pesos by way of liquidated damages and/or
penalty and shall, likewise, shoulder all the expenses in enforcing this compromise agreement by
a writ of execution. Moreover, the innocent party shall have the right to invoke the principle of
reciprocity of obligations in contracts as provided for by law.[104]

Paragraph 24 of the Compromise Agreement gives two (2) classifications of the possible violations
of the Compromise Agreement. The first is "in the event" where the appointed auditing firm, SGV
and Co., would have made a final determination of the accountabilities of the parties and any of
the parties fails to pay its respective accountabilities based on the audit. The second is ''in the
event" where "any of the parties is remiss or reneges from [its] commitment/s as specified in this
Agreement or breaches the warranties and/or representation as contained herein." That these are
the only two (2) classifications of violations is inferable from the use of the phrase "in the event,"
a comma, and the word "or" to separate these two (2) instances. In other words, all obligations
that require SGV and Co.'s final accounting fall under the first classification. All other obligations
fall under the second classification.

Given the foregoing, the payment of liquidated damages is based on these two (2) "events" or
classifications of violation. Since there are only two (2) classifications of violations immediately
preceding the provision on the payment of P2,000,000.00 liquidated damages, only a maximum
of P4,000,000.00 may be paid under paragraph 24.

The obligations under the Compromise Agreement that require SGV and Co.'s final determination
are found in paragraphs 9, [105] 13,[106] 15,[107] 16,[108] 17,[109] 19,[110] 22,[111] and 24.[112] Violations
of these paragraphs fall under the first "event” or classification. Violations of all other paragraphs
fall under the second "event” or classification.

As previously discussed, Team Image violated paragraphs 6 and 7 of the Compromise Agreement
by failing to pay its monetary obligations under these paragraphs. For these violations, Team
Image must pay Solar Team P2,000,000.00 in liquidated damages. As for Solar Team, it violated
paragraph 22 the Compromise Agreement for failure to withdraw the complaint-in-intervention it
had earlier filed against Team Image. Hence, Solar Team must pay Team Image P2,000,000.00 in
liquidated damages.

VI

Articles 1279 and 1281 of the Civil Code provide:

Article 1279. In order that compensation may be proper, it is necessary:

(1) That each one of the obligors be bound principally, and that he be at the same time a principal
creditor of the other;

(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the
same kind, and also of the same quality if the latter has been stated;

(3) That the two debts be due;

(4) That they be liquidated and demandable;

(5) That over neither of them there be any retention or controversy, commenced by third persons
and communicated in due time to the debtor.

Article 1281. Compensation may be total or partial. When the two debts are of the same amount,
there is a total compensation.
Considering that the parties are equally liable to each other in the amount of P2,000,000.00, this
Court confirms that the amounts are set off by operation of law.[113]

VII

However, this Court recalls that in the May 19, 2008 Omnibus Order, Judge Dumayas directed
Solar Team to deposit with Office of the Clerk of Court Regional Trial Court of Makati City the
amount of P2,000,000.00 representing liquidated damages for Solar Team's failure to withdraw
the complaint-in-intervention it had filed against Team Image. Judge Dumayas added that the
amount “will be released only after final determination of the obligations of [Team Image and Co]
pursuant to the compromise agreement and after the issue on the violation of the same
agreement by [Solar Team] for its failure to [withdraw the complaint-in-intervention] has been
resolved with finality.”[114]

As held by the Court of Appeals, it was grave abuse of discretion for Judge Dumayas to keep the
P2,000,000.00 in custodia legis. Upon approval, a judgment upon a compromise is immediately
executory, not even subject to appeal.[115] Ordering the deposit of the P2,000,000.00 with the
Office of the Clerk of Court effectively stayed the execution of an immediately executory
judgment. It is highly irregular. Nowhere in the law or the Rules of Court is such deposit allowed.

Additionally, the complexity of resolving the present petitions could have been avoided had Judge
Dumayas properly managed the case for accounting. For this reason, adding the highly irregular
order of deposit, this matter is referred to the Office of the Court Administrator to be docketed as
a separate administrative matter against Judge Dumayas. Judge Dumayas is to show cause why he
should not be disciplinarily dealt with for: first, in issuing the May 19, 2008 Omnibus Order which
directed the deposit of P2,000,000.00 before the Office of the Clerk of Court-Regional Trial Court,
Makati City; and, second, for reversing himself, on several occasions, on the issues of whether or
not Team Image was entitled to suspend payments to Solar Team and whether or not the criminal
cases may be dismissed based on the Compromise Agreement.

WHEREFORE, the Petitions for Review on Certiorari filed by Team Image Entertainment, Inc. and
Solar Team Entertainment, Inc. are PARTIALLY GRANTED and the Court of Appeals December 10,
2009 Decision in CA-G.R. SP No, 104961 is MODIFIED as follows:

The implementation of the Writ of Execution dated January 10, 2008 is AFFIRMED;

Team Image Entertainment, Inc. is LIABLE to Solar Team Entertainment, Inc. in the amount of
P2,000,000.00 pursuant to paragraph 24 of the Compromise Agreement for its failure to settle its
obligation within the period from November 23, 2004 to November 3, 2005;

Solar Team Entertainment, Inc. is LIABLE to Team Image Entertainment, Inc. in the amount of
P2,000,000.00 pursuant to paragraph 24 of the Compromise Agreement for its failure to withdraw
earlier the complaint in intervention it filed in Civil Case No. 97-024 pending before Branch 137,
Regional Trial Court of Makati City;
Considering that Team Image Entertainment, Inc. and Solar Team Entertainment, Inc. are
concurrently liable to each other in equal amounts, the compensation of their liabilities takes
effect by operation of law. The order for Solar Team Entertainment, Inc. to deposit the amount of
P2,000,000.00 to the Office of the Clerk of Court - Regional Trial Court of Makati City is REVERSED
and SET ASIDE. The garnished amount of P2,000,000.00 representing liquidated damages is
ordered released from the custody of the Clerk of Court of the Regional Trial Court of Makati City
and must be returned to Solar Team Entertainment, Inc.; The reversal of the order which requires
William Tieng to cause the dismissal of Criminal Case Nos. 07-1235 and 07-1236 is AFFIRMED; The
reversal of the order requiring William Tieng to pay the sum of P2,000,000.00 as liquidated
damages on account of his failure to dismiss Criminal Case Nos. 07-1235 and 07-1236 is AFFIRMED;
The reversal of the order requiring William Tieng to return the sum of P25,862,750.00 on account
of Solar Team Entertainment, Inc.'s alleged admission in its pleading in Civil Case No. 05-603
despite the pendency of the SyCip Gorres Velayo and Co. audit is AFFIRMED;

The reversal of the order requiring William Tieng to turn over the amount of P2,891,226.97 to
Solar Team Entertainment, Inc. is AFFIRMED;

The reversal of the order requiring William Tieng to pay a total of P8,000,000.00 as liquidated
damages for alleged breaches of warranty and representation is AFFIRMED; and

Finally, the issuance of the May 19, 2008 Omnibus Order is REFERRED to the Office of the Court
Administrator to be docketed as a regular administrative matter against Presiding Judge Winlove
M. Dumayas of Branch 59, Regional Trial Court, Makati City.

SO ORDERED.

THIRD DIVISION

[ G.R. No. 185530, April 18, 2018 ]

MAKATI TUSCANY CONDOMINIUM CORPORATION, PETITIONER, VS. MULTI-REALTY DEVELOPMENT

CORPORATION, RESPONDENT.

DECISION

LEONEN, J.:

Reformation of an instrument may be allowed if subsequent and contemporaneous acts of the

parties show that their true intention was not accurately reflected in the written instrument.

This resolves the Petition for Review on Certiorari[1] filed by Makati Tuscany Condominium
Corporation (Makati Tuscany), assailing the April 28, 2008 Amended Decision[2] and December 4,
2008 Resolution[3] of the Court of Appeals in CA-G.R. CV No. 44696.
In 1974, Multi-Realty Development Corporation (Multi-Realty) built Makati Tuscany, a 26-storey
condominium building located at the corner of Ayala Avenue and Fonda Street, Makati City.[4]

Makati Tuscany had a total of 160 units, with 156 ordinary units from the 2nd to the 25th floors and
four (4) penthouse units on the 26th floor.[5] It also had 270 parking slots which were apportioned
as follows: one (1) parking slot for each ordinary unit; two (2) parking slots for each penthouse
unit; and the balance of 106 parking slots were allocated as common areas.[6]

On July 30, 1975, Multi-Realty, through its president Henry Sy, Sr., executed and signed Makati
Tuscany's Master Deed and Declaration of Restrictions (Master Deed),[7] which was registered with
the Register of Deeds of Makati in 1977.[8]

Sometime in 1977, pursuant to Republic Act No. 4726, or the Condominium Act, Multi-Realty
created and incorporated Makati Tuscany Condominium Corporation (MATUSCO) to hold title
over and manage Makati Tuscany's common areas. That same year, Multi-Realty executed a Deed
of Transfer of ownership of Makati Tuscany's common areas to MATUSCO.[9]

On April 26, 1990, Multi-Realty filed a complaint for damages and/or reformation of instrument
with prayer for temporary restraining order and/or preliminary injunction against MATUSCO. This
complaint was docketed as Civil Case No. 90-1110 and raffled to Branch 59 of Makati Regional
Trial Court.[10]

Multi-Realty alleged in its complaint that of the 106 parking slots designated in the Master Deed
as part of the common areas, only eight (8) slots were actually intended to be guest parking slots;
thus, it retained ownership of the remaining 98 parking slots.[11]

Multi-Realty claimed that its ownership over the 98 parking slots was mistakenly not reflected in
the Master Deed "since the documentation and the terms and conditions therein were all of first
impression,"[12] considering that Makati Tuscany was one of the first condominium developments
in the Philippines.[13]

On October 29, 1993, the Regional Trial Court[14] dismissed MultiRealty's complaint. It noted that
Multi-Realty itself prepared the Master Deed and Deed of Transfer; therefore, it was unlikely that
it had mistakenly included the 98 parking slots among the common areas transferred to
MATUSCO. It also emphasized that Multi-Realty's prayer for the reformation of the Master Deed
could not be granted absent proof that MATUSCO acted fraudulently or inequitably towards Multi-
Realty. Finally, it ruled that Multi-Realty was guilty of estoppel by deed.[15] The fallo of its Decision
read:
Premises considered, this case is dismissed. [MATUSCO's] counterclaim is likewise dismissed the
same not being compulsory and no filing fee having been paid. [Multi-Realty] is however ordered
to pay [MATUSCO's] attorney's fees in the amount of P50,000.00

Cost against plaintiff.

SO ORDERED.[16]

Both parties appealed the Regional Trial Court Decision to the Court of Appeals. On August 21,
2000, the Court of Appeals[17] dismissed both appeals on the ground of prescription.

In dismissing Multi-Realty's appeal, the Court of Appeals held that an action for reformation of an
instrument must be brought within 10 years from the execution of the contract. As to the dismissal
of MATUSCO's appeal, the Court of Appeals ruled that its claim was based on a personal right to
collect a sum of money, which had a prescriptive period of four (4) years, and not based on a real
right, with a prescriptive period of 30 years.[18]

The fallo of the Court of Appeals August 21, 2000 Decision read:
WHEREFORE, foregoing premises considered, no merit in fact and in law is hereby ORDERED
DISMISSED, and the judgment of the trial court is MODIFIED by deleting the award of attorney's
fees not having been justified but AFFIRMED as to its Order dismissing both the main complaint of
[Multi-Realty] and the counterclaim of [MATUSCO]. With costs against both parties.

SO ORDERED.[19]
Multi-Realty moved for reconsideration,[20] but its motion was denied in the Court of Appeals
January 18, 2001 Resolution.[21] It then filed a petition for review[22] before this Court.

On June 16, 2006, this Court in Multi-Realty Development Corporation v. The Makati Tuscany
Condominium Corporation[23] granted Multi-Realty's petition, set aside the assailed Court of
Appea]s August 21, 2000 Decision, and directed the Court of Appeals to resolve Multi-Realty's
appeal.

Multi-Realty Development Corporation ruled that the Court of Appeals should have resolved the
appeal on the merits instead of motu proprio resolving the issue of whether or not the action had
already prescribed, as the issue of prescription was never raised by the parties before the lower
courts.[24]

Nonetheless, Multi-Realty Development Corporation held that even if prescription was raised as
an issue, the Court of Appeals still erred in dismissing the case because Multi-Realty's right to file
an action only accrued in 1989 when MATUSCO denied Multi-Realty's ownership of the 98 parking
slots. The Court of Appeals ruled that it was only then that Multi-Realty became aware of the error
in the Master Deed, thereafter seeking its reformation to reflect the true agreement of the parties.
Thus, prescription had not yet set in when Multi-Realty filed its complaint for reformation of
instrument in 1990.[25]

The fallo in Multi-Realty Development Corporation read:

IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The Decision of the Court of Appeals
in CA-G.R. CV No. 44696 is SET ASIDE. The Court of Appeals is directed to resolve [Multi-Realty's]
appeal with reasonable dispatch. No costs.
ORDERED.[26] (Emphasis in the original)
On November 5, 2007, the Court of Appeals[27] denied both appeals.

Regarding Multi-Realty's appeal, the Court of Appeals held that the Master Deed could only be
read to mean that the 98 parking slots being claimed by Multi-Realty belonged to MATUSCO. It
highlighted that the language of the Master Deed, as prepared by Multi-Realty, was clear and not
susceptible to any other interpretation.[28]

The Court of Appeals upheld the Regional Trial Court's finding that Multi-Realty was guilty of
estoppel by deed and likewise declared that MATUSCO was not estopped from questioning Multi-
Realty's claimed ownership over and sales of the disputed parking slots.[29]

The fallo of the Court of Appeals November 5, 2007 Decision read:

WHEREFORE, the instant appeals are hereby DENIED. The assailed Decision dated October 29,
1993 of the Regional Trial Court (Branch 65), Makati, Metro Manila (now Makati City), in Civil Case
No.

90-1110 is MODIFIED-in that: (1) the counterclaim of The Makati Tuscany Condominium
Corporation is DISMISSED-not on the ground of non-payment of docket fees but on ground of
prescription; and, (2) the award of attorney's fees in favor of The Makati Tuscany Condominium
Corporation is DELETED for not having been justified. We however AFFIRM in all other aspects.
Costs against both parties.

SO ORDERED.[30] (Emphasis in the original)

Multi-Realty moved for the reconsideration of the Court of Appeals November 5, 2007 Decision
and on April 28, 2008, the Court of Appeals promulgated an Amended Decision,[31] reversing its
November 5, 2007 Decision and directing the reformation of the Master Deed and Deed of
Transfer.

In reversing its November 5, 2007 Decision, the Court of Appeals ruled that the Master Deed and
Deed of Transfer did not reflect the true intention of the parties on the ownership of the 98 parking
slots.[32]

The Court of Appeals stated that in reformation cases, the party asking for reformation had the
burden to overturn the presumption of validity accorded to a written contract. It held that Multi-
Realty was able to discharge this burden.[33]

The fallo of the Court of Appeals April 28, 2008 Amended Decision read:
WHEREFORE, premises considered, the present Motion for

Reconsideration is PARTLY GRANTED. Our Decision dated November

05, 2007 is hereby MODIFIED-in that We ORDER the reformation of the Master Deed and
Declaration of Restrictions of the Makati Tuscany Condominium Project and the Deed of Transfer-
to clearly provide that the ownership over the ninety[-]eight (98) extra parking lots be retained by
Multi-Realty Development Corporation. We however DENY the damages and attorney's fees
prayed for by Multi-Realty Development Corporation. We AFFIRM in all other respects. No costs.

SO ORDERED.[34] (Emphasis in the original)

MATUSCO moved for the reconsideration[35] of the Amended Decision, but its motion was denied
in the Court of Appeals December 4, 2008 Resolution.[36]

On February 5, 2009, MATUSCO filed its Petition for Review[37] on Certiorari before this Court.

In its Petition, petitioner claims that the Court of Appeals erred in granting Multi-Realty's appeal
because there was no basis to reform the Master Deed and Deed of Transfer. It asserts that there
was no mistake, fraud, inequitable conduct, or accident which led to the execution of an
instrument that did not express the true intentions of the parties. It avers that the instruments
clearly expressed what the parties agreed upon.[38]

Petitioner also assails the Court of Appeals' ruling that it was estopped from questioning
respondent's sales of26 out of the 98 contested parking slots and from claiming ownership of the
remaining unsold parking slots because it was supposedly fully aware of respondent's ownership
of them and did not oppose its sales for 9 years.[39]

Petitioner maintains that estoppel cannot apply because the sales made by respondent were
patently illegal as they went against the stipulations in the Master Deed. Furthemore, petitioner
contends that it never misled respondent regarding ownership of the 98 parking slots since it was
respondent itself which drafted the Master Deed and Deed of Transfer that turned over ownership
of the common areas, including the 98 parking slots, to MATUSCO.[40]

In its Comment,[41] respondent insists that it never intended to include the 98 parking slots among
the common areas transferred to MATUSCO. It avers that due to its then inexperience with the
condominium business, with Makati Tuscany being one of the Philippines' first condominium
projects, the Master Deed and Deed of Transfer failed to reflect the original intention to exclude
the 98 parking slots from Makati Tuscany's common areas.[42]

Respondent points to the parties' subsequent acts that led to the only conclusion that it was
always the intention to exclude the 98 parking slots from the common areas, and that this was
known and accepted by petitioner from the beginning.[43]

Respondent maintains that the Petition raises factual findings and prays that this Court take a
second look at the evidence presented and come up with its own factual findings, in derogation
of the purpose of an appeal under Rule 45 of the Rules of Court, which generally limits itself to
questions of law.[44]

Respondent also points out that in Multi-Realty Development Corporation, this Court, in its recital
of material facts, acknowledged that it retained ownership over the 98 parking slots, but that its
ownership over them was not reflected in the Master Deed and Deed of Transfer. Thus,
respondent asserts that the issue of ownership can no longer be threshed out on appeal on the
ground of res judicata.[45]

In its Reply,[46] petitioner claims that just like respondent, it also committed a mistake in good faith
and "also labored under a mistaken appreciation of the nature and ownership of the ninety[-]eight
(98) parking slots"[47] when it failed to object to respondent's sales of some of the parking slots
from 1977 to 1986 and when it issued Certificates of Management over the sold parking slots. It
was only later that petitioner realized the extent of its legal right over the 98 parking slots;
consequently, it exerted effort to exercise its dominion over them. Petitioner argues that this
cannot be characterized as bad faith on its part.[48]

Petitioner adds that the Master Deed and Deed of Transfer are public documents, being duly
registered with the Register of Deeds of Makati City, ergo, their terms, conditions, and restrictions
are valid and binding in rem. It opines that for the Court of Appeals to change the clear and
categorical wordings of the Master Deed more than 30 years after its registration goes against
public policy and the Condominium Act.[49]

Petitioner insists that if respondent merely made a mistake in including the 98 parking slots among
the common areas transferred to petitioner, this mistake must be construed in petitioner's favor
as respondent is owned by one of the wealthiest family corporations in the country while
petitioner is merely an association of innocent purchasers for value.[50]

The issues raised for this Court's resolution are as follows:

First, whether or not there is a need to reform the Master Deed and the Deed of Transfer; and

Second, whether or not this Court is bound by the factual findings in Multi-Realty Development
Corporation v. The Makati Tuscany Condominium Corporation on the ground of conclusiveness of
judgment.

Reformation of an instrument is a remedy in equity where a valid existing contract is allowed by

law to be revised to express the true intentions of the contracting parties.[51] The rationale is that
it would be unjust to enforce a written instrument which does not truly reflect the real agreement
of the parties.[52] In reforming an instrument, no new contract is created for the parties, rather,
the reformed instrument establishes the real agreement between the parties as intended, but for
some reason, was not embodied in the original instrument.[53]

An action for reformation of an instrument finds its basis in Article 1359 of the Civil Code which
provides:
Article 1359. When, there having been a meeting of the minds of the parties to a contract, their
true intention is not expressed in the instrument purporting to embody the agreement, by reason
of mistake, fraud, inequitable conduct or accident, one of the parties may ask for the reformation
of the instrument to the end that such true intention may be expressed.

If mistake, fraud, inequitable conduct, or accident has prevented a meeting of the minds of the
parties, the proper remedy is not reformation of the instrument but annulment of the contract.
The National Irrigation Administration v. Gamit[54] stated that there must be a concurrence of the
following requisites for an action for reformation of instrument to prosper:
(1) there must have been a meeting of the minds of the parties to the contract; (2) the instrument
does not express the true intention of the parties; and (3) the failure of the instrument to express
the true intention of the parties is due to mistake, fraud, inequitable conduct or accident.[55]
The burden of proof then rests upon the party asking for the reformation of the instrument to
overturn the presumption that a written instrument already sets out the true intentions of the
contracting parties.[56]

It is not disputed that the parties entered into a contract regarding the management of Makati
Tuscany's common areas. A Master Deed and a Deed of Transfer were executed to contain all the
terms and conditions on the individual ownership of Makati Tuscany's units and the co-ownership
over the common areas. The question to be resolved is whether the provisions in the Master Deed
and Deed of Transfer over the 98 parking slots, as part of the common areas, expressed the true
intentions of the parties, and if not, whether it was due to mistake, fraud, inequitable conduct, or
accident.

Sections 5 and 7(d) of the Master Deed provide as follows:

SEC. 5. Accessories to Units. - To be considered as part of each unit and reserved for the exclusive
use of its owner are the balconies adjacent thereto and the parking lot or lots which are to be
assigned to each unit.

....

SEC. 7. The Common Areas. - The common elements or areas of The Makati Tuscany shall comprise
all the parts of the project other than the units, including without limitation the following:

....

(d) All driveways, playgrounds, garden areas and parking areas other than those assigned to each
unit under Sec. 5 above[.][57]
A plain and literal reading of Section 7(d) in relation to Section 5 shows that all parking areas which
are not assigned to units come under petitioner's authority because they are part of the common
areas.

Respondent argues that what was written in the Master Deed and Deed of Transfer failed to fully
capture what was actually intended by the parties. However, intentions involve a state of mind,
making them difficult to decipher; therefore, the subsequent and contemporaneous acts of the
parties must be presented into evidence to reflect the parties' intentions.[58]

To substantiate its claim that there was a difference between the written terms in the Master
Deed and Deed of Transfer and the parties' intentions, respondent refers to their prior and
subsequent acts.

First, respondent points out that in the color-coded floor plans for the ground floor, upper
basement, and lower basement, only eight (8) guest parking slots were indicated as part of the
common areas. However, respondent alleges that due to its inexperience with documenting
condominium developments, it failed to reflect the correct number of guest parking slots in the
Master Deed and Deed of Transfer.[59]

Second, acting under the honest belief that it continued to own the 98 parking slots, respondent
sold 26 of them to Makati Tuscany's unit owners from 1977 to 1986, without any hint of a
complaint or opposition from petitioner. Respondent also states that petitioner repeatedly
cooperated and supported its sales by issuing Certificates of Management for the condominium
units and parking slots sold by respondent.[60]

Third, petitioner's Board of Directors made repeated offers to purchase the parking slots from
respondent, signifying petitioner's recognition of respondent's retained ownership over the
disputed parking slots. This was made evident in an excerpt from the minutes of the June 14, 1979
meeting of MATUSCO's Board of Directors:
UNASSIGNED PARKING SLOTS

Mr. Jovencio Cinco informed the Board of the final proposal of Multi-Realty Development Corp. to
sell the condominium corp. all of the unassigned parking lots at a discounted price of P15,000.00
per lot, or some 50% lower than their regular present price of P33,000.00 each.

After discussion, it was agreed to hold in abeyance any decision on the matter for all the members
of the Board in attendance to pass upon.[61]
Finally, respondent highlights that it was only in September 1989, when the value of the 72
remaining unallocated parking slots had risen to approximately P250,000.00 each or
approximately P18,000,000.00 for the 72 parking slots, that petitioner first claimed ownership of
the remaining parking slots.[62]

At this juncture, it must be pointed out that petitioner never rebutted any of respondent's
statements regarding the subsequent acts of the parties after the execution and registration of
the Master Deed and Deed of Transfer. Petitioner even adopted the narration of facts in Multi-
Realty Development Corporation and declared in its Reply that:
1. The Petition does not raise questions of fact because no doubt or difference exists between the
parties' appreciation of the truth or falsehood of alleged facts, nor does it require the Honorable
Court to evaluate the credibility of witnesses or their testimonies. The resolution of the instant
controversy rests solely upon the correct application of principles of law and pertinent
jurisprudence, as well as hallowed ideals of fairness and public policy which are specific or
germane to the undisputed facts. These facts have already been framed by this Honorable Court
in a related case brought before it by the same parties, albeit limited to the sole issue of
prescription of the action for reformation of instruments initiated by [Multi-Realty]. For the
avoidance of doubt, these facts are reproduced hereunder as follows:

....

1.3 Makati Tuscany consisted of 160 condominium units, with 156 units from the 2nd to the 25th
floors, and 4 penthouse units in the 26th floor. Two hundred seventy (270) parking slots were built
therein for appointment among its unit owners. One hundred sixty-four (164) of the parking slots
were so allotted, with each unit at the 2nd to the 25th floors being allotted one ( 1) parking slot
each, and each penthouse unit with two slots. Eight (8) other parking slots, found on the ground
floor of the Makati Tuscany were designated as guest parking slots, while the remaining ninety[-
]eight (98) were to be retained by Multi-Realty for sale to unit owners who would want to have
additional slots.

....

1.7. The Master Deed was filed with the Register of Deeds in 1977. Multi-Realty executed a Deed
of Transfer in favor of Makati Tuscany over these common areas. However, the Master Deed and
the Deed of Transfer did not reflect or specify the ownership of the 98 parking slots. Nevertheless,
Multi-Realty sold 26 of them in 19 to 1986 to condominium unit buyers who needed additional
parking slots. Makati Tuscany did not object, and certificates of title were later issued by the
Register of Deeds in favor of the buyers. Makati Tuscany issued Certificates of Management
covering the condominium units and parking slots which Multi-Realty has sold.

1.8 At a meeting of Makati Tuscany's Board of Directors on 13 March 1979, a resolution was
approved, authorizing its President, Jovencio Cinco, to negotiate terms under which Makati
Tuscany would buy 36 of the unallocated parking slots from Multi-Realty. During another meeting
of the Board of Directors on 14 June 1979, Cinco informed the Board members of Multi-Realty's
proposal to sell all of the unassigned parking lots at a discounted price of P15,000.00 per lot, or
some 50% lower than the then prevailing price of P33,000.00 each. The Board agreed to hold in
abeyance any decision on the matter to enable all its members to ponder upon the matter.[63]
(Emphasis supplied, citations omitted)
Just like respondent, petitioner invokes mistake in good faith to explain its seeming recognition of
respondent's ownership of the 72 remaining parking slots, showing its acquiescence to
respondent's sale of the 26 parking slots and its issuance of the Certificates of Management for
the sold condominium units and parking slots.[64]

Petitioner fails to convince.

The totality of the undisputed evidence proving the parties' acts is consistent with the conclusion
that the parties never meant to include the 98 parking slots among the common areas to be
transferred to petitioner. The evidence is consistent to support the view that petitioner was aware
of this fact.

From 1977 to 1986, respondent sold 26 of the 98 parking lots now under contention without
protest from petitioner. Petitioner recognized respondent's ownership of the disputed parking lots
on at least two (2) occasions when its Board of Directors made known its intention to purchase
them from respondent.

In its Manifestation Ad Cautelam,[65] petitioner asked to be allowed to file a reply to respondent's

comment to rectify the "erroneous statements of fact and conclusions of law"[66] contained in it.
However, petitioner in its Reply[67] did not contradict any of the subsequent acts of the parties
narrated by respondent, showing petitioner's repeated acquiescence to respondent's acts of
dominion over the parking slots. Petitioner even adopted this Court's narration of facts in Multi-
Realty Development Corporation where this Court stated that "[e]ight (8) other parking slots, found
on the ground floor of the Makati Tuscany were designated as guest parking slots, while the
remaining 98 were to be retained by Multi-Realty for sale to unit owners who would want to have
additional slots."[68]

Petitioner claims that it was confusion and not bad faith that caused its belated assertion of
ownership over the parking slots.[69] However, the facts show that it was the intention of the
parties all along for Multi-Realty to retain ownership of the 98 parking slots and then sell them to
unit owners who wanted additional parking slots.

Petitioner argues its lack of bad faith in claiming ownership over the 98 parking slots. Whether or
not it acted in bad faith was never in issue. Instead, the issue to be resolved was whether or not
respondent committed a mistake in drafting and executing the Master Deed and Deed of Transfer,
thereby leading to the inadvertent inclusion of the 98 parking slots among the common areas
transferred to petitioner.

Further, it is difficult to impute confusion and bad faith, which are states of mind appropriate for
a natural individual person, to an entire corporation. The fiction where corporations are granted
both legal personality separate from its owners and a capacity to act should not be read as
endowing corporations with a single mind. In truth, a corporation is a hierarchical community of
groups of persons both in the governing board and in management. Corporations have different
minds working together including its lawyers, auditors, and, in some cases, their compliance
officers.

To grant the argument that a corporation, like a natural person, was confused or not in bad faith
is to extend to it too much analogy and to endow it more of the human characteristics beyond its
legal fiction. This Court is not endowed with such god-like qualities of a creator or should allow
illicit extensions of legal fiction to cause injustice.

Respondent, through a preponderance of evidence, was able to prove its claim that the Master
Deed and Deed of Transfer failed to capture the true intentions of the parties; hence, it is but right
that the instruments be reformed to accurately reflect the agreement of the parties.

Petitioner asserts that respondent's admission of committing a mistake in drafting the Master
Deed and Deed of Transfer makes it liable to suffer the consequences of its mistake and should be
bound by the plain meaning and import of the instruments. It contends that respondent should
be estopped from claiming that the Master Deed and Deed of Transfer failed to show the parties'
true intentions.

Again, petitioner fails to convince.

In Philippine National Bank v. Court of Appeals,[70] this Court held:

"The doctrine of estoppel is based upon the grounds of public policy, fair dealing, good faith and
justice, and its purpose is to forbid one to speak against his own act, representations, or
commitments to the injury of one to whom they were directed and who reasonably relied thereon.
The doctrine of estoppel springs from equitable principles and the equities in the case. It is
designed to aid the law in the administration of justice where without its aid injustice might result."
It has been applied by this Court wherever and whenever special circumstances of a case so
demand.[71]

In this case, except for the words in the contract, all of respondent's acts were consistent with its
position in the case.

Petitioner does not deny that it stayed silent when respondent sold the parking slots on several
occasions or that it offered to buy the parking slots from respondent on at least two (2) occasions.
It excuses itself by saying that just like respondent, it "also labored under a mistaken appreciation
of the nature and ownership of the ninety[-]eight (98) parking slots in question."[72]

Both parties recognized respondent's ownership of the parking slots. Petitioner initially respected
respondent's ownership despite the Master Deed's and Deed of Transfer's stipulations. It was
petitioner that changed its position decades after it acted as if it accepted respondent's ownership.

Petitioner cannot claim the benefits of estoppel. It was never made to rely on any false
representations. It knew from its inception as a corporation that ownership of the parking slots
remained with respondent. Its dealings with respondent and the actuations of its Board of
Directors convincingly show that it was aware of and respected respondent's ownership. The Court
of Appeals ruled as follows:

Not even the registration of the Master Deed with the Makati City Register of Deeds renders Multi-
Realty guilty of estoppel by deed. For one, [MATUSCO] was not made to believe that it shall be the
owner of the questioned extra parking lots. And for another, [MATUSCO] was not made to rely on
any false representation. As we have earlier discussed-evidence is replete that both parties knew
at the outset that ownership over the said extra parking lots were to be retained by Multi-Realty.
It is sad to note, however, that such fact was not clearly reflected in the Master Deed and the Deed
of Transfer. Besides, it was only after the issue of ownership cropped up that Multi-Realty realized
that, indeed, there was a mistake in the drafting of the Master Deed.[73]

II

Despite petitioner's adoption of this Court's recital of facts in Multi-Realty Development

Corporation, this Court deems it proper to address respondent's claim that this Court upheld its
ownership of the disputed parking slots, as Multi-Realty Development Corporation supposedly
contained final factual findings on this very issue, which ought to be respected on the ground of
res judicata.[74]

Respondent is mistaken.

There is res judicata when the following concur:

a) the former judgment must be final;
b) the court which rendered judgment had jurisdiction over the parties and the subject matter;
c) it must be a judgment on the merits;
d) and there must be between the first and second actions identity of parties, subject matter,
and cause of action.[75] (Emphasis in the original, citation omitted)

Multi-Realty Development Corporation did not take on the merits of the case but only tackled the
issue of prescription n.ised to this Court on appeal. After finding that the action had not yet
prescribed and was mistakenly dismissed by the Court of Appeals because of a supposedly stale
claim, this Court directed that it be remanded to the Court of Appeals for a resolution of the
appeal:
Nevertheless, given the factual backdrop of the case, it was inappropriate for the CA, motu proprio,
to delve into and resolve the issue of whether [Multi-Realty's] action had already prescribed. The
appellate court should have proceeded to resolve [Multi-Realty's] appeal on its merits instead of
dismissing the same on a ground not raised by the parties in the RTC and even in their pleadings
in the CA.

....

IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The Decision of the Court of Appeals
in CA-G.R. CV No. 44696 is SET ASIDE. The Court of Appeals is directed to resolve petitioner's
appeal with reasonable dispatch. No costs.

ORDERED.[76]
Clearly, res judicata had not yet set in and this Court was not precluded from evaluating all of the
evidence vis-a-vis the issues raised by both parties.

WHEREFORE, premises considered, the Petition for Review on Certiorari is DENIED. The Court of
Appeals April 28, 2008 Amended Decision and December 4, 2008 Resolution in CA-G.R. CV No.
44696 are AFFIRMED.
SO ORDERED.

SECOND DIVISION

[ G.R. No. 226213, September 27, 2017 ]

G. HOLDINGS, INC., PETITIONER, VS. CAGAYAN ELECTRIC POWER AND LIGHT COMPANY, INC.
(CEPALCO) AND FERROCHROME PHILIPPINES, INC., RESPONDENTS.

DECISION

CAGUIOA, J:

This is a petition for review on certiorari[1] (Petition) under Rule 45 of the Rules of Court assailing
the Decision[2] dated April 14, 2016 of the Court of Appeals[3] (CA) in CA-G.R. CV No. 03366-MIN
and the Resolution[4] dated July 25, 2016 denying the motion for reconsideration filed by
petitioner, G. Holdings, Inc. (GHI). The CA Decision denied the appeal and affirmed the Decision[5]
dated July 22, 2013 of the Regional Trial Court of Misamis Oriental, 10th Judicial Region, Branch
38, Cagayan de Oro City (RTC-CDO) in Civil Case No. 2004-111.

Facts and Antecedent Proceedings

From March 1990, Cagayan Electric Power and Light Company, Inc. (CEPALCO), which operates a
light and power distribution system in Cagayan de Oro City, supplied power to the ferro-alloy
smelting plant of Ferrochrome Philippines, Inc.[6] (FPI) at the PfflVIDEC Industrial Estate in
Tagoloan, Misamis Oriental.[7] When FPI defaulted in the payment of its electric power bills
amounting to P16,301,588.06 as of March 1996, CEPALCO demanded payment thereof.[8] FPI paid
CEPALCO on three separate dates the total amount of P13,161,916.44, leaving a balance of
P2,899,859.15.[9] FPI failed again to pay its subsequent electricity bills, thereby increasing its
unpaid electric bills to P29,509,240.89 as of May 1996.[10] For failure to pay FPI's outstanding bills,
CEPALCO disconnected the electric power supply to FPI in May 1996.[11] After sending a statement
of account with P30,147,835.65 unpaid bills plus 2% monthly surcharge, CEPALCO filed a collection
suit (Civil Case No. 65789) against FPI in July 1996 before the Regional Trial Court of Pasig City,
Branch 264 (RTC-Pasig).[12]

RTC-Pasig rendered a Decision (Partial Summary Judgment) dated April 22, 1999 in favor of
CEPALCO, ordering FPI to pay CEPALCO P25,608,579.98.[13] On January 19, 2004, RTC-Pasig
rendered its Decision[14] in favor of CEPALCO, affirming the P25,608,579.98 award for basic cost of
energy consumed (given in the Partial Summary Judgment), and ordering the payment of
P2,364,703.80 for contracted energy or energy differential and surcharges, PHIVIDEC royalty and
franchise tax.[15]

On February 27, 2004, FPI appealed the Decision of the RTC-Pasig to the CA (CA G.R. CV No. 86228
[CEPALCO collection case]).[16]

CEPALCO moved for execution pending appeal, which was granted by RTC-Pasig.[17] The writ of
execution was issued on March 30, 2004.[18] FPI filed before the CA a certiorari petition with prayer
for temporary restraining order (TRO) and preliminary injunction (CA G.R. SP No. 83224 [CEPALCO
execution case]).[19]

In the meantime, Sheriff Renato B. Baron (Baron) of RTC-Pasig issued notices of levy upon personal
and real properties dated April 1 and 2, 2004 and notices of sale on execution of personal and real
properties dated April 1, 2004.[20]

In CA G.R. SP No. 83224 (CEPALCO execution case), the CA issued an initial TRO in its Resolution
dated April 6, 2004 and then a writ of preliminary injunction in its Resolution dated June 11, 2004,
enjoining the implementation of the Order granting execution pending appeal.[21]

On April 5, 2004, GHI filed a case (Civil Case No. 2004-111) against Sheriff Baron, CEPALCO and FPI
for Nullification of Sheriffs Levy on Execution and Auction Sale, Recovery of Possession of
Properties and Damages before the RTC-CDO.[22] GHI claimed that the levied ferro-alloy smelting
facility, properties and equipment are owned by it as evidenced by a Deed of Assignment[23] dated
March 11, 2003 (the Deed of Assignment) executed by FPI in consideration of P50,366,926.71.[24]

In the unilateral Deed of Assignment, FPI, as the assignor, through its stockholders and Board of
Directors' duly authorized representative and Acting President, Juanito E. Figueroa, in
consideration of obligations amounting to P50,366,926.71 as of December 31, 2002, inclusive of
the interest charges, assigned, transferred, ceded and conveyed absolutely in favor of GHI, as the
assignee, "all of the [assignor's! properties, equipment and facilities, located in Phividec Industrial
Estate, Tagoloan, Misamis Oriental and more particularly described in the attached schedules as
Annexes 'I', 'II', 'III', 'IV['] and 'V'."[25]

Prior to the Deed of Assignment, FPI sent to GFII a letter[26] dated February 28, 2003 wherein the
manner by which the obligation of FPI amounting to P50,366,926.71 (as of December 31, 2002)
would be addressed per their earlier discussions was confirmed, to wit:

1. The obligation of FPI to G. Holdings amounting to P50,366,926.71 (as of December

31, 2002) shall be covered by assignment of certain FPI assets sufficient to cover
the obligations even at today's depressed metal prices.

2. The right to the work process owned by FPI shall be made available to G. Holdings
under the following options[:]

Option A

As soon as metal prices and major costs justify, FPI shall at its capital and expense
operate the plant including the assets transferred to G. Holdings. Revenue shall be
shared with G. Holdings at the rate of 20% of EBITDA (Earnings Before Interest[,]
Taxes, Depreciation and Amortization.)

A minimum of P10.0 million annually shall be shared by G. Holdings. The [c]ost of

maintenance and upkeep of assets shall be covered by FPI.

Option B

[G.] Holdings shall be the entity to operate the plant and business with its capital
and expense.

As owner of the rights to the work process, FPI shall be entitled to a share of 10%
in the EBITDA with a minimum of P7.5 million per year.

This arrangement shall be for a minimum of 8 years after which G. Holdings can
acquire the rights for an amount equal to P36.0 M.

All financial requirements shall be shouldered by G. Holdings x x x.

3. The option shall be decided by G. Holdings within a three[-]year period beyond

which the choice shall be made by FPI within a 3[-] year period. The cycle will be
repeated if the plant has not operated for six years from assignment.[27]
The letter bears the conformity of GHI.[28]

CEPALCO filed its answer with compulsory counterclaim and cross-claim.[29] In its counterclaim,
CEPALCO assailed the validity of the Deed of Assignment executed by FPI in favor of GHI in
payment of alleged advances from GHI (sister company of FPI) from 1998 to 2002 amounting to
£50,366,926.71, inclusive of interest, as of December 2002. CEPALCO contended that the Deed of
Assignment was null and void for being absolutely simulated and, as a dacion en pago, it did not
bear the conformity of the creditor. GHI and FPI have substantially the same directors. The Deed
of Assignment was in fraud of FPFs creditors as it was made after the RTC-Pasig had already
rendered a partial judgment in favor of CEPALCO and was, therefore, rescissible.[30]

In the meantime, the CA rendered its Decision dated August 14, 2008 in CA G.R. CV No. 86228
(CEPALCO collection case) granting FPFs appeal in part and the RTC-Pasig Decision was affirmed
but modified by deleting the award of the PHIVIDEC royalty of 1%.[31] FPI elevated the CA Decision
to the Court and was docketed as G.R. No. 185892.[32] In April 2010, the Court denied FPI's petition
in its Resolution dated April 21, 2010 for failure of FPI to sufficiently show that the CA committed
any reversible error in the challenged decision and resolution to warrant the Court's discretionary
appellate jurisdiction.[33]

In CA G.R. SP No. 83224 (CEPALCO execution case), the CA dismissed FPI's petition for lack of merit
and affirmed the assailed orders of the RTC-Pasig, and FPI's motion for reconsideration was
likewise denied.[34]

The RTC-CDO Ruling

Going back to the RTC-CDO case (Civil Case No. 2004-111), the origin of the present case, a
Decision[35] dated July 22, 2013 was rendered in favor of CEPALCO and against GHI: (1) rescinding
the Deed of Assignment; (2) ordering GHI to pay CEPALCO actual and exemplary damages as well
as attorney's fees; and (3) lifting the writ of preliminary injunction.[36]

The rescission of the Deed of Assignment by the RTC-CDO was anchored on the presence of several
badges of fraud, to wit: (a) the consideration of the assignment was P50 million while the value of
the assets of FPI amounted to P280 million; (b) the existence of the "Outokumpo" work process of
smelting (which was allegedly more valuable than the smelting facility subject of the assignment
and without which the smelting facility could not be operated), as well as its value, were not
sufficiently established; (c) the assignment of all or substantially all of FPI's assets was made when
FPI was suffering financially and after the rendition of the partial judgment in favor of CEPALCO;
and (d) GHI did not take exclusive possession of the assets assigned to it.[37]

The dispositive portion of the RTC-CDO Decision states:

WHEREFORE, judgment is hereby rendered in favor of defendant CEPALCO against G Holdings Inc.
as follows:
 1. Rescinding the Deed of Assignment dated March 11, 2003 between G Holdings Inc.
in favor of Ferrochrome Philippines Inc.;

2. Ordering G [HJoldings Inc. to pay defendant CEPALCO the following:

2.a Actual damages in the amount of Php256,587.48;

2.b Exemplary damages in the amount of Php1,000,000.00; and

2.c Attorney's Fees in the amount of Php500,000.00

3. Lifting the Writ of Preliminary Injunction and finding G. [H]oldings Inc. and Oriental
Assurance Corporation liable on the Phpl Million Preliminary Injunction Bond to
partially satisfy the foregoing sums.

4. Costs against G Holdings, Inc.

SO ORDERED.[38]
GHI appealed the RTC-CDO Decision to the CA.[39] The appeal was docketed as CA-G.R. CV No.
03366-MIN.[40]

The CA Ruling

In its Decision[41] dated April 14, 2016, the CA denied the appeal and affirmed the RTC-CDO
Decision. The CA ruled that the RTC-CDO correctly found the existence of fraud or deliberate intent
on the part of FPI and GHI to defraud CEPALCO. The agreement between GHI and FPI where GHI
was given the option to operate the smelting facility using the alleged "Outokumpo" work process
which FPI retained, subject to payment of an agreed amount to FPI as owner of the rights of the
work process, was designed to keep the smelting facility intact and insulated against execution in
satisfaction of CEPALCO's judgment credit. The CA also ruled that the Deed of Assignment was
absolutely simulated and having been executed after the Partial Summary Judgment rendered by
the RTC-Pasig, it was done in anticipation of the adverse final outcome of the RTC-Pasig case.
Regarding GHI's contention that CEPALCO failed to pay the filing fees, the CA noted that CEPALCO
filed its Answer with Compulsory Counterclaim and Cross-claim on April 26, 2004. At that time,
the CA reasoned that CEPALCO was not yet liable to pay filing fees. Under Rule 141, Section 7, as
amended by A.M. No. 04-2-04-SC, docket fees were required to be paid for compulsory
counterclaims and cross-claims effective only on August 16, 2004.[42]

The dispositive portion of the CA Decision states:

WHEREFORE, the instant appeal is DENIED. The Decision dated 22 July 2013 of the Regional Trial
Court, 10th Judicial Region, Branch 38, Cagayan de Oro City, in Civil Case No. 2004-111 is hereby
AFFIRMED.
SO ORDERED.[43]
GHI filed a motion for reconsideration, which was denied in a Resolution[44] dated July 25, 2016.

Hence, this Petition. CEPALCO filed its Comment[45] dated May 12, 2017.
Issues

Whether the CA erred in not dismissing CEPALCO's permissive counterclaim for non-payment of
docket fees.

Whether the CA erred in holding that the Deed of Assignment was absolutely simulated.

Whether the CA erred in rescinding the Deed of Assignment absent an independent action for
rescission.

Whether the CA erred in holding that the Deed of Assignment was done in fraud of creditors and
badges of fraud accompanied its execution.

Whether GHI is entitled to its claims for damages.[46]

The Court's Ruling

Filing Fees of CEPALCO's Counterclaim

In justifying the non-payment of filing fees on the counterclaim of CEPALCO, the CA ruled:
As for the absence of filing fees, it is noteworthy that CEPALCO filed its Answer with Compulsory
Counterclaim and Cross-Claim on 26 April 2004. At that time, CEPALCO was not yet liable to pay
filing fees. The Supreme Court stressed, however, that effective 16 August 2004 under Rule 141,
Section 7, as amended by A.M. No. 04-2-04-SC, docket fees are required to be paid for compulsory
counterclaims and cross-claims.[47]

As to the cause of action of GHI in its Complaint in Civil Case No. 2004-111 (RTC-CDO case), the
caption states that it is for: "FOR INJUNCTION AND NULLIFICATION OF SHERIFF'S LEVY ON
EXECUTION AND AUCTION SALE; RECOVERY OF POSSESSION OF PROPERTIES; AND DAMAGES,
WITH PRAYER FOR ISSUANCE OF TEMPORARY RESTRAINING ORDER AND WRIT OF PRELIMINARY
INJUNCTION."[48] In its second cause of action, GHI alleges that it is "entitled to the immediate
return and restitution of said [transportation and] mobile equipment."[49] In the Complaint's
prayer, GHI seeks the return of the possession of such properties to GHI, "the rightful owner
thereof."[50] As basis of its claim of ownership, GHI alleges in the Complaint that:

x x x The smelter facility/properties subject of sheriffs Notice of Levy Upon Personal Property and
Notice of Levy Upon Real Property are owned by GHI, having acquired the same through a Deed
of Assignment of March 11, 2003 executed by FPI in favor of GHI, in consideration of x x x
[P]50,366,926.71 x x x paid by GHI. x x x[51]
In light of the foregoing, CEPALCO's counterclaim and prayer for rescission of the Deed of
Assignment can only be viewed, as it is indeed, a compulsory counterclaim because it "arises out
of or is connected with the transaction or occurrence constituting the subject matter of the
opposing party's claim and does not require for its adjudication the presence of third parties of
whom the court cannot acquire jurisdiction."[52] Being a compulsory counterclaim, the CA was
correct when it ruled that as of the filing of CEPALCO's Answer with Compulsory Counterclaim and
Cross-Claim on April 26, 2004, it was not liable to pay filing fees on its compulsory counterclaim.
Thus, on the first issue, the CA committed no reversible error when it did not order the dismissal
of CEPALCO's counterclaim, which is compulsory, for non-payment of docket fees.

Efficacy of the Deed of Assignment

Since the second, third and fourth issues concern the legal effect or efficacy, if any, of the Deed of
Assignment between GHI and FPI, they will be discussed together. It is noted, however, that the
legality or efficacy of the Deed of Assignment is attacked in the second issue as being absolutely
simulated, while, in the third and fourth issues, it is claimed to be rescissible for having been
undertaken in fraud of creditors, given the presence of badges of fraud in its execution.

Under the Civil Code, there are four defective contracts, namely: (1) rescissible contracts; (2)
voidable contracts; (3) unenforceable contracts; and (4) void or inexistent contracts. However, it
has been opined that, strictly speaking, only the voidable and unenforceable contracts are
defective contracts and are the only ones susceptible of ratification unlike the rescissible ones
which suffer from no defect and the void or inexistent contracts which do not exist and are
absolute nullity.[53] Thus, the four may be more appropriately categorized as species or forms of
the inefficacy of contracts.[54]

Since the Deed of Assignment is being questioned for being both rescissible and, at the same time,
an absolute simulation, it may be apropos to compare rescissible contracts with void or inexistent
contracts.

Rescission has been defined as a remedy to make ineffective a contract validly entered into and
which is obligatory under normal conditions by reason of external causes resulting in a pecuniary
prejudice to one of the contracting parties or their creditors.[55] Rescission, which is a specie or
form of the inefficacy of contracts and operates by law and not through the will of the parties,
requires the following: (1) a contract initially valid and (2) a lesion or pecuniary prejudice to
someone.[56]

Under Article 1381 of the Civil Code, the following contracts are rescissible: (1) those which are
entered into by guardians whenever the wards whom they represent suffer lesion by more than
one-fourth of the value of the things which are the object thereof; (2) those agreed upon in
representation of absentees, if the latter suffer the lesion stated in the preceding number; (3)
those undertaken in fraud of creditors when the latter cannot in any manner collect the claims
due them; (4) those which refer to things under litigation if they have been entered into by the
defendant without the knowledge and approval of the litigants or of competent judicial authority;
and (5) all other contracts specially declared by law to be subject to rescission.

It is further provided under Article 1383 that the action for rescission is a subsidiary one, and
cannot thus be instituted except when the party suffering damage has no other legal means to
obtain reparation for the same.

On the other hand, void or inexistent contracts are those which are ipso jure prevented from
producing their effects and are considered as inexistent from the very beginning because of
certain imperfections.[57]

Under Article 1409 of the Civil Code, the following contracts are inexistent and void from the
beginning: (1) those whose cause, object or purpose is contrary to law, morals, good customs,
public order or public policy; (2) those which are absolutely simulated or fictitious; (3) those whose
cause or object did not exist at the time of the transaction; (4) those whose object is outside the
commerce of men; (5) those which contemplate an impossible service; (6) those where the
intention of the parties relative to the principal object of the contract cannot be ascertained; and
(7) those expressly prohibited or declared void by law.

These contracts cannot be ratified and the right to set up the defense of illegality cannot be
waived.[58] Further, the action or defense for the declaration of the inexistence of a contract does
not prescribe.

Rescission and nullity can be distinguished in the following manner: (a) by reason of the basis —
rescission is based on prejudice, while nullity is based on a vice or defect of one of the essential
elements of a contract; (2) by reason of purpose — rescission is a reparation of damages, while
nullity is a sanction; (3) by reason of effects — rescission affects private interest while nullity
affects public interest; (4) by reason of nature of action — rescission is subsidiary while nullity is a
principal action; (5) by reason of the party who can bring action — rescission can be brought by a
third person while nullity can only be brought by a party; and (6) by reason of susceptibility to
ratification — rescissible contracts need not be ratified while void contracts cannot be ratified.[59]

They can likewise be distinguished as follows: (1) as to defect: In rescissible contracts, there is
damage or injury either to one of the contracting parties or to third persons; while in void or
inexistent contracts, one or some of the essential requisites of a valid contract are lacking in fact
or in law; (2) As to effect: The first are considered valid and enforceable until they are rescinded
by a competent court; while the latter do not, as a general rule, produce any legal effect; (3) As to
prescriptibility of action or defense: In the first, the action for rescission may prescribe; while in
the latter, the action for declaration of nullity or inexistence or the defense of nullity or inexistence
does not prescribe; (4) As to susceptibility of ratification: The first are not susceptible of
ratification, but are susceptible of convalidation; while the latter are not susceptible of ratification;
(5) As to who may assail contracts: The first may be assailed not only by a contracting party but
even by a third person who is prejudiced or damaged by the contract; while the latter may be
assailed not only by a contracting party but even by a third party whose interest is directly affected;
(6) As to how contracts may be assailed: the first may be assailed directly, and not collaterally;
while the latter may be assailed directly or collaterally.[60]

The enumerations and distinctions above indicate that rescissible contracts and void or inexistent
contracts belong to two mutually exclusive groups. A void or inexistent contract cannot at the
same time be a rescissible contract, and vice versa. The latter, being valid and until rescinded, is
efficacious while the former is invalid. There is, however, a distinction between inexistent
contracts and void ones as to their effects. Inexistent contracts produce no legal effect whatsoever
in accordance with the principle "quod nullum est nullum producit effectum"[61] In case of void
contracts where the nullity proceeds from the illegality of the cause of object, when executed (and
not merely executory) they have the effect of barring any action by the guilty to recover what he
has already given under the contract.[62]

The RTC-CDO ruled the Deed of Assignment as a rescissible contract and ordered its rescission.
However, the CA, while affirming the RTC-CDO Decision, stated that it "agree[d] with the RTC[-
CDO] that the Deed of Assignment was absolutely simulated"[63] and, at the same time, noted that
"the RTC-CDO correctly found the existence of fraud or deliberate intent on the part of FPI and
GHI to defraud CEPALCO."[64] Unfortunately, however, and contrary to what the CA declared,
nowhere is it ruled in the RTC-CDO Decision that the Deed of Assignment was absolutely
simulated.

Given a seemingly conflicting finding or ruling by the RTC-CDO and the CA as to the classification
of the Deed of Assignment — whether rescissible or inexistent, it behooves the Court to resolve
the conflict.

Under Article 1345 of the Civil Code, simulation of a contract may be absolute, when the parties
do not intend to be bound at all, or relative, when the parties conceal their true agreement. The
former is known as contracto simulado while the latter is known as contracto disimulado.[65] An
absolutely simulated or fictitious contract is void while a relatively simulated contract when it does
not prejudice a third person and is not intended for any purpose contrary to law, morals, good
customs, public order or public policy binds the parties to their real agreement.[66]

In Vda. de Rodriguez v. Rodriguez,[67] the Court, speaking through the renowned civilist, Justice
J.B.L. Reyes, stated that:

x x x the characteristic of simulation is the fact that the apparent contract is not really desired or
intended to produce legal effects or in any way alter the juridical situation of the parties. Thus,
where a person, in order to place his property beyond the reach of his creditors, simulates a
transfer of it to another, he does not really intend to divest himself of his title and control of the
property; hence, the deed of transfer is but a sham. x x x[68]

The Court, in Heirs of Spouses Intac v. CA,[69] reiterated that:

In absolute simulation, there is a colorable contract but it has no substance as the parties have no
intention to be bound by it. "The main characteristic of an absolute simulation is that the apparent
contract is not really desired or intended to produce legal effect or in any way alter the juridical
situation of the parties." "As a result, an absolutely simulated or fictitious contract is void, and the
parties may recover from each other what they may have given under the contract."[70]

In the Deed of Assignment, did FPI intend to divest itself of its title and control of the properties
assigned therein?

The lack of intention on the part of FPI to divest its ownership and control of "all of [its] properties,
equipment and facilities, located in Phividec Industrial Estate, Tagoloan, Misamis Oriental"[71] — in
spite of the wordings in the Deed of Assignment that FPI "assigned, transferred, ceded and
conveyed [them] x x x absolutely in favor of [GHI]"[72] — is evident from the letter dated February
28, 2003 which reveals the true intention of FPI and GHI.

In the letter dated February 28, 2003, it is there provided that the right to the work process,
otherwise known as "Outokumpo," was to be retained by FPI and would only be made available to
GHI under two options. One option even gave FPI the option to operate the assigned assets with
the obligation to pay GHI a guaranteed revenue. While GHI was given the first crack to choose
which of the two options to take, such chosen option would only last for three years, and
subsequently, FPI would make the choice and the option chosen by FPI would last for the next
three years. The cycle would then be repeated if the ferro-alloy plant would not be operated for
six years from assignment.[73] What is evident, therefore, in the delineation of the different options
available to FPI and GHI in the settlement of FPI's obligations to the latter is that FPI did not intend
to really assign its assets "absolutely" to GHI. Stated differently, this letter belies the wordings of
the Deed of Assignment that, it should be emphasized, was executed a mere 11 days after the
letter, that is, on March 11, 2003.

That there was no intention to absolutely assign to GHI all of FPI's assets was confirmed by the
finding of the RTC-CDO that, according to FPI's Acting President, Juanito E. Figueroa, "GHI cannot
operate the [equipment, machinery and smelting facilities] without the patented 'Outokumpo'
process and GHI has not been operating the same."[74] Moreover, the equipment and machinery
remain physically in the plant premises, slowly depreciating with the passage of time, and, worse,
there also appears to be no effective delivery as the premises on which these are located remain
under the control of FPI which continues to employ the security and skeletal personnel in the plant
premises.[75]

Thus, in executing the Deed of Assignment, FPI's intention was not to transfer absolutely the
assigned assets (admittedly valued at about P280 Million[76]) to GHI in payment of FPI's obligations
to GHI amounting to P50,366,926.71.[77] FPI, as shown above, did not really intend to divest itself
of its title and control of the assigned properties. FPI's real intention was, borrowing the words of
Justice J.B.L Reyes in Rodriguez, to place them beyond the reach of its creditor CEPALCO. This was
astutely observed by the CA Decision, viz.:

x x x The Deed of Assignment was executed while Civil Case No. 65789 was already pending with
the RTC-Pasig and after the Partial Summary Judgment was rendered on 22 April 1999. In
anticipation of the adverse final outcome of Civil Case No. 65789 as promulgated in the 19 January
2004 Decision of the RTC-Pasig, GHI and FPI executed the Deed of Assignment. Hence, the
presumption of fraud set in by operation of the law against the sister companies, FPI, then already
the judgment debtor, and GHI.[78]

As to the presence of badges of fraud, which the RTC-CDO found to have existed and affirmed by
the CA, they do, in fact, confirm the intention of FPI to defraud CEPALCO. But these findings do
not thereby render as rescissible the Deed of Assignment under Article 1381(3). Rather, they
fortify the finding that the Deed of Assignment was "not really desired or intended to produce
legal effects or in any way alter the juridical situation of the parties" or, put differently, that the
Deed of Assignment was a sham, or a contracto simulado.

Thus, given the foregoing, the Deed of Assignment is declared inexistent for being absolutely
simulated or fictitious. Accordingly, the CA correctly ruled that the Deed of Assignment was
absolutely simulated, although it was in error in affirming the rescission ordered by the RTC-CDO
because, as explained above, rescissible contracts and void or inexistent contracts belong to two
mutually exclusive groups. This error, however, does not justify the granting of the Petition.

Entitlement to Damages

The Court's declaration of the inexistence of the Deed of Assignment renders the resolution of the
fifth issue — on GHI's entitlement to damages — superfluous. Instead, the dismissal of its
complaint for lack of cause of action is warranted.

WHEREFORE, the Petition is hereby DENIED for lack of merit. The Court of Appeals' Decision dated
April 14, 2016 and Resolution dated July 25, 2016 in CA-G.R. CV No. 03366-MIN as well as the
Decision dated July 22, 2013 of the Regional Trial Court of Cagayan de Oro City, Branch 38 in Civil
Case No. 2004-111 are hereby AFFIRMED with MODIFICATIONS. The Deed of Assignment dated
March 11, 2003 executed by respondent Ferrochrome Philippines, Inc. in favor of petitioner G.
Holdings, Inc. is declared inexistent for being absolutely simulated; the complaint of petitioner G.
Holdings, Inc. is dismissed for lack of cause of action; and pursuant to Nacar v. Gallery Frames,[79]
the total amount awarded in the RTC-CDO Decision shall earn 6% interest per year from the date
of finality of this Decision until fully paid.

SO ORDERED.
THIRD DIVISION

[ G.R. No. 215999, August 16, 2017 ]

SPS. FELIX A. CHUA AND CARMEN L. CHUA, JAMES B. HERRERA, EDUARDO L. ALMENDRAS, MILA NG
ROXAS, EUGENE C. LEE, EDICER H. ALMENDRAS, BENEDICT C. LEE, LOURDES C. NG, LUCENA
INDUSTRIAL CORPORATION, LUCENA GRAND CENTRAL TERMINAL, INC., REPRESENTED BY FELIX A.
CHUA, PETITIONERS VS. UNITED COCONUT PLANTERS BANK, ASSET POOL A (SPV-AMC), REVERE
REALTY AND DEVELOPMENT CORPORATION, JOSE C. GO AND THE REGISTRAR OF DEEDS OF LUCENA
CITY, RESPONDENTS.

DECISION

BERSAMIN, J.:

This appeal assails the decision promulgated on March 25, 2014[1] and the resolution promulgated
on December 23, 2014,[2] whereby, the Court of Appeals (CA) respectively reversed and set aside
the decision[3] rendered on January 6, 2009 by the Regional Trial Court (RTC), Branch 59, in Lucena
City and granted the appeal of respondent United Coconut Planters Bank (UCPB), Revere Realty
and Development Corporation (Revere), Jose Go and The Register of Deeds of Lucena City; and
denied the petitioners' motion for reconsideration.

Antecedents

On March 3, 1997, petitioner Spouses Felix and Carmen Chua, for themselves and representing
their co-petitioners, entered into a Joint Venture Agreement (JVA) with Gotesco Properties, Inc.
(Gotesco) for the development of their 44-hectare property situated in Ilayang Dupay, Lucena City
into a mixed use, residential and commercial subdivision. Gotesco was then represented by
respondent Jose Go.[4] It appears, however, that the development project under this JVA did not
ultimately materialize.[5]

Pursuant to the JVA, several deeds of absolute sale were executed over petitioners' 12 parcels of
land situated in Lucena City in favor of Revere, a corporation controlled and represented by Jose
Go. The deeds of absolute sale were complemented by a deed of trust dated April 30, 1998 [6]
under which it was confirmed that Revere did not part with any amount in its supposed acquisition
of the 12 parcels of land. The deed of trust further confirmed petitioners' absolute ownership of
the properties. Also on the same date, Gotesco, also represented by Jose Go, and petitioners,
represented by Felix Chua, executed another deed of trust covering 20 parcels of land distinct
from the 12 parcels of land already covered by the first deed of trust.[7]

Prior to the execution of the JVA, petitioners and Jose Go had separate outstanding loan
obligations with UCPB.

On June 2, 1997, the Spouses Chua executed a real estate mortgage (REM) in favor of UCPB
involving several parcels of land registered in the names of petitioners to secure the loans obtained
in their personal capacities and in their capacities as corporate officers and stockholders of the
Lucena Grand Central Terminal, Inc. (LGCTI).[8]

On March 21, 2000, petitioners entered into a Memorandum of Agreement (MOA) with UCPB to
consolidate the obligations of the Spouses Chua and LGCTI, which was determined at
P204,597,177.04 as of November 30, 1999. The parties thereby agreed to deduct the sum of
P103,893,450.00 from said total in exchange for 30 parcels of land including the improvements
thereon;[9] and that the remaining balance of P68,000,000.00 would be converted by UCPB into
equity interest in LGCTI.

To implement the March 21, 2000 MOA, UCPB drafted a REM covering the properties listed in the
MOA, which petitioners signed to secure a credit accommodation for P404,597,177.04. Under its
terms, this REM covered the payment of all loans, overdrafts, credit lines and other credit facilities
or accommodations obtained or hereinafter obtained by the mortgagors, LGCTI, Spouses Chua
and Jose Go.[10]

On even date, Jose Go, acting in behalf of Revere, and UCPB executed another REM (Revere REM)
involving the properties held in trust by Revere for petitioners. The execution of the Revere REM
was unknown to petitioners.[11] Revere submitted a secretary's certificate signed by Lourdes Ortiga
to the effect that the Board of Directors had approved the mortgage of various corporate
properties situated in Ilayang Dupay, Lucena City to secure any and all obligation of the Spouses
Chua, LGCTI, and Jose Go.

Enforcing petitioners' REM as well as the Revere REM, UCPB foreclosed the mortgages, and the
properties were sold for a total bid price of P227,700,000.00.

On February 14, 2003, UCPB and LGCTI executed a deed of assignment of liabilities whereby LGCTI
would issue 680,000 preferred shares of its stocks to UCPB to offset its remaining obligations
totaling P68,000,000.00.

On September 4, 2003, UCPB wrote a letter to the Spouses Chua and LGCTI regarding the transfer
of LGCTI shares of stock to its favor pursuant to the deed of assignment of liabilities.[12]

On November 11, 2003, Spouses Chua wrote UCPB to request an accounting of Jose Go's liabilities
that had been mistakenly secured by the mortgage of petitioners' properties, as well as to obtain
a list of all the properties subject of their REM as well as of the Revere REM for reappraisal by an
independent appraiser. The Spouses Chua further requested that the proceeds of the foreclosure
sale of the properties be applied only to petitioners' obligation of P204,597,177.04; and that the
rest of the properties or any excess of their obligations should be returned to them.[13] However,
UCPB did not heed petitioners' requests.

Thus, on February 3, 2004, petitioners filed their complaint against UCPB, Revere, Jose Go, and
the Register of Deeds of Lucena City in the RTC in Lucena City.[14] The RTC issued a writ of
preliminary injunction at the instance of petitioners.

On October 4, 2004, the RTC declared Jose Go and Revere in default. On February 22, 2005, the
RTC denied the motion for reconsideration of Jose Go and Revere.[15]

Rulings of the RTC

On September 6, 2005, the RTC, through Judge Virgilio C. Alpajora, rendered a partial judgment
against Jose Go and Revere, viz.:
WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiffs and against
defendants JOSE C. GO and REVERE REALTY DEVELOPMENT CORPORATION, as follows:

a) Declaring as legal and binding the Deeds of Trust dated April 30, 1998 and holding the properties
held in trust for plaintiff by defendants REVERE and GO.

b) Declaring that defendants REVERE and GO are not the owners of the properties covered by the
deeds of trust and did not have any authority to constitute a mortgage over them to secure their
personal and corporate obligations, for which they should be liable.
c) Nullifying the Deed of Real Estate Mortgage dated March 21, 2000 executed by defendants
REVERE and GO in favor of co-defendant UNITED COCONUT PLANTERS BANK.

d) Ordering defendants REVERE and GO to reconvey in favor of the plaintiff the thirty-two (32) real
properties listed in the deeds of trust and originally registered in the names of the plaintiffs under
the following titles, to wit: TCT Nos. T-40450, 40452, 40453, 64488, 71021, 71022, 71023, 71024,
71025, 71136, 55033, 55287, 58945, 58946, 58947, 58948, 54186, 54187, 54189, 54190, 54191,
55288, 54186, 54187, 54188, 55030, 55031, 50426, 50427, 50428, 50429, and 50430.

e) Ordering defendants REVERE and GO to pay plaintiffs the amount of Php1,000,000.00 and as
by way of moral damages, and Php200,000.00 and by way of attorney's fees.

SO ORDERED.[16]
On November 9, 2005, the RTC modified the partial judgment upon UCPB's motion for
reconsideration, but otherwise affirmed it as against Revere and Jose Go, disposing thusly:
WHEREFORE, premises considered, the Partial Judgment dated September 6, 2005 is reconsidered
and clarified as to United Coconut Planters Bank, as follows:

a) The contested portion of the Partial Judgment ordering reconveyance is directed at defendants
Revere Realty and Development Corp. and Jose Go and not at defendant United Coconut Planters
Bank; and

b) The resolution of the issue of whether or not defendant UCPB is obliged to reconvey the
properties listed in the Partial Judgment in favor of the plaintiffs, as well as the other issues
between UCPB and the plaintiffs, shall be determined after the parties shall have presented their
evidence.

SO ORDERED.[17]
Meanwhile, Asset Pool A moved to be substituted for UCPB as a party-defendant on February 15,
2006 on the basis that UCPB had assigned to it the rights over petitioners' P68,000,000.00
obligation. The RTC approved the substitution on March 14, 2006.[18]

On January 6, 2009, the RTC rendered judgment in favor of petitioners, thusly:

WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiffs and against
defendants UNITED COCONUT PLANTERS BANK, ASSET POOL A, REGISTRAR OF DEEDS OF LUCENA
CITY and EX-OFFICIO SHERIFF OF LUCENA CITY, thus:

a) Declaring that the loan obligations of plaintiffs to defendant UNITED COCONUT PLANTERS BANK
under the Memorandum of Agreement dated March 21, 2000 have been fully paid;

b) Declaring as legal and binding the Deeds of Trust dated April 30, 1998 and holding the properties
listed therein were merely held-in-trust for plaintiffs by defendants REVERE and JOSE GO and/or
corporations owned or associated with him;
c) Nullifying the Deed of Real Estate Mortgage dated March 21, 2000 executed by defendants
REVERE and JOSE GO in favor of co-defendant UNITED COCONUT PLANTERS BANK and the Deed
of Assignment of Liability dated February 14, 2003 executed by plaintiffs in favor of UNITED
COCONUT PLANTERS BANK;

d) Ordering defendant REGISTRAR OF DEEDS of Lucena City to cancel any and all titles derived or
transferred from TCT Nos. T-40452 (89339), 40453 (89340), 84488 (89342), 71021 (89330), 71022
(89331), 71023 (89332), 71025 (95580-95581), 71136 (95587-95590), 55033 (89384) and issue
new ones returning the ownership and registration of these titles of the plaintiffs. For this purpose,
defendant UNITED COCONUT PLANTERS BANK is directed to execute the appropriate Deeds of
Reconveyance in favor of the plaintiffs over the eighteen (18) real properties listed in the Real
Estate Mortgage dated March 21, 2000 executed by defendants Revere Realty and JOSE GO and
originally registered in the names of the plaintiffs.

e) Ordering defendant UNITED COCONUT PLANTERS BANK to return so much of the plaintiffs titles,
of their choice, equivalent to Php200,000,000.00 after applying so much of the mortgaged
properties, including those presently or formerly in the name of REVERE, to the payment of
plaintiffs' consolidated obligation to the bank in the amount of Php204,597,177.04.

f) Declaring the Real Estate Mortgage dated June 02, 1997 as having been extinguished by the
Memorandum of Agreement date March 21, 2000, and converting the writ of preliminary
injunction issued on March 22, 2004 to a permanent one, forever prohibiting UNITED COCONUT
PLANTERS BANK and ASSET POOL A and all persons/ entities deriving rights under them from
foreclosing on TCT Nos. T-54182, T-54184, T-54185, T-54192, and T-71135. The court hereby
orders said defendants, or whoever is in custody of the said certificates of title, to return the same
to plaintiffs and to execute the appropriate release of mortgage documents.

g) Finally, ordering defendant UNITED COCONUT PLANTERS BANK, to pay plaintiffs:

(i) The excess of the foreclosure proceeds in the amount of Php23,102,822.96, as actual damages;

(ii) Legal interest on the amount of Php223,102,822.96 at the rate of 6% per annum from February
3, 2004 until finality of judgment. Once the judgment becomes final and executor, the interest of
12% per annum, should be imposed, to be computed from the time the judgment becomes final
and executor until fully satisfied, as compensatory damages;

(iii) Php1,000,000.00 as moral damages;

(iv) Php100,000.00 as exemplary damages;

(v) Php2,000,000.00 as attorney's fees; and

(vi) costs of suit;

SO ORDERED.[19]
The RTC declared the Revere REM as null and void for having been entered into outside the intent
of the JVA; and opined that the Revere REM did not even bear any of herein petitioners' signatures.
It ruled that the application of the proceeds of the foreclosure sale of petitioners' properties to
settle Jose Go's liabilities was improper, invalid and contrary to the intent of the March 21, 2000
MOA, the principal contract of the parties.[20]

The RTC observed that UCPB's claim that it had no knowledge of the trust nature of the properties
covered by the deeds of trust, which were also included in the MOA was belied by the letter signed
by its First Vice President Enrique L. Gana addressed to Spouses Chua wherein he stated that UCPB
had undertaken to obtain from Jose Go the certificates of title necessary for the execution of the
mortgages, and that should there be any excess or residual value, the same would be applied to
any outstanding obligations that Jose Go would have in favor of UCPB; and that, accordingly, it was
an error on the part of UCPB to apply any portion of the proceeds to settle the obligations of Jose
Go without first totally extinguishing petitioners' obligations.

Decision of the CA

Respondents appealed to the CA.

In the decision promulgated on March 25, 2014,[21] the CA reversed and set aside the judgment of
the RTC, disposing instead as follows:
WHEREFORE, the assailed January 6, 2009 Decision of the Regional Trial Court of Lucena City,
Branch 59, as well as its September 6, 2005 Partial Judgment are REVERSED and SET ASIDE. In its
stead, judgment is hereby rendered:

a) Declaring the Real Estate Mortgage dated June 2, 1997 as valid and subsisting — accordingly,
the writ of preliminary injunction issued on March 22, 2004 by the Regional Trial Court of Lucena
City, Branch 59 is hereby lifted;

b) Declaring as legal and binding the March 21, 2000 Deed of Real Estate Mortgage of defendants
REVERE REALTY AND DEVELOPMENT CORPORATION and/or JOSE GO in favor of defendant-
appellant UNITED COCONUT PLANTERS BANK;

c) Declaring, pursuant to the parties' March 21, 2000 Deed of Real Estate Mortgage, that the loan
obligations of defendant JOSE GO to defendant-appellant UNITED COCONUT PLANTERS BANK
have been satisfied up to P123,806,550.00; and

d) Declaring that the loan obligations of plaintiffs-appellees SPOUSE CHUA, ET AL. to defendant-
appellant UNITED COCONUT PLANTERS BANK under the first Memorandum of Agreement dated
March 21, 2000 have been paid up to P103,893,450.00.

SO ORDERED.[22]
The CA made reference to three REMs: the first, executed on June 2, 1997, would secure the
Spouses Chua's obligations with UCPB; the second, executed on March 21, 2000, was petitioners'
REM in connection with the March 21, 2000 MOA; and the Revere REM, executed also on March
21, 2000. It opined that the first REM remained outstanding and was not extinguished as claimed
by petitioners; that the Revere REM was valid based on the application of the complementary
contracts construed together doctrine whereby the accessory contract must be read in its entirety
and together with the principal contract between the parties; that it was the intention of the
parties to extend the benefits of the two REMs under the first MOA in favor of Jose Go and/or his
group of companies; and that petitioners' obligations with UCPB under the first MOA had not been
fully settled.

Issues

Petitioners raise the following issues:

A. THE COURT OF APPEALS COMMITTED SERIOUS ERROR OF LAW IN REFUSING TO HOLD THAT
THE OBLIGATIONS EVIDENCED BY THE 1997 AND 1998 PROMISSORY NOTES AND SECURED BY THE
1997 REM HAD BEEN EXTINGUISHED BY NOVATION IN TE FORM OF CONSOLIDATION OF ALL OF
PETITIONERS' LOANS UNDER THE 21 MARCH 2000 MOA.

B. THE COURT OF APPEALS COMMITTED PALPABLE ERROR OF LAW AND ACTED WITH GRAVE
ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN REFUSING TO
DELARE THE REVERE REM VOID AB INITIO DESPITE THE FACT THAT THE MORTGAGOR WAS
ADMITTEDLY MERE TRUSTEE OF THE MORTGAGED PROPERTIES BUT THE TRUE AND ABSOLUTE
OWNERS GAVE NO CONSENT TO THE MORTGAGE.

C. THE COURT OF APPEALS COMMITTED PALPABLE ERROR OF LAW AND ACTED WITH GRAVE
ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN APPLYING PART OF
THE PROCEEDS OF THE FORECLOSURE OF THE OTHER PLAINTIFFS' AND REVERE REMS TO JOSE
GO'S ALLEGED BUT UNPROVEN OBLIGATION, INSTEAD OF APPLYING THE PROCEEDS AGAINST THE
REMAINING OBLIGATION OF PETITIONERS, AND DELIVERING THE EXCESS TO THEM.

D. THE COURT OF APPEALS COMMITTED PALPABLE ERROR OF LAW AND ACTED WITH GRAVE
ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN REFUSING TO HOLD
THAT THE RESTRUCTURED LOAN OF THE PETITIONERS HAD BEEN FULLY SATISFIED.[23]
Did the CA commit reversible errors in finding that the Revere REM was valid and binding on
petitioners, and in upholding the propriety of applying the proceeds of the foreclosure sale to
settle the obligations of Jose Go and his group of companies before fully satisfying the liabilities of
petitioners?

Ruling of the Court

The petition for review on certiorari is meritorious.

While the RTC and the CA both dealt with and examined the same set of facts and agreements of
the parties, they ended up with totally opposing factual findings. The Court's review jurisdiction is
generally limited to reviewing errors of law because the Court is not a trier of facts and is not the
proper venue to settle and determine factual issues. Nevertheless, this rule is not ironclad, and a
departure therefrom may be warranted where the findings of fact of the CA as the appellate court
are contrary to the factual findings and conclusions of the trial court, like now. In this regard, there
is a need to review the records to determine which findings by the lower courts should be
preferred for being conformable with the records.

It is undisputed that petitioners Spouses Chua and LGCTI as well as respondents Jose Go, had
existing loan obligations with UCPB prior to the March 1997 JVA. As an offshoot of the JVA, two
deeds of trust were executed by the parties involving petitioners' 44-hectare property covered by
32 titles. The deeds of trust were neither expressly cancelled not rescinded despite the fact that
the project under the JVA never came to fruition.

On March 21, 2000, UCPB and petitioners entered into the MOA consolidating the outstanding
obligations of the Spouses Chua and LGCTI. The relevant portions of the MOA are reproduced:
WITNESSETH:

(A) As of 30 November 1999, the BORROWER has outstanding obligations due in favor of the BANK
in the aggregate amount of Two Hundred Four Million Five Hundred Ninety Seven Thousand One
Hundred Seventy Seven and 04/100 Pesos (P204,597,177.04), Philippine currency, inclusive of all
interest, charges and fees (the "Obligation").

(B) To partially satisfy the Obligation to the extent of ONE HUNDRED THREE MILLION EIGHT
HUNDRED NINETY THREE THOUSAND FOUR HUNDRED FIFTY PESOS (P103,893,450.00), Philippine
currency, the BORROWER has agreed that the BANK shall acquire title to the real property
enumerated and described in the schedule attached hereto and made an integral part hereof as
Annex "A", together with all the improvements thereon, if any (collectively called, the "Property").

(C) The balance of the Obligation, in the total amount of Sixty Eight Million Pesos (P68,000,000.00),
Philippine currency, shall be converted by the BANK to equity interest in LGCTI, with conformity of
the BORROWER.

(D) The Spouses Chua have requested the BANK to grant the Spouses Chua: (i) a continuing option
to re-purchase the Property and (ii) develop the Property, under a joint-venture arrangement with
the BANK.

(E) The BANK has acceded to the aforementioned request of the Spouses Chua, subject to the
terms and conditions of this Agreement.

In consideration of the foregoing premises, and the mutual covenants and agreements contained
herein, the parties hereto agree as follows:
SECTION 1.0.

CONTRACTUAL INTENT

Section 1.1. Intent of the Parties - Subject to the provisions of this Agreement, and the satisfactory
performance by the BORROWER of the obligations and undertakings set forth herein, the parties
hereto declare, confirm and agree that:
(a) title to the Property shall be transferred and conveyed to the BANK; the BANK shall have the
sole discretion to determine and implement the appropriate actions for the conveyance of such
title in favor of the BANK;

(b) the BANK shall: (i) grant the Spouses Chua a continuing right of first refusal over the Property
and (ii) consider entering into and concluding with the Spouses Chua a contractual arrangement
for the development of the Property; and

(c) the parties shall implement the appropriate acts and deeds necessary or required for the
execution, delivery and performance of this Agreement and the completion of the transactions
contemplated herein, conformably with the terms and conditions set forth hereunder.
xxxx

SECTION 5.0.

MISCELLANEOUS PROVISIONS

Section 5.1. Binding Effect — This Agreement shall take effect upon its execution and the rights
and obligation contained hereunder shall be valid and binding on the parties and their respective
successors-in-interest.

Section 5.2. Governing Law — The provisions of this Agreement shall be governed, and be
construed in all respects, by the laws of the Philippines.

Section 5.3. Further Assurance — LGCTI and the Spouses Chua warrant that they shall execute and
deliver any and all additional documents or instruments and do such acts and deeds as may be
necessary to fully implement and consummate the transactions contemplated under this
Agreement.

Section 5.4. Entire Agreement — This Agreement constitutes the entire, complete and exclusive
statement of the terms and conditions of the agreement between the parties with respect to the
subject matter referred to herein. No statement or agreement, oral or written, made prior to the
signing hereof and no prior conduct or practice by either party shall vary or modify the written
terms embodied hereof, and neither party shall claim any modification of any provision set forth
herein unless such modification is in writing and signed by both parties.[24]
It is clear that petitioners exchanged their 30 parcels of land to effectively reduce their total unpaid
obligations to only P68,000,000.00. To settle the balance, they agreed to convert it into equity in
LGCTI in case they would default in their payment. To implement the MOA, they signed the REM
drafted by UCPB, which included the properties listed in the MOA as security for the credit
accommodation of P404,597,177.04. Unknown to them, however, Jose Go, acting in behalf of
Revere, likewise executed another REM covering the properties that Revere was holding in trust
for them. When UCPB foreclosed the mortgages, it applied about P75.09 million out of the
P227,700,000.00 proceeds of the foreclosure sale to the obligations of Revere and Jose Go.
Moreover, UCPB pursued petitioners for their supposed deficiency amounting to P68,000,000.00,
which was meanwhile assigned to respondent Asset Pool A by UCPB.

We cannot subscribe to the CA's declaration that the 1997 REM still subsisted separately from the
consolidated obligations of petitioners as stated in the March 21, 2000 MOA. As early as the latter
part of 1999, correspondence and negotiation on the matter were already occurring between
UCPB, on one hand, and the Spouses Chua and LGCTI, on the other. Specifically, in its November
10, 1999 letter to petitioners, UCPB wrote: "This will formalize our earlier discussions on the
manner of settlement of your personal and that of LGCTI's outstanding obligations."[25] The
outstanding obligations adverted to referred to the Spouses Chua's unsettled, unpaid and
remaining debt with UCPB. In discussing how the Spouses Chua could settle their obligations, there
was no distinction whatsoever between the loans obtained in 1997 and those made in subsequent
years. To be readily inferred from the tenor of the correspondence was that the Spouses Chua's
obligations were already consolidated.

The MOA referred to the outstanding obligations of LGCTI and the Spouses Chua as being in the
amount of P204,597,177.04 as of November 30, 1999. This meant that all of the Spouses Chua's
obligations with UCPB on or prior to November 30, 1999 had already been combined. It was plain
enough to see that the MOA constituted the entire, complete and exclusive agreement between
the parties. Its Section 5.4 of the MOA expressly stipulated that: "xxxx No statement or agreement,
oral or written, made prior to the signing hereof and no prior conduct or practice by either party
shall vary or modify the written terms embodied hereof, and neither party shall claim any
modification of any provision set forth herein unless such modification is in writing and signed by
both parties."[26] Furthermore, the REM executed by petitioners in support of the MOA indicated
that the mortgage would secure the payment of all loans, overdrafts, credit lines and other credit
facilities or accommodations obtained or hereinafter to be obtained by the mortgagors. In light of
the pertinent provisions of the MOA, the only rational interpretation was that the parties agreed
to consolidate the Spouses Chua's past and future obligations, which would be secured by the
REM executed between the parties.

There is no question about the validity of the March 21, 2000 MOA as well as the REM executed
by petitioners in support of this MOA. However, much controversy attended the Revere REM.
Nonetheless, the RTC pointed out in its decision:
The Court therefore affirms the nullity of the Revere REM dated March 21, 2000 (Exhibit "I", Exhibit
"7-APA") executed by Revere in favor of defendant UCPB. There is no proof that plaintiffs have
consented to the application of the properties listed in Annex "B" thereof to the loan obligation of
defendant Jose Go. UCPB is therefore lawfully bound to return to plaintiffs TCT Nos. T-40452
(89339), 40453 (89340), 84488 (89342), 71021 (89330), 71022 (89331), 71023 (89332), 71025
(95580-95581), 71136 (95587-95590), 55033 (89384), conformably with this court's disquisition in
the Partial Judgment rendered on September 6, 2005.[27]
We have to note that the REM was executed by Revere through Jose Go purportedly in connection
with the March 21, 2000 MOA on the very same day that petitioners' REM were executed. Yet,
petitioners disclaimed any knowledge or conformity to the Revere REM. With the two deeds of
trust executed in favor of Revere not having been expressly cancelled or rescinded, the properties
mortgaged by Revere to UCPB were still owned by petitioners for all intents and purposes.

For clarity, we excerpt relevant portions of the deeds of trust, to wit:

DEED OF TRUST[28]

KNOW ALL MEN BY THESE PRESENTS:

This DEED OF TRUST made, executed, and entered into by and between:
SPOUSES FELIX and CARMEN CHUA, both of legal age, Filipinos and with postal address at Ilayang
Dupay, Lucena City and ADELA C. CHUA, of legal age, Filipino, married to Luis A. Chua and a
resident of LIC Bldg., Brgy. Gulang-gulang, Lucena City, hereinafter called the TRUSTORS:

- and-

REVERE REALTY AND DEVELOPMENT CORPORATION, a corporation duly organized and existing
under the laws of the Philippines with office address at 2478 Agatha St., San Andres Bukid, Manila,
herein represented by the President, MRS. LYDIA SEVILLA and hereinafter called the TRUSTEE.
WITNESSETH

WHEREAS, the TRUSTORS are the lawful and absolute owners of twelve (12) parcels of land
situated at Lucena City and previously covered by the following transfer Certificates of Title and
may be described as follows:

xxxx

WHEREAS, by virtue of several Deeds of Absolute Sale executed by the TRUSTOR in favor of the
TRUSTEE, the twelve (12) parcels of land were transferred in the name of the TRUSTEE and are
now covered by the following Transfer Certificates of Title:

xxxx

WHEREAS, the TRUSTEE hereby acknowledges and confirms that it did not pay the TRUSTORS the
consideration stated in the Deeds of Absolute Sale covering the twelve (12) parcels of land and
said Deeds of Absolute Sale were executed by the TRUSTORS in compliance with the terms and
conditions stated in the Joint Venture Agreement dated March 3, 1997 executed by and between
the TRUSTORS and GOTESCO PROPERTIES, INC.;

WHEREAS, the TRUSTEE hereby acknowledges and confirms that she is the authorized
representative of GOTESCO PROPERTIES, INC., with respect to the said Joint Venture Agreement
and the transfer of the twelve (12) parcels of land in her name is necessary for the consolidation
and subdivision of the properties in connection with the preparation of the plans and designs of
the project of the said Joint Venture Agreement;

NOW THEREFORE, for and in consideration of the foregoing premises and mutual covenants
hereinafter set forth:

1. The TRUSTEE hereby acknowledges and confirms:

1.1 The absolute title and ownership of the TRUSTORS over the twelve (12) parcels of land above
described;

1.2 Its role as TRUSTEE, to have and hold the said twelve (12) parcels of land for the sole and
exclusive use, benefit, enjoyment of the TRUSTORS;

2. The TRUSTEE hereby acknowledges and obliges itself not to dispose of, sell, transfer, convey, lease
or mortgage the said twelve (12) parcels of land without the written consent of the TRUSTORS first
obtained; (bold emphasis added)

3. The TRUSTEE hereby covenants and agrees to execute, deliver and perform any and all
arrangements, and acts, which in the opinion of the TRUSTEES are necessary, required and/or
appropriate for the exercise by the TRUSTORS of their rights, title and interests over the said
twelve (12) parcels of land. (Emphasis supplied)
The deeds of trust expressly provided that: "The TRUSTEE hereby acknowledges and obliges itself
not to dispose of, sell, transfer, convey, lease or mortgage the said twelve (12) parcels of land
without the written consent of the TRUSTORS first obtained." By entering into the Revere REM,
therefore, Revere openly breached its undertakings under the deeds of trust in contravention of
the express prohibition therein against the disposition or mortgage of the properties. It is also
worth mentioning that the records are bereft of any allegation that Revere had obtained the
approval of petitioners or that the latter had acquiesced to the mortgage of the properties in favor
of UCPB. Absent proof showing that petitioners had transferred the ownership of some or all of
the properties covered by the deeds of trust in favor or Revere or Jose Go, the deeds of trust
remained as the controlling documents as to the parcels of land therein covered.

Additionally, UCPB could not now feign ignorance of the deeds of trust. As the RTC aptly pointed
out, UCPB's own Vice President expressly mentioned in writing that UCPB would secure from Jose
Go the titles necessary for the execution of the mortgages. As such, UCPB's actual knowledge of
the deeds of trust became undeniable. In addition, UCPB, being a banking institution whose
business was imbued with public interest, was expected to exercise much greater care and due
diligence in its dealings with the public. Any failure on its part to exercise such degree of caution
and diligence would invariably stigmatize its dealings with bad faith. It should be customary and
prudent for UCPB, therefore, to adopt certain standard operating procedures to ascertain and
verify the genuineness of the titles to determine the real ownership of real properties involved in
its dealings, particularly in scrutinizing and approving loan applications. By approving the loan
application of Revere obviously without making prior verification of the mortgaged properties' real
owners, UCPB became a mortgagee in bad faith.[29]

The CA pronounced that the parties had intended to extend the benefits of the two REMs under
the first MOA to Jose Go and/or his group of companies. It premised its pronouncement on the
express stipulation in petitioners' REM to the effect that it was "the intention of the parties to
secure as well the payment of all loans, overdrafts xxxx by the MORTGAGORS and/or by LGCTI,
Spouses Chua, and Jose Go." In addition, it cited the Spouses Chua's conformity to UCPB's letter
dated November 10, 1999 to the effect that should there be any excess or residual value after the
settlement of the Spouses Chua and LGCTI's obligations, said excess would be applied to any
outstanding obligations that Jose Go might have with UCPB. We must point out, however, that the
statements adverted to by the CA had been supplied by UCPB itself - the first being contained in
the REM drafted by UCPB, and the second being written by UCPB in its letter to the Spouses Chua.
Assuming that petitioners were not just misled into signing or agreeing to the stipulations in said
documents, it was still error for the CA to hold that Revere's or Jose Go's obligations enjoyed a
primacy or precedence over the P68,000,000.00 obligation of petitioners.

The discussion of the RTC in its decision on this aspect, being apt and in point, is reiterated with
approval:
The conformity of the plaintiffs through Felix A. Chua only appears on the Plaintiffs' REM dated
March 21, 2000 (Exhibit "G", Exhibit "6-APA"). By virtue of this Plaintiffs' REM, there is basis to
apply the properties listed in Annex "A" thereof to the obligations of both plaintiffs and defendant
Jose Go, but subject to the condition that plaintiffs' obligations be totally extinguished first.
However, up to the termination of the trial of this case, neither defendant UCPB nor APA presented
any evidence to prove the precise amount of Jose Go's loan obligations with the bank. It must be
emphasized that the Plaintiffs' REM refers to Jose Go's obligations to the bank, not the obligations
of any of the corporations owned by him in the majority.

The Apportionment of Bid Price signed by UCPB's own witness Milagros Alcabao (Exhibit "S", Exhibit
"10-APA") does not show Jose Go's obligations, if any. What the Apportionment reveals is the
amount of Php75,093,180.00 was set aside for "Revere Realty & Development Corporation and
Lucena Industrial Corporation." While the name of plaintiff Lucena Industrial Corporation ("LIC") and
Revere Realty and Development Corporation appears in said Apportionment, it has not been shown
that there was any loan contracted by LIC and Revere to which the amount of Php75,093,180.00
may be applied. Because the twenty-three (23) properties listed in favor of Revere and LIC were
sourced from the two (2) Deeds of Trust and partly from the null and void Revere REM dated March
21, 2000 (Exhibit "I", Exhibit "7-APA"), it is only proper that this particular apportionment valued by
the bank at Php75,093,180.00 should likewise be struck down.[30] (Bold underscoring supplied for
emphasis)

On the other hand, the CA maintained that petitioners' obligations to UCPB under the March 21,
2000 MOA had not been fully satisfied, viz.:
The plaintiffs-appellees concede in their First MOA that the outstanding obligations of Spouses
Chua and LGCTI to UCPB were restructured and fixed at the aggregate amount of P204,597,177.04;
that part of this restructured debts (of up to P103,893,450.00) will be settled by transferring the
titles of the properties listed in Annex "A" to the Bank; and the remaining balance (in the amount
of P68 million) will be converted into equity interest in LGCTI. Since the contract is the law between
the parties, it necessarily follows that only by adhering to the terms of the First MOA would the
entire obligations of Spouses Chua and LGCTI be deemed fully paid.

In pursuance of the foregoing conceded terms, and in accordance with the provisions of Plaintiffs'
REM and Revere's REM, UCPB foreclosed the REM on all of the properties listed in Annex "A" of
the First MOA for a total bid price of P227,700,000.00. The foreclosure and auction sale were
deemed to cover not only plaintiffs-appellees' obligations and REM, they covered as well the REM
of Jose Go and Revere as again, in UCPB's conformed upon November 10, 1999 letter to Spouses
Chua, et al., the latter undertook the following obligations:

xxxx

The imperatives of the parties' obligations under their contracts as above-discussed therefore
require the proceeds of the foreclosure in the total amount of P227,700,000.00 be applied, first,
to plaintiffs-appellees' P103,893,450.00, as agreed upon in the First MOA, and the remaining
balance of P123,806,550.00 to Jose Go's outstanding obligations with UCPB.[31]
This disquisition of the CA would have resulted in an absurd situation wherein a considerable
portion of petitioners' properties were to be used to settle Jose Go's personal liabilities, which
were P20,000,000.00 more than what were to be applied to petitioners' own obligations. Aside
from enabling this ludicrous interpretation of the agreements, petitioners were still left with a
hefty P68,000,000.00 balance in their obligations with UCPB. This absurd situation does not find
support in their contracts as well as in the course of ordinary human experience. To reiterate, the
P68,000,000.00 obligation was not separate and distinct from the outstanding obligations
consolidated by the March 21, 2000 MOA. In fact, the February 14, 2003 MOA involving the
transfer of 680,000 preferred shares of stock to UCPB provided that:

4. This Agreement shall take effect upon execution hereof provided however, that in the event the
assignment of liabilities in exchange for the Preferred Shares does not materialize for any cause
whatsoever, this Agreement shall be cancelled and automatically cease to have any force and effect,
thereby restoring to each of the parties hereto whatever rights and liabilities they may each have
in relation to the other parties prior to this Agreement.[32] (Bold emphasis supplied)
Considering that such issuance of preferred shares in favor of UCPB did not take place despite the
execution of the second MOA in 2003, the February 14, 2003 MOA was deemed cancelled and the
P68,000,000.00 must perforce revert as part of petitioners' outstanding balance that was now fully
and completely settled.

A review of the MOA dated March 21, 2000 would reveal that petitioners' outstanding obligation
referred to, after deducting the amount of the thirty properties, was reduced to only
P68,000,000.00. To settle this balance, petitioners agreed to convert this into equity in LGCTI in
case they defaulted in their payment. In this case, what prompted the foreclosure sale of the
mortgaged properties was petitioners' failure to pay their obligations. When the proceeds of the
foreclosure sale were applied to their outstanding obligations, the payment of the balance of the
P68,000,000.00 was deliberately left out, and the proceeds were conveniently applied to settle
P75,000,000.00 of Revere and/or Jose Go's unpaid obligations with UCPB. This application was in
blatant contravention of the agreement that Revere's or Jose Go's obligations would be paid only
if there were excess in the application of the foreclosure proceeds. Accordingly, the CA should
have applied the proceeds to the entire outstanding obligations of petitioners, and only the excess,
if any, should have been applied to pay off Revere and/or Jose Go's obligations.

Based on the foregoing, therefore, we conclude that the deed of assignment of liabilities covering
the deficiency in its obligation to UCPB in the amount of P68,000,000.00 was null and void.
According to the apportionment of bid price executed by UCPB's account officer, the bid
amounting to P227,700,000.00 far exceeded the indebtedness of the Spouses Chua and LGCTI in
the amount of P204,597,177.04, which was inclusive of the P68,000,000.00 subject of the deed of
assignment of liabilities as well as the P32,703,893,450.00 corresponding to the interests and
penalties that UCPB waived in favor of petitioners.[33]

It can be further concluded that UCPB could not have validly assigned to Asset Pool A any right or
interest in the P68,000,000.00 balance because the proper application of the proceeds of the
foreclosure sale would have necessarily resulted in the full extinguishment of petitioners' entire
obligation. Otherwise, unjust enrichment would ensue at the expense of petitioners. There is
unjust enrichment when a person unjustly retains a benefit to the loss of another, or when a
person retains money or property of another against the fundamental principles of justice, equity
and good conscience. The principle of unjust enrichment requires the concurrence of two
conditions, namely: (1) that a person is benefited without a valid basis or justification; and (2) that
such benefit is derived at the expense of another.[34] The main objective of the principle against
unjust enrichment is to prevent a person from enriching himself at the expense of another without
just cause or consideration. This principle against unjust enrichment would be infringed if we were
to uphold the decision of the CA despite its having no basis in law and in equity.

The Court notes that one of the parcels of land covered by the Revere REM was that registered
under Transfer Certificate of Title (TCT) No. 89334 of the Registry of Deeds of Lucena City.
According to the decision of the CA,[35] the parcel of land registered under TCT No. 89334 had been
subdivided into Lot No. 3852 (TCT No. 95582 and TCT No. 95583) and Lot No. 3854 (TCT No. 95580
and TCT No. 95581). However, the judgment of the RTC did not include TCT No. 89334 although it
should have. To rectify the omission, which was obviously inadvertent, we should include TCT No.
89334 due to its being admittedly one of the parcels of land of petitioners covered by the Revere
REM.

Finally, the interest of 6% per annum on the judgment upon its finality shall be imposed in
accordance with the pronouncement of the Court in Nacar v. Gallery Frames.[36]

WHEREFORE, the Court GRANTS the petition for review on certiorari; SETS ASIDE the decision of
the Court of Appeals promulgated on March 25, 2014 in CA-G.R. No. 93644; REINSTATES the
judgment rendered on January 6, 2009 by the Regional Trial Court, Branch 59, in Lucena City, with
the addition of TCT No. 89334, to wit:
WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiffs and against
defendants UNITED COCONUT PLANTERS BANK, ASSET POOL A, REGISTRAR OF DEEDS OF LUCENA
CITY and EX-OFFICIO SHERIFF OF LUCENA CITY, thus:

a. Declaring that the loan obligations of plaintiffs to defendant UNITED COCONUT PLANTERS BANK
under the Memorandum of Agreement dated March 21, 2000 have been fully paid;

b. Declaring as legal and binding the Deeds of Trust dated April 30, 1998 and holding the properties
listed therein were merely held-in-trust for plaintiffs by defendants REVERE and JOSE GO and/or
corporations owned or associated with him;

c. Nullifying the Deed of Real Estate Mortgage dated March 21, 2000 executed by defendants
REVERE and JOSE GO in favor of co-defendant UNITED COCONUT PLANTERS BANK and the Deed
of Assignment of Liability dated February 14, 2003 executed by plaintiffs in favor of UNITED
COCONUT PLANTERS BANK;

d. Ordering defendant REGISTRAR OF DEEDS of Lucena City to cancel any and all titles derived or
transferred from TCT Nos. T-40452 (89339), 40453 (89340), 84488 (89342), 71021 (89330), 71022
(89331), 71023 (89332), 71025 (95580-95581), 71136 (95587-95590), 55033 (89384), 89334 and
issue new ones returning the ownership and registration of these titles of the plaintiffs. For this
purpose, defendant UNITED COCONUT PLANTERS BANK is directed to execute the appropriate
Deeds of Reconveyance in favor of the plaintiffs over the eighteen (18) real properties listed in the
Real Estate Mortgage dated March 21, 2000 executed by defendants Revere Realty and JOSE GO
and originally registered in the names of the plaintiffs.

e. Ordering defendant UNITED COCONUT PLANTERS BANK to return so much of the plaintiffs titles,
of their choice, equivalent to Php200,000,000.00 after applying so much of the mortgaged
properties, including those presently or formerly in the name of REVERE, to the payment of
plaintiffs' consolidated obligation to the bank in the amount of Php204,597,177.04.

f. Declaring the Real Estate Mortgage dated June 02, 1997 as having been extinguished by the
Memorandum of Agreement date March 21, 2000, and converting the writ of preliminary
injunction issued on March 22, 2004 to a permanent one, forever prohibiting UNITED COCONUT
PLANTERS BANK and ASSET POOL A and all persons/entities deriving rights under them from
foreclosing on TCT Nos. T-54182, T-54184, T-54185, T-54192, and T-71135. The court hereby
orders said defendants, or whoever is in custody of the said certificates of title, to return the same
to plaintiffs and to execute the appropriate release of mortgage documents.

g. Finally, ordering defendant UNITED COCONUT PLANTERS BANK, to pay plaintiffs:

i. The excess of the foreclosure proceeds in the amount of Php23,102,822.96, as actual damages;
ii. Legal interest on the amount of Php223,102,822.96 at the rate of 6% per annum from February
3, 2004 until finality of judgment. Once the judgment becomes final and executory, the interest of
6% per annum, should be imposed, to be computed from the time the judgment becomes final
and executory until fully satisfied, as compensatory damages;

iii. Php1,000,000.00 as moral damages;

iv. Php100,000.00 as exemplary damages;

v. Php2,000,000.00 as attorney's fees; and

vi. Costs of suit;

SO ORDERED.
and DIRECTS respondents, except the Registrar of Deeds of Lucena City and the Ex-Officio Sheriff
of Lucena City, to pay the costs of suit.

SO ORDERED.

FIRST DIVISION

[ G.R. No. 205912, October 18, 2017 ]

ROGELIA R. GATAN AND THE HEIRS OF BERNARDINO GATAN, NAMELY: RIZALINO GATAN AND
FERDINAND GATAN, PETITIONERS, V. JESUSA VINARAO, AND SPOUSES MILDRED CABAUATAN AND
NOMAR CABAUATAN, RESPONDENTS.

DECISION

LEONARDO-DE CASTRO, J.:

Petitioners Rogelia Gatan (Rogelia) and her sons, Rizalino Gatan (Rizalino) and Ferdinand Gatan
(Ferdinand) - the latter two as heirs of Bernardino Gatan (Bernardino), Rogelia's late husband -
filed the present Petition for Review on Certiorari, under Rule 45 of the Rules of Court, assailing
(a) the Decision[1] dated September 7, 2012 of the Court of Appeals in CA-G.R. CV No. 94340, which
affirmed the Decision[2] dated October 1, 2009 of the Regional Trial Court (RTC) of Cabagan,
Isabela, Branch 22, dismissing petitioners' Complaint in Civil Case No. 22-1061; and (b) the
Resolution[3] dated February 11, 2013 of the appellate court in the same case denying petitioners'
Motion for Reconsideration.

Petitioners filed before the RTC on January 3, 2007 a Complaint[4] for Nullity of Document and
Recovery of Possession with Damages against respondents Jesusa Vinarao (Jesusa) and spouses
Nomar and Mildred Cabauatan (spouses Cabauatan), which was docketed as Civil Case No. 22-
1061.

Petitioners alleged in their Complaint that Bernardino and his wife, petitioner Rogelia (spouses
Gatan), acquired a parcel of land in Casibarag Sur, Cabagan, Isabela, with an area of around 406
square meters (spouses Gatan's property). The said property was surveyed in Bernardino's name
under LMB Form No. 23-37-R of the Department of Environment and Natural Resources dated
October 26, 1964.[5] Bernardino passed away on March 19, 2000 and was survived by petitioner
Rogelia and their seven children, including petitioners Rizalino and Ferdinand.

According to petitioners, sometime in January 2002, respondent spouses Cabauatan asked

petitioner Rogelia if they could temporarily erect a house on the spouses Gatan's property.
Petitioner Rogelia agreed since respondent Mildred Cabauatan (Mildred) was Bernardino's
relative.[6]

Petitioners recounted that more than four years later, or sometime in March 2006, petitioner
Rogelia learned of a Deed of Absolute Sale[7] supposedly executed by Bernadino on December 30,
1989 conveying a portion of the spouses Gatan's property, measuring around 245 square meters
(subject property), in favor of respondent Mildred's parents, namely, Sostones Vinarao (Sostones)
and his wife, respondent Jesusa (spouses Vinarao), for the consideration of P4,000.00. Petitioner
Rogelia questioned the Deed of Absolute Sale, averring that Bernardino could not have signed the
said Deed because he was illiterate; and that the Deed of Absolute Sale lacked her marital consent
since it was signed not by her, but by a certain Aurelia Ramos Gatan. Petitioner Rogelia then
confronted the spouses Vinarao regarding the falsified Deed of Absolute Sale and demanded that
the respondent spouses Cabauatan vacate the subject property.

The parties appeared before the barangay to try to settle their dispute amicably, but to no avail.
A Certificate to File Action[8] dated April 10, 2006 was issued by the appropriate barangay officials
to the parties.

Thereafter, petitioners instituted Civil Case No. 22-1061 against respondents[9] before the RTC.

In their Answer[10] to the Complaint, respondents countered that the subject property was
previously owned by Pedro Gatan,[11] the father of Bernardino and Carmen Gatan (Carmen).
Carmen, the mother and grandmother of Sostones and respondent Mildred, respectively, had
always been in actual possession of the subject property.
While respondents admitted that the spouses Gatan eventually came to own the subject property,
respondents asserted that the spouses Gatan sold the subject property to the spouses Vinarao by
virtue of the Deed of Absolute Sale dated December 30, 1989, which was notarized by Atty. Alfredo
C. Mabbayad (Mabbayad). Soon after, on June 15, 1990, the spouses Vinarao declared the subject
property in Sostones' name for real property tax purposes under Tax Declaration (TD) No. 99-06-
008-0343-R.[12] Respondents had been paying the real property taxes for the subject property as
evidenced by Tax Receipt No. 5285880[13] dated January 11, 1990, Tax Receipt No. 2871484V[14]
dated January 26, 2005, and Tax Receipt No. 5667116V[15] dated March 15, 2006.

Respondents denied that they falsified Bernardino's signature on the Deed of Absolute Sale and
insisted that Bernardino could write his own name. Respondents also claimed that petitioner
Rogelia signed the Deed of Absolute Sale in her real name, which is Aurelia Ramos Gatan.

Respondents further narrated that petitioner Rogelia previously filed a complaint for falsification
of public document and use of falsified document against respondents Jesusa and Mildred before
the Office of the Provincial Prosecutor in Ilagan, Isabela, docketed as I.S. No. 2006E-637, but said
complaint was dismissed in a Resolution[16] dated September 26, 2006 due to lack of probable
cause. Likewise, when the parties appeared before the barangay, petitioners supposedly
demanded that respondents pay an additional P50,000.00 for the subject property, but
respondents refused because they had already fully paid the consideration for the said
property.[17]

Consequently, respondents prayed for the dismissal of petitioners' Complaint in Civil Case No. 22-
1061.

After trial on the merits, the RTC rendered a Decision on October 1, 2009, dismissing petitioners'
Complaint in Civil Case No. 22-1061. The dispositive portion of the RTC judgment reads:

WHEREFORE, premises considered, judgment is rendered in favor of the [respondents] and against
the [petitioners], upholding the validity of the Deed of Absolute Sale, dated December 30, 1989
and accordingly dismissing the complaint. The counterclaim is likewise ordered dismissed for lack
of evidence to substantiate the same.[18]

Petitioners filed a Notice of Appeal, which was given due course by the RTC in its Order [19] dated
October 26, 2009.

Petitioners' appeal before the Court of Appeals was docketed as CA G.R. CV No. 94340. In its
Decision dated September 7, 2012, the Court of Appeals affirmed the RTC Decision. The appellate
court denied petitioners' Motion for Reconsideration in its Resolution dated February 11, 2013.

Hence, petitioners filed the instant Petition, raising the sole issue of:

WHETHER THE HONORABLE COURT OF APPEALS ERRED IN AFFIRMING THE TRIAL COURT'S
DECISION UPHOLDING THE VALIDITY OF THE SUBJECT DEED OF SALE.[20]
The core of petitioners' argument is that the Deed of Absolute Sale dated December 30, 1989 is
void and inexistent absent the spouses Gatan's consent, considering that Bernardino's signature
on said Deed was forged and the same Deed lacked petitioner Rogelia's marital consent.
Petitioners maintain that Bernardino, who was unschooled, could not have affixed his signature
on the Deed of Absolute Sale without the assistance of petitioner Rogelia, who signed for and in
behalf of Bernardino whenever the latter's signature was needed. Moreover, petitioner Rogelia
disavows giving her marital consent to the sale by affixing her signature on the Deed of Absolute
Sale as Aurelia Ramos Gatan. Petitioners also asseverate that Bernardino was never married to
one Aurelia Ramos Gatan.

The Petition at bar is without merit.

A cursory reading of the present Petition for Review on Certiorari under Rule 45 of the Rules of
Court reveals that it is a reiteration of factual issues and arguments raised by petitioners in their
appeal, which had already been fully passed upon by the Court of Appeals. Whether or not the
signatures of Bernardino and petitioner Rogelia appearing on the Deed of Absolute Sale are
forgeries is a question of fact which is beyond this Court's jurisdiction under the present Petition
for Review on Certiorari. Questions of fact, which would require a re-evaluation of the evidence,
are inappropriate under Rule 45 of the Rules of Court. The jurisdiction of the Court under Rule 45,
Section 1[21] is limited only to errors of law as the Court is not a trier of facts. While Rule 45, Section
1 is not absolute, none of the recognized exceptions,[22] which allow the Court to review factual
issues, exists in the instant case. The following discussion in Miro v. Vda. de Erederos[23] is
particularly instructive on this matter:

Parameters of a judicial review under a Rule 45 petition

a. Rule 45 petition is limited to questions of law

Before proceeding to the merits of the case, this Court deems it necessary to emphasize that a
petition for review under Rule 45 is limited only to questions of law. Factual questions are not the
proper subject of an appeal by certiorari. This Court will not review facts, as it is not our function
to analyze or weigh all over again evidence already considered in the proceedings below. As held
in Diokno v. Hon. Cacdac, a re-examination of factual findings is outside the province of a petition
for review on certiorari, to wit:

It is aphoristic that a re-examination of factual findings cannot be done through a petition for
review on certiorari under Rule 45 of the Rules of Court because as earlier stated, this Court is not
a trier of facts[.] x x x. The Supreme Court is not duty-bound to analyze and weigh again the
evidence considered in the proceedings below. This is already outside the province of the instant
Petition for Certiorari.

There is a question of law when the doubt or difference arises as to what the law is on a certain
set of facts; a question of fact, on the other hand, exists when the doubt or difference arises as to
the truth or falsehood of the alleged facts. Unless the case falls under any of the recognized
exceptions, we are limited solely to the review of legal questions.

b. Rule 45 petition is limited to errors of the appellate court

Furthermore, the "errors" which we may review in a petition for review on certiorari are those of
the CA, and not directly those of the trial court or the quasi-judicial agency, tribunal, or officer
which rendered the decision in the first instance. It is imperative that we refrain from conducting
further scrutiny of the findings of fact made by trial courts, lest we convert this Court into a trier
of facts. As held in Reman Recio v. Heirs of the Spouses Aguedo and Maria Altamirano, etc., et al.,
our review is limited only to the errors of law committed by the appellate court, to wit:

Under Rule 45 of the Rules of Court, jurisdiction is generally limited to the review of errors of law
committed by the appellate court. The Supreme Court is not obliged to review all over again the
evidence which the parties adduced in the court a quo. Of course, the general rule admits of
exceptions, such as where the factual findings of the CA and the trial court are conflicting or
contradictory. (Citations omitted.)

At any rate, the Deed of Absolute Sale dated December 30, 1989 is notarized, and it is a well-
settled principle that a duly notarized contract enjoys the prima facie presumption of authenticity
and due execution, as well as the full faith and credence attached to a public instrument. To
overturn this legal presumption, evidence must be clear, convincing, and more than merely
preponderant to establish that there was forgery that gave rise to a spurious contract.[24]

On proving forgery, the Court expounded in Gepulle-Garbo v. Garabato[25] that:

As a rule, forgery cannot be presumed and must be proved by clear, positive and convincing
evidence, the burden of proof lies on the party alleging forgery. One who alleges forgery has the
burden to establish his case by a preponderance of evidence, or evidence which is of greater
weight or more convincing than that which is offered in opposition to it. The fact of forgery can
only be established by a comparison between the alleged forged signature and the authentic and
genuine signature of the person whose signature is theorized to have been forged. (Citations
omitted.)

On one hand, herein petitioners presented petitioner Rogelia's testimony[26] that Bernardino was
unschooled; Bernardino had always asked petitioner Rogelia to sign his name for him; Bernardino
did not authorize petitioner Rogelia to sign the Deed of Absolute Sale; petitioner Rogelia was not
the one who affixed the signature appearing above Bernardino's name in the Deed of Absolute
Sale; petitioner Rogelia did not know Aurelia Ramos Gatan whose name and signature appeared
in the space for marital consent in the Deed of Absolute Sale; and petitioner Rogelia did not sign
in the name of Aurelia Ramos Gatan on the Deed of Absolute Sale. Petitioners also submitted
specimens of petitioner Rogelia's signature and Bernardino's name in petitioner Rogelia's
handwriting.[27]
On the other hand, respondents called to the witness stand Carlos Vinarao (Carlos),[28] who
personally saw Bernardino and petitioner Rogelia sign the Deed of Absolute Sale before Atty.
Mabbayad, the notary public; Nenita Gatan (Nenita),[29] Bernardino's sister, who stated that she
knew her brother's wife by both names "Rogelia" and "Aurelia;" and respondent Jesusa,[30] who
essentially affirmed in open court the respondents' allegations in their Answer to the Complaint
in Civil Case No. 22-1061. Respondents offered as documentary evidence the Deed of Absolute
Sale dated December 30, 1989, Tax Declarations covering the subject property in Sostones' name,
and Tax Receipts for real property taxes on the subject property in the names of respondents
Jesusa or Mildred.

Weighing the evidence submitted by both sides, the RTC ruled in favor of the validity of the Deed
of Absolute of Sale. The RTC ratiocinated that:

This court has carefully, studiously and judiciously looked into and assessed the grounds relied
(sic) which by [petitioners] towards sustaining their allegation of invalidity of the Deed of Absolute
Sale, dated December 30, 1989, and it cannot find any valid reason to agree with the stand of the
[petitioners]. For one, Rogelia Gatan's testimony is uncorroborated and is self-serving such that it
cannot inspire credence in the light of and viewed against the testimony of Carlos Vinarao, who is
clearly an instrumental witness to the execution of the contested document. The bare denial of
Rogelia Gatan that her husband Bernardino Gatan signed the Deed of Absolute Sale and her
[further] claim that the latter is illiterate and did not sign it as he does not know how to sign his
name, to the court's view is a negative evidence which is overwhelmed by the positive assertion
of the instrumental witness who himself affixed his signature thereto, that Bernardino Gatan
together with his wife Rogelia Gatan both signed the contested Deed of Absolute Sale before the
instrumental witness and prior to its signing by the notary public, Atty. Alfredo Mabbayad. It is
trite to state in this regard, that jurisprudence recognizes that the authenticity and due execution
of a document may be proven by testimonial evidence and on this point, the testimony of Carlos
Vinarao is credible and worthy of positive appreciation. The Supreme Court has said:

"We likewise sustain the trial Court and the Court of Appeals concerning the testimonies of Verma
Domingo, Leonora and Jose to the effect that they saw Bruno affixing his signature to the
questioned deed. They were unrebutted. Genuineness of a handwriting may be proven, under Rule
132, Section 22, by anyone who actually saw the person write or affix his signature on the
document"

Appropriately, Section 22 of Rule 132 of the Rules of Court states:

"Section 22. How genuineness of handwriting proved. The handwriting of a person may be proved
by any witness who believes it to be the handwriting of such person because he has seen the person
write x x x and had thus acquired knowledge of the handwriting of such person."

Going by the force of jurisprudence and consonant with the aforecited Rule 132, Section 22, of
the Rules of Court, the court considers the testimonies of Carlos Vinarao, who is an instrumental
witness and saw the execution of the contested document, the Deed of Absolute Sale, dated
December 30, 1989, to be preponderant vis a vis the testimony of the [petitioner] Rogelia Gatan,
to prove the genuineness and due execution [of] the Deed of Sale herein contested by the
[petitioners].

But more importantly, and this heavily bears against the [petitioners] and in favor of
[respondents], is the proven fact that the Deed of Absolute Sale, dated December 30, 1989, is a
duly notarized document. As such, notarized document, the contested Deed of Absolute Sale
enjoys the presumption of its genuineness and due execution, which the [petitioners] have failed
to rebut. In a plethora of cases, the Supreme Court has repeatedly upheld the validity of notarized
documents on the ground of the unrebutted presumption of their genuineness and due execution.
xxx

xxxx

In conclusion, the Deed of Absolute Sale dated December 30, 1989 executed by Bernardino Gatan
in favor of Sostones Vinarao is valid and binding on the [petitioners] who failed to show convincing
and clear proof of its invalidity.[31]

The Court of Appeals subsequently sustained the findings and appreciation of evidence by the RTC,
thus:

The pivotal issue in this case revolves on the validity of the Deed of Absolute Sale.

It is a hornbook doctrine that the findings of fact of the trial court are entitled to great weight on
appeal and should not be disturbed except for strong and valid reasons, because the trial court is
in a better position to examine the demeanor of the witnesses while testifying (Tayco vs. Heirs of
Concepcion Tayco-Flores, 637 SCRA 742, 750 [2010]). We see no such reason to deviate from the
findings of the RTC in this case.

It bears to stress that the questioned Deed of Absolute Sale is one that was acknowledged before
a Notary Public. It is well-settled that a document acknowledged before a Notary Public is a public
document that enjoys the presumption of regularity. It is a prima facie evidence of the truth of the
facts stated therein and a conclusive presumption of its existence and due execution. (Ocampo vs.
Land Bank of the Philippines, 591 SCRA 562, 571 [2009]). Otherwise stated, public or notarial
documents, or those instruments duly acknowledged or proved and certified as provided by law,
may be presented in evidence without further proof, the certificate of acknowledgment being
prima facie evidence of the execution of the instrument or document involved (Alfacero vs. Sevilla,
411 SCRA 387, 393 [2003]). In order to contradict the presumption of regularity of a public
document, evidence must be clear, convincing, and more than merely preponderant (ibid.). In the
case at bar, [petitioners] failed to present evidence to overcome the presumptive authenticity and
due execution of the said Deed of Absolute Sale.

[Petitioner] Rogelia Gatan claimed that the signature of her husband in the questioned Deed of
Absolute Sale is forged. She maintained that the signature of the purported vendor appearing in
the Deed of Absolute Sale cannot possibly belong to Bernardino Gatan for the reason that the
latter is unschooled, unlettered and cannot write.

As a general rule, forgery cannot be presumed and must be proved by clear, positive and
convincing evidence (Bautista vs. Court of Appeals, 436 SCRA 141, 146 [2004]). The burden of
proof lies on the party alleging forgery (ibid.). Hence, it was incumbent upon [petitioners] to prove
the fact of forgery and the inability of Bernardino Gatan to sign his name. [Petitioners], in this case
failed to present any other clear and convincing evidence to substantiate their bare allegations.
Then again, bare allegations, unsubstantiated by evidence, are not equivalent to proof (Domingo
vs. Robles, 453 SCRA 812, 818 [2005]).

Neither did (petitioner] Rogelia Gatan sufficiently prove that her signature appearing on the Deed
was likewise forged. She merely dwelt on her argument that she was not Aurelia Gatan but nothing
was presented to substantiate her allegation that the signature therein was not hers. She did not
even present corroborating witnesses much less an independent expert witness who could declare
with authority and objectivity that the questioned signatures are forged. As held by the Supreme
Court:

"x x x he who disavows the authenticity of his signature on a public document bears the
responsibility to present evidence to that effect. Mere disclaimer is not sufficient. At the very least,
he should present corroborating witnesses to prove his assertion. At best, he should present an
expert witness (Pan Pacific Industrial Sals Co., Inc. vs. Court of Appeals, 482 SCRA 164, 176 [2006])

At most, according to the RTC, the assertion made by [petitioners] that the signatures therein are
not of Bernardino Gatan's nor hers is a bare denial that cannot prevail over the direct evidence of
[respondents'] witness who testified affirmatively that he was physically present at the signing of
the deed and who had personal knowledge thereof. Indeed, We affirm the credence accorded by
the RTC on the testimony of [respondents'] witness, Carlos Vinarao who acted as the instrumental
witness in the execution of the questioned Deed of Absolute Sale. He testified that during the
execution of the said document, he was with the seller, Bernardino Gatan, his wife Aurelia Gatan
and the buyer, Sostones Vinarao and he personally witnessed all the said parties affix their
signatures before Notary Public Atty. Alfredo Mabbayad (See: TSN dated November 10, 2008, pp.
10-11.) [Section] 22 of Rule 132 of the Rules of Court provides:

Section 22. How genuineness of handwriting proved. — The handwriting of a person may be
proved by any witness who believes it to be the handwriting of such person because he has seen
the person write, or has seen writing purporting to be his upon which the witness has acted or
been charged, and has thus acquired knowledge of the handwriting of such person. Evidence
respecting the handwriting may also be given by a comparison, made by the witness or the court,
with writings admitted or treated as genuine by the party against whom the evidence is offered,
or proved to be genuine to the satisfaction of the judge.

As records would show, Carlos Vinarao, the instrumental witness to the Deed of Absolute Sale has
testified in open court, confirming the authenticity and due execution of the Deed of Absolute
Sale. Having been physically present to see the seller Bernardino Gatan, his wife Aurelia Gatan and
the buyer Sostones Vinarao affix their signatures on the document, the weight of evidence
preponderates in favor of [respondents].

Considering the validity of the subject Deed of Absolute Sale, all parties, including their respective
heirs, are directed to comply with the terms and conditions set forth therein.[32]

The aforequoted findings of fact of the RTC, affirmed by the Court of Appeals, are binding and
conclusive upon this Court.

The Court has always accorded great weight and respect to the findings of fact of trial courts,
especially in their assessment of the credibility of witnesses. In this case, the RTC gave much
credence to Carlos's testimony, and there is no cogent reason for the Court to disturb the same.
As the Court pronounced in People v. Regaspi[33]:

When it comes to credibility, the trial court's assessment deserves great weight, and is even
conclusive and binding, unless the same is tainted with arbitrariness or oversight of some fact or
circumstance of weight and influence. Since it had the full opportunity to observe directly the
deportment and the manner of testifying of the witnesses before it, the trial court is in a better
position than the appellate court to properly evaluate testimonial evidence. The rule finds an even
more stringent application where the CA sustained said findings, as in this case. (Citations
omitted.)

In Bank of the Philippine Islands v. Leobrera,[34] the Court further stressed that:

Indeed, it is settled that when the factual findings of the trial court are confirmed by the Court of
Appeals, said facts are final and conclusive on this Court, unless the same are not supported by
the evidence on record.

x x x findings of fact of the trial court, when affirmed by the Court of Appeals, are binding upon
the Supreme Court. This rule may be disregarded only when the findings of fact of the Court of
Appeals are contrary to the findings and conclusions of the trial court, or are not supported by the
evidence on record. But there is no ground to apply this exception to the instant case. This Court
will not assess all over again the evidence adduced by the parties particularly where as in this case
the findings of both the trial court and the Court of Appeals completely coincide.

As a last note, the Court states its observations as regards the signatures of Bernardino (Exhibit
"B-1") and Aurelia Ramos Gatan (Exhibit "B-2") on the Deed of Absolute Sale as compared to the
specimen signatures of Bernardino (Exhibit "B-4") and petitioner Rogelia (Exhibit "B-3") submitted
by petitioners, since the RTC and the Court of Appeals did not elaborate on the same. While there
are marked differences between Bernardino's signature on the Deed and the specimen signature
submitted by petitioners, these do not necessarily prove that Bernardino's signature on the Deed
is a forgery. The differences are explainable by the fact that Bernardino's signature on the Deed
was affixed by Bernardino himself, as witnessed by Carlos; while the specimen signature submitted
by petitioners was Bernardino's name in petitioner Rogelia's handwriting. As for the signatures of
Aurelia Ramos Gatan and petitioner Rogelia, visual comparison reveals that they actually look
similar, especially the way the surname "Gatan" is written. Two of respondents' witnesses, Nenita
and respondent Jesusa, testified that they know petitioner Rogelia, Bernardino's wife, also by the
name "Aurelia." Therefore, even taking into consideration the submitted specimen signatures,
petitioners still failed to present clear, positive, convincing, and more than preponderant evidence
to overcome the presumption of authenticity and due execution of the notarized Deed of Absolute
Sale and to prove that the signatures of Bernardino and his wife appearing on said Deed are
forgeries.

WHEREFORE, premises considered, the instant Petition for Review on Certiorari is DENIED for lack
of merit. The Decision dated September 7, 2012 and Resolution dated February 11, 2013 of the
Court of Appeals in CA-G.R. CV No. 94340 are AFFIRMED.

SO ORDERED.

EN BANC

[ G.R. No. 210669, August 01, 2017 ]

HI-LON MANUFACTURING, INC., PETITIONER, VS. COMMISSION ON AUDIT, RESPONDENT.

DECISION

PERALTA, J.:

This Petition for Certiorari under Rule 64, in relation to Rule 65 of the 1997 Rules of Civil Procedure,
seeks to annul and set aside the Commission on Audit (COA) Decision No. 2011-003[1] dated
January 20, 2011, which denied HI-LON Manufacturing, Inc.'s (HI-LON) petition for review, and
affirmed with modification the Notice of Disallowance (ND) No. 2004-032 dated January 29, 2004
of COA's Legal and Adjudication Office-National Legal and Adjudication Section (LAO-N). The LAO-
N disallowed the amount of P9,937,596.20, representing the difference between the partial
payment of P10,461,338.00 by the Department of Public Works and Highways (DPWH) and the
auditor's valuation of P523/741.80, as just compensation for the 29,690-square-meter road right-
of-way taken by the government in 1978 from the subject property with a total area of 89,070 sq.
m. supposedly owned by HI-LON. The dispositive portion of the assailed COA Decision No. 2011-
003 reads:
WHEREFORE, premises considered, the instant petition for review is hereby DENIED for lack of
merit. Accordingly, ND No. 2004-32 dated January 29, 2004 amounting to P9,937,596.20 is hereby
AFFIRMED with modification on the reason thereof that the claimant is not entitled thereto.

On the other hand, the Special Audit Team constituted under COA Office Order No. 2009-494
dated July 16, 2009 is hereby instructed to issue a ND for the P523,741.80 payment to Hi-Lon not
covered by ND No. 2004-032 without prejudice to the other findings to be embodied in the special
audit report.[2]
This Petition likewise assails COA's Decision[3] No. 2013-212 dated December 3, 2013 which denied
HI-LON's motion for reconsideration, affirmed with finality COA Decision No. 2011-003, and
required it to refund payment made by DPWH in the amount of P10,461,338.00. The dispositive
portion of the assailed COA Decision No. 2013-212 reads:
WHEREFORE, the instant Motion for Reconsideration is hereby DENIED for lack of merit.
Accordingly, Commission on Audit Decision No. 2011-003 dated January 20, 2011 is hereby
AFFIRMED WITH FINALITY. Hi-Lon Manufacturing Co., Inc. is hereby required to refund the
payment made by the Department of Public Works and Highways in the amount of
P10,461,338.00.[4]
The antecedent facts are as follows:

Sometime in 1978, the government, through the then Ministry of Public Works and Highways (now
DPWH), converted to a road right-of-way (RROW) a 29,690 sq. m. portion of the 89,070 sq. m.
parcel of land (subject property) located in Mayapa, Calamba, Laguna, for the Manila South
Expressway Extension Project. The subject property was registered in the name of Commercial
and Industrial Real Estate Corporation (CIREC) under Transfer Certificate of Title (TCT) No. T-40999.

Later on, Philippine Polymide Industrial Corporation (PPIC) acquired the subject property, which
led to the cancellation of TCT No. T-40999 and the issuance of TCT No. T-120988 under its name.
PPIC then mortgaged the subject property with the Development Bank of the Philippines (DBP), a
government financing institution, which later acquired the property in a foreclosure proceeding
on September 6, 1985. TCT No. T-120988, under PPIC's name, was then cancelled, and TCT No. T-
151837 was issued in favor of DBP.

Despite the use of the 29,690 sq. m. portion of the property as RROW, the government neither
annotated its claim or lien on the titles of CIREC, PPIC and DBP nor initiated expropriation
proceedings, much less paid just compensation to the registered owners.
Upon issuance of Administrative Order No. 14 dated February 3, 1987, entitled "Approving the
Identification of and Transfer to the National Government of Certain Assets and Liabilities of the
Development Bank of the Philippines and the Philippine National Bank," the DBP submitted all its
acquired assets, including the subject property, to the Asset Privatization Trust (APT) for disposal,
pursuant to Proclamation No. 50 dated 8 December 1986.

On June 30, 1987, APT disposed of a portion of the subject property in a public bidding. The
Abstract of Bids[5] indicated that Fibertex Corporation (Fibertex), through Ester H. Tanco,
submitted a P154,000,000.00 bid for the asset formerly belonging to PPIC located in Calamba,
Laguna, i.e., "Land (5.9 hectares) TCT 4099, buildings & improvements, whole mill," while TNC
Philippines, Inc. and P. Lim Investment, Inc. submitted a bid of P106,666,000.00 and
P138,000,000.00, respectively. With respect to the former assets of Texfiber Corporation
(Texfiber) in Taytay, Rizal i.e., "Land (214,062 sq. m. TCT (493917) 506665, buildings &
improvements, whole mill"), only Fibertex submitted a bid of P210,000,000.00.

In a Certification[6] dated July 1, 1987, APT certified that Fibertex was the highest bidder of PPIC
and Texfiber assets for P370,000,000.00, and recommended to the Committee on Privatization to
award said assets to Fibertex. In a Letter[7] dated November 10, 1988, APT certified that Fibertex
paid APT P370,000,000.00 for the purchase of the said assets formerly belonging to PPIC and
Texfiber.

Meanwhile, Fibertex allegedly requested APT to exclude separate deeds of sale for the parcel of
land and for improvements under the subject property covered by TCT No. 151837 in the name of
DBP. Having been paid the full bid amount, APT supposedly agreed with Fibertex that the land
would be registered in the name of TG Property, Inc. (TGPI) and the improvements to Fibertex.
Thus, APT executed two (2) separate Deeds of Sale with TGPI and Fibertex with regard to the
property, namely:

a. Deed of Sale between APT and TGPI executed on October 29, 1987 for the sale of a parcel
of land covered by TCT No. T-151837 for a consideration of P2,222,967.00.

b. Deed of Sale between APT and Fibertex executed on 19 August 1987 for the sale of
improvements (machinery, equipment and other properties) on the same property for a
consideration of P154,315,615.39.

Upon complete submission of the required documents and proof of tax payments on December
9, 1987, the Register of Deeds of Calamba, Laguna, cancelled DBP's TCT No. 151837 and issued
TCT No. T-158786 in the name of TGPI, covering the entire 89,070 sq. m. subject property,
including the 29,690 sq. m. RROW. From 1987 to 1996, TGPI had paid real property taxes for the
entire 89,070 sq. m. property, as shown by the Tax Declarations and the Official Receipt issued by
the City Assessor's Office and Office of the City Treasurer of Calamba, Laguna, respectively.

On April 16, 1995, TGPI executed a Deed of Absolute Sale in favor of HI-LON over the entire 89,070
sq. m. subject property for a consideration of P44,535,000.00. HI-LON registered the Deed with
the Register of Deeds of Calamba, Laguna, which issued in its name TCT No. 383819.

Sometime in 1998, Rupert P. Quijano, Attorney-in-Fact of HI-LON, requested assistance from the
Urban Road Project Office (URPO) DPWH for payment of just compensation for the 29,690 sq. m.
portion of the subject property converted to a RROW. The DPWH created an Ad Hoc Committee
which valued the RROW at P2,500/sq. m. based on the 1999 Bureau of/ Internal Revenue (BIR)
zonal valuation.

On December 21, 2001, a Deed of Sale was executed between HI-LON and the Republic of the
Philippines, represented by Lope S. Adriano, URPO-PMO Director, by authority of the DPWH
Secretary, covering the 29,690 sq. m. parcel of land converted to RROW for a total consideration
of P67,492,500.00. On January 23, 2002, the Republic, through the DPWH, made the first partial
payment to HI-LON in the amount of P10,461,338.00.

On post audit, the Supervising Auditor of the DPWH issued Audit Observation Memorandum No.
NGS VIII-A-03-001 dated April 2, 2003 which noted that the use of the 1999 zonal valuation of
P2,500.00/sq. m. as basis for the determination of just compensation was unrealistic, considering
that as of said year, the value of the subject property had already been "glossed over by the
consequential benefits" it has obtained from the years of having been used as RROW. The auditor
pointed out that the just compensation should be based on the value of said property at the time
of its actual taking in 1978. Taking into account the average value between the 1978 and 1980 Tax
Declarations covering the subject land, the Auditor arrived at the amount of P19.40/sq. m. as
reasonable compensation and, thus, recommended the recovery of excess payments.

Upon review of the auditor's observations, the Director of the LAO-N issued on January 29, 2004
ND No. 2004-32 in the amount of P9,937,596.20, representing the difference between the partial
payment of P10,461,338.00 to HI-LON and the amount of P532.741.80, which should have been
paid as just compensation for the conversion of the RROW.

Acting on the request of Dir. Lope S. Adriano, Project Director (URPO-PMO) for the lifting of ND
No. 2004-032 dated January 29, 2004, the LAO-N rendered Decision No. 2004-172 dated May 12,
2004, affirming the same ND, and stating the value of the property must be computed from the
time of the actual taking.

Resolving (1) the motions for reconsideration and request for exclusion from liability of former
DPWH Secretary Gregorio R. Vigilar, et al. (2) the request for lifting, of Notice of Disallowance No.
2004-032 of OIC Director Leonora J. Cuenca; (3) the motion to lift the disallowance and/or
exclusion as person liable of Ms. Teresita S. de Vera, Head, Accounting Unit, DPWH; and (4) the
appeal from ND No. 2004-032 of former Assistant Secretary Joel C. Altea and of Mr. Rupert P.
Quijano, Attorney-in-Fact of HI-LON, the LAO-N issued Decision No. 2008-172-A dated June 25,
2008, which denied the appeal and affirmed the same ND with modification that payment of
interest is appropriate under the circumstances.

Aggrieved, HI-LON filed a petition for review before the COA. In its regular meeting on June 9,
2009, the COA deferred the resolution of the petition, and instructed its Legal Service Section to
create a Special Audit Team from the Fraud Audit and Investigation Office to investigate and
validate HI-LON's claim.

In its assailed Decision No. 2011-003 dated January 20, 2011, the COA denied for lack of merit HI-
LON's petition for review of the LAO-N Decision No. 2008-172-A, and affirmed ND No. 2004-032
dated July 29, 2004 with modification declaring the claimant not entitled to just compensation.
The COA also instructed the Special Audit Team to issue an ND for the P523,741.80 payment to
HI-LON not covered by ND No. 2004-032, without prejudice to the other findings embodied by the
special audit report.

On the issue of whether or not HI-LON is entitled to just compensation for the 29,690 sq. m.
portion of the subject property, the COA found that the evidence gathered by the Special Audit
Team are fatal to the claim for such compensation.

First, the COA noted that the transfer of the subject property in favor of TGPI, the parent
corporation of HI-LON, was tainted with anomalies because records show that TGPI did not
participate in the public bidding held on June 30, 1987, as only three (3) bidders participated,
namely: Fibertex Corporation, TNC Philippines, Inc., and P. Lim Investment, Inc.

Second, the COA pointed out that the Deed of Sale between APT and Fibertex has a disclosure that
"The subject of this Deed of Absolute Sale, therefore, as fully disclosed in the APT Asset Catalogue,
is the total useable area of 59,380 sq. m.,"[8] excluding for the purpose the 29,690 sq. m. converted
to RROW. The COA added that such exclusion was corroborated by the Abstract of Bids duly signed
by the then APT Executive Assistant and Associate Executive Trustee, showing that the land
covered by TCT No. T-151387 was offered to the public bidding for its useable portion of 5.9
hectares only, excluding the subject 29,690 sq. m. converted to RROW.

Third, the COA observed that HI-LON is a mere subsidiary corporation which cannot acquire better
title than its parent corporation TGPI. The COA stressed that for more than (7) seven years that
the subject property was under the name of TGPI from its registration on December 9, 1987 until
it was transferred to HI-LON on April 16, 1995, TGPI did not attempt to file a claim for just
compensation because it was estopped to do so as the Deed of Sale executed between APT and
TGPI clearly stated that the 29,690 sq. m. RROW was excluded from the sale and remains a
government property. Applying the principle of piercing the veil of corporate fiction since TGPI
owns 99.9% of HI-LON, the COA ruled that HI-LON cannot claim ignorance that the 29,690 sq. m.
RROW was excluded from the public auction.

Having determined that HI-LON or its predecessor-in-interest TGPI does not own the RROW in
question, as it has been the property of the Republic of the Philippines since its acquisition by the
DBP up to the present, the COA concluded that the proper valuation of the claim for just
compensation is irrelevant as HI-LON is not entitled thereto in the first place.

Dissatisfied, HI-LON filed a Motion for Reconsideration of COA Decision No. 2011-003 and a
Supplement thereto.

On December 3, 2013, the COA issued the assailed Decision No. 2013-212 denying HI-LON's
motion, for reconsideration, affirming with finality its assailed Decision No. 2011-003, and
requiring HI-LON to refund the payment made by DPWH in the amount of P10,461,338.00.

In this Petition for Certiorari, HI-LON argues that the COA committed grave abuse of discretion,
amounting to lack or excess of jurisdiction when it held (1) that there was no property owned by
HI-LON that was taken by the government for public use; (2) that the 89,070-sq. m. subject parcel
of land, including the 29,690 sq. m. portion used as RROW by the government, had been the
property of the Republic of the Philippines; (3) that HI-LON is not entitled to payment of just
compensation; and (4) that it collaterally attacked HI-LON's ownership of the subject land,
including the RROW.[9]

The Office of the Solicitor General (OSG) counters that the COA acted within its jurisdiction when
it evaluated and eventually disallowed what it found to be an irregular, anomalous and
unnecessary disbursement of public funds. The OSG agrees with the COA that HI-LON is not
entitled to payment of just compensation because the 29,690 sq. m. portion used as RROW is
already owned by the Republic since 1987 when DBP transferred the entire 89,070 sq. m. subject
property to APT, pursuant to Administrative Order No. 14. The OSG emphasizes that the Deed of
Absolute Sale dated October 29, 1987 between the Republic (through APT) and TGPI clearly stated
that the subject thereof, as fully disclosed in the APT Asset Specific Catalogue, is the total useable
area of 59,380 sq. m., hence, the 29,690 sq. m. portion used as RROW was expressly excluded
from the sale. Besides, the OSG notes that the COA aptly found that there were only three bidders
who participated in APT's public bidding of the subject property and TGPI was not one of the
bidders. There being an anomaly in the transfer of the property from APT to TGPI, the OSG posits
that HI-LON, as TGPI's successor-in-interest, is not entitled to just compensation.

Stating that the intention of Proclamation No. 50 was to transfer the non-performing assets of
DBP to the national government, the OSG maintains that APT has no authority to offer for sale the
said portion because it is a performing asset, having been used by the government as RROW for
the Manila South Expressway since 1978. Considering that the said 29,690 sq. m. portion was not
sold and transferred by APT to TGPI, the OSG submits that TGPI cannot also transfer the same
portion to its subsidiary, HI-LON. The OSG concludes that HI-LON is not entitled to payment of just
compensation as it is not the owner of the said portion, and that the COA properly ordered full
disallowance of the P10,461,338.00 paid to HI-LON.

HI-LON's Petition for HI-LON is devoid of merit.

In support of its claim of entitlement to just compensation, HI-LON relies on the Deed of Sale dated
October 29, 1987, and insists that its predecessor-in-interest (TGPI) acquired from the national
government, through APT, the entire 89,070 sq. m. property, which was previously registered in
the name of DBP under TCT No. 151837. HI-LON asserts that the 29,690 sq. m. RROW was not
excluded from the sale because: (1) APT referred to the entire property in the Whereas Clauses as
one of the subject of the sale; (2) APT made an express warranty in the said Deed that the
properties sold are clear of liens and encumbrances, which discounts the need to investigate on
the real status of the subject property; and (3) the title registered in the name of DBP, as well as
the titles of the previous owners, CIREC and PPIC, contains no annotation as regards any
government's claim over the RROW.

HI-LON's assertions are contradicted by the clear and unequivocal terms of the Deed of Sale[10]
dated 29 October 1987 between APT and TGPI, which state that the subject thereof is the total
usable area of 59,380 sq. m. of the subject property. Contrary to HI-LON's claim, nothing in the
Whereas Clauses of the Deed indicates that the object of the sale is the entire 89,070 sq. m.
property, considering that the 29,690 sq. m. portion thereof had been used as road right-of-way
(RROW) for the South Expressway, to wit:
x x x x

WHEREAS, the Development Bank of the Philippines (DBP) was the mortgagee of a parcel of land
(hereafter to be referred to as the "PROPERTY") covered by Transfer Certificate of Title No. T-
151837 of the Registry of Deeds for the Province of Laguna (Calamba Branch), more particularly
described as follows:
A parcel of land (Lot 2-D-I-J of the subd. Plan Psd-39402, being a portion-of Lot 2-D-l, described on
plan Psd-18888, LRC (GLRO Rec:No. 9933, situated in the Bo. of Mayapa & San Cristobal,
Municipality of Calamba, Province of Laguna. Bounded on the N.E. by Lot No. 2-D-1-1; of the subd.
Plan; on the S., by the Provincial Road; on the SW., by Lot 2-D-l-K of the subd. plan and on the NW.,
by Lot No. 2-B of plan Psd-925. Beginning at a point marked "1" on plan, being S. 62 deg. 03'W.,
1946.22 from L.M. 5, Calamba Estate; Thence — N. 64 deg. 35'E., 200.27 m. to point 2; S.21 deg.
03'E. 166.82 m. to point 3; S. 12 deg. 30'E, 141.01 m. to point 4; S. 10 deg. 25'E, 168.29 m. to point
5; N. 84 deg. 47'W, 215.01 m. to point 6; N. 13 deg. 44'W., 150.99 m. Thence — to point 7; N. 13
deg. 45'W., 27.66 m. to the point of beginning; containing an area of EIGHTY-NINE THOUSAND
SEVENTY (89,070) SQUARE METERS, more or less. All points referred to are indicated on the plan
and are marked on the ground by PLS. cyl. cone. mons. bearings true detloop deg. 03'E., date of
original survey Jan. 1906 - Jan. 1908 and Sept. 1913 and that of subd. survey, Aug. 23-25, 1953.

[As per Tax Declaration No. 9114, an area of 29,690 sq. m. had been used (road-right-of-way) for
the South Expressway. The subject of this Deed of Absolute Sale, therefore, as fully disclosed in
the APT Asset Specific Catalogue, is the total useable area of 59,380 sq. m.][11]

WHEREAS, the PROPERTY was subsequently acquired by DBP at public auction in a foreclosure sale
as evidenced by a Sheriffs Certificate of Sale dated September 6, 1985 issued by Mr. Godofredo E.
Quiling, Deputy Provincial Sheriff, Office of the Provincial Sheriff of Laguna, Philippines. x x x

WHEREAS, pursuant to Administrative Order No. 14 issued on February 3, 1987 [Approving the
Identification of and Transfer to the National Government of Certain Assets and Liabilities of the
Development Bank of the Philippines and the Philippine National Bank], DBP's ownership and
interest over the PROPERTY were transferred to the National Government through the ASSET
PRIVATIZATION TRUST (APT), a public trust created under Proclamation No. 50 dated December
8, 1986.

WHEREAS, in the public bidding conducted by the APT on June 30, 1987, the VENDEE [TGPI] made
the highest cash bid for the PROPERTY and was declared the winning bidder.

WHEREAS, the sale of the PROPERTY has been authorized by the COMMITTEE ON PRIVATIZATION
under Notice of Approval dated July 21, 1987 of the APT;

WHEREAS, the VENDEE [TGPI] has fully paid the VENDOR [Government of the Republic of the
Philippines, through APT] the purchase price of the PROPERTY in the amount of PESOS: TWO
MILLION TWO HUNDRED TWENTY-TWO THOUSAND NINE HUNDRED SIXTY-SEVEN
(P2,222,967.00).

NOW, THEREFORE, for and in consideration of the above premises and for the sum of PESOS: TWO
MILLION TWO HUNDRED TWENTY-TWO THOUSAND NINE HUNDRED SIXTY-SEVEN
(P2,222,967.00), Philippine Currency, paid by the VENDEE to the VENDOR, the VENDOR does by
these presents sell, transfer and convey the PROPERTY hereinabove described unto the VENDEE,
its successors and assigns, subject to the following conditions:
1. The VENDOR hereby warrant that the PROPERTIES shall be sold and transferred
free and clear of liens and encumbrances accruing before August 18, 1987, and
that all taxes or charges accruing or becoming due on the PROPERTIES before said
date have or shall be fully paid by the VENDOR;

2. Documentary Stamp Taxes, Transfer Taxes. Registration fees, and all other
expenses arising out of or relating to the execution and delivery of this Deed shall
be for the account of and paid by the VENDEE;

3. Capital gains tax, if any, payable on or in respect of the transfer of the PROPERTY
to the VENDEE shall be for the account of and paid by the VENDOR.

IN WITNESS WHEREOF, the parties hereto have caused these presents to be signed at Makati,
Metro Manila this [29th] day of [October], 1987.[12]

As the Deed of Sale dated October 29, 1987 is very specific that the object of the sale is the 59,380.
sq. m. portion of the subject property, HI-LON cannot insist to have acquired more than what its
predecessor-in-interest (TGPI) acquired from APT. Article 1370 of the New Civil Code provides that
if the terms of a contract are clear and leave no doubt upon the intention of the contracting
parties, the literal meaning of its stipulations shall control. Every contracting party is presumed to
know the contents of the contract before signing and delivering it,[13] and that the words used
therein embody the will of the parties. Where the terms of the contract are simple and clearly
appears.to have been executed with all the solemnities of the law, clear and convincing evidence
is required to impugn it.[14] Perforce, HI-LON's bare allegation that the object of the Deed of Sale
is the entire 89,070 sq. m. area of the subject property, is self-serving and deserves short shrift.
The Court thus agrees with the COA in rejecting HI-LON's claim of ownership over the 29,690 sq.
m. RROW portion of the subject property in this wise:
x x x x

As clearly shown in the Abstract of Bids, the subject of the bidding was 59,380 sq. m. only. The
Deed of Sale expressly states that -
[As per Tax Declaration No. 9114, an area of 29,690 sq. m. had been used (road-right-of-way) for
the South Expressway. The subject of this Deed of Absolute Sale, therefore, as fully disclosed in the
APT Asset Specific Catalogue, is the total useablc area of 59,380 sq. m.]
The government cannot enter into a contract with the highest bidder and incorporate substantial
provisions beneficial to the latter which are not included or contemplated in the terms and
specifications upon which the bids were solicited. It is contrary to the very concept of public
bidding to permit an inconsistency between the terms and conditions under which the bids were
solicited and those under which the bids were solicited and those under which proposals are
submitted and accepted. Moreover, the substantive amendment of the terms and conditions of
the contract bid out, after the bidding process had been concluded, is violative of the principles in
public bidding and will render the government vulnerable to the complaints from the losing
bidders.

Thus, since the area of [29,690 sq. m. which later became] 26,997 sq. m. covered by the ROW was
not subject of the public bidding, Hi-Lon cannot validly acquire and own the same. The owner of
this property is still the Republic of the Philippines.

x x x x[15]
Citing Bagatsing v. Committee on Privatization[16] where it was held that Proclamation No. 50 does
not prohibit APT from selling and disposing other kinds of assets whether they are performing or
non-performing, necessary or appropriate, HI-LON contends that regardless of whether or not the
RROW is a performing or non-performing asset, it could not have been excluded in the sale of the
entire 89,070 sq. m. property pursuant to the said Proclamation.

Concededly, the 29,690 sq. m. portion of the subject property is not just an ordinary asset, but is
being used as a RROW for the Manila South Expressway Extension Project, a road devoted for a
public use since it was taken in 1978. Under the Philippine Highway Act of 1953, "right-of-way" is
defined as the land secured and reserved to the public for highway purposes, whereas "highway"
includes rights-of-way, bridges, ferries, drainage structures, signs, guard rails, and protective
structures in connection with highways.[17] Article 420 of the New Civil Code considers as property
of public dominion those intended for public use, such as roads, canals, torrents, ports and bridges
constructed by the state, banks, shores, roadsteads, and others of similar character.

Being of similar character as roads for public use, a road right-of-way (RROW) can be considered
as a property of public dominion, which is outside the commerce of man, and cannot be leased,
donated, sold, or be the object of a contract,[18] except insofar as they may be the object of repairs
or improvements and other incidental matters. However, this RROW must be differentiated from
the concept of easement of right of way under Article 649[19] of the same Code, which merely gives
the holder of the easement an incorporeal interest on the property but grants no title thereto,[20]
inasmuch as the owner of the servient estate retains ownership of the portion on which the
easement is established, and may use the same in such a manner as not to affect the exercise of
the easement.[21]

As a property of public dominion akin to a public thoroughfare, a RROW cannot be registered in

the name of private persons under the Land Registration Law and be the subject of a Torrens Title;
and if erroneously included in a Torrens Title, the land involved remains as such a property of
public dominion.[22] In Manila International Airport Authority v. Court of Appeals,[23] the Court
declared that properties of public dominion, being for public use, are not subject to levy,
encumbrance or disposition through public or private sale. "Any encumbrance, levy on execution
or auction sale of any property of public dominion is void for being contrary to public policy.
Essential public services will stop if properties of public dominion are subject to encumbrances,
foreclosures and auction sale."[24]

It is, therefore, inconceivable that the government, through APT, would even sell in a public
bidding the 29,690 sq. m. portion of the subject property, as long as the RROW remains as property
for public use. Hence, HI-LON's contention that the RROW is included in the Deed of Absolute Sale
dated 29 October 1987, regardless whether the property is a performing or non-performing asset,
has no legal basis.

Neither can HI-LON harp on the express warranty in the Deed of Sale that the subject property is
clear from any encumbrance, and the lack of annotation of the government's claim of RROW on
the TCTs of CIREC, PPIC and DBP covering the subject property, to bolster its claim of having
acquired ownership of such property in good faith.

There is no dispute as to the finding of COA Commissioner Juanito G. Espino and DPWH Officer-
in-Charge Manuel M. Bonoan based on the examination of land titles of the subject property that
the entire 89,070 sq. m. area thereof was never reduced in the process of seven (7) transfers of
ownership from Emerito Banatin, et al., in 1971 to HI-LON in 1996, nor was there an annotation
of a RROW encumbrance on the TCTs of CIREC, PPIC, DBP and TGPI. Be that as it may, HI-LON
cannot overlook the fact that the RROW was taken upon the directive of the Ministry of Public
Works and Highways in 1978 for the construction of the Manila South Expressway Extension
project. Such public highway constitutes as a statutory lien on the said TCTs, pursuant to Section
39 of the Land Registration Act (Act No. 496) and Section 44 of the Property Registration Decree
(Presidential Decree No. 1529):

Section 39. Every applicant receiving a certificate of title in pursuance of a decree of registration,
and every subsequent purchaser of registered land who takes a certificate of title for value in good
faith, shall hold the same free of all encumbrance except those noted on said certificate, and any
of the following encumbrances which may be subsisting, namely:

First. Liens, claims, or rights arising or existing under the laws or Constitution of the United States
or of the Philippine Islands which the statutes of the Philippine Islands cannot require to appear
of record in the registry.

Second. Taxes within two years after the same have become due and payable.

Third. Any public highway, way, or private way established by law, where the certificate of title does
not state that the boundaries of such highway or way have been determined. But if there are
easements or other rights appurtenant to a parcel of registered land which for any reason have
failed to be registered, such easements or rights shall remain so appurtenant notwithstanding
such failure, and shall be held to pass with the land until cut off or extinguished by the registration
of the servient estate, or in any other manner.

x x x x

SECTION 44. Statutory Liens Affecting Title. — Every registered owner receiving a certificate of title
in pursuance of a decree of registration, and every subsequent purchaser of registered land taking
a certificate of title for value and in good faith, shall hold the same free from all encumbrances
except those noted in said certificate and any of the following encumbrances which maybe
subsisting, namely:

First. Liens, claims or rights arising or existing under the laws and Constitution of the Philippines
which are not by law required to appear of record in the Registry of Deeds in order to be valid
against subsequent purchasers or encumbrancers of record.

Second. Unpaid real estate taxes levied and assessed within two years immediately preceding the
acquisition of any right over the land by an innocent purchaser for value, without prejudice to the
right of the government to collect taxes payable before that period from the delinquent taxpayer
alone.

Third. Any public highway or private way established or recognized by law, or any government
irrigation canal or lateral thereof, if the certificate of title docs not state that the boundaries of such
highway or irrigation canal or lateral thereof have been determined.

Fourth. Any disposition of the property or limitation on the use thereof by virtue of, or pursuant
to, Presidential Decree No. 27 or any other law or regulations on agrarian reform.[25]
Section 39 of Act No. 496 and Section 44 of P.D. No. 1529 provide for statutory liens which subsist
and bind the whole world, even without the benefit of registration under the Torrens System.
Thus, even if the TCTs of CIREC, PPIC, DBP and TGPI contain no annotation of such encumbrance,
HI-LON can hardly feign lack of notice of the government's claim of ownership over the public
highway built along the RROW, and claim to be an innocent purchaser for value of the entire
89,070 sq. m. subject property because such highway prompts actual notice of a possible claim of
the government on the RROW.

Given that prospective buyers dealing with registered lands are normally not required by law to
inquire further than what appears on the face of the TCTs on file with the Register of Deeds, it is
equally settled that purchasers cannot close their eyes to known facts that should have put a
reasonable person on guard.[26] Their mere refusal to face up to that possibility will not make them
innocent purchasers for value, if it later becomes apparent that the title was defective, and that
they would have discovered the fact, had they acted with the measure of precaution required of
a prudent person in a like situation.[27] Having actual notice of a public highway built on the RROW
portion of the subject property, HI-LON cannot afford to ignore the possible claim of encumbrance
thereon by the government, much less fail to inquire into the status of such property.

Invoking the principle of estoppel by laches, HI-LON posits that the government's failure to assert
its right of ownership over the RROW by registering its claim on the titles of CIREC, PPIC, and DBP
since the 29,690 sq. m. portion of the property was converted to a RROW way back in 1978 until
the purported sale of the entire 89,070 sq. m. property to TGPI in 1987, bars it from claiming
ownership of the RROW because it slept over its rights for almost nine (9) years. HI-LON states
that if it were true that the government was convinced that it acquired the RROW, it would have
lost no time in registering its claim before the Register of Deeds, instead of surrendering to TGPI
the owner's duplicate of TCT No. 151837 in the name of DBP, to facilitate the issuance of a new
title over the entire 89,070 sq. m. property, which includes the 29,690 sq. m. RROW. HI-LON
further claims that the government is estopped from claiming its alleged right of ownership of the
RROW because the DPWH itself offered to buy and, in fact, executed a Deed of Sale, thereby
acknowledging that the RROW is a private property owned by HI-LON.

The failure of the government to register its claim of RROW on the titles of CIREC, PPIC, DBP and
TGPI is not fatal to its cause. Registration is the ministerial act by which a deed, contract, or
instrument is inscribed in the records of the Office of the Register of Deeds and annotated on the
back of the TCT covering the land subject of the deed, contract, or instrument.[28] It creates a
constructive notice to the whole world and binds third persons.[29] Nevertheless, HI-LON cannot
invoke lack of notice of the government's claim over the 29,690 sq. m. RROW simply because it
has actual notice of the public highway built thereon, which constitutes as a statutory lien on its
title even if it is not inscribed on the titles of its predecessors-in-interest, CIREC, PPIC, DBP, and
TGPI. Indeed, actual notice is equivalent to registration, because to hold otherwise would be to
tolerate fraud and the Torrens System cannot be used to shield fraud.[30]

Meanwhile, the mistake of the government officials in offering to buy the 29,690 sq. m. RROW
does not bind the State, let alone vest ownership of the property to HI-LON. As a rule, the State,
as represented by the government, is not estopped by the mistakes or errors of its officials or
agents, especially true when the government's actions are sovereign in nature.[31] Even as this rule
admits of exceptions in the interest of justice and fair play, none was shown to obtain in this case.
Considering that only 59,380 sq. m. of the subject property was expressly conveyed and sold by
the government (through APT) to HI-LON's predecessor-in-interest (TGPI), HI-LON has no legal
right to claim ownership over the entire 89,070 sq. m. property, which includes the 29,690 sq. m.
RROW taken and devoted for public use since 1978.

In arguing that the government had no legal title over the RROW, HI-LON points out that the
government acquired title thereto only in 2001 when a Deed of Sale was executed between HI-
LON and the DPWH. HI-LON claims that when the government used the 29,690 sq. m. portion of
the subject property as RROW in 1978, it never acquired legal title because it did not institute any
expropriation proceeding, let alone pay the registered owner just compensation for the use
thereof.

HI-LON's claim of ownership over the said RROW has been duly rejected by the COA in this manner:
x x x x

By virtue of Administrative Order No. 14, s. 1987, pursuant to Section 23 of Proclamation No. 50,
the 89,070 sq. m. subject parcel of land, including the 29,690 sq. m. which had been used as ROW
by the Government, was transferred to and owned by the National Government. TG Property, Inc.
cannot acquire a portion of the parcel of land without authority and consent of the Philippine
Government, being the owner and seller of the said property. Hi-Lon cannot even claim ownership
on the portion of the subject land without the said deed of sale executed by the Government in
favor of TG Property, Inc. The facts would show that the ROW has been the property of the Republic
of the Philippines since its transfer from DBP in 1987.

x x x[32]
It bears emphasis that the right to claim just compensation for the 29,690 sq. m. portion which
was not exercised by CIREC or PPIC, ceased to exist when DBP acquired the entire 89,070 sq. m.
property in a foreclosure sale and later transferred it to the national government (through APT) in
1987, pursuant to Proclamation No. 50. Having consolidated its title over the entire property,
there is no more need for the government to initiate an action to determine just compensation
for such private property which it previously took for public use sans expropriation proceedings.

Citing Section 48 of P.D. 1529 which bars collateral attack to certificates of title, HI-LON asserts
that COA erred in ruling that there was no property owned by HI-LON that was taken by the
government for public use, despite the fact that: (a) the ownership of the subject property was
not raised before the Commission Proper of the COA; and (b) COA has no jurisdiction over issues
of ownership and entitlement to just compensation. HI-LON stresses that the titles issued to TGPI
and HI-LON conclusively show that they are the registered owners of the entire 89,070 sq. m.
property in Calamba, Laguna, including the 29,690 sq. m. RROW. Absent any proceeding directly
assailing the said titles, the ownership of the said property by HI-LON and TGPI is beyond dispute.
HI-LON further states that Leoncio Lee Tek Sheng v. Court of Appeal[33] cited by the OSG is
inapplicable because a notice of lis pendens was annotated on the title subject of the case, unlike
the titles of TGPI and HI-LON which contain no annotation of claims of ownership by the Republic.

Suffice it to state that there is no merit in HI-LON's argument that the TCTs issued in its name and
that of its predecessor-in-interest (TGPI) have become incontrovertible and indefeasible, and can
no longer be altered, cancelled or modified or subject to any collateral attack after the expiration
of one (1) year from the date of entry of the decree of registration, pursuant to Section 32 of P.D.
No. 1529. In Heirs of Clemente Ermac v. Heirs of Vicente Ermac,[34] the Court clarified the foregoing
principle, viz.:
x x x While it is true that Section 32 of PD 1529 provides that the decree of registration becomes
incontrovertible after a year, it does not altogether deprive an aggrieved party of a remedy in law.
The acceptability of the Torrens System would be impaired, if it is utilized to perpetuate fraud
against the real owners.

Furthermore, ownership is not the same as a certificate of title. Registering a piece of land under
the Torrens System does not create or vest title, because registration is not a mode of acquiring
ownership. A certificate of title is merely an evidence of ownership or title over the particular
property described therein. Its issuance in favor of a particular person does not foreclose the
possibility that the real property may be co-owned with persons not named in the certificate, or
that it may be held in trust for another person by the registered owner.[35]

In Lacbayan v. Samoy, Jr.,[36] the Court noted that what cannot be collaterally attacked is the
certificate of title, and not the title itself:

x x x The certificate referred to is that document issued by the Register of Deeds known as the
TCT. In contrast, the title referred to by law means ownership which is, more often than not,
represented by that document. x x x Title as a concept of ownership should not be confused with
the certificate of title as evidence of such ownership although both are interchangeably used.

In Mallilin, Jr. v. Castillo,[37] the Court defined collateral attack on the title, as follows:

x x x When is an action an attack' on a title? It is when the object of the action or proceeding is to
nullify the title, and thus challenge the judgment pursuant to which the title was decreed. The
attack is direct when the object of an action or proceeding is to annul or set aside such judgment,
or enjoin its enforcement. On the other hand, the attack is indirect or collateral when, in an action
to obtain a different relief, an attack on the judgment is nevertheless made as an incident
thereof.[38]

In this case, what is being assailed by the COA when it sustained the Notice of Disallowance for
payment of just compensation is HI-LON's claim of ownership over the 29,690 sq. m. portion of
the property, and not the TCT of TGPI from which HI-LON derived its title. Granted that there is an
error in the registration of the entire 89,070 sq. m. subject property previously in the name of TGPI
under TCT No. 156786[39] and currently in the name of HI-LON under TCT No. T-383819[40] because
the 29,690 sq. m. RROW portion belonging to the government was mistakenly included, a judicial
pronouncement is still necessaiy in order to have said portion excluded from the Torrens title.[41]

HI-LON's assertion that the titles issued to TGPI and HI-LON conclusively show that they are the
registered owners of the entire 89,070 sq. m. property in Calamba, Laguna, including the 29,690
sq. m. RROW is anathema to the purpose of the Torrens System, which is intended to guarantee
the integrity and conclusiveness of the certificate of registration, but cannot be used for the
perpetration of fraud against the real owner of the registered land.[42] On point is the case of
Balangcad v. Court of Appeals[43] where it was held that "the system merely confirms ownership
and does not create it. Certainly, it cannot be used to divest the lawful owner of his title for the
purpose of transferring it to another who has not acquired it by any of the modes allowed or
recognized by law. Where such an erroneous transfer is made, as in this case, the law presumes
that no registration has been made and so retains title in the real owner of the land."

It is also not amiss to cite Ledesma v. Municipality of Iloilo[44] where it was ruled that "if a person
obtains title, under the Torrens system, which includes, by mistake or oversight, lands which
cannot be registered under the Torrens system, he does not, by virtue of said certificate alone,
become the owner of the land illegally included." Inasmuch as the inclusion of public highways in
the certificate of title under the Torrens system does not thereby give to the holder of such
certificate said public highways,[45] the same holds true with respect to RROWs which are of similar
character as roads for public use.

Assuming arguendo that collateral attack of said titles are allowed, HI-LON claims that its right of
ownership of the subject RROW can no longer be assailed by the COA because it never questioned
such right until after it denied the petition for review. HI-LON notes that ND No. 2004-032 was
issued and it was denied payment of just compensation for the RROW solely on the ground that
such compensation should be based on the value of the lot at the time of the actual taking by the
government in 1978. HI-LON avers that it was surprised to find out that in the Decision dated 20
January 2011, the COA Commission Proper assailed for the first time TGPI's and HI-LON's right of
ownership over the RROW, instead of merely finding whether or not the valuation of the property
should be based on the value at the time of the taking in 1978 or the value of the P2,500.00/sq.
m.

HI-LON's arguments fail to persuade.

COA may delve into the question of ownership although this was not an original ground for the
issuance of the Notice of Disallowance, but only the proper valuation of the just compensation
based on the date of actual taking of the property. In Yap v. Commission on Audit,[46] the Court
ruled that "COA is not required to limit its review only to the grounds relied upon by a government
agency's auditor with respect to disallowing certain disbursements of public funds. In consonance
with its general audit power, respondent COA is not merely legally permitted, but is also duty-
bound to make its own assessment of the merits of the disallowed disbursement and not simply
restrict itself to reviewing the validity of the ground relied upon by the auditor of the government
agency concerned. To hold otherwise would render the COA's vital constitutional power unduly
limited and thereby useless and ineffective." Tasked to be vigilant and conscientious in
safeguarding the proper use of the government's, and ultimately the people's property, the COA
is endowed with enough latitude to determine, prevent, and disallow irregular, unnecessary,
excessive, extravagant or unconscionable expenditures of government funds.[47]

It is the policy of the Court to sustain the decisions of administrative authorities, especially one
that was constitutionally created like herein respondent COA, not only on the basis of the doctrine
of separation of powers, but also of their presumed expertise in the laws they are entrusted to
enforce.[48] Considering that findings of administrative agencies are accorded not only respect but
also finality when the decision and order are not tainted with unfairness or arbitrariness
amounting to grave abuse of discretion, it is only when the COA acted with such abuse of discretion
that the Court entertains a petition for certiorari under Rule 65 of the Rules of Court.[49]

Grave abuse of discretion implies such capricious and whimsical exercise of judgment as is
equivalent to lack of jurisdiction or, in other words, the exercise of the power in an arbitrary
manner by reason of passion, prejudice, or personal hostility;[50] and it must be so patent or gross
as to amount to an evasion of a positive duty or to a virtual refusal to perform the duty enjoined
or to act at all in contemplation of law.[51] No grave abuse of discretion can be imputed against the
COA when it affirmed the Notice of Disallowance issued by the LAO-N in line with its constitutional
authority[52] and jurisdiction over cases involving "disallowance of expenditures or uses of
government funds and properties found to be illegal, irregular, unnecessary, excessive,
extravagant or unconscionable."[53] Having determined that HI-LON does, not own the disputed
RROW, the COA correctly ruled that HI-LON is not entitled to payment of just compensation and
must accordingly refund the partial payment made by the DPWH in the amount of P10,461,338.00.
To stress, even if HI-LON is the registered owner of the subject property under TCT No. T-383819
with an area of 89,070 sq. m., the Deed of Absolute Sale dated 29 October 1987 clearly shows that
only the 59,380 sq. m. portion of the subject property, and not 29,690 sq. m. portion used as
RROW, was sold and conveyed by the government (through APT) to HI-LON's immediate
predecessor-in-interest (TGPI).

In light of the foregoing disquisition, HI-LON's prayer for issuance of Temporary Restraining Order
and/or Writ of Injunction must necessarily be denied for lack of clear and unmistakable right over
the disputed 29,690 sq. m. portion of the subject property.

Lastly, from the finality of the Court's decision until full payment, the total amount to be refunded
by HI-LON shall earn legal interest at the rate of six percent (6%) per annum, pursuant to Bangko
Sentral ng Pilipinas Monetary Board Circular No. 799, Series of 2013, because such interest is
imposed by reason of the Court's decision and takes the nature of a judicial debt.[54]

WHEREFORE, premises considered, the Petition for Certiorari is DENIED for lack of merit, and the
Commission on Audit Decision No. 2011-003 dated January 20, 2011 and Decision No. 2013-212
dated December 3, 2013 are AFFIRMED with MODIFICATION that a legal interest of six percent
(6%) per annum from the finality of this Decision until fully paid, is imposed on the amount of
P10,461,338.00 that HI-LON Manufacturing Co., Inc. is required to refund to the Department of
Public Works and Highways.

SO ORDERED.
THIRD DIVISION

[ G.R. No. 231053, April 04, 2018 ]

DESIDERIO DALISAY INVESTMENTS, INC., PETITIONER, VS. SOCIAL SECURITY SYSTEM, RESPONDENT.

DECISION

VELASCO JR., J.:

The Case

This Petition for Review on Certiorari under Rule 45 of the Rules of Court seeks the reversal and
setting aside of the August 12, 2016 Decision[1] and March 10, 2017 Resolution of the Court of
Appeals (CA) in CA-G.R. CV No. 03233-MIN.

The Facts

Involved is a parcel of land covered by Transfer Certificate of Title (TCT) Nos. T-18203, T-18204, T-
255986, and T-255985, with an aggregate area of 2,450 sq.m., including the building erected
thereon, situated in Agdao, Davao City.

Sometime in the year 1976, respondent Social Security System (SSS) filed a case before the Social
Security Commission (SSC) against the Dalisay Group of Companies (DGC) for the collection of
unremitted SSS premium contributions of the latter's employees. The said cases are: (1) SSS v.
Desiderio Dalisay Investments, Inc. (SSC Case No. 6414); (2) SSS v. Desidal Fruits Corporation (SSC
Case No. 6415); and (3) SSS v. Davao Stevedore Terminal Co., Inc. (SSC Case No. 6416).[2]

On March 11, 1977, Desiderio Dalisay, then President of petitioner Desiderio Dalisay Investments,
Inc. (DDII), sent a Letter to SSS offering the subject land and building to offset DGC's liabilities
subject of the aforementioned cases at P3,500,000.[3] The parties, however, failed to arrive at an
agreement as to the appraised value thereof. Thus, no negotiation took place.

Later, or on December 15, 1981, Desiderio Dalisay sent another Letter seeking further negotiation
with SSS by recommending that the appraisal be done by Asian Appraisal, Co. Inc.[4] SSC agreed,
but it later turned out that Asian Appraisal, Inc. did not respond to Dalisay's request. Thus, Atty.
Honesto Cabarroguis, DGC's lawyer, suggested that the appraisal be done by Joson, Capili and
Associates instead. The suggestion was later approved.[5]

On July 24, 1982, DDII's Special Board of Directors issued a Resolution stating that the properties
covered by TCT Nos. T-18204 and T-8227[6] together with all improvements thereon be sold to SSS
in order to settle the unremitted premiums and penalty obligations of DDII, Davao Stevedore
Terminal Co., and Desidal Fruits, Inc. In the same Board Resolution, Desiderio Dalisay, or in his
absence, Veronica Dalisay-Tirol (Dalisay-Tirol), was authorized to sign in behalf of the corporation
any and all papers pertinent to effect full and absolute transfer of said properties to the SSS.[7]

On May 21, 1982, the real estate appraisers Joson, Capili and Associates, whose services Dalisay
engaged for the purpose of appraising the value of the properties being offered to SSS, sent a
letter[8] to him informing him that the total value of the lots is One Million Nine Hundred Fifty Four
Thousand Seven Hundred Seventy-Seven & 78/100 (P1,954,777.78), rounded to P1,955,000.[9]
This Appraisal Report was then indorsed to the SSC.[10]

On May 27, 1982, during a meeting (1982 Meeting) of the SSS' Committee on Buildings, Supplies
and Equipment (Committee) attended by Atty. Cabarroguis, the latter, representing DGC,
explained that the DGC is in financial distress and is in no way capable of settling its obligation in
cash.[11] When asked what the DGC's offer is, he stated that he has "the authority to offer [the
properties] in the amount of 2 million pesos."[12] He also assured them that that they will turn the
properties over to SSS free of liens and encumbrances.[13] The offer for dacion was accepted at the
appraised value of P2,000,000. As regards the implementation of the dacion, Atty. Cabarroguis
stated that "[t)]he Legal Department of the SSS can prepare the Deed of Sale or whatever
documents that have to be prepared. My clients are ready to vacate the premises and you can
have it occupied anytime."[14] During the same Meeting, Atty. Cabarroguis likewise relayed to SSS
that they are requesting that the P2,000,000 amount be applied first to the unpaid premiums and
the excess be used to settle part of the penalties due.[15]

On May 28, 1982, DDII's total liabilities with SSS covering unpaid premium contributions, inclusive
of penalties and salary/calamity loan amortizations, amounted to P4,421,321.62.[16]

On June 9, 1982, the SSC issued Resolution No. 849 - s. 82.[17] In said Resolution, it accepted DDII's
proposed dacion en pago pegged at the appraised value of P2,000,000. Said Resolution reads:
On motion duly seconded,

RESOLVED, that the acceptance of the offer of the Dalisay Group of Companies to offset their
outstanding liabilities with the SSS with their lot and building at Davao City valued at 2M, as
recommended by the SSC Committee on Building, Supplies and Equipment, be, as it is hereby,
approved and confirmed, subject to the terms and conditions contained in the Memorandum,
dated June 8, 1982, of the Executive Officer of the said Committee.

RESOLVED FURTHER, That the following additional conditions be, as they are hereby, imposed:

1. That part of tge (sic) 2M is to be applied to its outstanding

educational/salary loans obligations;

2. That the criminal cases against the Dalisay Group of companies shall not be
withdrawn as the penalties are not being paid in full and it is up to them to
make the necessary representations with the Fiscal's Office.[18]

The SSC then informed DDII of its acceptance of the proposed dacion in payment, including its
specified terms and conditions, via a Letter dated June 17, 1982.[19] Said Letter[20] reads:
We are pleased to inform you that pursuant to Resolution No. 849 dated June 9, 1982, the Social
Security Commission approved and confirmed the acceptance of the offer of your client, the
Dalisay Group of Companies, that they be allowed to offset their outstanding liabilities with the
SSS with their property (lot and building), as described in the offer, at Davao City valued at P2
million, subject to the following terms and conditions:

1. The P2 million consideration in this transaction shall be applied first to the

premium contribution in arrears which amounts to P1.5 million, more or
less, and whatever amount in excess of the P2 million after premium
contribution shall then be applied to the payment of penalties.
 2. Part of the P2 million shall also be applied to its outstanding
education/salary loan obligations.

3. The criminal cases against the Dalisay Group of Companies shall not be
withdrawn as the penalties have not as yet been valid (sic) in full and it is
up to them to make the necessary representations with the Fiscal's Office.

May we invite you, therefore, to sit down with us for the preparation of the documents
preparatory to the final transfer of the titles of the properties to the SSS.
On July 8, 1982, Dalisay-Tirol, then Acting President and General Manager of Dalisay Investment,
informed SSS that the company is preparing the subject property, especially the building, for its
turnover on August 15, 1982.[21] Said Letter reads:
We are pleased to advise you that by August 15, 1982, we will already transfer to the next building.
Desidal Building will already be available for you to prepare for you own transfer. The delay is
caused by the preparation we have to make for the transfer of our office equipment and records.

Kindly, send somebody on August 15th, so we can effect the proper turnover of the building to
you.[22]
Later, or on July 31, 1982, An Affidavit of Consent for the Sale of Real Property was executed by
the surviving heirs of the late Regina L. Dalisay, stating that in order to settle the companies'
obligations to SSS, they expressly agree to the sale thereof to the SSS for its partial settlement.[23]

On September 18, 1989, Desiderio Dalisay passed away.

As of November 30, 1995, the company's total obligations allegedly amounted to

P15,689,684.93.[24]

Later, or on December 29, 1995, the Philippine National Bank (PNB) executed a Deed of
Confirmatory Sale in favor of DDII for properties that it reacquired, including the property subject
of the present dispute.

On March 20, 1998, Eddie A. Jara (Jara), Assistant Vice-President of the SSS - Davao I Branch,
executed an Affidavit of Adverse Claim[25] over the properties subject of the instant case because
of the companies' failure to turn over the certificates of title to SSS.

Then, on April 2, 1998, Jara sent a letter to Dalisay-Tirol, formally demanding the certificates of
title over the properties subject of the dacion.[26] In said letter, Jara stated that "[t]he mortgage
with PNB has already been settled by Desiderio Dalisay Investments, Inc. last January 20, 1994,
but the titles were not delivered to the SSS in violation of the express terms in the dacion in
payment that the Dalisay group should deliver the titles after the release of the mortgage with the
PNB."[27]

In her reply dated May 5, 1998 to the April 2, 1998 Letter, Dalisay-Tirol, who was then the
President of DDII, stated that the corporation could not at that time give due course to and act on
the matter because of several issues that need to be resolved first, including two cases involving
the subject properties, to wit: (1) the properties are being claimed by the estate of Desiderio F.
Dalisay, Sr. and included in the inventory already filed by the executrix, where the corporation's
stockholders are contesting said inclusion; and (2) the SSS' pending petition covering the
properties where the accuracy and propriety of the amount of PI5,605,079.25 contained therein
has yet to be substantiated and verified.[28] She likewise pointed out that the "Board Resolution
covers only two (2) parcels of land which were proposed and submitted for the purpose of a
negotiated sale to settle unremitted premiums and penalties."[29]

On November 18, 1999, DDII, through its Managing Director Edith L. Dalisay-Valenzuela (Dalisay-
Valenzuela), wrote a letter addressed to SSS President and Chief Executive Officer Carlos A.
Arellano, requesting the reevaluation and reconsideration of their problem.[30] In said Letter, DDII
requested the following:
1) Condonation of penalties and interest or accrual of rentals for offsetting against the penalties,
interest and principal;
2) Payment of original liabilities for unpaid premiums of P4,421,321.62;
3) Return of the property to DDII; and
4) Withdrawal of claim against the Estate of Desiderio F. Dalisay, Sr.[31]
On January 18, 2000, DDII issued a Letter to SSS proposing the "offset of SSS obligations with back
rentals on occupied land and building of the obligor." It alleged that SSS is bound to pay back
rentals totaling P34,217,988.19[32] for its use of the subject property from July 1982 up to the
present. It likewise demanded for the return of the said property.[33]

Meanwhile, despite repeated written and verbal demands made by SSS for DDII to deliver the titles
of the subject property, free from all liens and encumbrances, DDII still failed to comply.

On October 8, 2002, DDII filed a complaint for Quieting of Title, Recovery of Possession and
Damages against SSS with the Regional Trial Court (RTC), Branch 14, in Davao City, docketed as
Civil Case No. 29, 353-02.

In said complaint, DDII asserted that it is the owner of the subject property. It averred that when
SSS filed the abovementioned cases, the late Desiderio Dalisay, during his lifetime and as president
of the company, offered the property appraised at P3,500,000 to SSS for the offsetting of said
amount against DGC's total liability to SSS. SSS accepted such but only in the amount of P2,000,000
and subject to certain conditions. It also insists that while negotiations with SSS were still ongoing,
it decided to vacate the subject property in favor of SSS to show goodwill on its part. Unfortunately,
the negotiations were not fruitful as they failed to agree on the terms and conditions set forth by
SSS. Furthermore, DDII insists that Atty. Cabarroguis' alleged acceptance of the proposals of SSS
was not covered by any Board Resolution or Affidavit of Consent by the corporate and individual
owners of the properties. Thus, according to DDII, there was no meeting of the minds between
the parties. Consequently, there was no dation in payment to speak of, contrary to the claim of
SSS. With these, DDII asserted that SSS owes it P43,208,270.99 as back rentals for its use of the
property from 1982 onwards. It also prayed for attorney's fees and costs of litigation.[34]
In its Answer, SSS argued that the offer for dacion was categorically accepted by SSS, thereby
perfecting such.[35]

RTC Judgment

On July 22, 2010, the RTC resolved the case in favor of DDII, holding that there was no perfected
dacion in payment between the parties. Consequently, SSS has no legal personality to own,
possess, and occupy the property. The dispositive portion thereof reads:
WHEREFORE, judgment is hereby rendered as follows:

a) Declaring [DDII] as the true and absolute owner of the properties covered by TCT Nos. T-
18203, T-18204, T-255986 and T-255985, free from all liens and encumbrances, and that
[SSS] has no right or interest over the same whatsoever;
b) Ordering the Registrar, Registry of Deeds, Davao City, to cancel the adverse claims caused by
[SSS] to be annotated on the foregoing [TCTs];
c) Ordering [SSS] to pay [DDII] the reasonable amount of P50,000.00 a month for the use and
continued occupation by [SSS] of the subject properties reckoned from the date of [DDII's]
demand to vacate on June 6, 2002 until [SSS] vacates the subject properties;
d) Ordering [SSS] to turn over the possession and occupation of the properties to [DDII] in peace,
there being no perfected dacion in payment or dacion en pago;
e) Ordering [SSS] to reimburse [DDII] the sum of P100,000.00 as attorney's fees; and
f) To pay the cost.

SO ORDERED.[36]
Ruling in favor of DDII, the RTC found that the June 8, 1982 Memorandum is not an acceptance of
DDII's offer for the reason that it contained terms and conditions—a qualified acceptance which
amounts to a counter-offer.[37] The RTC further noted that there is no iota of proof that said
counter-offer was accepted by DDII.[38]

As to the contention of SSS that the turnover of the properties in its favor shows that there was,
indeed, a perfected dacion in payment, the RTC ruled that said transfer of possession was not
tantamount to delivery as an element of a contract of sale which transmits ownership of the thing
from the vendor to the vendee. The RTC likewise noted that the June 8, 1982 Memorandum
included a provision on automatic cancellation of its supposed acceptance of Dalisay's offer if, for
any reason, the offsetting cannot be implemented. Correlating this with SSS' non-receipt of the
certificates of title to the property, the RTC ruled that SSS' supposed acceptance was thereby
automatically cancelled effective June 8, 1982—the date of the Memorandum containing the
provision on automatic cancellation. This being the case, the trial court held, SSS' occupation of
the property on July 24, 1982, a month after its acceptance was automatically cancelled, has no
leg to stand on.[39] It was, therefore, only by mere tolerance which tolerance ended when DDII
made a demand for SSS to vacate the premises on June 6, 2002.[40]
Its motion for reconsideration having been denied by the RTC in its September 20, 2010 Order,[41]
SSS appealed the case to the CA.

CA Ruling

Finding merit in the appeal, the CA reversed the RTC's ruling, disposing of the appeal in this wise:
WHEREFORE, the appealed Decision of the [RTC], Branch 14, Davao City, in Civil Case No. 29,353-
02 is REVERSED and SET ASIDE insofar as it granted the complaint for quieting of title, recovery of
possession and damages in favor of [DDII], and the said complaint is hereby DISMISSED for lack of
merit. No pronouncement as to costs.

SO ORDERED.[42]
According to the CA, the pivotal issue in the appeal is whether there was a perfected dation in
payment, in which it ruled in the affirmative.

The CA held that the records establish that DGC has an outstanding obligation in favor of SSS that
it proposed to pay the amount via dacion en pago, said offer was categorically accepted by SSS,
and the agreement was consummated by DDII's delivery of the property to SSS.[43]

As to DDII's argument that the acceptance by SSS included certain conditions, this, according to
the appellate court, is inconsequential because its acceptance was unequivocal and absolute. In
this respect, it held that dacion in payment being in the nature of a contract of sale, the principle
that a deed of sale is considered absolute where there is neither a stipulation in the deed that title
to the property sold is reserved in the seller until full payment thereof, nor one giving the vendor
the right to unilaterally resolve the contract the moment the buyer fails to pay within a fixed
period, applies to the instant dispute. The CA, thus, concluded that applying said principle, the
contract of sale or dacion between the parties is absolute, not conditional. To be sure, the CA said,
there is no reservation of ownership of the subject property or a stipulation providing for unilateral
rescission by either party. In fact, according to the CA, the sale was consummated upon the
delivery of the subject property to SSS.[44]

Anent the stipulations in the June 17, 1982 letter of the SSS according to the CA, the conditions
were not of a nature that would affect the efficacy of the contract of sale. It, the CA said, merely
provided the manner by which the full consideration is to be applied to DDII's liability and the
implication of the payment vis-a-vis the pending criminal cases filed against DDII.[45]

The CA, thus, ruled that all the requisites for a valid dation are present. The sale and transfer of
the subject property in favor of SSS are valid and binding against DDII.

The CA went on to state that even assuming that the dation is defective, said defect is immaterial
due to DDII's inaction which lasted for 20, years.[46] Applying the principle of laches, DDII's failure
to assert its rights over the property against SSS for 20 years since its consummation bars it from
recovering the subject property.[47]
With respect to the award of attorney's fees, the CA held that such is improper,[48] there being no
factual, legal, or equitable justification for the award of attorney's fees in favor of DDII. As regards
the award of litigation expenses, the CA likewise deleted such for lack of factual or legal
justification therefor.[49]

Its Motion for Reconsideration having been denied by the CA in its March 10,2017 Resolution,[50]
DDII now comes before this Court for relief.

The Issues

I. Whether or not there was a perfected "Dacion en Pago"

II. Whether or not the fact that the Transfer Certificates of Title over the subject
properties remained in the name of the petitioner is a strong indicium that the
parties remained in the preparatory stage of contract-making

III. Whether or not the prescriptive period to file the action had already prescribed

IV. Whether or not petitioner slept on its rights that would warrant the imposition of
laches.

The pivotal issue in the instant case is whether or not there was a perfected dacion en pago; and
if answered in the affirmative, whether or not SSS validly acquired title or interest over the subject
properties. This is so since if there was a perfected dacion and if title or interest over the property
was transferred to SSS, then an action for quieting of title filed by DDII would not prosper since
SSS has a legitimate interest and claim over the properties subject of the case.

In the present petition, DDII argues that its offer to SSS contained in the December 15, 1981 letter
was never categorically accepted by the latter.[51] For DDII, the seemingly unambiguous language
of the SSS' Memorandum is, in truth, a rejection of its offer, it being a qualified acceptance thereof.
It maintains that for there to be an acceptance of the offer, it should be identical in all respects
and must not contain any modification or variation from the terms of the offer.[52]

Furthermore, petitioner claims, no document or instrument proving that it accepted SSS' counter-
offer exists, as it, in fact, remains unaddressed.[53]

Moreover, DDII points out that in SSS' Brief, it admitted that it indeed made a counter-offer to
DDII, although it insists that DDII accepted said counter-offer.[54] In this respect, DDII maintains
that contrary to SSS' position that it impliedly accepted the counter-offer by turning over to SSS
the possession and occupation of the property, said turnover was done not because it is accepting
the counter-offer but to show goodwill in the negotiations.[55]

To further bolster its claim, DDII argues that the fact that the TCTs over the property remain in the
name of the original owner clearly indicates that no dation in payment ever occurred.[56]
As to the CA's ruling that DDII's claim is barred by laches, it posits that the cause of action did not
arise when the possession of the property was transferred to SSS.[57] According to it, the transfer
being a show of goodwill, there was, at that time, no threat against its title over the property that
would prompt DDII to seek redress from the courts and commence the running of the prescriptive
period. DDII maintains that the reason why it took a long time before it sought the removal of a
cloud in its title is because it was under the impression that no offsetting took place and that SSS
was merely in physical possession thereof.[58]

In our January 31, 2018 Resolution, We required SSS to file its Comment on the petition within a
non-extendible period of 10 days. But as of this date, the SSS has yet to file said Comment. In view
of the fact that the previous pleadings of the SSS sufficiently allow Us to decide the instant dispute,
We resolve to dispense with the SSS' Comment and decide the case based on the records.

Our Ruling

We resolve to deny the petition.

Article 476 of the Civil Code provides:

Art. 476. Whenever there is a cloud on title to real property or any interest therein, by reason of
any instrument, record, claim, encumbrance or proceeding which is apparently valid or effective
but is in truth and in fact invalid, ineffective, voidable, or unenforceable, and may be prejudicial to
said title, an action may be brought to remove such cloud or to quiet the title.

An action may also be brought to prevent a cloud from being cast upon title to real property or
any interest therein.
For an action to quiet title to prosper, two indispensable requisites must concur, namely: (1) the
plaintiff or complainant has a legal or an equitable title to or interest in the real property subject
of the action; and (2) the deed, claim, encumbrance, or proceeding claimed to be casting cloud on
his title must be shown to be in fact invalid or inoperative despite its prima facie appearance of
validity or legal efficacy.[59]

Here, the presence or absence of these two requisites is hinged on the question of whether or not
the proposed dacion en pago was indeed perfected, thereby vesting unto SSS a legitimate title and
interest over the properties in question. In other words, if it can be proved that the proposed
dacion was perfected, or even consummated, then SSS' claim which allegedly casts a cloud on
DDII's title is valid and operative, and consequently, the action for quieting of title filed by DDII will
not prosper.

Dacion en pago

Among other modes, an obligation is extinguished by payment or performance.[60] There is

payment when there is delivery of money or performance of an obligation.[61] Corollary thereto,
Article 1245 of the Civil Code provides for a special mode of payment called dacion in payment
(dacion en pago).
In dacion en pago, property is alienated to the creditor in satisfaction of a debt in money.[62] The
debtor delivers and transmits to the creditor the former's ownership over a thing as an accepted
equivalent of the payment or performance of an outstanding debt.[63] In such cases, Article 1245
provides that the law on sales shall apply, since the undertaking really partakes—in one sense—
of the nature of sale; that is, the creditor is really buying the thing or property of the debtor, the
payment for which is to be charged against the debtor's obligation.[64]

As a mode of payment, dacion en pago extinguishes the obligation to the extent of the value of
the thing delivered, either as agreed upon by the parties or as may be proved, unless the parties
by agreement—express or implied, or by their silence—consider the thing as equivalent to the
obligation, in which case the obligation is totally extinguished.[65] It requires delivery and
transmission of ownership of a thing owned by the debtor to the creditor as an accepted
equivalent of the performance of the obligation. There is no dacion in payment when there is no
transfer of ownership in the creditor's favor, as when the possession of the thing is merely given
to the creditor by way of security.[66]

In the case at hand, in order to determine whether or not there was indeed a perfected, or even
consummated, dacion in payment, it is necessary to review and assess the evidence and events
that transpired and see whether these correspond to the three stages of a contract of sale. This is
so since, as previously mentioned, dacion en pago agreements are governed, among others, by
the law on sales.

Stages of a contract of sale

Briefly, the stages of a contract of sale are: (1) negotiation, covering the period from the time the
prospective contracting parties indicate interest in the contract to the time the contract is
perfected; (2) perfection, which takes place upon the concurrence of the essential elements of the
sale, which is the meeting of the minds of the parties as to the object of the contract and upon
the price; and (3) consummation, which begins when the parties perform their respective
undertakings under the contract of sale, culminating in the extinguishment thereof.[67] Each shall
hereinafter be discussed in seriatim.

First Stage: Negotiation Offer validly reduced

To recall, the negotiation stage covers the period from the time the prospective contracting parties
indicate interest in the contract to the time the contract is perfected. This then includes the
making of an offer by one party to another and ends when both parties agree on the object and
the price.

In the instant case, the late Desiderio Dalisay, on March 11, 1977, offered to SSS that they partially
settle their obligations to the latter via dacion. Dalisay offered several properties for P3,500,000
in favor of SSS to partially extinguish petitioner's obligation which amounted to P4,421,321.62.[68]
Then, years later or on May 27, 1982, the SSS' Committee met with the corporation, represented
by Atty. Cabarroguis. During said meeting, Atty. Cabarroguis explained that he has "the authority
to offer [the properties] in the amount of 2 million pesos."[69] He also gave them an assurance that
that they will turn the properties over to SSS free of liens and encumbrances,[70] and that his clients
are ready to vacate the premises and you can have it occupied anytime.[71]

In this respect, petitioner argues that Atty. Cabarroguis did not have the requisite authority to
make said representations and thereby bind the corporation. DDII thus maintains that the offer to
SSS remained at P3,500,000. We beg to disagree.

While petitioner is correct that there is no evidence of Atty. Cabarroguis' authority to represent
the company in said meeting, this however is outweighed by the fact that no one questioned Atty.
Cabarroguis' representations and authority after the conclusion of the negotiations; and that a
few days after the said meeting, the company immediately arranged for the property's turnover
through Dalisay-Tirol, Acting President and General Manager, and eventually delivered possession
thereof to SSS.

What makes matters worse for petitioner is that it was well aware of what transpired during the
meeting and the agreements reached. In fact, after the SSC issued Resolution No. 849 - s. 82 where
it accepted DDII's proposed dacion en pago at P2,000,000,[72] it sent a Letter dated June 17, 1982,
communicating that:
We are pleased to inform you that pursuant to Resolution No. 849 dated June 9, 1982, the Social
Security Commission approved and confirmed the acceptance of the offer of your client, the
Dalisay Group of Companies, that they be allowed to offset their outstanding liabilities with the
SSS with their property (lot and building), as described in the offer, at Davao City valued at P2
million, subject to the following terms and conditions:

1. The P2 million consideration in this transaction shall be applied first to the

premium contribution in arrears which amounts to P1.5 million, more or
less, and whatever amount in excess of the P2 million after premium
contribution shall then be applied to the payment of penalties.

2. Part of the P2 million shall also be applied to its outstanding

education/salary loan obligations.

3. The criminal cases against the Dalisay Group of Companies shall not be
withdrawn as the penalties have not as yet been valid (sic) in full and it is
up to them to make the necessary representations with the Fiscal's Office.

May we invite you, therefore, to sit down with us for the preparation of the documents
preparatory to the final transfer of the titles of the properties to the SSS.[73]
We emphasize that it is only now, in this action for quieting of title filed decades after the
conclusion of the 1982 Meeting, that DDII questioned Atty. Cabarroguis' authority to represent
the corporation. If it were true that Atty. Cabarroguis did not possess the requisite authority to
represent the company in said Meeting, then it could have opposed such, contested his presence
thereat, or even deny that the corporation is reducing its offer to P2,000,000. Unfortunately for
petitioner, despite knowledge thereof, there is no evidence manifesting any opposition thereto.

This acquiescence to Atty. Cabarroguis' representations and authority to do so is strengthened by

the fact that a few days after the conclusion of the meeting, the company's Vice-President at that
time, Dalisay-Tirol, sent a Letter dated July 8, 1982, informing the SSS that they will be vacating
the premises offered and will turn over the possession thereof to SSS, consistent with what was
agreed upon during said meeting. Thus:
We are pleased to advise you that by August 15, 1982, we will already transfer to the next building.
Desidal Building will already be available for you to prepare for your own transfer. The delay is
caused by the preparation we have to make for the transfer of our office equipment and records.

Kindly, send somebody on August 15th, so we can effect the proper turnover of the building to
you.[74]
Without an iota of evidence of any opposition to the offered P2,000,000 price coming from the
company when it could have communicated such to the SSS after the conclusion of the 1982
Meeting, plus the fact that its Vice-President even informed SSS that they will be turning over the
property to the latter, We are sufficiently convinced that, contrary to petitioner's claim, Atty.
Cabarroguis acted within the scope of the authority given him, which includes offering the
properties at P2,000,000.

It may be argued that the absence of the written document embodying Atty. Cabarroguis'
authority prevents the courts from unearthing what indeed the extent of said authority is.
Nevertheless, We are of the view that the aforementioned events that transpired thereafter and
the absence of opposition coming from the company are sufficient proof that they tacitly ratified
Atty. Cabarroguis' acts during the meeting, assuming he went beyond his authority in so doing.
Thus, Article 1910 of the Civil Code provides:
Art. 1910. The principal must comply with all the obligations which the agent may have contracted
within the scope of his authority.

As for any obligation wherein the agent has exceeded his power, the principal is not bound except
when he ratifies it expressly or tacitly. (emphasis ours)
These, plus the absence of any allegation or proof that the SSS relied upon Atty. Cabarroguis'
actions in bad faith, convince Us that the corporation bound itself to said representations and
agreements reached during the meeting via implied ratification.[75]

Accordingly, We conclude that DDII's offer was validly reduced from P3,500,000 to P2,000,000.

We shall now discuss whether SSS' acceptance of the new offer perfects the agreement on dation.

Second Stage: Perfection Acceptance absolute and unqualified

As regards the question whether the parties were able to perfect the agreement on dacion en
pago, the RTC ruled that they did not. According to the trial court, SSS' "acceptance" was qualified
which is tantamount to a counter-offer, and not an absolute acceptance which perfects the
contract. Thus, said the RTC, there being no evidence to show that petitioner accepted SSS'
counter-offer, there was no dation to speak of.

The CA was of a different view. According to the CA, SSC Resolution No. 849 — s. 82 constitutes
an absolute and unequivocal acceptance which perfected the offered dacion. Thus, when
possession of the subject property was delivered to SSS, this signified a transfer of ownership
thereon, consistent with the supposedly perfected agreement.

We agree with the CA that there was perfected dation in payment.

Article 1319 of the New Civil Code reads:

Art. 1319. Consent is manifested by the meeting of the offer and the acceptance upon the tiling
and the cause which are to constitute the contract. The offer must be certain and the acceptance
absolute. A qualified acceptance constitutes a counter-offer.

Acceptance made by letter or telegram does not bind the offerer except from the time it came to
his knowledge. The contract, in such a case, is presumed to have been entered into in the place
where the offer was made.
Relevant thereto are the following principles, as summarized by the Court in Traders Royal Bank
v. Cuison Lumber Co., Inc.,[76] thus:
Under the law, a contract is perfected by mere consent, that is, from the moment that there is a
meeting of the offer and the acceptance upon the thing and the cause that constitutes the
contract. The law requires that the offer must be certain and the acceptance absolute and
unqualified. An acceptance of an offer may be express and implied; a qualified offer (sic)
constitutes a counter-offer. Case law holds that an offer, to be considered certain, must be
definite, while an acceptance is considered absolute and unqualified when it is identical in all
respects with that of the offer so as to produce consent or a meeting of the minds. We have also
previously held that the ascertainment of whether there is a meeting of minds on the offer and
acceptance depends on the circumstances surrounding the case.

The offer must be certain and definite with respect to the cause or consideration and object of
the proposed contract, while the acceptance of this offer - express or implied - must be
unmistakable, unqualified, and identical in all respects to the offer. x x x (Italics supplied)
Also, in Manila Metal Container Corporation v. Philippine National Bank,[77] the Court ruled:
A qualified acceptance or one that involves a new proposal constitutes a counter-offer and a
rejection of the original offer. A counteroffer is considered in law, a rejection of the original offer
and an attempt to end the negotiation between the parties on a different basis. Consequently,
when something is desired which is not exactly what is proposed in the offer, such acceptance is
not sufficient to guarantee consent because any modification or variation from the terms of the
offer annuls the offer. The acceptance must be identical in all respects with that of the offer so as
to produce consent or meeting of the minds. (Italics supplied)
Within the purview of the law on sales, a contract of sale is perfected by mere consent, upon a
meeting of the minds on the offer and the acceptance thereof based on subject matter, price and
terms of payment.[78] It is perfected at the moment there is a meeting of the minds uponi the thing
which is the object of the contract and upon the price.[79]

Applying said principles to the case at bar convinces us that SSS' acceptance of the offer at
P2,000,000 resulted in a perfected dation. As discussed earlier, the offer was validly reduced from
P3,500,000 to P2,000,000. Consequently, SSS' agreement to the P2,000,000 offer was not a
counter-offer as petitioner would have it, but an acceptance of the new reduced offer
communicated by the company's representative, Atty. Cabarroguis, which acceptance perfected
the proposed dation in payment. DDII has the onus of proving that the P2,000,000 offer made to
SSS was invalid which would result in SSS' acceptance at said amount to be different from the price
offered. Petitioner, however, failed to discharge said burden.

As regards petitioner's contention that the following conditions set forth in the SSS' Letter dated
June 17, 1982[80] make its acceptance a qualified one, We find otherwise. To recall, said conditions
are as follows:
We are pleased to inform you that pursuant to Resolution No. 849 dated June 9, 1982, the Social
Security Commission approved and confirmed the acceptance of the offer of your client, the
Dalisay Group of Companies, that they be allowed to offset their outstanding liabilities with the
SSS with their property (lot and building), as described in the offer, at Davao City valued at P2
million, subject to the following terms and conditions:

1. The P2 million consideration in this transaction shall be applied first to the

premium contribution in arrears which amounts to P1.5 million, more or
less, and whatever amount in excess of the P2 million after premium
contribution shall then be applied to the payment of penalties.

2. Part of the P2 million shall also be applied to its outstanding

education/salary loan obligations.

3. The criminal cases against the Dalisay Group of Companies shall not be
withdrawn as the penalties have not as yet been valid (sic) in full and it is
up to them to make the necessary representations with the Fiscal's Office.

May we invite you, therefore, to sit down with us for the preparation of the documents
preparatory to the final transfer of the titles of the properties to the SSS.[81]
A reading of the transcript of the 1982 Meeting reveals that the procedure in applying the
proceeds of the dacion en pago actually came from the company, through Atty. Cabarroguis, and
not from SSS. Thus:
Atty. Cabarroguis: We only pray that in order that the penalties will not continue to run, on the
unpaid remittance premiums, we only request tha the amount of 2 million be applied first to the
premiums, unremitted premiums, the excess would be part of the penalty so that what will remain
will be the penalties themselves.[82]
This to Us clearly shows that the SSS simply agreed to saicl proposal when it included such in its
Resolution. It is not a new condition imposed by the SSS as petitioner argues.

Having settled that the parties were in agreement as to the price and that the acceptance by SSS
was, in fact, unqualified, We are convinced that the parties indeed have a perfected contract. We
shall now determine whether said contract was consummated, thereby solidifying SSS' title,
interest, and claim over the properties.

Third Stage: Consummation Transfer of possession to SSS tantamount to "delivery"

Agreeing with SSS, the CA held that the agreement on dacion en pago was consummated by DDII's
delivery of the property to SSS.[83] We agree.

The third stage of a contract of sale is consummation which begins when the parties perform their
respective undertakings under the contract of sale, culminating in the extinguishment thereof.[84]

While a contract of sale is perfected by mere consent, ownership of the thing sold is acquired only
upon its delivery to the buyer. Upon the perfection of the sale, the seller assumes the obligation
to transfer ownership and to deliver the thing sold, but the real right of ownership is transferred
only "by tradition" or delivery thereof to the buyer.[85]

In this regard, reference must be made to Article 1496 of the Civil Code, which reads:
ARTICLE 1496. The ownership of the thing sold is acquired by the vendee from the moment it is
delivered to him in any of the ways specified in Articles 1497 to 1501, or in any other manner
signifying an agreement that the possession is transferred from the vendor to the vendee. (n)
Material to the case at bar is tradition by real or actual delivery contemplated Article 1497 of the
same Code. Thus:
ARTICLE 1497. The thing sold shall be understood as delivered, when it is placed in the control and
possession of the vendee. (1462a)
In Cebu Winland Development Corporation v. Ong Siao Hua, We explained that:
Under the Civil Code, ownership does not pass by mere stipulation but only by delivery. Manresa
explains, "the delivery of the thing . . . signifies that title has passed from the seller to the buyer."
According to Tolentino, the purpose of delivery is not only for the enjoyment of the thing but also
a mode of acquiring dominion and determines the transmission of ownership, the birth of the real
right. The delivery under any of the forms provided by Articles 1497 to 1505 of the Civil Code
signifies that the transmission of ownership from vendor to vendee has taken place.[86] (Citations
omitted)
Here, petitioner DDII insists that its delivery of the property to SSS was only to show its goodwill
in the negotiations. The records, however, reveal otherwise.

It is well to emphasize that nowhere in their communications or during the discussions at the
meeting is it stated that the company will turn over possession of the property to SSS to show its
goodwill while the negotiations were pending.
Too, consider the following turn of events:

1. During the 1982 Meeting, the following discussions took place:

Atty. Cabarroguis: Yes. Now it is the earnest desire of Mr. Dalisay somehow, to be able to
compensate for the benefits of the employees, that's why he is offering this. And if this
would be considered seriously by the System, Mrs. Tirol made arrangements with the
Philippine National Bank that this property be released because x x x if a portion of the
obligation will be paid to the PNB, then it will release this particular property, so we will be
turning this over to you clear of any liens or encumbrances. Thank you very much.[87]

x x x x

Atty. Cabarroguis: The Legal Department of the SSS can prepare the Deed of Sale or
whatever documents that have to be prepared. My clients are ready to vacate the premises
and you can have it occupied anytime.[88] x x x

2. Thereafter, or on July 8, 1982, DDII, through Dalisay-Tirol, informed SSS that the company
is preparing the subject property, especially the building, for its turnover on August 15,
1982.[89] Guilty of reiteration, the said Letter reads, thusly:

We are pleased to advise you that by August 15, 1982, we will already transfer to the next
building. Desidal Building will already be available for you to prepare for your own transfer.
The delay is caused by the preparation we have to make for the transfer of our office
equipment and records.

Kindly, send somebody on August 15th, so we can effect the proper turnover of the building
to you.[90]

3. Then, on January 4, 1983, the corporation arranged for the release or replacement of the
properties subject of the dacion from its mortgage with the PNB. Thus:

DESIDERIO DALISAY INVESTMENTS, INC.

Desidal Building, Agdao, Davao City

January 4, 1983

Mr. Julius L. Campo

Asst. Vice-President & Manager
 Philippine National Bank
Davao Branch, Davao City

RE: DESIDAL INVESTMENTS COLLATERAL

Dear Mr. Campo:

This is to formally inform your good office that Desidal Investments, Inc. and the
Estate of Regina L. Dalisay would like to request for substitution of collaterals or
properties encumbered with your bank.

x x x x

This request for substitution of collaterals had been made primarily because Social
Security System, Regional Office of Davao, is very much interested to purchase our
Desidal office building. (emphasis ours)

xxxx

Truly yours,

(SGD)
DESIDERIO DALISAY
President Desidal
Investments, Inc. [91]

4. As regards the obligation to deliver to SSS the certificates of title over the properties, DDII
failed to do so even after the PNB has already executed a Deed of Confirmatory Sale in
favor of DDII for properties that it reacquired, including the property subject of the present
dispute. This prompted Jara to execute an Affidavit of Adverse Claim[92] over the properties.

5. Jara then sent a letter to Dalisay-Tirol, formally demanding the certificates of title over the
properties subject of the dacion, stating that "[t]he mortgage with PNB has already been
settled by Desiderio Dalisay Investments, Inc. last January 20, 1994, but the titles were not
delivered to the SSS in violation of the express terms in the dacion in payment that the
Dalisay group should deliver the titles after the release of the mortgage with the PNB."[93]

6. In her reply, Dalisay-Tirol, now President of DDII, stated that the corporation could not at
that time give due course and act on the matter because of several issues that need to be
resolved first.

The aforementioned events that transpired convince Us that contrary to petitioner's claim, the
turnover of the properties to SSS was tantamount to delivery or "tradition" which effectively
transferred the real right of ownership over the properties from DDII to SSS.[94] Even after a review
of the records of the case, this Court is unable to find any indication that when they turned over the
properties to SSS, the company reserved its ownership over the property and only transferred the
jus possidendi thereon to SSS.

Too, if it indeed turned over the possession of the property to simply show goodwill in the
negotiations, then there would be no need for it to give SSS possession of the subject property
free from all liens and encumbrances.

Thus, contrary to petitioner's arguments, We are of the view that the turnover was in fact
tantamount to tradition and was not done simply to show goodwill on the part of the company.
What was only left to be done was for the corporation to surrender the certificates of title over
the properties, free from all liens and encumbrances as promised during the 1982 meeting, so as
to facilitate its transfer in SSS' name.

Indeed, as expounded by this Court in Equatorial Realty Development, Inc. v. Mayfair Theater,
Inc.:[95]
Delivery has been described as a composite act, a thing in which both parties must join and the
minds of both parties concur. It is an act by which one party parts with the title to and the possession
of the property, and the other acquires the right to and the possession of the same. In its natural
sense, delivery means something in addition to the delivery of property or title; it means transfer
of possession. In the Law on Sales, delivery may be either actual or constructive, but both forms of
delivery contemplate "the absolute giving up of the control and custody of the property on the part
of the vendor, and the assumption of the same by the vendee."
This being the case, We find that SSS has validly and in good faith acquired title to the property
subject of the dispute, making the action to quiet title filed by DDII improper.

Additionally, it is well to emphasize that in order that an action for quieting of title may prosper, it
is essential that the plaintiff must have legal or equitable title to, or interest in, the property which
is the subject-matter of the action.[96] Legal title denotes registered ownership, while equitable
title means beneficial ownership. In the absence of such legal or equitable title, or interest, there
is no cloud to be prevented or removed.[97]

Here, DDII having divested itself of any claim over the property in favor of SSS by means of sale via
dacion en pago, petitioner has lost its title over the property which would give it legal personality
to file said action.

Thus, the CA did not err in dismissing the complaint for lack of merit.

A necessary consequence of this ruling is the recomputation of DDII's obligations to SSS as a result
of the application of the P2,000,000 amount agreed upon in the dacion. Thus, SSS shall recompute
said outstanding obligations by deducting from the total obligations as of June 17, 1982 the
amount of P2,000,000, following the terms and conditions agreed upon. Said date refers to SSS
communication of its acceptance of the offer, resulting in the perfection of the contract.[98]
At this point, it is well to remind DDII that it cannot escape its liability from SSS by giving the latter
possession over the property with the representation that it is doing so as partial settlement of its
unremitted SSS premiums and penalties due only to take the property back decades thereafter,
seek condonation of its obligations, and to make matters worse, claim payment of back rentals
from SSS. While it is true that the value of the property has definitely significantly increased over
the years compared to the P2,000,000 amount for which it was offered to SSS, still, such is not
sufficient justification for DDII to turn its back on its obligations under the dacion en pago
agreement. In fact, the turn of events convinces Us that DDII's actions are tainted with bad faith.

If We were to grant the reliefs prayed for by DDII, an injustice will definitely be caused to SSS,
which in good faith relied upon the company's representations. Too, We find it proper to remind
DDII that it would not have lost ownership over the property if, in the first place, it diligently paid
the SSS premiums due.

With these, We need not belabor the other assigned errors.

WHEREFORE, the instant petition is DENIED. The assailed August 12, 2016 Decision and March 10,
2017 Resolution of the Court of Appeals in CA-G.R. CV No. 03233-MIN are hereby AFFIRMED. The
complaint for quieting of title, recovery of possession and damages, docketed as Civil Case No.
29,353-02, is DISMISSED for lack of merit.

Petitioner Desiderio Dalisay Investments, Inc. is hereby ordered to:

1. Execute the Deed of Sale over the properties in favor of respondent Social Security
System, consistent with the terms and conditions of the dacion en pago agreed
upon by the parties as embodied in SSC Resolution No. 849 - s. 82 within ten (10)
days from finality of this Decision; and

2. Surrender the Owner's Duplicate of Transfer Certificate of Title Nos. T-18203, T-

18204, T-255986, and T-255985, as well as the Tax Declarations over said
properties to respondent Social Security System within ten (10) days from finality
of this Decision.

Should petitioner Desiderio Dalisay Investments, Inc. refuse to execute said Deed of Sale, the Clerk
of Court shall execute such in favor of respondent Social Security System.

The Register of Deeds of Davao City is directed to cancel the subject titles and issue new ones in
the name of respondent Social Security System.

Respondent Social Security System is ordered to re-compute petitioner's obligations accordingly,

reckoned from June 17, 1982, the date when respondent communicated its acceptance of the
offer.
SO ORDERED.