Complaint for Collection for Sum of Money, Annulment of Contract and Checks with Prayer for

Preliminary Injunction and Temporary Restraining Order

SECOND CAUSE OF ACTION

11. Defendant Atty. Nepthalie Segarra arranged a loan in the amount of ONE MILLION AND
FIVE HUNDRED THOUSAND (P1,500,000.00) PESOS for plaintiff at his own initiative;
12. Defendant Atty. Nepthalie Segarra received the P1,500,000.00 on or about March 10,
1998 from defendant Nestor Salvador in behalf of and for delivery to plaintiff;
13. Defendant Atty. Nepthalie Segarra paid Farmers Bank the amount of P1,049,266.12
leaving a balance of more than P450,000.00 in his possession. A copy of the receipt
evidencing payment is herewith attached as Annex "A" and made an integral part hereof;
14. Defendant Atty. Nepthalie Segarra made plaintiff sign a Promissory Note evidencing the
loan ofP1,500,000.00. A copy of said Promissory Note is herewith attached as Annex "B" and
made an integral part hereof; [Underscoring supplied]
26

Ludolfo P. Muoz, Jr. (Muoz) filed a complaint for sum of money and damages with an application
for issuance of a writ of preliminary attachment against Carlos A. Loria (Loria) with the Regional Trial
Court of Legazpi City.
5

In his complaint, Muoz alleged that he has been engaged in construction under the name, "Ludolfo
P. Muoz, Jr. Construction." In August 2000, Loria visited Muoz in his office in Doa Maria
Subdivision in Daraga, Albay. He invited Muoz to advance P2,000,000.00 for a subcontract of
a P50,000,000.00 river-dredging project in Guinobatan.
6

Loria represented that he would makearrangements such that Elizaldy Co, owner of Sunwest
Construction and Development Corporation, would turn out to be the lowest bidder for the project.
Elizaldy Co would payP8,000,000.00 to ensure the projects award to Sunwest. After the award to
Sunwest, Sunwest would subcontract 20% or P10,000,000.00 worth of the project to Muoz.
7

Since Muoz had known Loria for five years, Muoz accepted Lorias proposal.

On October 2, 2000, Muoz requested Allied Bank to release P3,000,000.00 from his joint account
withhis business partner, Christopher Co, to a certain Grace delos Santos (delos Santos). Loria then
obtained the money from delos Santos.
9

Four days later, P1,800,000.00 of the P3,000,000.00 was returned to Muoz.

10

On January 10, 2001, Loria collectedMuozs P800,000.00 balance. After deducting Lorias personal
loans from Muoz, Muoz issued a check to Loria for P481,800.00. Loria acknowledged receiving
this amount from Muoz.
11

The project to dredge the Masarawag and San Francisco Rivers in Guinobatan was subjected to
public bidding. The project was awarded to the lowest bidder, Sunwest Construction and
Development Corporation.
12

Sunwest allegedly finished dredging the Masarawag and San Francisco Rivers without
subcontracting Muoz. With the project allegedly finished, Muozdemanded Loria to return
his P2,000,000.00. Loria, however, did not return the money.
13

14

Muoz first charged Loria and Elizaldy Co with estafa. This criminal case was dismissed by the
Municipal Trial Court of Daraga, Albay for lack of probable cause.
15

Muoz then filed the complaint for sum of money. The case was raffled to Branch 6 and presidedby
Judge Vladimir B. Brusola.
16

Loria answered Muozs complaint. He admitted receiving P481,800.00 from Muoz but argued that
the complaint did not state a cause of action against him. According to Loria, he followed up the
projects approval with the Central Office of the Department of Public Works and Highways as the
parties agreed upon. He was, therefore, entitled to his representation expenses.
17

Loria also argued that Muoz was guilty of forum shopping. Muoz first filed a criminal complaint for
estafa against him and Elizaldy Co, which complaint the Municipal Trial Court of Daraga, Albay
dismissed. The subsequently filed complaint for sum of money, allegedly a complaint to recover the
civil aspect of the estafa case, must, therefore, be dismissed as argued by Loria.
18

During pre-trial, the parties agreed to litigate the sole issue of whether Loria is liable to Muoz
forP2,000,000.00.
19

According to the trial court, Muoz established with preponderant evidence that Loria
received P2,000,000.00 from Muoz for a subcontract of the river-dredging project. Since no part of
the project was subcontracted to Muoz, Loria must return the P2,000,000.00 he received, or he
would be "unduly enriching himself at the expense of [Muoz]."
20

On the claim of forum shopping, the trial court ruled that Lorias obligation to return the 2,000,000.00
did not arise from criminal liability. Muoz may, therefore, file a civil action to recover
his P2,000,000.00.
21

As to the prayer for issuance of a writ of preliminary attachment, the trial court denied the prayer for
lack of sufficient basis.
22

Thus, in the decision dated January 30, 2004, the trial court ordered Loria to return
the P2,000,000.00 toMuoz as actual damages with 12% interest from the filing of the complaint
until the amounts full payment. The trial court likewise ordered Loria to pay Muoz P100,000.00 in
attorneys fees, P25,000.00 in litigation expenses, andP25,000.00 in exemplary damages with costs
against Loria.
23

24

Promissory note
Demands to pay
Spa to file action/ venue; improper party
Memorandum of agreement\
We note that respondents complaint for a sum of money is based mainly on the alleged failure of
petitioner to pay the balance of US$615,620.33 under the Memorandum of Agreement. Quoting
petitioners Answer, it is obvious that it admitted the foregoing material allegations in paragraphs 3, 4
and 5 of the complaint, which states as follows:
3. The [Petitioner] ASIAN CONSTRUCTION AND DEVELOPMENT CORPORATION
("ASIAKONSTRUKT" for brevity), is a corporation duly incorporated under the laws of the
Philippines, with capacity to sue and be sued, and with business address at the Second
Floor, Union Ajinomoto Building, Sen. Gil Puyat Avenue, Makati City, and within the
jurisdiction of this Honorable Court; and where it may be served with summons and other
court processes of this Honorable Court,

4. That the [respondent] and the [petitioner] entered into a Memorandum of Agreement in
Makati City, within the jurisdiction of this Honorable Court, dated February 17, 1998, wherein
the [Petitioner] corporation agreed with and ordered the herein [Respondent], as Contractor,
to design and install INSUPANEL SYSTEMS at various pavilions, etc. at expo projects site;
and specifically for the Phase I project at an agreed amount of US$3,745,287.94(Par. 2.1). A
xerox copy of this Memorandum of Agreement dated February 17, 1998 between
[Respondent] and [Petitioner] consisting of six (6) pages, is attached hereto as Annex B and
made an integral part hereof.
5. That pursuant to this Memorandum of Agreement (Exhibit B)and contract price of
US$3,745,287.94, various payments have been made by [Petitioner] Corporation on this
Phase I project totaling US$3,129,667.32, thus leaving a balance of US$615,620.33.
18

Various payments\
The controversy arose from a Complaint for a Sum of Money3 filed by petitioner Pua against
respondent-spouses Benito Lo Bun Tiong Benito) and Caroline Siok Ching Teng Caroline). In the
complaint, Pua prayed that, among other things, respondents, or then defendants, pay Pua the
amount eight million five hundred thousand pesos (PhP 8,500,000), covered by a check. (Exhibit "A,"
for plaintiff)
During trial, petitioner Pua clarified that the PhP 8,500,000 check was given by respondents to pay
the loans they obtained from her under a compounded interest agreement on various dates in
1988.4 As Pua narrated, her sister, Lilian Balboa (Lilian), vouched for respondents ability to pay so
that when respondents approached her, she immediately acceded and lent money to respondents
without requiring any collateral except post-dated checks bearing the borrowed amounts. 5 In all,
respondents issued 176 checks for a total amount of one million nine hundred seventy-five thousand
pesos (PhP 1,975,000). These checks were dishonored upon presentment to the drawee bank. 7
As a result of the dishonor, petitioner demanded payment. Respondents, however, pleaded for more
time because of their financial difficulties.8 Petitioner Pua obliged and simply reminded the
respondents of their indebtedness from time to time.9
Sometime in September 1996, when their financial situation turned better, respondents allegedly
called and asked petitioner Pua for the computation of their loan obligations. 10 Hence, petitioner
handed them a computation dated October 2, 199611 which showed that, at the agreed 2%
compounded interest rate per month, the amount of the loan payable to petitioner rose to thirteen
million two hundred eighteen thousand five hundred forty-four pesos and 20/100 (PhP
13,218,544.20).12 On receiving the computation, the respondents asked petitioner to reduce their
indebtedness to PhP 8,500,000.13 Wanting to get paid the soonest possible time, petitioner Pua
agreed to the lowered amount.14
Respondents then delivered to petitioner Asiatrust Check No. BND057750 bearing the reduced
amount of PhP 8,500,000 dated March 30, 1997 with the assurance that the check was good. 15 In
turn, respondents demanded the return of the 17 previously dishonored checks. Petitioner, however,

refused to return the bad checks and advised respondents that she will do so only after the
encashment of Asiatrust Check No. BND057750.16
Like the 17 checks, however, Check No. BND057750 was also dishonored when it was presented by
petitioner to the drawee bank. Hence, as claimed by petitioner, she decided to file a complaint to
collect the money owed her by respondents.
For the defense, both respondents Caroline and Benito testified along with Rosa Dela Cruz Tuazon
(Tuazon), who was the OIC-Manager of Asiatrust-Binondo Branch in 1997. Respondents
categorically denied obtaining a loan from petitioner.17 Respondent Caroline, in particular, narrated
that, in August 1995, she and petitioners sister, Lilian, forged a partnership that operated a mahjong
business. Their agreement was for Lilian to serve as the capitalist while respondent Caroline was to
act as the cashier. Caroline also agreed to use her personal checks to pay for the operational
expenses including the payment of the winners of the games.18 As the partners anticipated that
Caroline will not always be in town to prepare these checks, she left with Lilian five (5) pre-signed
and consecutively numbered checks19 on the condition that these checks will only be used to cover
the costs of the business operations and in no circumstance will the amount of the checks exceed
PhP 5,000.20
In March 1996, however, respondent Caroline and Lilian had a serious disagreement that resulted in
the dissolution of their partnership and the cessation of their business. In the haste of the dissolution
and as a result of their bitter separation, respondent Caroline alleged that she forgot about the five
(5) pre-signed checks she left with Lilian.21 It was only when Lilians husband, Vicente Balboa
(Vicente), filed a complaint for sum of money in February 1997 against respondents to recover five
million one hundred seventy-five thousand two hundred fifty pesos (PhP 5,175,250), covering three
of the five post-dated and pre-signed checks.22
Respondent Caroline categorically denied having completed Check No. BND057750 by using a
check writer or typewriter as she had no check writer and she had always completed checks in her
own handwriting.23 She insisted that petitioner and her sister completed the check after its
delivery.24 Furthermore, she could not have gone to see petitioner Pua with her husband as they had
been separated in fact for nearly 10 years.25 As for the 17 checks issued by her in 1988, Caroline
alleged that they were not intended for Pua but were issued for the benefit of other
persons.26 Caroline postulated that the complaint is designed to allow Puas sister, Lilian, to recover
her losses in the foreign exchange business she had with Caroline in the 1980s. Respondent Benito
corroborated Carolines testimony respecting their almost a decade separation. 27 As such, he could
not have had accompanied his wife to see petitioner to persuade the latter to lower down any
alleged indebtedness.28 In fact, Benito declared, before the filing of the Complaint, he had never met
petitioner Pua, let alone approached her with his wife to borrow money.29 He claimed that he was
impleaded in the case to attach his property and force him to enter into an amicable settlement with
petitioner.30 Benito pointed out that Check No. BND057750 was issued under Asiatrust Account No.
5513-0054-9, which is solely under the name of his wife. 31
The witness for the respondents, Ms. Tuazon, testified that respondent Caroline opened Asiatrust
Account No. 5513-0054-9 in September 1994.32 She claimed that the average maintaining balance of
respondent Caroline was PhP 2,000 and the highest amount issued by Caroline from her account

was PhP 435,000.33 She maintained that respondent Caroline had always completed her checks with
her own handwriting and not with a check writer. On October 15, 1996, Carolines checking account
was closed at the instance of the bank due to 69 instances of check issuance against insufficient
balance.34

n the main, petitioner asserts that respondents owed her a sum of money way back in 1988 for
which the latter gave her several checks. These checks, however, had all been dishonored and
petitioner has not been paid the amount of the loan plus the agreed interest. In 1996, respondents
approached her to get the computation of their liability including the 2% compounded interest. After
bargaining to lower the amount of their liability, respondents supposedly gave her a postdated check
bearing the discounted amount of the money they owed to petitioner. Like the 1988 checks, the
drawee bank likewise dishonored this check. To prove her allegations, petitioner submitted the
original copies of the 17 checks issued by respondent Caroline in 1988 and the check issued in
1996, Asiatrust Check No. BND057750. In ruling in her favor, the RTC sustained the version of the
facts presented by petitioner.
Respondents, on the other hand, completely deny the existence of the debt asserting that they had
never approached petitioner to borrow money in 1988 or in 1996. They hypothesize, instead, that
petitioner Pua is simply acting at the instance of her sister, Lilian, to file a false charge against them
using a check left to fund a gambling business previously operated by Lilian and respondent
Caroline. While not saying so in express terms, the appellate court considered respondents denial
as worthy of belief.

he claim of Caroline Siok Ching Teng that the three (3) checks were part of the blank checks she
issued and delivered to Lilian Balboa, wife of plaintiff-appellee, and intended solely for the
operational expenses of their mahjong business is belied by her admission that she issued three (3)
checks (Exhs. "A", "B" "C") because Vicente showed the listing of their account
totaling P5,175,250.00 (TSN, November 17, 1997, p. 10).64 x x x
Clearly, respondents defense that Caroline left blank checks with petitioners sister who, it is said, is
now determined to recoup her past losses and bring financial ruin to respondents by falsifying the
same blank checks, had already been thoroughly passed upon and rejected by this Court. It cannot,
therefore, be used to support respondents denial of their liability.

Respondents other defenses are equally unconvincing. They assert that petitioner could not have
accepted a check worth PhP 8.5 million considering that she should have known that respondent
Caroline had issued several checks for PhP 25,000 each in favor of Lilian and all of them had
bounced.65 Needless to state, an act done contrary to law cannot be sustained to defeat a legal
obligation; repeated failure to honor obligations covered by several negotiable instruments cannot
serve to defeat yet another obligation covered by another instrument.
Indeed, it seems that respondent Caroline had displayed a cavalier attitude towards the value, and
the obligation concomitant with the issuance, of a check. As attested to by respondents very own
witness, respondent Caroline has a documented history of issuing insufficiently funded checks for 69
times, at the very least.66 This fact alone bolsters petitioners allegation that the checks delivered to
her by respondent Caroline were similarly not funded.
In Magdiwang Realty Corp. v. Manila Banking Corp., We stressed that the quantum of evidence
required in civil casespreponderance of evidence"is a phrase which, in the last analysis, means
probability to truth. It is evidence which is more convincing to the court as worthier of belief than that
which is offered in opposition thereto."67 Based on the evidence submitted by the parties and the
legal presumptions arising therefrom, petitioners evidence outweighs that of respondents. This
preponderance of evidence in favor of Pua requires that a judgment ordering respondents to pay
their obligation be entered.
As aptly held by the court a quo, however, respondents cannot be obliged to pay the interest of the
loan on the ground that the supposed agreement to pay such interest was not reduced to writing.
Article 1956 of the Civil Code, which refers to monetary interest, specifically mandates that no
interest shall be due unless it has been expressly stipulated in writing. 68 Thus, the collection of
interest in loans or forbearance of money is allowed only when these two conditions concur: (1)
there was an express stipulation for the payment of interest; (2) the agreement for the payment of
the interest was reduced in writing.69 Absent any of these two conditions, the money debtor cannot
be made liable for interest. Thus, petitioner is entitled only to the principal amount of the loan plus
the allowable legal interest from the time of the demand,70 at the rate of 6% per annum.71
Respondent Benito cannot escape the joint and solidary liability to pay the loan on the ground that
the obligation arose from checks solely issued by his wife. Without any evidence to the contrary, it is
presumed that the proceeds of the loan redounded to the benefit of their family. Hence, the conjugal
partnership is liable therefor.72The unsupported allegation that respondents were separated in fact,
standing alone, does not persuade this Court to solely bind respondent Caroline and exempt Benito.
As the head of the family, there is more reason that respondent Benito should answer for the liability
incurred by his wife presumably in support of their family.
WHEREFORE, the Motion for Reconsideration is GRANTED. The Resolution of this Court dated
April 18, 2012 is set aside and a new one entered REVERSING and SETTING ASIDE the Decision
dated March 31, 2011 and the Resolution dated September 26, 2011 of the Court of Appeals in CAG.R. CV No. 93755. The Decision in Civil Case No. 97-83027 of the Regional Trial Court (RTC) of
the City of Manila, Branch 29 is REINSTATED with MODIFICATION.

Accordingly, respondents Benito Lo Bun Tiong and Caroline Siok Ching Teng are ordered jointly and
solidarily to pay petitioner PhP 1,975,000 plus 6% interest per annum from April 18, 1997, until fully
paid, and P200,000.00 as attorneys fees.

Through a Special Power of Attorney (SPA), the respondent authorized Engr. Leonardo A. Parada
(Leonardo), the eldest of his three children, to perform the following acts in his behalf: a) to file a
complaint against the petitioner for sum of money with damages; and b) to testify in the trial thereof
and sign all papers and documents related thereto, with full powers to enter into stipulation and
compromise.15 Incidentally, the respondent, a widower, died of cardio-pulmonary arrest on January
21,2009,16 survived by his legitimate children, namely, Leonardo, Luis, Jr., and Lalaine, all surnamed
Parada. They have since substituted him in this petition, per the Resolution of the Supreme Court
dated September 2, 2009.17 Also, on July 23, 2009, Luis, Jr. and Lalaine Parada executed an SPA
authorizing their brother Leonardo to represent them in the instant petition. 18
In the verification and certification of non-forum shopping attached to the complaint in Civil Case No.
Q01-45212, Leonardo as attorney-in-fact of his father acknowledged as follows:
xxxx
That I/we am/are the Plaintiff in the above-captioned case;
That I/we have caused the preparation of this Complaint;
That I/we have read the same and that all the allegations therein are true and correct to the best of
my/our knowledge;
x x x x.19
In this petition, the petitioner reiterates its argument before the CA that the above verification is
invalid, since the SPA executed by the respondent did not specifically include an authority for
Leonardo to sign the verification and certification of non-forum shopping, thus rendering the
complaint defective for violation of Sections 4 and 5 of Rule 7. The said sections provide, as follows:
Sec. 4. Verification. A pleading is verified by an affidavit that the affiant has read the pleading and
that the allegations therein are true and correct of his personal knowledge or based on authentic
records.
Sec. 5. Certification against forum shopping. The plaintiff or principal party shall certify under oath
in the complaint or other initiatory pleading asserting a claim for relief, or in a sworn certification

annexed thereto and simultaneously filed therewith: (a) that he has not thereto fore commenced any
action or filed any claim involving the same issues in any court, or tribunal x x x and, to the best of
his knowledge, no such other action or claim is pending therein; (b) if there is such other pending
action or claim, a complete statement of the present status thereof; and (c) if he should thereafter
learn that the same or similar action or claim has been filed or is pending, he shall report that fact x x
x to the court wherein his aforesaid complaint or initiatory pleading has been filed.
Failure to comply with the foregoing requirements shall not be curable by mere amendment of the
complaint or other initiatory pleading but shall be cause for the dismissal of the case without
prejudice, unless otherwise provided, upon motion and after hearing.
The petitioners argument is untenable. The petitioner failed to reckon that any objection as to
compliance with the requirement of verification in the complaint should have been raised in the
proceedings below, and not in the appellate court for the first time.20 In KILUSAN-OLALIA v. CA,21 it
was held that verification is a formal, not a jurisdictional requisite:
We have emphasized, time and again, that verification is a formal, not a jurisdictional requisite, as it
is mainly intended to secure an assurance that the allegations therein made are done in good faith
or are true and correct and not mere speculation. The Court may order the correction of the
pleading, if not verified, or act on the unverified pleading if the attending circumstances are such that
a strict compliance with the rule may be dispensed with in order that the ends of justice may be
served.
Further, in rendering justice, courts have always been, as they ought to be, conscientiously guided
by the norm that on the balance, technicalities take a backseat vis--vis substantive rights, and not
the other way around. x x x.22 (Citations omitted)
In Young v. John Keng Seng,23 it was also held that the question of forum shopping cannot be raised
in the CA and in the Supreme Court, since such an issue must be raised at the earliest opportunity in
a motion to dismiss or a similar pleading. The high court even warned that "invoking it in the later
stages of the proceedings or on appeal may result in the dismissal of the action x x x." 24
Moreover, granting that Leonardo has no personal knowledge of the transaction subject of the
complaint below, Section 4 of Rule 7 provides that the verification need not be based on the verifiers
personal knowledge but even only on authentic records. Sales invoices, statements of accounts,
receipts and collection letters for the balance of the amount still due to the respondent from the
petitioner are such records. There is clearly substantial compliance by the respondents attorney-infact with the requirement of verification.
Lastly, it is well-settled that a strict compliance with the rules may be dispensed with in order that the
ends of substantial justice may be served.25 It is clear that the present controversy must be resolved
on its merits, lest for a technical oversight the respondent should be deprived of what is justly due
him.
A sole proprietorship has no
juridical personality separate and

distinct from that of its owner, and

need not be impleaded as a partyplaintiff in a civil case.
On the question of whether Genlite Industries should have been impleaded as a party-plaintiff,
Section 1 of Rule 3 of the Rules of Court provides that only natural or juridical persons or entities
authorized by law may be parties in a civil case. Article 44 of the New Civil Code enumerates who
are juridical persons:
Art. 44. The following are juridical persons:
(1) The State and its political subdivisions;
(2) Other corporations, institutions and entities for public interest or purpose, created by law;
their personality begins as soon as they have been constituted according to law;
(3) Corporations, partnerships and associations for private interest or purpose to which the
law grants a juridical personality, separate and distinct from that of each shareholder, partner
or member.
Genlite Industries is merely the DTI-registered trade name or style of the respondent by which he
conducted his business. As such, it does not exist as a separate entity apart from its owner, and
therefore it has no separate juridical personality to sue or be sued.26 As the sole proprietor of Genlite
Industries, there is no question that the respondent is the real party in interest who stood to be
directly benefited or injured by the judgment in the complaint below. There is then no necessity for
Genlite Industries to be impleaded as a party-plaintiff, since the complaint was already filed in the
name of its proprietor, Engr. Luis U. Parada. To heed the petitioners sophistic reasoning is to permit
a dubious technicality to frustrate the ends of substantial justice.
Novation is never presumed but
must be clearly and unequivocally
shown.
Novation is a mode of extinguishing an obligation by changing its objects or principal obligations, by
substituting a new debtor in place of the old one, or by subrogating a third person to the rights of the
creditor.27 It is "the substitution of a new contract, debt, or obligation for an existing one between the
same or different parties."28Article 1293 of the Civil Code defines novation as follows:
Art. 1293. Novation which consists in substituting a new debtor in the place of the original one, may
be made even without the knowledge or against the will of the latter, but not without the consent of
the creditor. Payment by the new debtor gives him rights mentioned in Articles 1236and 1237.
Thus, in order to change the person of the debtor, the former debtor must be expressly released
from the obligation, and the third person or new debtor must assume the formers place in the
contractual relation.29Article 1293 speaks of substitution of the debtor, which may either be in the

form of expromision or delegacion, as seems to be the case here. In both cases, the old debtor must
be released from the obligation, otherwise, there is no valid novation. As explained in Garcia 30:
In general, there are two modes of substituting the person of the debtor: (1) expromision and (2)
delegacion. In expromision, the initiative for the change does not come fromand may even be
made without the knowledge ofthe debtor, since it consists of a third persons assumption of the
obligation. As such, it logically requires the consent of the third person and the creditor. In
delegacion, the debtor offers, and the creditor accepts, a third person who consents to the
substitution and assumes the obligation; thus, the consent of these three persons are necessary.
Both modes of substitution by the debtor require the consent of the creditor.31 (Citations omitted)
From the circumstances obtaining below, we can infer no clear and unequivocal consent by the
respondent to the release of the petitioner from the obligation to pay the cost of the lighting
materials. In fact, from the letters of the respondent to Enviro Kleen, it can be said that he retained
his option to go after the petitioner if Enviro Kleen failed to settle the petitioners debt. As the trial
court held:
The fact that Enviro Kleen Technologies, Inc. made payments to the respondent and the latter
accepted it does not ipso facto result innovation. Novation to be given its legal effect requires that
the creditor should consent to the substitution of a new debtor and the old debtor be released from
its obligation (Art. 1293, New Civil Code). A reading of the letters dated 14 April 1999 (Exh. 1) and
dated 16 June 1999 (Exhs. 4 &4-a) sent by the respondent to Enviro Kleen Technologies, Inc. clearly
shows that there was nothing therein that would evince that the[respondent] has consented to the
exchange of the person of the debtor from the petitioner to Enviro Kleen Technologies, Inc.
xxxx
Notably in Exh. 1, albeit addressed to Enviro Kleen Technologies, Inc., the respondent expressly
stated that it has served notice to the petitioner that unless the overdue account is paid, the matter
will be referred to its lawyers and there may be a pull-out of the delivered lighting fixtures. It was
likewise stated therein that incident damages that may result to the structure in the course of the
pull-out will be to the account of the petitioner.
It is evident from the two (2) aforesaid letters that there is no indication of the respondents intention
to release the petitioner from its obligation to pay and to transfer it to Enviro Kleen Technologies, Inc.
The acquiescence of Enviro Kleen Technologies, Inc. to assume the obligation of the petitioner to
pay the unpaid balance of [P]816,627.00 to the respondent when there is clearly no agreement to
release the petitioner will result merely to the addition of debtors and not novation. Hence, the
creditor can still enforce the obligation against the original debtor x x x. A fact which points strongly
to the conclusion that the respondent did not assent to the substitution of Enviro Kleen Technologies,
Inc. as the new debtor is the present action instituted by the respondent against the petitioner for the
fulfillment of its obligation. A mere recital that the respondent has agreed or consented to the
substitution of the debtor is not sufficient to establish the fact that there was a novation. x x x. 32
The settled rule is that novation is never presumed,33 but must be clearly and unequivocally
shown.34 In order for a new agreement to supersede the old one, the parties to a contract must

expressly agree that they are abrogating their old contract in favor of a new one. 35 Thus, the mere
substitution of debtors will not result innovation,36 and the fact that the creditor accepts payments
from a third person, who has assumed the obligation, will result merely in the addition of debtors and
not novation, and the creditor may enforce the obligation against both debtors. 37 If there is no
agreement as to solidarity, the first and new debtors are considered obligated jointly.38 As explained
in Reyes v. CA39:
The consent of the creditor to a novation by change of debtor is as indispensable as the creditors
consent in conventional subrogation in order that a novation shall legally take place. The mere
circumstance of AFP-MBAI receiving payments from respondent Eleazar who acquiesced to assume
the obligation of petitioner under the contract of sale of securities, when there is clearly no
agreement to release petitioner from her responsibility, does not constitute novation. At most, it only
creates a juridical relation of co-debtorship or surety ship on the part of respondent Eleazar to the
contractual obligation of petitioner to AFP-MBAI and the latter can still enforce the obligation against
the petitioner. In Ajax Marketing and Development Corporation vs. Court of Appeals which is relevant
in the instant case, we stated that
"In the same vein, to effect a subjective novation by a change in the person of the debtor, it is
necessary that the old debtor be released expressly from the obligation, and the third person or new
debtor assumes his place in the relation. There is no novation without such release as the third
person who has assumed the debtors obligation becomes merely a co-debtor or surety. xxx.
Novation arising from a purported change in the person of the debtor must be clear and express
xxx."
In the civil law setting, novatio is literally construed as to make new. So it is deeply rooted in the
Roman Law jurisprudence, the principle novatio non praesumitur that novation is never
presumed. At bottom, for novation to be a jural reality, its animus must be ever present, debitum pro
debito basically extinguishing the old obligation for the new one.40 (Citation omitted)
The trial court found that the respondent never agreed to release the petitioner from its obligation,
and this conclusion was upheld by the CA. We generally accord utmost respect and great weight to
factual findings of the trial court and the CA, unless there appears in the record some fact or
circumstance of weight and influence which has been overlooked, or the significance of which has
been misinterpreted, that if considered would have affected the result of the case. 41 We find no such
oversight in the appreciation of the facts below, nor such a misinterpretation thereof, as would
otherwise provide a clear and unequivocal showing that a novation has occurred in the contract
between the parties resulting in the release of the petitioner.
Pursuant to Article 2209 of the
Civil Code, except as provided
under Central Bank Circular
No. 905, and now under Bangko
Sentral ng Pilipinas Circular
No. 799, which took effect on
July 1, 2013, the respondent may
be awarded interest of six percent

(6%) of the judgment amount by

way of actual and compensatory
damages.
It appears from the recital of facts in the trial courts decision that the respondent demanded interest
of two percent (2%) per month upon the balance of the purchase price of P816,627.00, from judicial
demand until full payment. There is then an obvious clerical error committed in the fallo of the trial
courts decision, for it incorrectly ordered the defendant there into pay "the sum equivalent to twenty
percent (20%) per month of the principal obligation due from date of judicial demand until fully paid
as and for interest."42
A clerical mistake is one which is visible to the eyes or obvious to the understanding; an error made
by a clerk or a transcriber; a mistake in copying or writing. 43 The Latin maxims Error placitandi
aequitatem non tollit ("A clerical error does not take away equity"), and Error scribentis nocere non
debit ("An error made by a clerk ought not to injure; a clerical error may be corrected") are apt in this
case.44 Viewed against the landmark case of Medel v. CA45, an award of interest of 20% per month
on the amount due is clearly excessive and iniquitous. It could not have been the intention of the trial
court, not to mention that it is way beyond what the plaintiff had prayed for below.
It is settled that other than in the case of judgments which are void ab initio for lack of jurisdiction, or
which are null and void per se, and thus may be questioned at any time, when a decision is final,
even the court which issued it can no longer alter or modify it, except to correct clerical errors or
mistakes.46
The foregoing notwithstanding, of more important consideration in the case before us is the fact that
it is nowhere stated in the trial courts decision that the parties had in fact stipulated an interest on
the amount due to the respondent. Even granting that there was such an agreement, there is no
finding by the trial court that the parties stipulated that the outstanding debt of the petitioner would be
subject to two percent (2%) monthly interest. The most that the decision discloses is that the
respondent demanded a monthly interest of 2% on the amount outstanding.
Article 2209 of the Civil Code provides that "if the obligation consists in the payment of a sum of
money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the
contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the
legal interest, which is six percent per annum." Pursuant to the said provision, then, since there is no
finding of a stipulation by the parties as to the imposition of interest, only the amount of 12% per
annum47 may be awarded by the court by way of damages in its discretion, not two percent(2%) per
month, following the guidelines laid down in the landmark case of Eastern Shipping Lines v. Court of
Appeals,48 to wit:
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. 49 (Citations omitted)
As further clarified in the case of Sunga-Chan v. CA, 50 a loan or forbearance of money, goods or
credit describes a contractual obligation whereby a lender or creditor has refrained during a given
period from requiring the borrower or debtor to repay the loan or debt then due and payable. 51 Thus:
In Reformina v. Tomol, Jr., the Court held that the legal interest at 12% per annum under Central
Bank (CB) Circular No. 416 shall be adjudged only in cases involving the loan or forbearance of
money. And for transactions involving payment of indemnities in the concept of damages arising
from default in the performance of obligations in general and/or for money judgment not involving a
loan or forbearance of money, goods, or credit, the governing provision is Art. 2209 of the Civil Code
prescribing a yearly 6% interest. Art. 2209 pertinently provides:
"Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in
delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of
the interest agreed upon, and in the absence of stipulation, the legal interest, which is six per cent
per annum."
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.
Eastern Shipping Lines, Inc. synthesized the rules on the imposition of interest, if proper, and the
applicable rate, as follows: The12% per annum rate under CB Circular No. 416 shall apply only to
loans or forbearance of money, goods, or credits, as well as to judgments involving such loan or
forbearance of money, goods, or credit, while the 6% per annum under Art. 2209 of the Civil Code
applies "when the transaction involves the payment of indemnities in the concept of damage arising

from the breach or a delay in the performance of obligations in general," with the application of both
rates reckoned "from the time the complaint was filed until the adjudged amount is fully paid." In
either instance, the reckoning period for the commencement of the running of the legal interest shall
be subject to the condition "that the courts are vested with discretion, depending on the equities of
each case, on the award of interest."52 (Citations omitted and emphasis ours)
Pursuant, then, to Central Bank Circular No. 416, issued on July 29,1974, 53 in the absence of a
written stipulation, the interest rate to be imposed in judgments involving a forbearance of credit shall
be 12% per annum, up from 6% under Article 2209 of the Civil Code. This was reiterated in Central
Bank Circular No. 905, which suspended the effectivity of the Usury Law from January 1, 1983. 54 But
if the judgment refers to payment of interest as damages arising from a breach or delay in general,
the applicable interest rate is 6% per annum, following Article 2209 of the Civil Code. 55 Both interest
rates apply from judicial or extrajudicial demand until finality of the judgment. But from the finality of
the judgment awarding a sum of money until it is satisfied, the award shall be considered a
forbearance of credit, regardless of whether the award in fact pertained to one, and therefore during
this period, the interest rate of 12% per annum for forbearance of money shall apply.56
But notice must be taken that in Resolution No. 796 dated May 16,2013, the Monetary Board of the
Bangko Sentral ng Pilipinas approved the revision of the interest rate to be imposed for the loan or
forbearance of any money, goods or credits and the rate allowed in judgments, in the absence of an
express contract as to such rate of interest. Thus, under BSP Circular No.799, issued on June 21,
2013 and effective on July 1, 2013, the said rate of interest is now back at six percent (6%), viz:
BANGKO SENTRAL NG PILIPINAS
OFFICE OF THE GOVERNOR
CIRCULAR NO. 799
Series of 2013
Subject: Rate of interest in the absence of stipulation
The monetary Board, in its Resolution No. 796 dated 16 May 2013,approved the following revisions
governing the rate of interest in the absence of stipulation in loan contracts, thereby amending
Section 2 of Circular No. 905, Series of 1982:
Section 1. The rate of interest for the loan or forbearance of any money, goods or credits and
the rate allowed in judgments, in the absence of an express contract as to such rate of
interest, shall be six percent (6%) per annum.
Section 2. In view of the above, Subsection X305.1 of the Manual of Regulations for Banks
and Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual of Regulations for Non-Bank
Financial Institutions are hereby amended accordingly.
This Circular shall take effect on 1 July 2013.
FOR THE MONETARY BOARD:

DIWA C. GUINIGUNDO
Officer-In-Charge
The award of attorneys fees is not proper.
Other than to say that the petitioner "unjustifiably failed and refused to pay the respondent," the trial
court did not state in the body of its decision the factual or legal basis for its award of attorneys fees
to the respondent, as required under Article 2208 of the New Civil Code, for which reason we have
resolved to delete the same. The rule is settled that the trial court must state the factual, legal or
equitable justification for its award of attorneys fees. 57 Indeed, the matter of attorneys fees cannot
be stated only in the dispositive portion, but the reasons must be stated in the body of the courts
decision.58 This failure or oversight of the trial court cannot even be supplied by the CA. As concisely
explained in Frias v. San Diego-Sison59:
Article 2208 of the New Civil Code enumerates the instances where such may be awarded and, in all
cases, it must be reasonable, just and equitable if the same were to be granted. Attorneys fees as
part of damages are not meant to enrich the winning party at the expense of the losing litigant. They
are not awarded every time a party prevails in a suit because of the policy that no premium should
be placed on the right to litigate. The award of attorneys fees is the exception rather than the
general rule. As such, it is necessary for the trial court to make findings of facts and law that would
bring the case within the exception and justify the grant of such award. The matter of attorneys fees
cannot be mentioned only in the dispositive portion of the decision. They must be clearly explained
and justified by the trial court in the body of its decision. On appeal, the CA is precluded from
supplementing the bases for awarding attorneys fees when the trial court failed to discuss in its
Decision the reasons for awarding the same. Consequently, the award of attorneys fees should be
deleted.60 (Citations omitted)
1wphi1

WHEREFORE, premises considered, the Decision dated April 30, 2008 of the Court of Appeals in
CA-G.R. CV No. 83811 is AFFIRMED with MODIFICATION. Petitioner S.C. Megaworld Construction
and Development Corporation is ordered to pay respondent Engr. Luis A. Parada, represented by
Engr. Leonardo A. Parada, the principal amount due of P816,627.00, plus interest at twelve percent
(12%) per annum, reckoned from judicial demand until June 30, 2013, and six percent (6%) per an
own from July 1, 2013 until finality hereof, by way of actual and compensatory damages. Thereafter,
the principal amount due as adjusted by interest shall likewise earn interest at six percent (6%) per
annum until fully paid. The award of attorney's fees is DELETED.
SO ORDERED.

G.R. No. 190907

August 23, 2012

VETERANS PHILIPPINE SCOUT SECURITY AGENCY, INC., Petitioner,

vs.
FIRST DOMINION PRIME HOLDINGS, INC., Respondent.
LEONARDO-DE CASTRO, J.,*
PERLAS-BERNABE,**
DECISION
VILLARAMA, JR., J.:
Before us is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as
amended, seeking to reverse the August 24, 2009 Decision1 and December 17, 2009 Resolution2 of
the Court of Appeals (CA) in CA-G.R. SP No. 105894. The CA had reversed and set aside the
Decision3 of the Regional Trial Court (RTC), Branch 76, of Quezon City, insofar as it held that the
'dismissal of petitioner's amended complaint was without prejudice.
The antecedent facts of the case are as follows:
Petitioner Veterans Philippine Scout Security Agency, Inc. (Veterans) is a corporation duly organized
and existing under Philippine laws. It is engaged in the business of providing security services.
Respondent First Dominion Prime Holdings, Inc. (FDPHI), on the other hand, is a holding investment
and management company which owns and operates various subsidiaries and affiliates. Among its
subsidiaries are Clearwater Tuna Corporation, Maranaw Canning Corporation and Nautica Canning
Corporation, collectively referred to as the FDPHI Group of Companies. Said companies are
engaged in the production of canned tuna.
On February 15, 2001, respondent FDPHI and its aforementioned subsidiaries jointly filed before the
RTC of Pasig City, Branch 158 a Petition for Rehabilitation. 4 Said petition was docketed as Civil
Case No. 68343. Attached to the petition was a Schedule of Debts and Liabilities as of January 31,
2001 showing that Clearwater Tuna Corporation (Clearwater) had an outstanding indebtedness to
petitioner in the total amount of P356,842.42.5 Said amount represents the security services
rendered by petitioner to Clearwater pursuant to a Contract of Guard Services 6 between petitioner
and Inglenook Food Corporation (Clearwaters former name) for the latters manufacturing facility at
the Navotas Fish Port Complex.
After finding the petition sufficient in form and substance, the Rehabilitation Court issued a Stay
Order7 on February 22, 2001. The dispositive portion of the order reads:
WHEREFORE, the Petition being sufficient in form and substance, a stay order pursuant to Section
6, Rule 4 of the Interim Rules of Procedure on Corporate Rehabilitation is issued as follows:

(a) Staying enforcement of all claims, whether for money or otherwise and whether such
enforcement is by court action or otherwise, including the extra-judicial foreclosure proceedings in
EJF Case No. 01-02, entitled "Metropolitan Bank and Trust Co. vs. Nautica Canning Corporation", of
the Regional Trial Court of General Santos City, against petitioner FDPHI Group of Companies,
comprising of petitioners First Dominion Prime Holdings, Inc., and its subsidiaries, petitioners
Nautica Canning Corporation, Maranaw Canning Corporation and Clearwater
Tuna Corporation, their guarantors and sureties not solidarily liable with the petitioners;
(b) Prohibiting petitioner FDPHI Group of Companies from selling, encumbering, transferring, or
disposing in any manner any of its properties, except in the ordinary course of business;
(c) Prohibiting petitioner FDPHI Group of Companies from making any payment of its liabilities
outstanding as [of] the date of filing of the Petition;
xxxx
Mr. Monico V. Jacob is appointed rehabilitation receiver who can assume the position upon his
taking an oath and after posting a bond in the amount of Five Hundred Thousand (P 500,000.00)
Pesos, executed in favor of petitioner FDPHI Group of Companies, to guarantee that he will faithfully
discharge his duties and the orders of this Court.
Let this Stay Order be published in a newspaper of general circulation in the Philippines once a
week for two (2) consecutive weeks from date of the Order.
All creditors and all interested parties (including the Securities and Exchange Commission) are
directed to file and serve on the petitioner FDPHI Group of Companies, their verified comment on, or
opposition to, the Petition, with supporting affidavits and documents, not later than ten (10) days
before the date of the initial hearing. x x x8
The FDPHI Group of Companies caused the publication of the stay order to give notice to the whole
world of the filing and pendency of the rehabilitation proceedings. Thereafter, after due proceedings,
the Rehabilitation Court approved the rehabilitation plan submitted by FDPHI and its subsidiaries.
On October 24, 2003, the Rehabilitation Court likewise issued an Order 9 approving the Amended
Rehabilitation Plan for the FDPHI Group of Companies. The fallo of the October 24, 2003 Order
reads:
WHEREFORE, petitioners Motion to Amend their Rehabilitation Plan is GRANTED and the
Amended Rehabilitation Plan (as of August 26, 2003) which is attached as Annex "A" and made
integral part of this Order is APPROVED.
All provisions of the original Rehabilitation Plan approved by this Court on February 22, 2002 that
are not inconsistent or incompatible with the said Amended Rehabilitation Plan (as of August 26,
2003) shall remain in effect.

Consequently, petitioners are strictly enjoined to abide by the terms and conditions of the original
Rehabilitation Plan approved on February 22, 2002 as amended by the Amended Rehabilitation Plan
(as of August 26, 2003), and they shall, in consultation with the Rehabilitation Receiver, unless
directed otherwise, submit a quarterly report on the progress of the implementation of the
Rehabilitation Plan.
The Rehabilitation Receiver is directed to furnish all the concerned parties including the Securities
and Exchange Commission, copies of this Order and its Annex "A" within ten (10) days from October
28, 2003. He will then furnish this Court proof of service of his undertaking.
SO ORDERED.10
Subsequently, petitioner filed a Complaint11 for Sum of Money and Damages against Clearwater
and/or Atty. Jacob in his capacity as appointed Receiver before the Metropolitan Trial Court (MeTC),
Branch 31, of Quezon City. The complaint, which was filed on May 27, 2004, was docketed as Civil
Case No. 32932. Essentially, petitioner sought to recover from Clearwater the amount
of P 372,219.80 representing the unpaid security services rendered by petitioner from January 16,
2000 to January 31, 2001 pursuant to their contract. On May 24, 2005, the MeTC dismissed the
complaint for failure to prosecute,12 but later reinstated the same upon motion for reconsideration by
petitioner.13
On October 20, 2005, petitioner filed an Amended Complaint14 for Sum of Money and Damages
against herein respondent FDPHI averring that Clearwater had changed its business name to First
Dominion Prime Holdings, Inc.
Respondent FDPHI filed a Motion to Dismiss15 anchored on the following grounds: (1) petitioners
claim for payment of security services is barred by res judicata; (2) the filing of the complaint
constitutes forum shopping; and (3) the complaint fails to state a cause of action against respondent
FDPHI. Respondent asserted that petitioners claim is barred as the same had been settled,
determined and finally adjudicated in the Amended Rehabilitation Plan approved by the
Rehabilitation Court and that the filing of the complaint constitutes forum shopping since petitioner
was fully aware of the pendency of the rehabilitation proceedings involving Clearwater in Civil Case
No. 68343. Respondent likewise argued that the complaint failed to state a cause of action against
respondent FDPHI since as shown in the allegations in the amended complaint itself, as well as the
annexes attached thereto, the obligation sought to be enforced by petitioner is not an obligation
contracted by respondent FDPHI but by Clearwater under its former name Inglenook Food
Corporation.
Petitioner thereafter duly filed its Comment and/or Opposition to the Motion to Dismiss to which
respondent filed a reply.
On April 23, 2007, the MeTC issued a Resolution16 granting respondents motion to dismiss. In
dismissing the amended complaint, the trial court noted that despite the publication and notice of the
petition for rehabilitation in Civil Case No. 68343, petitioner had not filed any comment or opposition
to the petition nor participated in the proceedings. Hence, petitioner was bound by the Rehabilitation
Courts February 22, 2001 stay order staying enforcement of all claims against the FDPHI Group of

Companies as well as the October 24, 2003 Order approving the Amended Rehabilitation Plan which
had already become final. Furthermore, the trial court was convinced that the Amended Complaint
failed to state a cause of action against respondent. The trial court noted that the contract for
security services was entered into by petitioner and Inglenook Food Corporation, now Clearwater.
Respondent FDPHI had no participation whatsoever nor had respondent benefitted from the said
contract. The MeTC was also not persuaded by petitioners claim that respondent FDPHI acted as
an "umbrella company" of all the other corporations which filed a petition for rehabilitation.
Aggrieved, petitioner sought reconsideration of the said Resolution, but the MeTC denied the same
for lack of merit in a Resolution17 dated October 23, 2007. The MeTC likewise denied petitioners
alternative prayer that the dismissal be declared to be without prejudice, stressing that the dismissal
of the case was not merely for failure to state a cause of action but also for having been barred by
the Rehabilitation Courts Stay Order and by its Order finally approving the Amended Rehabilitation
Plan.
Unsatisfied, petitioner appealed to the RTC. On June 4, 2008, 18 the RTC partially granted petitioners
appeal. While the RTC dismissed the Amended Complaint for failure to state a cause of action,
nevertheless, it found that the dismissal is without prejudice to petitioners reinstitution of a separate
action for the enforcement of its claim because purportedly, the Stay Order and the approved
Amended Rehabilitation Plan for the FDPHI Group of Companies "cannot operate to deprive
petitioners right to present its own case or have the effect of stifling such right." 19
Respondent FDPHI moved for partial reconsideration of the RTC decision insofar as it declared the
dismissal of the Amended Complaint to be "without prejudice," but the motion was denied in an
Order20 dated October 7, 2008. Thus, respondent FDPHI appealed to the CA.
On August 24, 2009, the CA as aforesaid, reversed the trial courts June 4, 2008 Decision and
October 7, 2008 Order. The CA agreed with the ruling of the MeTC that the issuance of a stay order
and the appointment of a rehabilitation receiver in the petition for rehabilitation jointly filed by FDPHI
and its subsidiaries including Clearwater stayed the enforcement of all claims, including petitioners
money claim. Pertinently, the CA ruled that:
Hence, considering that the obligation under the Contract of Guard Services was contracted solely
by Clearwater under its former name, Inglenook Food Corporation, and since the claim is recognized
and admitted as debt of Clearwater in the Rehabilitation Proceedings, respondent has no cause of
action to bring a separate suit for collection of sum of money against petitioner.
WHEREFORE, premises considered, the petition is hereby GRANTED. The Decision of the RTC,
Branch 76, Quezon City dated June 4, 2008 and the Order dated October 7, 2008, in Civil Case No.
Q-07-61692 are hereby REVERSED and SET ASIDE. The Resolutions dated April 23, 2007 and
October 23, 2007 of the MTC, Branch 31, Quezon City, in Civil Case No. 32932 are hereby
AFFIRMED.
SO ORDERED.21

Petitioner sought reconsideration of the CA decision, but its motion was denied by the CA in the
assailed Resolution22 dated December 17, 2009.
Hence, this petition.
Petitioner contends that the dismissal of the Amended Complaint against respondent FDPHI does
not bar petitioner from instituting an action for collection of money against Clearwater. Petitioner
faults the CA for ruling that Clearwaters debt to petitioner was already covered by the Amended
Rehabilitation Plan and insists that said debt was not included in the schedule of payments under
the Amended Rehabilitation Plan. According to petitioner, the Amended Rehabilitation Plan only
pertains to respondent FDPHI and Maranaw Canning Corporation, which remains operational. It is
not applicable to Clearwater considering that there was no mention of how the plan will operate to
benefit Clearwater and its creditors. Purportedly, Clearwaters petition for rehabilitation was not
pursued or was in effect denied. And the amended plan not being applicable to Clearwater, petitioner
argues that its approval will not preclude petitioner from instituting a separate action to enforce its
claim.
Respondent FDPHI counters that in the corporate rehabilitation proceedings for the FDPHI Group of
Companies, petitioners claim had already been passed upon by the Rehabilitation Court and
factored into the approved Amended Rehabilitation Plan as among its unsecured debts.
Hence, it cannot be the subject of a separate action.23 Respondent avers that petitioner is barred
from asserting its payment for security services with Clearwater since the subject claim is already
recognized and admitted in the approved rehabilitation plan which is under implementation. Thus,
respondent asserts that the CA was correct in holding that the existence of the rehabilitation
proceedings effectively barred petitioner from enforcing its money claim against Clearwater. To
respondent, a separate action by petitioner would only result in multiplicity of suits which the law
abhors. Respondent stresses that any and all claims against the FDPHI Group of Companies,
including that of petitioner, are stayed and barred until the termination of rehabilitation proceedings
pursuant to Sections 6 and 11 of the Interim Rules of Procedure on Corporate Rehabilitation.
The issue to be resolved in this case is whether the CA erred in ruling that petitioners action to
enforce the payment of the unpaid security services is covered by the Amended Rehabilitation Plan
such that petitioner can no longer institute a separate action to collect the same.
We deny the petition.
First of all, it must not be overlooked that petitioner initially filed its complaint against Clearwater but
its complaint was dismissed for failure to prosecute. Petitioner amended its complaint and impleaded
respondent FDPHI as defendant, on its own allegation that Clearwater had changed its name to
herein respondent First Dominion Prime Holdings, Inc. However, as can be gleaned from the records
and pleadings of the parties, respondent FDPHI and Clearwater are two separate corporate entities
and the obligation petitioner seeks to enforce was not contracted between petitioner and respondent
FDPHI but by petitioner and Clearwater under its former name, Inglenook Foods Corporation. For
this reason, both the trial court and the appellate court are in agreement that the Amended
Complaint fails to state a cause of action against respondent FDPHI. On this ground alone, the

Amended Complaint filed by petitioner against respondent FDPHI was properly dismissed. Indeed,
while respondent FDPHI may be the parent company of Clearwater, these two corporations have
distinct and separate juridical personalities and therefore respondent FDPHI cannot be held liable for
the debts of its subsidiary Clearwater nor can respondent FDPHI assume the liabilities of Clearwater.
As aptly found by the CA:
Clearwater and FDPHI have been organized as separate corporate entities, as evidenced by their
respective Certificates of Filing of Amended Articles of Incorporation on file with the Securities and
Exchange Commission. The filing of petitioner of Joint Petition for Rehabilitation for the FDPHI
Group of Companies cannot in any way be taken as an assumption by petitioner of any liability of
Clearwater. It must be noted that in the Consolidated Inventory of Assets and Consolidated Schedule
of Accounts Receivables of the FDPHI Group of Companies, Clearwater holds assets entirely
separate from its parent company.24
Now as to the issue of whether the existence of the corporate rehabilitation proceedings of the
FDPHI Group of Companies has the effect of barring petitioner from asserting its claim for the
payment of security services against Clearwater by reason of the approved Amended Rehabilitation
Plan, we rule in the affirmative.
An essential function of corporate rehabilitation is the mechanism of suspension of all actions and
claims against the distressed corporation upon the due appointment of a management committee or
rehabilitation receiver.25Section 6(c) of PD 902-A mandates that upon appointment of a management
committee, rehabilitation receiver, board, or body, all actions for claims against corporations,
partnerships or associations under management or receivership pending before any court, tribunal,
board, or body shall be suspended. The actions to be suspended cover all claims against a
distressed corporation whether for damages founded on a breach of contract of carriage, labor
cases, collection suits or any other claims of pecuniary nature. Jurisprudence is settled that the
suspension of proceedings referred to in the law uniformly applies to "all actions for claims" filed
against the corporation, partnership or association under management or receivership, without
distinction, except only those expenses incurred in the ordinary course of business. 26 The stay order
is effective on all creditors of the corporation without distinction, whether secured or unsecured.
Thus, petitioners action to collect the sum owed to it is not exempted from the coverage of the stay
order. The enforcement of petitioners claim through court action is likewise suspended to give way
to the speedy and effective rehabilitation of the FDPHI Group of Companies.
The justification for the suspension of actions or claims, without distinction, pending rehabilitation
proceedings is to enable the management committee or rehabilitation receiver to effectively exercise
its/his powers free from any judicial or extrajudicial interference that might unduly hinder or prevent
the "rescue" of the debtor company.27 To allow such other actions to continue would only add to the
burden of the management committee or rehabilitation receiver, whose time, effort and resources
would be wasted in defending claims against the corporation instead of being directed toward its
restructuring and rehabilitation.28 It is worthy to note that the stay order remains effective during the
duration of the rehabilitation proceedings.

However, in an attempt to exempt its money claim from the coverage of the rehabilitation
proceedings, petitioner claims that Clearwater was denied rehabilitation and asserts that the
Amended Rehabilitation Plan did not include Clearwaters obligation to petitioner. This contention,
however, is bereft of merit.
Nothing in the records of the case supports petitioners claim that the petition for rehabilitation of
Clearwater was denied or was not pursued. On the contrary, the rehabilitation proceedings involved
all the petitioning corporations, i.e., FDPHI, Maranaw Canning Corporation, Clearwater Tuna
Corporation and Nautica Canning Corporation. The stay order issued by the rehabilitation court also
stayed the enforcement of all the claims against FDPHI and its subsidiaries including Clearwater.
More, the approved Amended Rehabilitation Plan covered all the debts of the FDPHI Group of
Companies. The fact that Clearwater was not specifically mentioned in the Amended Rehabilitation
Plan does not mean the denial of its rehabilitation. A careful perusal of the Amended Rehabilitation
Plan would show that all the assets and liabilities of FDPHI and its subsidiaries undergoing
rehabilitation were collectively managed and a payment scheme was introduced for the settlement of
all of the FDPHI Groups secured and unsecured creditors. The Breakdown and Management of the
First Dominion Groups Secured and Unsecured Debt29 in the Amended Rehabilitation Plan provides:
3.3. The First Dominion Groups Unsecured Debt to the bank and trade creditors in the aggregate
sum of P 2,392,095,015.94 shall be managed as follows:
3.3.1. One percent (1%) of the First Dominion Groups Unsecured Debt, or P 23,920,950.16,
shall be paid pro rata, in cash up front 30 days from Infusion Date to the unsecured creditors
by the Joint Venture Corporation.
xxxx
3.3.2. A portion of the First Dominion Groups Unsecured Debt amounting to not more
than P67 Million shall be converted into common shares of the JVC, each having a par value
of P1.00, and shall be issued to the unsecured creditors; Provided, that the total of these
common shares shall not exceed 25% of all issued common shares inclusive of those issued
under this clause.
xxxx
3.3.3. A portion of the First Dominion Groups Unsecured Debt amounting to not more
than P300 Million shall be converted into Mandatory Convertible Preferred Shares of the
JVC, to be issued to and prorated among the unsecured creditors.
xxxx
3.4. The balance of First Dominion Groups Unsecured Debt after the cash payment and the
issuance of common and preferred shares to the unsecured creditors shall be restructured and paid
by First Dominion Group under the following terms and conditions:
x x x x (Emphasis in the original)

Thus, contrary to petitioners claim, Clearwaters debt to petitioner pursuant to their security services
was already included as it was specifically included as part of the unsecured debts of the FDPHI
Group in the Amended Rehabilitation Plan. The Amended Rehabilitation Plan also provides for a
debt-to-equity conversion in favor of the creditors which led to the incorporation of a Joint Venture
Corporation (JVC) as vehicle for the repayment of the obligations of the FDPHI Group of
Companies.
More importantly, Section 20 of the 2008 Rules of Procedure on Corporate Rehabilitation provides:
SEC. 20. Effects of Rehabilitation Plan. The approval of the rehabilitation plan by the court shall
result in the following:
(a) The plan and its provisions shall be binding upon the debtor and all persons who may be affected
thereby, including the creditors, whether or not such persons have participated in the proceedings or
opposed the plan or whether or not their claims have been scheduled;
(b) The debtor shall comply with the provisions of the plan and shall take all actions necessary to
carry out the plan;
(c) Payments shall be made to the creditors in accordance with the provisions of the plan;
(d) Contracts and other arrangements between the debtor and its creditors shall be interpreted as
continuing to apply to the extent that they do not conflict with the provisions of the plan; and
(e) Any compromises on amounts or rescheduling of timing of payments by the debtor shall be
binding on creditors regardless of whether or not the plan is successfully implemented. (Emphasis
ours.)
To stress, the rehabilitation plan, once approved, is binding upon the debtor and all persons who
may be affected by it, including the creditors, whether such persons have or have not participated in
the proceedings or have opposed the plan or whether their claims have or have not been scheduled.
With the approval by the Rehabilitation Court of the plan for the FDPHI Group of Companies, there is
nothing left to be done but to enforce the terms and schedule of payment as provided in the said
plan.
At the time petitioner filed the complaint before the trial court, the Amended Rehabilitation Plan had
been under implementation for two years already. We note that various checks 30 had been tendered
to petitioner in connection with the implementation of the plan but these were refused by petitioner.
To this date, the Court has not received any notice of termination of the rehabilitation proceedings.
Thus, to allow petitioner to separately enforce its claim for unpaid security services while there is an
ongoing implementation of the rehabilitation plan would violate the provisions of the law.
WHEREFORE, the present petition for review on certiorari is DENIED for lack of merit. The Decision
dated August 24, 2009 and Resolution dated December 17, 2009 of the Court of Appeals in CA-G.R.
SP No. 105894 are herebyAFFIRMED.

Costs against petitioner.

SO ORDERED.

The instant petition assails the Decision1 dated February 3, 2004 and the Resolution2 dated May 13,
2004 of the Court of Appeals in CA-G.R. SP No. 68619. The appellate court had found no grave
abuse of discretion on the part of the Regional Trial Court (RTC) of Makati City, Branch 148, in
discharging the writ of preliminary attachment it previously granted, and dismissed the petition for
certiorari. The motion for reconsideration was denied.
The factual antecedents of this case are as follows:
South Pacific Sugar Corporation (South Pacific), on March 23, 1999, issued three promissory notes
totalingP96,000,0003 to the petitioner, Allied Banking Corporation (hereafter Allied Bank), to secure
payment of loans contracted during the same period. Respondents Margarita Chua Sia, Agosto Sia,
Lin Far Chua, Gerry Chua, Siu Dy Chua, and Antonio Chua (guarantors) executed continuing
guaranty/comprehensive surety agreements binding themselves solidarily with the corporation. On
maturity, South Pacific and its guarantors failed to honor their respective covenants.
On January 26, 2001, Allied Bank filed a complaint for collection of a sum of money with a prayer for
the issuance of a writ of preliminary attachment against respondents. Allied Bank prayed in its
complaint (1) that upon its filing, a writ of preliminary attachment be issued ex parte against all
leviable properties of the respondents as may be sufficient to satisfy petitioners claim; and (2) that
the respondents be ordered to pay petitioner P90,000,000 plus interest and charges, as well as
attorneys fees and costs of suit.
During the ex parte hearing for the issuance of a writ of preliminary attachment, Allied Banks lone
witness, Account Officer Marilou T. Go, testified that Allied Bank approved the corporations
application for credit facilities on the latters representation that (1) it was in good fiscal condition and
had positive business projections as stated in a voluminous Information Memorandum, and that (2) it
would use the loan to fund the operations of the sugar refinery. Go further testified that Allied Bank
discovered soon after that these representations were false; that the loans were allegedly "diverted
to illegitimate purposes;" that as of January 2001, the loan amounted toP90 million; that based on a
project study by a consulting company, Seed Capital Ventures, Inc., South Pacific was suffering
losses and incurring debts in the millions; that there had been no credit investigation to appraise the
corporations business operations; and that Allied Bank relied on the financial statements of the
corporation.4
Thereafter, the trial court granted the attachment and Allied Bank posted the requisite bond.
The respondents filed a motion to discharge the attachment with an urgent motion to defer further
the implementation of the writ, grounded upon the arguments that (1) the evidence of fraud was
insufficient and self-serving; and (2) there was no evidence that South Pacific used the loan for other
purposes. The respondents pointed out that they have been dealing with Allied Bank since 1995,
and had paid a total of P210 million out of a maximum exposure of about P300 million, and that
the P90 million subject of the pending suit constitutes merely the balance of their loan. 5
The trial court granted the respondents motion to defer the implementation of the writ of attachment.
Allied Bank opposed the motion. After hearing, the court granted the motion to discharge 6 and
denied the motion for reconsideration.7

As narrated by the Court of Appeals, the factual background which gave rise to this petition started
on 10 February 1999 when private respondent WSR Fruits, Inc. (WSR) filed before the RTC a
Complaint for Sum of Money with Writ of Preliminary Attachment 4 against petitioners KLT Fruits, Inc.
(KLT), Joseph Lao Tiak Ben, Michael Lao Tian Ben, Roger Buan, Arlene Lao, Leopoldo J. Gonzales,
and Leida A. Gonzales before the RTC of Manila (Branch 20). 5 In its Complaint, WSR alleged that it
is engaged in the business of fruit dealing wholesale or retail, fresh and preserved - and in food
processing; while KLT is engaged in the business of purchasing and processing various fruits. Since
1988, WSR had been supplying KLT with fresh mangoes and other fruits, processed or preserved
fruits and finished fruit products; and doing business with KLT through its authorized employee,
Leopoldo Gonzales, the purchasing manager, and his spouse Leida Gonzales, the cash manager.
In 1997, KLT incurred a cash flow problem, forcing it to enter into a check rediscounting transaction
with WSR, so that it could pay off its other fruit suppliers. The check rediscounting was carried out by
the issuance of postdated checks by KLT in exchange for cash from WSR in amounts less than
those stated in the checks, with the difference representing the profit earned by WSR from the
arrangement. These transactions were all made and facilitated by Leopoldo and Leida Gonzales, as
KLT purchasing officer and cash manager, respectively. WSR agreed to enter into the check
rediscounting transaction with KLT because the latter had been its customer since 1988, and upon
the guarantee and assurance of KLT officers (the other petitioners herein) and Leopoldo and Leida
Gonzales that all the checks issued were in order and shall be funded when due. The check
rediscounting proceeded smoothly with KLT making good on all their checks to WSR until 1998.
On various occasions in the latter part of 1998, KLT issued in favor of WSR, several postdated
checks6 in exchange for cash, under their check rediscounting arrangement, in the total amount
of P3,685,766.00.7
However, when the said checks were deposited at the bank as they fell due, they were dishonored
for the reason "Account Closed/Stop Payment." Several of the checks were replaced by KLT with
other postdated checks but the latter were also dishonored upon presentment for payment for the
reason "Stop Payment/DAUD." Despite several oral and written demands 8 by WSR upon the KLT for
the payment of the latters obligations for unpaid fruit purchases and for the dishonored checks, KLT
refused. This led to the filing by the WSR of the Complaint before the RTC, where it prayed:
WHEREFORE, it is respectfully prayed of this Honorable Court that pending the hearing of the case,
a Writ of Preliminary Attachment be issued against the properties of the defendants to secure the
satisfaction of any judgment that may be recovered therein.
It is further prayed that after due hearing on the principal cause of action, judgment be rendered
ordering all the defendants, jointly and severally, to pay plaintiff the following:
1. FOR THE REDISCOUNTING TRANSACTION:
The amount of THREE MILLION NINE HUNDRED FOURTEEN THOUSAND AND NINE
HUNDRED THIRTY-FOUR PESOS AND SEVENTY CENTAVOS (P3,914,934.70), Philippine
Currency, representing the total obligation due and owing with interest, thereon at 5% per

month from the date of filing of the complaint until the whole obligation is fully paid and
satisfied;
2. FOR THE PURCHASES:
The amount of NINETY-FIVE THOUSAND FOUR HUNDRED PESOS AND SIX CENTAVOS
(P95,400.06), Philippine Currency, representing the total obligation due and owing with
interest, thereon at 18% per annum from the date of filing of the complaint until the whole
obligation is fully paid and satisfied;
3. The sum representing twenty-five percent (25%) of the total amount involved as attorneys
fees plusP3,500 per court appearance; and
4. Cost of suit.
Plaintiff further prays for such relief deemed just and equitable under the premises. 9
WSR likewise sought to collect on unpaid purchases of bananas by KLT amounting to P90,830.00.
KLT proceeded to file an Answer with cross-claim and counterclaim. 10
Issues having been joined, a full-blown trial on the merits ensued, with the parties presenting rebuttal
and sur-rebuttal evidence. Consequently, on 26 May 2003, the RTC rendered a Decision, copy of
which was received by KLT on 10 July 2003, ruling in favor of the WSR, in this wise:
Premised on the foregoing consideration, the Court finds for the plaintiff and hereby renders its
judgment ordering defendants KLT Corporation, Michael Lao Tian Ben and Leopoldo Gonzales
jointly and severally
1. To pay P3,685,766 to the plaintiff WSR Fruits, Inc. with legal interest;
2. To pay plaintiff WSR Fruits, Inc. the amount of P90,830 for the bananas delivered on
October 20 & 21, 1998 with legal interest;
3. To pay a sum equivalent to 25% of the total amount due and payable as attorneys fees;
4. To pay costs.
For insufficient evidence, the case against defendants Arlene Lao, Joseph Lao Tiak Ben, Roger
Buan and Leida Gonzales is ordered dismissed.
Defendants[] counter-claim is dismissed.11
On 23 July 2003, KLT filed a Motion for Reconsideration of the above-quoted RTC Decision but the
same was denied for lack of merit on 25 September 2003. KLT received a copy of the Order denying
its Motion for Reconsideration on 13 October 2003.

On 13 October 2003, KLT filed with the RTC a Notice of Appeal12 of its Decision but without paying
the appropriate docket fees. Thereupon, WSR filed on 24 October 2003 a Motion to Dismiss
Appeal13 on the grounds that, first, the notice of appeal filed by KLT failed to comply with the formal
and substantial requirements imposed by Rule 41, Section 5 of the Revised Rules of Civil Procedure
governing appeals from regional trial courts;14 and second, there was no proof of payment of docket
and other lawful fees. An Opposition to the Motion to Dismiss Appeal 15 was then filed by KLT on 28
October 2003, attaching thereto a "Corrected Notice of Appeal," 16 but still without any payment of the
required docket fees.
On 7 November 2003, the RTC issued the Order,17 a copy of which was received by KLT on 14
November 2003, refusing to give due course to their appeal. The pertinent portions of the said Order
reads:
Section 4, Rule 41 of the Rules mandates that within the period to appeal, the appellant shall pay to
the Clerk of the Court that rendered the judgment x x x the full amount of the appellate court docket
and other lawful fees.
Section 13 of the same Rule provides that the trial court may motu propio dismiss the appeal for
non-payment of the docket fees and other lawful fees within the reglementary period.
The record of the case shows that defendants have not paid the docket fees and other lawful fees, to
date.
KLT subsequently paid the docket fees only on 17 November 2003.
On 20 November 2003, KLT filed an Urgent Motion for Reconsideration 18 of the Order of the court a
quo, dated 7 November 2003. WSR filed its Opposition19 thereto, while KLT interposed a Reply. On
26 January 2004, the RTC denied the Urgent Motion for Reconsideration based on the following
ratiocination:
This resolves the defendants Urgent Motion for Reconsideration.
The record of the case show (sic) that on November 17, 2003 defendants through counsel filed the
necessary docket fees with receipt numbers 18832287, 18827082 and 0101710 to the Office of the
Clerk of Court Regional Trial Court, Manila.
It is the rule and the jurisprudence that within the period of appeal, the appellant shall pay the
amount of the court docket and other fees.
The right to appeal is a procedural remedy of statutory origin and, as such, may be exercised only in
the manner prescribed by the provisions of law authorizing its exercise. (Oro vs. Diaz, 361 SCRA
108)
The payment of docket fees within the prescribed period is mandatory for the perfection of appeal.
Without such payment, the appellate court does not acquire jurisdiction of the action and the

decision sought to be appealed from becomes final and executory. (Manalili vs. de Leon, 370 SCRA
625)
WHEREFORE, defendants Motion for Reconsideration is hereby DENIED for being unmeritorious. 20