FIRST DIVISION in order to execute the judgment against Santos.[11] The annotations on TCT No.
187565
[ G.R. No. 191525, December 13, 2017 ]
INTERNATIONAL ACADEMY OF MANAGEMENT AND ECONOMICS (I/AME),
PETITIONER, V. LITTON AND COMPANY, INC., RESPONDENT.
DECISION
SERENO, C.J.:
Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court
assailing the Court of Appeals (CA) Decision[1] and Resolution[2] in CA-G.R. SP No.
107727.
The CA affirmed the Judgment[3] and Order[4] of the Regional Trial Court (RTC) of Manila
in Special Civil Action No. 06-115547 reinstating the Order[5] of the Metropolitan Trial
Court (MeTC) of Manila in favor of Litton and Company, Inc. (Litton).
THE FACTS
The facts, as culled from the records, are as follows:
Atty. Emmanuel T. Santos (Santos), a lessee to two (2) buildings owned by Litton, owed
the latter rental arrears as well as his share of the payment of realty taxes.[6]
Consequently, Litton filed a complaint for unlawful detainer against Santos before the
MeTC of Manila. The MeTC ruled in Litton's favor and ordered Santos to vacate A.I.D.
Building and Litton Apartments and to pay various sums of money representing unpaid
arrears, realty taxes, penalty, and attorney's fees.[7]
It appears however that the judgment was not executed. Litton subsequently filed an
action for revival of judgment, which was granted by the RTC.[8] Santos then appealed
the RTC decision to the CA, which nevertheless affirmed the RTC.[9] The said CA decision
became final and executory on 22 March 1994.[10]
On 11 November 1996, the sheriff of the MeTC of Manila levied on a piece of real
property covered by Transfer Certificate of Title (TCT) No. 187565 and registered in the
name of International Academy of Management and Economics Incorporated (I/AME),
indicated that such was "only up to the extent of the share of Emmanuel T. Santos."[12]
I/AME filed with MeTC a "Motion to Lift or Remove Annotations Inscribed in TCT No.
187565 of the Register of Deeds of Makati City."[13] I/AME claimed that it has a separate
and distinct personality from Santos; hence, its properties should not be made to
answer for the latter's liabilities. The motion was denied in an Order dated 29 October
2004.
Upon motion for reconsideration of I/AME, the MeTC reversed its earlier ruling and
ordered the cancellation of the annotations of levy as well as the writ of execution.
Litton then elevated the case to the RTC, which in turn reversed the Order granting
I/AME's motion for reconsideration and reinstated the original Order dated 29 October
2004.
I/AME then filed a petition with the CA to contest the judgment of the RTC, which was
eventually denied by the appellate court.
THE CA RULING
The CA upheld the Judgment and Order of the RTC and held that no grave abuse of
discretion was committed when the trial court pierced the corporate veil of I/AME.[14]
It took note of how Santos had utilized I/AME to insulate the Makati real property
covered by TCT No. 187565 from the execution of the judgment rendered against him,
for the following reasons:
First, the Deed of Absolute Sale dated 31 August 1979 indicated that Santos, being the
.President, was representing I/AME as the vendee.[15] However, records show that it was
only in 1985 that I/AME was organized as a juridical entity.[16] Obviously, Santos could
not have been President of a non-existent corporation at that time.[17]
Second, the CA noted that the subject real property was transferred to I/AME during the
pendency of the appeal for the revival of the judgment in the ejectment case in the CA.[18]
Finally, the CA observed that the Register of Deeds of Makati City issued TCT No.
187565 only on 17 November 1993, fourteen (14) years after the execution of the Deed
of Absolute Sale and more than eight (8) years after I/AME was incorporated. [19]
Thus, the CA concluded that Santos merely used I/AME as a shield to protect his
property from the coverage of the writ of execution; therefore, piercing the veil of
corporate fiction is proper.[20]
THE ISSUES
The issues boil down to the alleged denial of due process when the court pierced the
corporate veil of I/AME and its property was made to answer for the liability of Santos.
OUR RULING
We deny the petition.
There was no violation of due process
against I/AME
Petitioner avers that its right to due process was violated when it was dragged into the
case and its real property made an object of a writ of execution in a judgment against
Santos. It argues that since it was not impleaded in the main case, the court a quo never
acquired jurisdiction over it. Indeed, compliance with the recognized modes of
acquisition of jurisdiction cannot be dispensed with even in piercing the veil of
corporation.[21]
In a petition for review on certiorari under Rule 45, only questions of law shall be
entertained. This Court considers the determination of the existence of any of the
circumstances that would warrant the piercing of the veil of corporate fiction as a
question of fact which ordinarily cannot be the subject of a petition for review on
certiorari under Rule 45. We will only take cognizance of factual issues if the findings of
the lower court are not supported by the evidence on record or are based on a
misapprehension of facts.[22] Once the CA affirms the factual findings of the trial court,
such findings are deemed final and conclusive and thus, may not be reviewed on appeal,
unless the judgment of the CA depends on a misapprehension of facts, which if properly
considered, would justify a different conclusion.[23] Such exception however, is not
applicable in this case.
The 29 October 2004 MeTC judgment, the RTC judgment, and the CA decision are one in
accord on the matters presented before this Court.
In general, corporations, whether stock or non-stock, are treated as separate and
distinct legal entities from the natural persons composing them. The privilege of being
considered a distinct and separate entity is confined to legitimate uses, and is subject to
equitable limitations to prevent its being exercised for fraudulent, unfair or illegal
purposes.[24] However, once equitable limitations are breached using the coverture of
the corporate veil, courts may step in to pierce the same.
As we held in Lanuza, Jr. v. BF Corporation:[25]
Piercing the corporate veil is warranted when "[the separate personality of a
corporation] is used as a means to perpetrate fraud or an illegal act, or as a vehicle for
the evasion of an existing obligation, the circumvention of statutes, or to confuse
legitimate issues." It is also warranted in alter ego cases "where a corporation is merely
a farce since it is a mere alter ego or business conduit of a person, or where the
corporation is so organized and controlled and its affairs are so conducted as to make it
merely an instrumentality, agency, conduit or adjunct of another corporation."
When [the] corporate veil is pierced, the corporation and persons who are normally
treated as distinct from the corporation are treated as one person, such that when the
corporation is adjudged liable, these persons, too, become liable as if they were the
corporation.
The piercing of the corporate veil is premised on the fact that the corporation concerned
must have been properly served with summons or properly subjected to the jurisdiction
of the court a quo. Corollary thereto, it cannot be subjected to a writ of execution meant
for another in violation of its right to due process.[26]
There exists, however, an exception to this rule: if it is shown "by clear and convincing
proof that the separate and distinct personality of the corporation was purposefully
employed to evade a legitimate and binding commitment and perpetuate a fraud or like
wrongdoings."[27]
The resistance of the Court to offend the right to due process of a corporation that is a
nonparty in a main case, may disintegrate not only when its director, officer,
shareholder, trustee or member is a party to the main case, but when it finds facts which
show that piercing of the corporate veil is merited.[28]
Thus, as the Court has already ruled, a party whose corporation is vulnerable to piercing
of its corporate veil cannot argue violation of due process.[29]
In this case, the Court confirms the lower courts' findings that Santos had an existing
obligation based on a court judgment that he owed monthly rentals and unpaid realty
taxes under a lease contract he entered into as lessee with the Littons as lessor. He was
not able to comply with this particular obligation, and in fact, refused to comply
therewith.
This Court agrees with the CA that Santos used I/AME as a means to defeat judicial
processes and to evade his obligation to Litton.[30] Thus, even while I/AME was not
impleaded in the main case and yet was so named in a writ of execution to satisfy a
court judgment against Santos, it is vulnerable to the piercing of its corporate veil. We
will further expound on this matter.
Piercing the Corporate Veil may Apply to
Non-stock Corporations
Petitioner I/AME argues that the doctrine of piercing the corporate veil applies only to
stock corporations, and not to non-stock, nonprofit corporations such as I/AME since
there are no stockholders to hold liable in such a situation but instead only members.
Hence, they do not have investments or shares of stock or assets to answer for possible
liabilities. Thus, no one in a non-stock corporation can be held liable in case the
corporate veil is disregarded or pierced.[31]
The CA disagreed. It ruled that since the law does not make a distinction between a
stock and non-stock corporation, neither should there be a distinction in case the
doctrine of piercing the veil of corporate fiction has to be applied. While I/AME is an
educational institution, the CA further ruled, it still is a registered corporation
conducting its affairs as such.[32]
This Court agrees with the CA.
In determining the propriety of applicability of piercing the veil of corporate fiction, this
Court, in a number of cases, did not put in issue whether a corporation is a stock or non-
stock corporation. In Sulo ng Bayan, Inc. v. Gregorio Araneta, Inc.,[33] we considered but
ultimately refused to pierce the corporate veil of a non-stock non-profit corporation
which sought to institute an action for reconveyance of real property on behalf of its
members. This Court held that the non-stock corporation had no personality to institute
a class suit on behalf of its members, considering that the non-stock corporation was not
an assignee or transferee of the real property in question, and did not have an identity
that was one and the same as its members.
In another case, this Court did not put in issue whether the corporation is a non-stock,
non-profit, non-governmental corporation in considering the application of the doctrine
of piercing of corporate veil. In Republic of the Philippines v. Institute for Social
Concern,[34] while we did not allow the piercing of the corporate veil, this Court affirmed
the finding of the CA that the Chairman of the Institute for Social Concern cannot be held
jointly and severally liable with the aforesaid non-governmental organization (NGO) at
the time the Memorandum of Agreement was entered into with the Philippine
Government. We found no fraud in that case committed by the Chairman that would
have justified the piercing of the corporate veil of the NGO.[35]
In the United States, from which we have adopted our law on corporations, non-profit
corporations are not immune from the doctrine of piercing the corporate veil. Their
courts view piercing of the corporation as an equitable remedy, which justifies said
courts to scrutinize any organization however organized and in whatever manner it
operates. Moreover, control of ownership does not hinge on stock ownership.
As held in Barineau v. Barineau:[36]
[t]he mere fact that the corporation involved is a nonprofit corporation does not by
itself preclude a court from applying the equitable remedy of piercing the corporate veil.
The equitable character of the remedy permits a court to look to the substance of the
organization, and its decision is not controlled by the statutory framework under which
the corporation was formed and operated. While it may appear to be impossible for a
person to exercise ownership control over a nonstock, not-for-profit corporation, a
person can be held personally liable under the alter ego theory if the evidence shows
that the person controlling the corporation did in fact exercise control, even though
there was no stock ownership.
In another U.S. case, Public Interest Bounty Hunters v. Board of Governors of Federal
Reserve System,[37] the U.S. Court allowed the piercing of the corporate veil of the
Foundation headed by the plaintiff, in order to avoid inequitable results. Plaintiff was
found to be the sole trustee, the sole member of the board, and the sole financial
contributor to the Foundation. In the end, the Court found that the plaintiff used the
Foundation to avoid paying attorneys' fees.
The concept of equitable ownership, for stock or non-stock corporations, in piercing of
the corporate veil scenarios, may also be considered. An equitable owner is an
individual who is a non-shareholder defendant, who exercises sufficient control or
considerable authority over the corporation to the point of completely disregarding the
corporate form and acting as though its assets are his or her alone to manage and
distribute.[38]
Given the foregoing, this Court sees no reason why a non-stock corporation such as
I/AME, may not be scrutinized for purposes of piercing the corporate veil or fiction.
Piercing the Corporate Veil may Apply to
Natural Persons
The petitioner also insists that the piercing of the corporate veil cannot be applied to a
natural person - in this case, Santos - simply because as a human being, he has no
corporate veil shrouding or covering his person.[39]
a) When the Corporation is the Alter Ego of a Natural Person
As cited in Sulo ng Bayan, Inc. v. Araneta, Inc.,[40] "[t]he doctrine of alter ego is based
upon the misuse of a corporation by an individual for wrongful or inequitable
purposes, and in such case the court merely disregards the corporate entity and holds
the individual responsible for acts knowingly and intentionally done in the name of the
corporation." This, Santos has done in this case. Santos formed I/AME, using the non-
stock corporation, to evade paying his judgment creditor, Litton.
The piercing of the corporate veil may apply to corporations as well as natural persons
involved with corporations. This Court has held that the "corporate mask may be lifted
and the corporate veil may be pierced when a corporation is just but the alter ego of a
person or of another corporation.”[41]
We have considered a deceased natural person as one and the same with his
corporation to protect the succession rights of his legal heirs to his estate. In Cease v.
Court of Appeals,[42] the predecessor-in-interest organized a close corporation which
acquired properties during its existence. When he died intestate, trouble ensued
amongst his children on whether or not to consider his company one and the same with
his person. The Court agreed with the trial court when it pierced the corporate veil of
the decedent's corporation. It found that said corporation was his business conduit and
alter ego. Thus, the acquired properties were actually properties of the decedent and as
such, should be divided among the decedent's legitimate children in the partition of his
estate.[43]
In another instance, this Court allowed the piercing of the corporate veil against another
natural person, in Arcilla v. Court of Appeals.[44] The case stemmed from a complaint for
sum of money against Arcilla for his failure to pay his loan from the private respondent.
Arcilla, in his defense, alleged that the loan was in the name of his family corporation,
CSAR Marine Resources, Inc. He further argued that the CA erred in holding CSAR
Marine Resources liable to the private respondent since the latter was not impleaded as
a party in the case. This Court allowed the piercing of the corporate veil and held that
Arcilla used "his capacity as President, x x x [as] a sanctuary for a defense x x x to avoid
complying with the liability adjudged against him x x x.''[45] We held that his liability
remained attached even if he was impleaded as a party, and not the corporation, to the
collection case and even if he ceased to be corporate president.[46] Indeed, even if Arcilla
had ceased to be corporate president, he remained personally liable for the judgment
debt to pay his personal loan, for we treated him and the corporation as one and the
same. CSAR Marine was deemed his alter ego.
We find similarities with Arcilla and the instant case. Like Arcilla, Santos: (1) was
adjudged liable to pay on a judgment against him; (2) he became President of a
corporation; (3) he formed a corporation to conceal assets which were supposed to pay
for the judgment against his favor; (4) the corporation which has Santos as its President,
is being asked by the court to pay on the judgment; and (5) he may not use as a defense
that he is no longer President of I/AME (although a visit to the website of the school
shows he is the current President).[47]
This Court agrees with the CA that I/AME is the alter ego of Santos and Santos - the
natural person - is the alter ego of I/AME. Santos falsely represented himself as
President of I/AME in the Deed of Absolute Sale when he bought the Makati real
property, at a time when I/AME had not yet existed. Uncontroverted facts in this case
also reveal the findings of MeTC showing Santos and I/AME as being one and the same
person:
(1) Santos is the conceptualizer and implementor of I/AME;
(2) Santos' contribution is P1,200,000.00 (One Million Two Hundred Thousand Pesos)
out of the P1,500,000.00 (One Million Five Hundred Thousand Pesos), making him the
majority contributor of I/AME; and,
(3) The building being occupied by I/AME is named after Santos using his known
nickname (to date it is called, the "Noli Santos International Tower").[48]
This Court deems I/AME and Santos as alter egos of each other based on the former's
own admission in its pleadings before the trial court. In its Answer (to Amended
Petition) with the RTC entitled Litton and Company, Inc. v. Hon. Hernandez-Calledo, Civil
Case No. 06-115547, I/AME admitted the allegations found in paragraphs 2, 4 and 5 of
the amended petition of Litton, particularly paragraph number 4 which states:
4. Respondent, International Academy of Management and Economics
Inc. (hereinafter referred to as Respondent I/AME), is a corporation organized and
existing under Philippine laws with address at 1061 Metropolitan Avenue, San Antonio
Village, Makati City, where it may be served with summons and other judicial
processes. It is the corporate entity used by Respondent Santos as his alter ego for
the purpose of shielding his assets from the reach of his creditors, one of which is
herein Petitioner.[49] (Emphases ours)
Hence, I/AME is the alter ego of the natural person, Santos, which the latter used to
evade the execution on the Makati property, thus frustrating the satisfaction of the
judgment won by Litton.
b) Reverse Piercing of the Corporate Veil
This Court in Arcilla pierced the corporate veil of CSAR Marine Resources to satisfy a
money judgment against its erstwhile President, Arcilla.
We borrow from American parlance what is called reverse piercing or reverse
corporate piercing or piercing the corporate veil "in reverse."
As held in the U.S. Case, C.F. Trust, Inc., v. First Flight Limited Partnership,[50] "in a
traditional veil-piercing action, a court disregards the existence of the corporate entity
so a claimant can reach the assets of a corporate insider. In a reverse piercing action,
however, the plaintiff seeks to reach the assets of a corporation to satisfy claims against
a corporate insider."
"Reverse-piercing flows in the opposite direction (of traditional corporate veil-piercing)
and makes the corporation liable for the debt of the shareholders."[51]
It has two (2) types: outsider reverse piercing and insider reverse piercing. Outsider
reverse piercing occurs when a party with a claim against an individual or corporation
attempts to be repaid with assets of a corporation owned or substantially controlled by
the defendant.[52] In contrast, in insider reverse piercing, the controlling members will
attempt to ignore the corporate fiction in order to take advantage of a benefit available
to the corporation, such as an interest in a lawsuit or protection of personal assets.[53]
Outsider reverse veil-piercing is applicable in the instant case. Litton, as judgment
creditor, seeks the Court's intervention to pierce the corporate veil of I/AME in order to
make its Makati real property answer for a judgment against Santos, who formerly
owned and still substantially controls I/AME.
In the U.S. case Acree v. McMahan,[54] the American court held that "[o]utsider reverse
veil-piercing extends the traditional veil-piercing doctrine to permit a third-party
creditor to pierce the veil to satisfy the debts of an individual out of the corporation's
assets."
The Court has pierced the corporate veil in a reverse manner in the instances when the
scheme was to avoid corporate assets to be included in the estate of a decedent as in the
Cease case and when the corporation was used to escape a judgment to pay a debt as in
the Arcilla case.
In a 1962 Philippine case, this Court also employed what we now call reverse-piercing
of the corporate veil. In Palacio v. Fely Transportation Co.,[55] we found that the president
and general manager of the private respondent company formed the corporation to
evade his subsidiary civil liability resulting from the conviction of his driver who ran
over the child of the petitioner, causing injuries and medical expenses. The Court agreed
with the plaintiffs that the president and general manager, and Fely Transportation,
may be regarded as one and the same person. Thus, even if the president and general
manager was not a party to the case, we reversed the lower court and declared both him
and the private respondent company, jointly and severally liable to the plaintiffs. Thus,
this Court allowed the outsider-plaintiffs to pierce the corporate veil of Fely
Transportation to run after its corporate assets and pay the subsidiary civil liability of
the company's president and general manager.
This notwithstanding, the equitable remedy of reverse corporate piercing or reverse
piercing was not meant to encourage a creditor's failure to undertake such remedies
that could have otherwise been available, to the detriment of other creditors.[56]
Reverse corporate piercing is an equitable remedy which if utilized cavalierly, may lead
to disastrous consequences for both stock and non-stock corporations. We are aware
that ordinary judgment collection procedures or other legal remedies are preferred
over that which would risk damage to third parties (for instance, innocent stockholders
or voluntary creditors) with unprotected interests in the assets of the beleaguered
corporation.[57]
Thus, this Court would recommend the application of the current 1997 Rules on Civil
Procedure on Enforcement of Judgments. Under the current Rules of Court on Civil
Procedure, when it comes to satisfaction by levy, a judgment obligor is given the option
to immediately choose which property or part thereof may be levied upon to satisfy the
judgment. If the judgment obligor does not exercise the option, personal properties, if
any, shall be first levied and then on real properties if the personal properties are
deemed insufficient to answer for the judgment.[58]
In the instant case, it may be possible for this Court to recommend that Litton run after
the other properties of Santos that could satisfy the money judgment - first personal,
then other real properties other than that of the school. However, if we allow this, we
frustrate the decades-old yet valid MeTC judgment which levied on the real property
now titled under the name of the school. Moreover, this Court will unwittingly condone
the action of Santos in hiding all these years behind the corporate form to evade paying
his obligation under the judgment in the court a quo. This we cannot countenance
without being a party to the injustice.
Thus, the reverse piercing of the corporate veil of I/AME to enforce the levy on
execution of the Makati real property where the school now stands is applied.
WHEREFORE, in view of the foregoing, the instant petition is DENIED. The CA Decision
in CA-G.R. SP No. 107727 dated 30 October 2009 and its Resolution on 12 March 2010
are hereby AFFIRMED. The MeTC Order dated 29 October 2004 is
hereby REINSTATED.
Accordingly, the MeTC of Manila, Branch 2, is hereby DIRECTED to execute with
dispatch the MeTC Order dated 29 October 2004 against Santos.
SO ORDERED.
THIRD DIVISION
[ G.R. NOS. 117622-23, October 23, 2006 ]
FRANCISCO MOTORS CORP., PETITIONER, VS. HON. COURT OF APPEALS AND
ANTONIO RAQUIZA, RESPONDENTS.
DECISION
VELASCO, JR., J.:
It is the spirit and not the form of law that keeps justice alive.
- former US Chief Justice Earl Warren
The Court, at times, bends in its regimen of strictly enforcing its own rules and issuances
when technicalities would becloud the serving of equity and fairness-especially when
protracted litigation ensues and such prolonged dispute bars litigants from having a
genuine day in court. However, protracted litigation, which by its nature puts the odds
against a party, should not be a bar to discovering the truth and ruling on the merits of a
case.
The Case
This petition for review[1] challenges the April 28, 1994 Decision[2] of
the Court of Appeals in CA-G.R. SP No. 15512 and CA-G.R. SP No. 15515 entitled Antonio
Raquiza v. Hon. Milagros Caguioa, Judge, RTC of Pasig, M.M. Branch 165. The assailed
Decision granted respondent Raquiza's right to the issuance of a writ of execution
against the lot which was in the name of petitioner Francisco Motors Corporation
(FMC).
The Facts
We reiterate the facts found by the Court of Appeals, in addition to those borne by the
records.
The present controversy originated in 1958 concerning the annulment of public auction
sales of parcels of land in San Jose and Norzagaray, Bulacan; Antipolo; and Las Piñas,
Metro Manila owned by spouses Epifanio Alano and Cecilia Pading-Alano. Records show
that Raquiza was the lawyer of the Alano spouses in Civil Case Nos. 2608 and 4622.[3] As
payment for Raquiza's legal services, the Alano spouses agreed in a written contract to
pay him attorney's fees equivalent to 30% of the properties in litigation. Raquiza,
however, was subsequently dismissed by the Alano spouses without justifiable
cause. Hence, he was allowed to intervene in the civil cases with respect to his claim for
attorney's fees.[4]
On May 30, 1958, the Court of First Instance of Rizal, Branch VI, granted the motion of
Raquiza to have his contract of legal retainer annotated in the titles involved in Civil
Case No. 4622, which includes Transfer Certificate of Title (TCT) No. 56520 covering a
parcel of land in Las Piñas (Las Piñas property) then in the name of Miguel Campos. On
January 30, 1959, said annotation of attorney's lien was cancelled.[5]
On December 11, 1970, Presiding Judge Herminio C. Mariano of the Court of First
Instance (CFI) of Pasig, Branch 10, rendered a Joint Decision[6] in Civil Case Nos. 2608
and 4622. The dispositive portion partly reads:
Regarding the claim of intervenor, Atty. Antonio V. Raquiza, the Court declares that said
intervenor is entitled to 30% of whatever rights and interests the Alanos may have in
the Natalia Realty, Inc. as stockholder thereof considering that the Contract of Legal
Retainer is obviously on a contingent basis. The Alanos are further ordered to
reimburse Atty. Antonio V. Raquiza the sum of P10,000.00 representing various
advances made by the latter to the former and as litigation and other expenses.
SO ORDERED.[7]
Separate appeals were filed by Raquiza and the Alanos before the Court of Appeals (CA)
which were docketed as CA-G.R. Nos. 52159-60-R. Meanwhile, the Las Piñas property
was transferred from Miguel Campos to CPJ Corporation as nominee of the Alano
spouses, and TCT No. 56520 was replaced with TCT No. 190712 in the name of CPJ
Corporation on May 18, 1967. The property was transferred to the Alano spouses on
October 3, 1973, but the Deed of Reconveyance was not immediately presented to the
Register of Deeds for registration. On December 7, 1973, the Alano spouses executed a
Deed of Sale with First Mortgage in favor of petitioner FMC.[8] Both the Deed of
Reconveyance and Deed of Sale with First Mortgage were presented to the Register of
Deeds of Rizal only on January 21, 1974. On the same date, TCT No. 190712 was
cancelled and replaced by TCT No. 432260 in the name of the Alanos, which in turn, was
cancelled and replaced by TCT No. 432261[9] in the name of petitioner FMC.
On January 17, 1980, the Special First Division of the CA rendered a Decision in CA-G.R.
Nos. 52159-60-R. The dispositive portion reads:
IN VIEW OF THE FOREGOING, the judgment of the lower Court in Civil Cases Nos. 2608
and 4622 is MODIFIED insofar as the claim of Atty. Raquiza for attorney's fees is
concerned in the sense that he shall be entitled to 30% pro indiviso interest in all the
properties reconveyed by Campos, Philamgen and Philamlife under the Compromise
Agreement of December 28, 1965, except the Antipolo properties covered by the Deed of
Sale of September 10, 1953 in favor of Natalia Realty, and to 30% interest in the
participation of the Alanos as shareholder of Natalia Realty, subject to his reimbursing
the Alanos the amount of P195,000.00, representing 30% of the consideration paid by
the Alanos for said reconveyance. The Alanos shall also reimburse Atty. Raquiza the
sum of P10,000.00, representing various advances made by him to the Alanos.
In all other respects, the appealed decision is AFFIRMED in toto with costs against
appellant Alanos.
SO ORDERED.[10] (Emphasis supplied.)
This Decision became final and executory on July 13, 1981.[11]
On October 1, 1980, Raquiza filed with the trial court an Ex-Parte Motion for Execution
of the Decision of the CA. He also filed an Ex-Parte Motion for Production of Title
alleging that the title which eventually replaced TCT No. 56520, TCT No. 190712, is
missing in the Register of Deeds.[12] A Writ of Execution was issued on February 10,
1982 ordering the Sheriff of Pasig to implement the judgment of the CA within 60 days
from receipt of the writ.[13]
On April 15, 1982 and May 19, 1982, Raquiza filed with the trial court Motions for the
Issuance of a Separate Transfer Certificate of Title[14] in his name covering the area
corresponding to his attorney's fees. This was opposed by the Alano spouses on June
14, 1982 through the filing of an Opposition.[15]
On October 8, 1982, the trial court issued an Order granting Raquiza's motion for the
issuance of a separate title, thus:
WHEREFORE, premises considered, and in accordance with the decision of
the Court of Appeals dated January 17, 1980 which has long become final and executory,
as prayed for, a portion with an area of 162,576.60 sq.m. of the real property with
Transfer Certificate of Title No. S-65162 is hereby ordered segregated from the total
area of the real property covered by said titles S-65161 and S-65162 and a separate
transfer certificate of title be issued in the name of Antonio Epifanio J. Alano, Sr. and
Cecilia P. Alano and Trans-Resource Management and Development Corporation are
further ordered to surrender Transfer Certificate of Title No. 190713 (S-65161) and
Transfer Certificate of Title No. 190714 (now S-65162) to the custody of
this Court within fifteen (15) days from receipt hereof in order that the corresponding
segregation and issuance of a separate transfer certificate of title in favor of Antonio V.
Raquiza can be effected.
SO ORDERED.[16]
On May 8, 1983, Trans-Resource Management and Development Corporation, a party in
one of the original civil cases, appealed the above Order through a Petition for Certiorari
and Prohibition.[17] The appeal was dismissed by the Intermediate
Appellate Court (IAC) on August 27, 1985.[18]
On January 31, 1986, Raquiza filed with the lower court a Supplemental Motion for
Execution[19] alleging that the October 8, 1982 Order failed to include the lot covered by
TCT No. 56520, that is, the Las Piñas property which was acquired by petitioner FMC.
On February 5, 1986, the trial court, through Judge Eficio Acosta, issued an Order of
Execution directing FMC to surrender its title so that Raquiza's 30% of the property can
be segregated. The Order reads:
AS PRAYED FOR by Intervenor Antonio V. Raquiza in his supplemental Motion for
Execution and there being no objection thereto, the Court hereby orders the segregation
of the 30% of the parcel of land previously covered by Transfer Certificate of Title No.
56521[20] of the Register of Deeds of Rizal in the name of CPJ Corporation which the said
company later transferred and conveyed to Francisco Motors, Inc., and the issuance of a
new Certificate of Title over said portion in the name of the intervenor Antonio V.
Raquiza and that Francisco Motors, Inc. is hereby ordered to surrender to this Court the
title of the subject parcel of land so that the segregation and issuance of a separate
transfer of certificate of title in favor of the intervenor over 30% can be effected.
SO ORDERED.[21]
On February 14, 1986, Raquiza filed an Urgent Ex-Parte Motion for correction of the
above Order. He alleged that upon further inquiry, what was conveyed to FMC was the
parcel of land covered by TCT No. 190712 in the name of CPJ Corporation, not TCT No.
56521.[22] Finding merit in the motion, the lower court, on February 18, 1986, issued an
Order correcting the February 5, 1986 Order by changing TCT No. 56521 to TCT No.
190712.[23]
On March 10, 1986, Raquiza filed an Ex-Parte Motion praying that FMC be ordered to
explain why it had not surrendered TCT No. 190712.[24] In its March 13, 1986
Opposition, FMC alleged inter alia that it is a buyer in good faith as the attorney's lien of
Raquiza was not annotated at the back of TCT No. 190712.[25] On June 3, 1986, FMC filed
a Motion to Quash the Writ of Execution.[26]
On June 6, 1986, the lower court, also through Judge Eficio Acosta, granted Raquiza's
motion. It held that FMC's defense of good faith was without merit. The dispositive
portion of the order reads:
WHEREFORE, premises considered, the motion to quash writ of execution field
by Francisco Motors Corporation is hereby denied. The opposition to motion of
intervenor Raquiza filed by Francisco Motors Corporation is hereby denied and the
Orders of this Court dated February 5, 1986 and February 18, 1986
stand. Francisco Motors Corporation is hereby ordered to submit to the Court the
portion of the property it prefers to hold so that the remaining portion shall be
segregated and titled in the name of the intervenor Antonio Raquiza.
SO ORDERED.[27]
On June 19, 1986, Raquiza filed an Ex-Parte Motion for the Issuance of a Writ of
Execution pursuant to the orders dated February 5 and 18, 1986.[28]
On July 8, 1986, FMC filed a Motion for Reconsideration of the said Order. FMC alleged
that it purchased the property from the Alano spouses as early as December 7, 1973,
while Raquiza's attorney's fees were awarded by the CA much later, or only on January
17, 1980; hence, it cannot be levied upon to answer for his attorney's fees.[29]
On September 23, 1986, the lower court, through Judge Nicolas Galing, issued an Order
quashing the writ of execution issued by Judge Eficio Acosta on the ground that the land,
having been sold by the Alano spouses to FMC as early as December 7, 1973, long before
the Court of Appeals awarded Raquiza's attorney's fees, could no longer be reached by
execution.[30] On November 4, 1986, Raquiza filed a Motion for Reconsideration while
FMC opposed.[31]
On June 10, 1987, Raquiza filed a Motion to Enforce his Motion to Execute alleging that
the decision sought to be enforced had long become final and executory. He prayed that
the writ of execution, which was quashed in the order dated September 23, 1986, be
reinstated and enforced immediately.[32] FMC and Alano spouses opposed the
motion. Meanwhile, the entire judiciary was reorganized. The cases were re-raffled to
Branch 164. Subsequently, Branch 164 was converted into a Special Criminal Court;
hence, the cases were re-raffled to Branch 165 which was presided by Judge Milagros V.
Caguioa.[33]
On January 19, 1988, the lower court denied Raquiza's Motion to Enforce the Motion to
Execute for lack of merit on the ground that the decision sought to be enforced had
become final and executory after the lapse of five years, and the same Decision could no
longer be enforced by a mere motion.[34]
On February 11, 1988, Raquiza filed a Motion for Reconsideration citing the delay in the
implementation of the judgment which was brought about by various causes. Again,
spouses Alano and FMC opposed the motion. On May 13, 1988, respondent court denied
the Motion for Reconsideration.[35]
On June 21, 1988, Raquiza filed a Motion for Extension of Time to file a petition for
certiorari before the Supreme Court. In the July 4, 1988 Resolution, this Court granted
Raquiza 30 days within which to file a petition for certiorari.[36] The petition[37] was
filed on July 25, 1988 and the case was docketed as G.R. No. 83718-19. In that petition,
Raquiza prayed that the Court (1) give due course to the petition, (2) include FMC as
respondent, and (3) reverse the Decision of Judge Caguioa and order the execution of
the January 17, 1980 Decision of the CA. In the August 15, 1988 Resolution,
the Court remanded the case to the CA.[38] The case was docketed as CA-G.R. SP No.
15512 and 15515[39] which is now for review.
The Ruling of the Court of Appeals
The April 28, 1994 Decision of the CA set aside the January 19 and May 13, 1988 Orders
of the trial court, citing the following three (3) reasons: (1) that Raquiza's motions dated
April 15 and May 19, 1982 for the segregation of titles were for the execution of the
decision in his favor; thus, the subsequent motions should be treated as mere follow-
up;[40] (2) that FMC, as a successor-in-interest in relation to the property of the Alano
spouses and transferee pendente lite, was bound to recognize the encumbrances
attached to the land, including the attorney's liens, although not inscribed in the
title;[41] and (3) it justified Raquiza's petition for certiorari after finding the appeal was
not a speedy or sufficient remedy.[42]
FMC's Motion for Reconsideration was denied by the CA in its October 26, 1994
Resolution. [43]
Intervening Events
On January 2, 1995, FMC filed the instant petition for review. After the submission of
the parties' respective Memoranda in August 1995, counsel for private respondent filed
on June 19, 2002 an Urgent Motion for Substitution of Parties and Early
Resolution.[44] Furthermore, Antonio Raquiza reportedly passed away last December 24,
1999.[45] In the July 28, 2003 Resolution, we denied the motion for substitution for lack
of merit.[46]
The Issues
The parties submitted the following issues for our consideration:
WHETHER OR NOT THE PROPER REMEDY OF PRIVATE RESPONDENT IS CERTIORARI
AND NOT APPEAL
WHETHER OR NOT THE DECISION OF THE COURT OF APPEALS IN CA-G.R. NOS. 52159-
60-R CAN STILL BE ENFORCED BY A SIMPLE MOTION UNDER SEC. 6, RULE 39 OF THE
RULES OF COURT
WHETHER OR NOT THE ATTORNEY'S FEES AWARDED TO PRIVATE RESPONDENT IN
CA-G.R. NOS. 52159-60-R [ON JANUARY 17, 1980] CAN BE ENFORCED/SATISFIED AS
AGAINST THE PARCELS OF LAND ACQUIRED BY PETITIONER FROM THE ALANOS ON
DECEMBER 7, 1973
The Court's Ruling
We find the petition partly meritorious.
(1) Resort to Certiorari
Petitioner contends that Raquiza's resort to certiorari is erroneous because one of the
essential requisites for the issuance of a writ of certiorari is that there must be no
appeal or any plain, speedy, and adequate remedy in the ordinary course of
law. Petitioner reasoned that since the subject of the petition for certiorari were the
orders of the trial court dated January 19 and May 13, 1988, appeal, not certiorari, is the
proper remedy. Petitioner further alleged that the petition for certiorari was filed with
the CA only in March 1989, after the lapse of more than one year from the assailed
orders.
Section 1, Rule 65 of the Revised Rules of Court provides that a writ of certiorari lies
when any tribunal, board or officer exercising judicial or quasi-judicial functions has
acted without or in excess of its or his [/her] jurisdiction, or with grave abuse of
discretion amounting to lack or excess of jurisdiction, and there is no appeal, or any
plain, speedy, and adequate remedy in the ordinary course of law. We have consistently
held that where the error sought to be corrected neither relates to the court's
jurisdiction nor involves grave abuse of discretion, review [of the error] through
certiorari will not be allowed. This rule, however, admits exceptions such as (1) when it
is necessary to prevent irreparable damages and injury to a party, (2) where the trial
judge capriciously and whimsically exercised his [/her] judgment, (3) where there may
be danger of failure of justice, (4) where an appeal would be slow, inadequate, and
insufficient, (5) where the issue raised is one purely of law, (6) where public interest is
involved, and (7) in case of urgency.[47] In Jaca v. Davao Lumber Company, we further
ruled that:
Although Sec. 1, Rule 65 of the Rules of Court provides that the special civil action of
certiorari may only be invoked when "there is no appeal, nor any plain, speedy and
adequate remedy in the [ordinary] course of law," this rule is not without exception. The
availability of the ordinary course of appeal does not constitute sufficient ground to
prevent a party from making use of the extraordinary remedy of certiorari where the
appeal is not an adequate remedy or equally beneficial, speedy and sufficient. It is the
inadequacy - not the mere absence of all other legal remedies and the danger of failure
of justice without the writ that must usually determine the propriety of certiorari.[48]
In this case, while private respondent had other legal remedies against the trial courts'
orders, these remedies would be slow, inadequate and insufficient in light of the
excessive delay in this case. Private respondent's attempts to collect his fees in 1958
was evident when he intervened in Civil Case Nos. 2608 and 4622. He received a
favorable decision after 22 years, or on January 17, 1980, after an appeal to the CA. The
Decision became final on July 13, 1981. Since then private respondent had been trying
to execute the decision by filing various motions. The trial court, however, frustrated
private respondent's efforts when it issued its January 19 and May 13, 1988 Orders.
Thereafter, private respondent filed the questioned petition for certiorari and the CA
issued its Decision only in 1994. The number of years alone that the private respondent
had devoted in enforcing his claim, that is, almost half a century to date, exceptionally
calls for certiorari as a more speedy and adequate remedy. The availability of other
legal remedies cannot prevent the recourse to certiorari when these remedies would be
slow and inadequate to effectively dispense justice in favor of the private respondent.
We take special cognizance that when the CA issued the questioned Decision in 1994,
private respondent Raquiza was almost 90 years old. Private respondent had once
appealed the case which resulted in a Decision in his favor after ten years of pendency in
the appellate court. Considering the private respondent's age and the slow disposition
of his previous appeal, it is easy to understand why he had resorted to certiorari instead
of appeal in trying to execute the Decision in his favor. Dismissing the instant petition
on the basis of technicality alone would be unjust to private respondent. We reiterate
that:
Technicalities should be disregarded if only to render to the respective parties that
which is their due. Thus, although We have said that certiorari cannot be a substitute for
a lapsed appeal, We have, time and again, likewise held that where a rigid application of
that rule will result in a manifest failure or miscarriage of justice, the rule may be
relaxed. Hence, considering the broader and primordial interests of justice, particularly
when there is grave abuse of discretion, thus impelling occasional departure from the
general rule that the extraordinary writ of certiorari cannot substitute for a lost appeal,
respondent appellate court may legally entertain the special civil action for certiorari.[49]
Petitioner FMC mistakenly pointed out that private respondent filed the petition for
certiorari before the CA in 1989, concluding that more than one year had elapsed from
the assailed orders of the trial court dated January 19 and May 13, 1988. As previously
mentioned, private respondent initially filed a petition for certiorari on July 25, 1988
which was within the extended period of time granted to him by this Court. [50] On
August 15, 1988, the Court remanded the case to the CA.[51] While the case was pending
in the CA, Raquiza asked for an extension of time to file his Amended Petition. The
appellate court granted his motion and on March 30, 1989, Raquiza filed the Amended
Petition for Certiorari.[52] Thus, private respondent's Petition for Certiorari was filed
within the time set by the rules and with the approval of the Supreme Court and
CA. Private respondent, therefore, cannot be said to have slept on his right to appeal for
more than a year.
(2) Enforcement of the Decision by Motion
There is no dispute that the judgment sought to be enforced by private respondent was
the January 17, 1980 Decision of the CA which became final on July 13, 1981. Petitioner
asserts, however, that judgments can be enforced by mere motion within five years from
finality and since private respondent's Motion to Enforce the Motion to Execute was
filed only on June 10, 1987, said Motion had already prescribed.
Section 6, Rule 39 of the Revised Rules of Court states:
SEC. 6. Execution by motion or by independent action - A final and executory judgment or
order may be executed on motion within five (5) years from the date of its entry. After
the lapse of such time, and before it is barred by the statute of limitations, a judgment
may be enforced by action. The revived judgment may also be enforced by motion
within five (5) years from the date of its entry and thereafter by action before it is
barred by the statute of limitations.
In Lancita v. Magbanua, we held that:
In computing the time limited for suing out of an execution, although there is authority
to the contrary, the general rule is that there should not be included the time when
execution is stayed, either by agreement of the parties for a definite time, by injunction,
by the taking of an appeal or writ of error so as to operate as a supersedeas, by the
death of a party or otherwise. Any interruption or delay occasioned by the debtor will
extend the time within which the writ may be issued without scire facias (citation
omitted).[53]
As pointed above, in computing the time limited for suing out an execution, the time
during which execution is stayed should be excluded, and the said time will be extended
by any delay occasioned by the debtor. In Blouse Potenciano v. Mariano, we held that the
motion for examination of the judgment debtor, which is a proceeding supplementary to
execution, and the action for mandamus amounted to a stay of execution which
effectively interrupted or suspended the five (5)-year period for enforcing the judgment
by motion.[54] In Camacho v. Court of Appeals, et. al., where after a final judgment, the
petitioner (obligor) moved to defer the execution, elevated the matter to the CA and the
Supreme Court, transferred the property to her daughter, in addition to the issues
regarding counsel and subsequent vacancies in the courts, we ruled that:
Under the peculiar circumstances of the present case where the delays were occasioned
by petitioner's own initiatives and for her advantage as well as beyond the respondents'
control, we hold that the five [5]-year period allowed for the enforcement of the
judgment by motion was deemed to have been effectively interrupted or
suspended. Once again we rely upon basic notions of equity and justice in so
ruling. (Emphasis supplied.)
The purpose of the law in prescribing time limitations for enforcing judgment or actions
is to prevent obligors from sleeping on their rights. Far from sleeping on their rights,
respondents persistently pursued their rights of action. It is revolting to the conscience
to allow petitioner to further avert the satisfaction of her obligation because of sheer
literal adherence to technicality (citation omitted).[55]
We also subtracted from the five (5)-year period the time when the judgment could not
be enforced due to the restraining order issued by this Court,[56] and when the records
of the case were lost or misplaced through no fault of the petitioner.[57] In Provincial
Government of Sorsogon v. Vda. de Villaroya, we likewise excluded the delays caused by
the auditor's requirements which were not the fault of the parties who sought
execution, and ruled that "[i]n the eight years that elapsed from the time the judgment
became final until the filing of the restraining motion by the private respondents, the
judgment never became dormant. Section 6, Rule 39 of the Revised Rules of Court does
not apply."[58] In Jacinto v. Intermediate Appellate Court, this Court further held:
Granting for the sake of argument that the motion for an alias writ of execution was
beyond the five [5]-year limitation within which a judgment may be executed by mere
motion, still under the circumstances prevailing wherein all the delay in the execution of
the judgment lasting for more than eight [8]-years was beneficial to private
respondents, this Court[,] for reasons of equity[,] is constrained to treat the motion for
execution as having been filed within the reglementary period required by
law.[59] (Emphasis supplied.)
Republic v. Court of Appeals summed it up as follows:
To be sure, there had been many instances where this Court allowed execution by
motion even after the lapse of five years, upon meritorious grounds. These exceptions
have one common denominator, and that is: the delay is caused or occasioned by actions
of the judgment debtor and/or is incurred for his benefit or advantage (emphasis
supplied).[60]
In the case at bar, since the judgment of the CA became final on July 13, 1981, private
respondent had filed several motions for and in support of its execution. After the
dismissal of the appeal of Trans-Resource Management Corporation in 1985, private
respondent moved for the inclusion of the Las Piñas property in the order of
execution. He reasoned that the February 10, 1982 Writ of Execution could not be
enforced against the Las Piñas property because the title number was already changed
and could not be traced or found in the Register of Deeds.[61]
Nevertheless, during the five (5) year period from the finality of judgment, private
respondent filed several motions for and in support of execution. His persistence is
manifest in the number of motions, manifestations, oppositions, and memoranda he had
filed since the judgment became final on July 13, 1981. He obtained three writs of
execution (February 10, 1982; February 5, 1986 and June 6, 1986) and two orders in aid
of execution (October 8, 1982 and February 18, 1986) but the alleged loss of the title,
incorrect orders, and the subsequent refusal of petitioner FMC to surrender its title
prevented the satisfaction of judgment. While the delay was not wholly attributable to
FMC, it nevertheless worked to FMC's advantage. FMC's motion for reconsideration of
the order of execution prevented the implementation of said order, especially
considering that it was filed on July 8, 1986. Said motion effectively suspended the five
(5) year prescriptive period which was supposed to expire on July 13, 1986.
Subsequently, an order quashing the writ of execution was issued by the court a quo on
September 23, 1986 which private respondent questioned in a motion for
reconsideration. Before the lower court released its Decision, on private respondent's
motion for reconsideration, Raquiza filed the assailed Motion to Enforce the Motion to
Execute. In view of the foregoing circumstances and for reasons of equity, we are
constrained to treat the Motion to Enforce the Motion to Execute as having been filed
within the reglementary period. The purpose of the law in prescribing time limitations
for enforcing judgments or actions is to prevent obligors from sleeping on their
rights.[62] Private respondent, on the contrary, persistently sought the execution of the
judgment in his favor.
(3) Satisfaction of Claims Against the Petitioner's Property
Private respondent's claim on the property is based on the January 17, 1980 decision of
the CA which awarded him "30% pro indiviso interest in all the properties reconveyed
by Campos, Philamgen and Philamlife under the Compromise Agreement of December
28, 1965." One of the properties that was reconveyed to the Alano spouses is the Las
Piñas property which is now in dispute.
Petitioner contends that when it acquired the property, there was neither an attorney's
lien at the back of TCT No. 56520 nor a notice of lis pendens; thus, it was in good faith at
the time of purchase. Petitioner also asserts that it acquired the property before the CA
awarded the attorney's fees against the property in question.[63] Nevertheless, the
trial court ruled that petitioner should have been alerted by the fact that TCT No.
190712 was in the name of CPJ as nominee and assignee of the Alanos. The
appellate court affirmed this finding, adding that the petitioner is bound to recognize
the encumbrances including attorney's lien although not inscribed in the title and that
petitioner is bound by the judgment even though there was no formal substitution of the
parties. The appellate court ruled that petitioner should have exercised the ordinary
care expected of a buyer in real estate. [64]
We DISAGREE.
The annotation of attorney's lien on TCT No. 56520 was cancelled on January 30, 1959,
long before petitioner FMC acquired the property in question, on December 7,
1973. TCT No. 56520 was later cancelled and replaced by TCT No. 190712 in the name
of CPJ Corporation. A notice of lis pendens was inscribed on TCT No. 190712 on
February 6, 1958 by spouses Epifanio J. Alano and Cecilia Alano in view of the pendency
of Civil Case No. 4622 entitled Epifanio J. Alano; et al. v. Miguel Campos, et al. On the
other hand, respondent Antonio Raquiza did not bother to have his attorney's lien
annotated at the back of TCT NO. 190712, to protect his interests in it. This annotation
was cancelled on June 19, 1967 by the Alano spouses.[65] Private respondent did not
cause the reannotation of the attorney's lien and the notice of lis pendens despite the
pendency of the two civil cases. Thus, when petitioner bought the property in question
on December 7, 1973, the title was free from the attorney's lien and notice of lis pendens.
Private respondent argued that the reannotation of his claim could not be effected due
to the alleged loss of TCT No. 190712 (formerly TCT No. 56520) and its
derivatives. This posture does not hold water. The annotation of lis pendens is done on
the original certificate of title which is on file with the Register of Deeds. Even
conceding that the original TCT No. 190712 was missing, still respondent Raquiza
should have filed the notice of lis pendens with the Office of the Register of Deeds so that
the latter will be forewarned if a person requests for the transfer of the title which
appears to have been misplaced or lost. Another remedy would be to file a motion for
preliminary injunction to prevent the Alano spouses from selling the lot subject of TCT
No. 190712, and to direct the Register of Deeds not to transfer the title to any third
party. Unfortunately, respondent Raquiza failed to undertake the safeguards necessary
to protect his attorney's lien. Thus, we hold that petitioner FMC bought the property
without notice of any defect in the title. It is therefore a purchaser in good faith and for
value.
In Spouses Po Lam v. Court of Appeals, we held that the filing of a notice of lis pendens in
effect (1) keeps the subject matter of the litigation within the power of the court until the
entry of the final judgment so as to prevent the defeat of the latter by successive
alienations; and (2) binds the purchaser of the land subject of the litigation to the
judgment or decree that will be promulgated there on whether such a purchaser is
a bona fide purchaser or not; but (3) does not create a non-existent right or lien. The
cancellation of a notice of pendency terminates the effects of such notice; thus, the
buyers of the property cannot be considered transferees pendente lite and purchasers in
bad faith.[66] This ruling holds true for petitioner FMC. Similar to the aforementioned
case, petitioner FMC bought the property pending appeal. The title carried no notice
of lis pendens and the private respondent did not cause the reannotation of or the
attorney's lien. Thus, petitioner FMC could not be considered a transferee pendente
lite and buyer in bad faith.
Furthermore, private respondent's right over the property is based on the January 17,
1980 Decision of the CA in CA-GR No. 52159-60R which modified the ruling of the
lower court by granting the claim of respondent Raquiza for attorney's fees of 30% pro
indiviso interest in all the properties reconveyed by Campos, et al. At the time of the
sale on December 7, 1973 in favor of petitioner FMC, private respondent Raquiza did
not yet have a right over 30% of the Las Piñas property. Had respondent Raquiza been
vigilant, he could have impleaded petitioner FMC as a party-litigant in the civil
cases. However, it was only in March 1986 when respondent Raquiza asked that
petitioner be ordered to surrender its title. By that time, it was already too
late. Apparently, private respondent slept on his rights, and verily such inaction should
not prejudice an innocent purchaser for value. Having bought the property in good
faith, petitioner FMC cannot be considered a transferee pendente lite which could be
bound by the 1980 judgment of the appellate court.
WHEREFORE, the petition for review is GRANTED IN PART and the April 28, 1994
Decision and the October 26, 1994 Resolution of the Court of Appeals are MODIFIED, so
that the attorney's fees awarded to petitioner Raquiza in the January 17, 1980 Decision
in CA-G.R. Nos. 52159-60-R entitled Natasha Realty, Inc. v. Sheriff, Province of Rizal, et al.
can no longer be satisfied and enforced against the lot registered under TCT No. 432261
in the name of petitioner Francisco Motor Corporation being an innocent purchaser for
value of said lot.
No costs.
SO ORDERED.
THIRD DIVISION
[ G.R. No. 105395, December 10, 1993 ]
BANK OF AMERICA, NT & SA, PETITIONERS, VS. COURT OF APPEALS, INTER-RESIN
INDUSTRIAL CORPORATION, FRANCISCO TRAJANO, JOHN DOE AND JANE DOE,
RESPONDENTS.
DECISION
VITUG, J.:
A "fiasco," involving an irrevocable letter of credit, has found the distressed parties
coming to court as adversaries in seeking a definition of their respective rights or
liabilities thereunder.
On 05 March 1981, petitioner Bank of America, NT & SA, Manila, received by registered
mail an Irrevocable Letter of Credit No. 20272/81 purportedly issued by Bank of
Ayudhya, Samyaek Branch, for the account of General Chemicals, Ltd., of Thailand in the
amount of US$2,782,000.00 to cover the sale of plastic ropes and "agricultural files,"
with the petitioner as advising bank and private respondent Inter-Resin Industrial
Corporation as beneficiary.
On 11 March 1981, Bank of America wrote Inter-Resin informing the latter of the
foregoing and transmitting, along with the bank's communication, the letter of credit.
Upon receipt of the letter-advice with the letter of credit, Inter-Resin sent Atty. Emiliano
Tanay to Bank of America to have the letter of credit confirmed. The bank did not.
Reynaldo Dueñas, bank employee in charge of letters of credit, however, explained to
Atty. Tanay that there was no need for confirmation because the letter of credit would
not have been transmitted if it were not genuine.
Between 26 March to 10 April 1981, Inter-Resin sought to make a partial availment
under the letter of credit by submitting to Bank of America invoices, covering the
shipment of 24,000 bales of polyethylene rope to General Chemicals valued at
US$1,320,600.00, the corresponding packing list, export declaration and bill of lading.
Finally, after being satisfied that Inter-Resin's documents conformed with the
conditions expressed in the letter of credit, Bank of America issued in favor of Inter-
Resin a Cashier's Check for P10,219,093.20, "the Peso equivalent of the draft (for)
US$1,320,600.00 drawn by Inter-Resin, after deducting the costs for documentary
stamps, postage and mail insurance.”[1] The check was picked up by Inter-Resin's
Executive Vice-President Barcelina Tio. On 10 April
1981, Bank of America wrote Bank of Ayudhya advising the latter of the availment
under the letter of credit and sought the corresponding reimbursement therefor.
Meanwhile, Inter-Resin, through Ms. Tio, presented to Bank of America the documents
for the second availment under the same letter of credit consisting of a packing list, bill
of lading, invoices, export declaration and bills in set, evidencing the second shipment of
goods. Immediately upon receipt of a telex from Bank of Ayudhya declaring the letter of
credit fraudulent,[2] Bank of America stopped the processing of Inter-Resin's documents
and sent a telex to its branch office in Bangkok, Thailand, requesting assistance in
determining the authenticity of the letter of credit.[3] Bank of America kept Interresin
informed of the developments. Sensing a fraud, Bank of America sought the assistance of
the National Bureau of Investigation (NBI). With the help of the staff of the Philippine
Embassy at Bangkok, as well as the police and customs personnel of Thailand, the NBI
agents, who were sent to Thailand, discovered that the vans exported by Inter-Resin did
not contain ropes but plastic strips, wrappers, rags and waste materials. Here at home,
the NBI also investigated Inter-Resin's President Francisco Trajano and Executive Vice
President Barcelina Tio, who, thereafter, were criminally charged for estafa through
falsification of commercial documents. The case, however, was eventually dismissed by
the Rizal Provincial Fiscal who found no prima facie evidence to warrant prosecution.
Bank of America sued Inter-Resin for the recovery of P10,219,093.20, the peso
equivalent of the draft for US$1,320,600.00 on the partial availment of the now
disowned letter of credit. On the other hand, Inter-Resin claimed that not only was it
entitled to retain P10,219,093.20 on its first shipment but also to the balance
US$1,461,400.00 covering the second shipment.
On 28 June 1989, the trial court ruled for Inter-Resin,[4] holding that:
(a) Bank of America made assurances that enticed Inter-Resin to send the merchandise
to Thailand; (b) the telex declaring the letter of credit fraudulent was unverified and
self-serving, hence hearsay, but even assuming that the letter of credit was fake, "the
fault should be borne by the BA which was careless and negligent”[5] for failing to utilize
its modern means of communication to verify with Bank of Ayudhya in Thailand the
authenticity of the letter of credit before sending the same to Inter-Resin; (c) the loading
of plastic products into the vans were under strict supervision, inspection and
verification of government officers who have in their favor the presumption of
regularity in the performance of official functions; and (d) Bank of America failed to
prove the participation of Inter-Resin or its employees in the alleged fraud as, in fact, the
complaint for estafa through falsification of documents was dismissed by the Provincial
Fiscal of Rizal.[6]
On appeal, the Court of Appeals[7] sustained the trial court; hence, this present recourse
by petitioner Bank of America.
The following issues are raised by Bank of America: (a) whether it has warranted the
genuineness and authenticity of the letter of credit and, corollarily, whether it has acted
merely as an advising bank or as a confirming bank; (b) whether Inter-Resin has
actually shipped the ropes specified by the letter of credit; and, (c) following the
dishonor of the letter of credit by Bank of Ayudhya, whether Bank of America may
recover against Inter-Resin under the draft executed in its partial availment of the letter
of credit.[8]
In rebuttal, Inter-Resin holds that: (a) Bank of America cannot, on appeal, belatedly
raise the issue of being only an advising bank; (b) the findings of the trial court that the
ropes have actually been shipped is binding on the Court; and,
(c) Bank of America cannot recover from Inter-Resin because the drawer of the letter of
credit is the Bank of Ayudhya and not Inter-Resin.
If only to understand how the parties, in the first place, got themselves into the mess, it
may be well to start by recalling how, in its modern use, a letter of credit is employed in
trade transactions.
A letter of credit is a financial device developed by merchants as a convenient and
relatively safe mode of dealing with sales of goods to satisfy the seemingly
irreconcilable interests of a seller, who refuses to part with his goods before he is paid,
and a buyer, who wants to have control of the goods before paying.[9] To break the
impasse, the buyer may be required to contract a bank to issue a letter of credit in favor
of the seller so that, by virtue of the letter of credit, the issuing bank can authorize the
seller to draw drafts and engage to pay them upon their presentment simultaneously
with the tender of documents required by the letter of credit.[10] The buyer and the
seller agree on what documents are to be presented for payment, but ordinarily they are
documents of title evidencing or attesting to the shipment of the goods to the buyer.
Once the credit is established, the seller ships the goods to the buyer and in the process
secures the required shipping documents or documents of title. To get paid, the seller
executes a draft and presents it together with the required documents to the
issuing bank. The issuing bank redeems the draft and pays cash to the seller if it finds
that the documents submitted by the seller conform with what the letter of credit
requires. The bank then obtains possession of the documents upon paying the seller.
The transaction is completed when the buyer reimburses the issuing bank and acquires
the documents entitling him to the goods. Under this arrangement, the seller gets paid
only if he delivers the documents of title over the goods, while the buyer acquires the
said documents and control over the goods only after reimbursing the bank.
What characterizes letters of credit, as distinguished from other accessory contracts, is
the engagement of the issuing bank to pay the seller once the draft and the required
shipping documents are presented to it. In turn, this arrangement assures the seller of
prompt payment, independent of any breach of the main sales contract. By this so-called
"independence principle," the bank determines compliance with the letter of credit only
by examining the shipping documents presented; it is precluded from determining
whether the main contract is actually accomplished or not.[11]
There would at least be three (3) parties: (a) thebuyer,[12] who procures the letter of
credit and obliges himself to reimburse the issuing bank upon receipt of the documents
of title; (b) the bank issuing the letter of credit,[13] which undertakes to pay the seller
upon receipt of the draft and proper documents of titles and to surrender the
documents to the buyer upon reimbursement; and, (c) the seller,[14] who in compliance
with the contract of sale ships the goods to the buyer and delivers the documents of title
and draft to the issuing bank to recover payment.
The number of the parties, not infrequently and almost invariably in international trade
practice, may be increased. Thus, the services of an advising (notifying) bank[15] may be
utilized to convey to the seller the existence of the credit; or, of
a confirming bank[16] which will lend credence to the letter of credit issued by a lesser
known issuing bank; or, of a paying bank[17] which undertakes to encash the drafts
drawn by the exporter. Further, instead of going to the place of the issuing bank to claim
payment, the buyer may approach another bank, termed the negotiating bank,[18] to
have the draft discounted.
Being a product of international commerce, the impact of this commercial instrument
transcends national boundaries, and it is thus not uncommon to find a dearth of national
law that can adequately provide for its governance. This country is no exception. Our
own Code of Commerce basically introduces only its concept under Articles 567-572,
inclusive, thereof. It is no wonder then why great reliance has been placed on
commercial usage and practice, which, in any case, can be justified by the universal
acceptance of the autonomy of contracts rule. The rules were later developed into what
is now known as the Uniform Customs and Practice for Documentary Credits ("U.C.P.")
issued by the International Chamber of Commerce. It is by no means a complete text by
itself, for, to be sure, there are other principles, which, although part of lex mercatoria,
are not dealt with in the U.C.P.
In FEATI Bank and Trust Company v. Court of Appeals,[19] we have accepted, to the extent
of their pertinency, the application in our jurisdiction of this international commercial
credit regulatory set of rules.[20] In Bank of Phil. Islands v. De Nery,[21] we have said that
the observance of the U.C.P. is justified by Article 2 of the Code of Commerce which
expresses that, in the absence of any particular provision in the Code of Commerce,
commercial transactions shall be governed by usages and customs generally observed.
We have further observed that there being no specific provisions which govern the legal
complexities arising from transactions involving letters of credit not only between or
among banks themselves but also between banks and the seller or the buyer, as the case
may be, the applicability of the U.C.P. is undeniable.
The first issue raised by the petitioner, i.e., that it has in this instance merely been an
advising bank, is outrightly rejected by Inter-Resin and is thus sought to be discarded
for having been raised only on appeal. We cannot agree. The crucial point of dispute in
this case is whether under the "letter of credit," Bank of America has incurred any
liability to the "beneficiary" thereof, an issue that largely is dependent on the bank's
participation in that transaction; as a mere advising or notifying bank, it would not be
liable, but as a confirming bank, had this been the case, it could be considered as having
incurred that liability.[22]
In Insular Life Assurance Co. Ltd. Employees Association-- Natu vs. Insular Life Assurance
Co., Ltd.,[23] the Court said: Where the issues already raised also rest on other issues not
specifically presented, as long as the latter issues bear relevance and close relation to
the former and as long as they arise from matters on record, the court has the authority
to include them in its discussion of the controversy and to pass upon them just as well.
In brief, in those cases where questions not particularly raised by the parties surface as
necessary for the complete adjudication of the rights and obligations of the parties, and
such questions fall within the issues already framed by the parties, the interests of
justice dictate that the court should consider and resolve them. The rule that only issues
or theories raised in the initial proceedings may be taken up by a party thereto on
appeal should only refer to independent, not concomitant matters, to support or oppose
the cause of action or defense. The evil that is sought to be avoided, i.e., surprise to the
adverse party, is in reality not existent on matters that are properly litigated in the
lower court and appear on record.
It cannot seriously be disputed, looking at this case, that Bank of America has, in fact,
only been an advising, not confirming, bank, and this much is clearly evident, among
other things, by the provisions of the letter of credit itself, the petitioner bank's letter of
advice, its request for payment of advising fee, and the admission of Inter-Resin that it
has paid the same. That Bank of America has asked Inter-Resin to submit documents
required by the letter of credit and eventually has paid the proceeds thereof, did not
obviously make it a confirming bank. The fact, too, that the draft required by the letter of
credit is to be drawn under the account of General Chemicals (buyer) only means that
the same had to be presented to Bank of Ayudhya (issuing bank) for payment. It may
be significant to recall that the letter of credit is an engagement of the issuing bank, not
the advising bank, to pay the draft.
No less important is that Bank of America’s letter of 11 March 1981 has expressly stated
that "[t]he enclosure is solely an advise of credit opened by the abovementioned
correspondent and conveys no engagement by us.”[24] This written reservation
by Bank of America in limiting its obligation only to being an advising bank is in
consonance with the provisions of U.C.P.
As an advising or notifying bank, Bank of America did not incur any obligation more
than just notifying Inter-Resin of the letter of credit issued in its favor, let alone to
confirm the letter of credit.[25] The bare statement of the bank employee,
aforementioned, in responding to the inquiry made by Atty. Tanay, Inter-Resin's
representative, on the authenticity of the letter of credit certainly did not have the effect
of novating the letter of credit and Bank of America's letter of advise,[26] nor can it justify
the conclusion that the bank must now assume total liability on the letter of credit.
Indeed, Inter-Resin itself cannot claim to have been all that free from fault. As the seller,
the issuance of the letter of credit should have obviously been a great concern to it.[27] It
would have, in fact, been strange if it did not, prior to the letter of credit, enter into a
contract, or negotiated at the very least, with General Chemicals.[28] In the ordinary
course of business, the perfection of contract precedes the issuance of a letter of credit.
Bringing the letter of credit to the attention of the seller is the primordial obligation of
an advising bank. The view that Bank of America should have first checked the
authenticity of the letter of credit with Bank of Ayudhya, by using advanced mode of
business communications, before dispatching the same to Inter-Resin finds no real
support in U.C.P. Article 18 of the U.C.P. states that: "Banks assume no liability or
responsibility for the consequences arising out of the delay and/or loss in transit of any
messages, letters or documents, or for delay, mutilation or other errors arising in the
transmission of any telecommunication x x x" As advising bank, Bank of America is
bound only to check the "apparent authenticity" of the letter of credit, which it
did.[29] Clarifying its meaning, Webster's Ninth New Collegiate Dictionary[30] explains
that the word "APPARENT suggests appearance to unaided senses that is not or may not
be borne out by more rigorous examination or greater knowledge."
May Bank of America then recover what it has paid under the letter of credit when the
corresponding draft for partial availment thereunder and the required documents
therefor were later negotiated with it by Inter-Resin? The answer is yes. This kind of
transaction is what is commonly referred to as a discounting arrangement. This
time, Bank of America, has acted independently as a negotiating bank, thus saving Inter-
Resin from the hardship of presenting the documents directly to Bank of Ayudhya to
recover payment. (Inter-Resin, of course, could have chosen other banks with which to
negotiate the draft and the documents.) As a negotiating bank, Bank of America has a
right of recourse against the issuer bank and until reimbursement is obtained, Inter-
Resin, as the drawer of the draft, continues to assume a contingent liability thereon.[31]
While Bank of America has indeed failed to allege material facts in its complaint
that might have likewise warranted the application of the Negotiable Instruments Law
and possibly then allowed it to even go after the indorsers of the draft, this
failure,[32] nonetheless, does not preclude petitioner bank's right (as a negotiating bank)
of recovery from Inter-Resin itself. Inter-Resin admits having received P10,219,093.20
from Bank of America on the letter of credit transaction and in having executed the
corresponding draft. That payment to Inter-Resin has given, as
aforesaid, Bank of America the right of reimbursement from the issuing bank, Bank of
Ayudhya which, in turn, could then seek indemnification from the buyer (the General
Chemicals of Thailand). Since Bank of Ayudhya disowned the letter of credit,
however, Bank of America may now turn to Inter-Resin for restitution.
"Between the seller and the negotiating bank there is the usual relationship existing
between a drawer and purchaser of drafts. Unless drafts drawn in pursuance of the
credit are indicated to be without recourse therefore, the negotiating bank has the
ordinary right of recourse against the seller in the event of dishonor by the
issuing bank x x x The fact that the correspondent and the negotiating bank may be one
and the same does not affect its rights and obligations in either capacity, although a
special agreement is always a possibility x x x"[33]
The additional ground raised by the petitioner, i.e., that Inter-Resin sent waste instead
of its products, is really of no consequence. In the operation of a letter of credit, the
involved banks deal only with documents and not on goods described in those
documents.[34]

The other issues raised in the instant petition, for instance, whether or not Bank of
Ayudhya did issue the letter of credit and whether or not the main contract of sale that
has given rise to the letter of credit has been breached, are not relevant to this
controversy. They are matters, instead, that can only be of concern to the herein parties
in an appropriate recourse against those who, unfortunately, are not impleaded in these
proceedings.

In fine, we hold that -

First, given the factual findings of the courts below, we conclude that
petitioner Bank of America has acted merely as a notifying bank and did not assume the
responsibility of a confirming bank; and

Second, petitioner bank, as a negotiating bank, is entitled to recover on Inter-Resin's

partial availment as beneficiary of the letter of credit which has been disowned by the
alleged issuer bank.

No judgment of civil liability against the other defendants, Francisco Trajano and other
unidentified parties, can be made, in this instance, there being no sufficient evidence to
warrant any such finding.

WHEREFORE, the assailed decision is SET ASIDE, and respondent Inter-Resin Industrial
Corporation is ordered to refund to petitioner Bank of American NT & SA the amount of
P10,219,093.20 with legal interest the filing of the complaint until fully paid.

No costs.

SO ORDERED.