Republic of the Philippines Respondent corporation then filed its reply and on November 18, 1992, filed a motion

ly and on November 18, 1992, filed a motion to admit amended

SUPREME COURT complaint. Said motion was granted by the lower court. 4
Manila
Thereafter, petitioners filed a motion to dismiss reiterating that the complaint should be dismissed on the
FIRST DIVISION ground of prescription.

G.R. No. 128991 April 12, 2000 On December 15, 1995, the trial court through Judge Pedro S. Espina issued an order dismissing the
complaint premised on its finding that the action for reformation had already prescribed. The order
YOLANDA ROSELLO-BENTIR, SAMUEL PORMIDA and CHARITO PORMIDA, petitioners, reads:
vs.
HONORABLE MATEO M. LEANDA, in his capacity as Presiding Judge of RTC, Tacloban City, ORDER
Branch 8, and LEYTE GULF TRADERS, INC., respondents.
Resolved here is the defendants' MOTION TO DISMISS PLAINTIFF'S complaint on ground of
prescription of action.

KAPUNAN, J.: It is claimed by plaintiff that he and defendant Bentir entered into a contract of lease of a parcel
of land on May 5, 1968 for a period of 20 years (and renewed for an additional 4 years
Reformation. of an instrument is that remedy in equity by means of which a written instrument is made thereafter) with the verbal agreement that in case the lessor decides to sell the property after
or construed so as to express or conform to the real intention of the parties when some error or mistake the lease, she shall give the plaintiff the right to equal the offers of other prospective buyers. It
has been committed. 1 It is predicated on the equitable maxim that equity treats as done that which was claimed that the lessor violated this tight of first refusal of the plaintiff when she
ought to be done. 2 The rationale of the doctrine is that it would be unjust and unequitable to allow the sureptitiously (sic) sold the land to co-defendant Pormida on May 5, 1989 under a Deed of
enforcement of a written instrument which does not reflect or disclose the real meeting of the minds of Conditional Sale. Plaintiffs right was further violated when after discovery of the final sale,
the parties. 3 However, an action for reformation must be brought within the period prescribed by law, plaintiff ordered to equal the price of co-defendant Pormida was refused and again defendant
otherwise, it will be barred by the mere lapse of time. The issue in this case is whether or not the Bentir surreptitiously executed a final deed of sale in favor of co-defendant Pormida in
complaint for reformation filed by respondent Leyte Gulf Traders, Inc. has prescribed and in the December 11, 1991.
negative, whether or not it is entitled to the remedy of reformation sought.
The defendant Bentir denies that she bound herself to give the plaintiff the right of first refusal
On May 15, 1992, respondent Leyte Gulf Traders, Inc. (herein referred to as respondent corporation) in case she sells the property. But assuming for the sake of argument that such right of first
filed a complaint for reformation of instrument, specific performance, annulment of conditional sale and refusal was made, it is now contended that plaintiffs cause of action to reform the contract to
damages with prayer for writ of injunction against petitioners Yolanda Rosello-Bentir and the spouses reflect such right of first refusal, has already prescribed after 10 years, counted from May 5,
Samuel and Charito Pormida. The case was docketed as Civil Case No. 92-05-88 and raffled to Judge 1988 when the contract of lease incepted. Counsel for defendant cited Conde vs. Malaga, L-
Pedro S. Espina, RTC, Tacloban City, Branch 7. Respondent corporation alleged that it entered into a 9405 July 31, 1956 and Ramos vs. Court of Appeals, 180 SCRA 635, where the Supreme
contract of lease of a parcel of land with petitioner Bentir for a period of twenty (20) years starting May Court held that the prescriptive period for reformation of a written contract is ten (10) years
5, 1968. According to respondent corporation, the lease was extended for another four (4) years or until under Article 1144 of the Civil Code.
May 31, 1992. On May 5, 1989, petitioner Bentir sold the leased premises to petitioner spouses Samuel
Pormada and Charito Pormada. Respondent corporation questioned the sale alleging that it had a right This Court sustains the position of the defendants that this action for reformation of contract
of first refusal. Rebuffed, it filed Civil Case No. 92-05-88 seeking the reformation of the expired contract has prescribed and hereby orders the dismissal of the case.
of lease on the ground that its lawyer inadvertently omitted to incorporate in the contract of lease
executed in 1968, the verbal agreement or understanding between the parties that in the event SO ORDERED. 5
petitioner Bentir leases or sells the lot after the expiration of the lease, respondent corporation has the
right to equal the highest offer.
On December 29, 1995, respondent corporation filed a motion for reconsideration of the order
dismissing the complaint.
In due time, petitioners filed their answer alleging that the inadvertence of the lawyer who prepared the
lease contract is not a ground for reformation. They further contended that respondent corporation is
On January 11, 1996, respondent corporation filed an urgent ex-parte motion for issuance of an order
guilty of laches for not bringing the case for reformation of the lease contract within the prescriptive
directing the petitioners, or their representatives or agents to refrain from taking possession of the land
period of ten (10) years from its execution.
in question.
Considering that Judge Pedro S. Espina, to whom the case was raffled for resolution, was assigned to
the RTC, Malolos, Bulacan, Branch 19, Judge Roberto A. Navidad was designated in his place.
On March 28, 1996, upon motion of herein petitioners, Judge Navidad inhibited himself from hearing the
case. Consequently, the case was re-raffled and assigned to RTC, Tacloban City, Branch 8, presided by
herein respondent judge Mateo M. Leanda.
On May 10, 1996, respondent judge issued an order reversing the order of dismissal on the grounds
that the action for reformation had not yet prescribed and the dismissal was "premature and precipitate",
denying respondent corporation of its right to procedural due process. The order reads:
ORDER
Stated briefly, the principal objectives of the twin motions submitted by the plaintiffs, for
resolution are:
(1) for the reconsideration of the Order of 15 December 1995 of the Court (RTC, Br.
7), dismissing this case, on the sole ground of prescription of one (1) of the five (5)
causes of action of plaintiff in its complaint for "reformation" of a contract of lease;
and,
(2) for issuance by this Court of an Order prohibiting the defendants and their privies-
in-interest, from taking possession of the leased premises, until a final court order
issues for their exercise of dominical or possessory right thereto.
The records of this case reveal that co-defendant BENTER (Yolanda) and plaintiff Leyte Gulf
Traders Incorporation, represented by Chairman Benito Ang, entered into a contract of lease of
a parcel of land, denominated as Lot No. 878-D, located at Sagkahan District, Tacloban City,
on 05 May 1968, for a period of twenty (20) years, (later renewed for an additional two (2)
years). Included in said covenant of lease is the verbal understanding and agreement between
the contracting parties, that when the defendant (as lessor) will sell the subject property, the
plaintiff as (lessee) has the "right of first refusal", that is, the right to equal the offer of any other
prospective third-party buyer. This agreement (sic) is made apparent by paragraph 4 of the
lease agreement stating:
4. IMPROVEMENT. The lessee shall have the right to erect on the leased premises
any building or structure that it may desire without the consent or approval of the
Lessor . . . provided that any improvements existing at the termination of the lease
shall remain as the property of the Lessor without right to reimbursement to the
Lessee of the cost or value thereof.
That the foregoing provision has been included in the lease agreement if only to convince the
defendant-lessor that plaintiff desired a priority right to acquire the property (ibid) by purchase,
upon expiration of the effectivity of the deed of lease.
In the course of the interplay of several procedural moves of the parties herein, the defendants
filed their motion to admit their amended answer to plaintiff's amended complaint.
Correspondingly, the plaintiff filed its opposition to said motion. The former court branch
admitted the amended answer, to which order of admission, the plaintiff seasonably filed its
motion for reconsideration. But, before the said motion for reconsideration was acted upon by
the court, the latter issued an Order on 15 December 1995, DISMISSING this case on the lone
ground of prescription of the cause of action of plaintiff's complaint on "reformation" of the
lease contract, without anymore considering the remaining cause of action, viz.: (a) on Specific
Performance; (b) an Annulment of Sale and Title; (c) on Issuance of a Writ of Injunction, and
(d) on Damages.
With due respect to the judicial opinion of the Honorable Presiding Judge of Branch 7 of this
Court, the undersigned, to whom this case was raffled to after the inhibition of Judge Roberto
Navidad, as acting magistrate of Branch 7, feels not necessary any more to discuss at length
that even the cause of action for "reformation" has not, as yet, prescribed.
To the mind of this Court, the dismissal order adverted to above, was obviously premature and
precipitate, thus resulting denial upon the right of plaintiff that procedural due process. The
other remaining four (4) causes of action of the complaint must have been deliberated upon
before that court acted hastily in dismissing this case.
WHEREFORE, in the interest of substantial justice, the Order of the court, (Branch 7, RTC)
dismissing this case, is hereby ordered RECONSIDERED and SET ASIDE.
Let, therefore, the motion of plaintiff to reconsider the Order admitting the amended answer
and the Motion to Dismiss this case (ibid), be set for hearing on May 24, 1996, at 8:30 o'clock
in the morning. Service of notices must be effected upon parties and counsel as early as
possible before said scheduled date.
Concomitantly, the defendants and their privies-in-interest or agents, are hereby STERNLY
WARNED not to enter, in the meantime, the litigated premises, before a final court order issues
granting them dominical as well as possessory right thereto.
To the motion or petition for contempt, filed by plaintiff, thru Atty. Bartolome C. Lawsin, the
defendants may, if they so desire, file their answer or rejoinder thereto, before the said petition
will be set for hearing. The latter are given ten (10) days to do so, from the date of their receipt
of a copy of this Order.
SO ORDERED. 6
On June 10, 1996, respondent judge issued an order for status quo ante, enjoining petitioners to desist
from occupying the property. 7
Aggrieved, petitioners herein filed a petition for certiorari to the Court of Appeals seeking the annulment
of the order of respondent court with prayer for issuance of a writ of preliminary injunction and
temporary restraining order to restrain respondent judge from further hearing the case and to direct
respondent corporation to desist from further possessing the litigated premises and to turn over
possession to petitioners.
On January 17, 1997, the Court of Appeals, after finding no error in the questioned order nor grave
abuse of discretion on the part of the trial court that would amount to lack, or in excess of jurisdiction,
denied the petition and affirmed the questioned order. 8 A reconsideration of said decision was, likewise,
denied on April 16, 1997. 9
Thus, the instant petition for review based on the following assigned errors, viz:
6:01 THE COURT OF APPEALS ERRED IN HOLDING THAT AN ACTION FOR
REFORMATION IS PROPER AND JUSTIFIED UNDER THE CIRCUMSTANCES OF THE
PRESENT CASE;
6.02 THE COURT OF APPEALS ERRED IN HOLDING THAT THE ACTION FOR
REFORMATION HAS NOT YET PRESCRIBED;
6.03 THE COURT OF APPEALS ERRED IN HOLDING THAT AN OPTION TO BUY IN A
CONTRACT OF LEASE IS REVIVED FROM THE IMPLIED RENEWAL OF SUCH LEASE;
AND,
6.04 THE COURT OF APPEALS ERRED IN HOLDING THAT A STATUS QUO ANTE ORDER
IS NOT AN INJUNCTIVE RELIEF THAT SHOULD COMPLY WITH THE PROVISIONS OF
RULE 58 OF THE RULES OF COURT. 10
The petition has merit.
The core issue that merits our consideration is whether the complaint for reformation of instrument has
prescribed.1awp++i1
The remedy of reformation of an instrument is grounded on the principle of equity where, in order to
express the true intention of the contracting parties, an instrument already executed is allowed by law to
be reformed. The right of reformation is necessarily an invasion or limitation of the parol evidence rule
since, when a writing is reformed, the result is that an oral agreement is by court decree made legally
effective. 11 Consequently, the courts, as the agencies authorized by law to exercise the power to reform
an instrument, must necessarily exercise that power sparingly and with great caution and zealous care.
Moreover, the remedy, being an extraordinary one, must be subject to limitations as may be provided by
law. Our law and jurisprudence set such limitations, among which is laches. A suit for reformation of an
instrument may be barred by lapse of time. The prescriptive period for actions based upon a written
contract and for reformation of an instrument is ten (10) years under Article 1144 of the Civil
Code. 12 Prescription is intended to suppress stale and fraudulent claims arising from transactions like
the one at bar which facts had become so obscure from the lapse of time or defective memory. 13 In the
case at bar, respondent corporation had ten (10) years from 1968, the time when the contract of lease
was executed, to file an action for reformation. Sadly, it did so only on May 15, 1992 or twenty-four (24)
years after the cause of action accrued, hence, its cause of action has become stale, hence, time-
barred.
In holding that the action for reformation has not prescribed, the Court of Appeals upheld the ruling of
the Regional Trial Court that the 10-year prescriptive period should be reckoned not from the execution
of the contract of lease in 1968, but from the date of the alleged 4-year extension of the lease contract
after it expired in 1988. Consequently, when the action for reformation of instrument was filed in 1992 it
was within ten (10) years from the extended period of the lease. Private respondent theorized, and the
Court of Appeals agreed, that the extended period of lease was an "implied new lease" within the
contemplation of Article 1670 of the Civil Code, 14 under which provision, the other terms of the original
contract were deemed revived in the implied new lease.
We do not agree. First, if, according to respondent corporation, there was an agreement between the
parties to extend the lease contract for four (4) years after the original contract expired in 1988, then Art.
1670 would not apply as this provision speaks of an implied new lease (tacita reconduccion) where at
the end of the contract, the lessee continues to enjoy the thing leased "with the acquiescence of the
lessor", so that the duration of the lease is "not for the period of the original contract, but for the time
established in Article 1682 and 1687." In other words, if the extended period of lease was expressly
agreed upon by the parties, then the term should be exactly what the parties stipulated, not more, not
less. Second, even if the supposed 4-year extended lease be considered as an implied new lease
under Art. 1670, "the other terms of the original contract" contemplated in said provision are only those
terms which are germane to the lessee's right of continued enjoyment of the property leased. 15 The
prescriptive period of ten (10) years provided for in Art. 1144 16 applies by operation of law, not by the
will of the parties. Therefore, the right of action for reformation accrued from the date of execution of the
contract of lease in 1968.
Even if we were to assume for the sake of argument that the instant action for reformation is not time-
barred, respondent corporation's action will still not prosper. Under Section 1, Rule 64 of the New Rules
of Court, 17 an action for the reformation of an instrument is instituted as a special civil action for
declaratory relief. Since the purpose of an action for declaratory relief is to secure an authoritative
statement of the rights and obligations of the parties for their guidance in the enforcement thereof, or
compliance therewith, and not to settle issues arising from an alleged breach thereof, it may be
entertained only before the breach or violation of the law or contract to which it refers. 18 Here,
respondent corporation brought the present action for reformation after an alleged breach or violation of
the contract was already committed by petitioner Bentir. Consequently, the remedy of reformation no
longer lies.
We no longer find it necessary to discuss the other issues raised considering that the same are
predicated upon our affirmative resolution on the issue of the prescription of the action for reformation.
WHEREFORE, the petition is hereby GRANTED. The Decision of the Court of Appeals dated January
17, 1997 is REVERSED and SET ASIDE. The Order of the Regional Trial Court of Tacloban City,
Branch 7, dated December 15, 1995 dismissing the action for reformation is REINSTATED.1wphi1.nt
SO ORDERED. No Deed of Absolute Sale was executed to evidence the transaction, but cash payment was received by
the respondents, and ownership was transferred to Concepcion through physical delivery to her
attorney-in-fact and daughter, Natividad Tuliao (Natividad). Concepcion authorized Natividad and the
latters husband, Ceferino Tuliao (Ceferino) to occupy the premises, and make improvements on the
unfinished building.

Thereafter, Concepcion alleged that without her consent, respondents caused the subdivision of the
property into three portions and registered it in their names under TCT Nos. N-155122, N-155123 and
N-155124 in violation of the restrictions annotated at the back of the title.

On the other hand, Antonio averred that he bought the property in 1980 and introduced improvements
thereon. Between 1989 and 1990, he and his wife, Eugenia, allowed Natividad and Ceferino to occupy
the premises temporarily. In 1994, they caused the subdivision of the property and three (3) separate
titles were issued.

Thereafter, Antonio requested Natividad to vacate the premises but the latter refused and claimed that
Concepcion owned the property. Antonio thus filed an ejectment suit on April 1, 1999. Concepcion,
represented by Natividad, also filed on May 4, 1999 a civil case for partition of real property and
annulment of titles with damages.
Republic of the Philippines
SUPREME COURT Antonio claimed that his wife, Eugenia, admitted that Concepcion offered to buy one third (1/3) of the
Manila property who gave her small amounts over several years which totaled P100,000.00 by 1987 and for
which she signed a receipt.
FIRST DIVISION
On January 9, 2001, the Regional Trial Court of Quezon City, Branch 85, rendered judgment4 in favor of
Concepcion, the dispositive portion of which states:
G.R. No. 165420 June 30, 2005

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against
CONCEPCION R. AINZA, substituted by her legal heirs, DR. NATIVIDAD A. TULIAO, CORAZON A. the defendants and ordering:
JALECO and LILIA A. OLAYON, petitioners,
vs.
SPOUSES ANTONIO PADUA and EUGENIA PADUA, respondents. 1. the subdivision of the subject property between the said plaintiff and defendants in equal
shares with one-half of the property, including the portion occupied by the spouses Severino
and Natividad Tuliao to be awarded to the plaintiff;
DECISION

2. the cancellation of Transfer Certificates of Title Nos. N-155122, N-155123, N-155124 of the
YNARES-SANTIAGO, J.: Registry of Deeds of Quezon City;

This petition for review on certiorari assails the February 24, 2004 decision of the Court of Appeals in 3. the defendants to pay to the plaintiff P50,000.00 as attorneys fees.
CA-G.R. CV No. 70239,1 and its September 28, 2004 resolution, denying reconsideration thereof.2

SO ORDERED.5
In her complaint for partition of real property, annulment of titles with damages, 3 Concepcion Ainza
(Concepcion) alleged that respondent-spouses Eugenia (Eugenia) and Antonio Padua (Antonio) owned
a 216.40 sq. m. lot with an unfinished residential house located at No. 85-A Durian corner Pajo Sts., The trial court upheld the sale between Eugenia and Concepcion. It ruled that the sale was
Barangay Quirino 2-C, Project 2, Quezon City, covered by Transfer Certificate of Title No. 271935. consummated when both contracting parties complied with their respective obligations. Eugenia
Sometime in April 1987, she bought one-half of an undivided portion of the property from her daughter, transferred possession by delivering the property to Concepcion who in turn paid the purchase price. It
Eugenia and the latters husband, Antonio, for One Hundred Thousand Pesos (P100,000.00).
also declared that the transfer of the property did not violate the Statute of Frauds because a fully
executed contract does not fall within its coverage.
On appeal by the respondents, the Court of Appeals reversed the decision of the trial court, and
declared the sale null and void. Applying Article 124 of the Family Code, the Court of Appeals ruled that
since the subject property is conjugal, the written consent of Antonio must be obtained for the sale to be
valid. It also ordered the spouses Padua to return the amount of P100,000.00 to petitioners plus
interest.6
The sole issue for resolution in this petition for review is whether there was a valid contract of sale
between Eugenia and Concepcion.
A contract of sale is perfected by mere consent, upon a meeting of the minds on the offer and the
acceptance thereof based on subject matter, price and terms of payment.7
In this case, there was a perfected contract of sale between Eugenia and Concepcion. The records
show that Eugenia offered to sell a portion of the property to Concepcion, who accepted the offer and
agreed to pay P100,000.00 as consideration. The contract of sale was consummated when both parties
fully complied with their respective obligations. Eugenia delivered the property to Concepcion, who in
turn, paid Eugenia the price of One Hundred Thousand Pesos (P100,000.00), as evidenced by the
receipt which reads:
RECEIPT
Received the amount of ONE HUNDRED THOUSAND PESOS (P100,000.00) as payment for the lot on
85-A Durian St., Project 2, Quezon City, from Mrs. Concepcion R. Ainza, on April, 1987.
_______(Sgd.)______
Mrs.. Eugenia A. Padua8
The verbal contract of sale between Eugenia and Concepcion did not violate the provisions of the
Statute of Frauds that a contract for the sale of real property shall be unenforceable unless the contract
or some note or memorandum of the sale is in writing and subscribed by the party charged or his
agent.9 When a verbal contract has been completed, executed or partially consummated, as in this
case, its enforceability will not be barred by the Statute of Frauds, which applies only to an executory
agreement.10 Thus, where one party has performed his obligation, oral evidence will be admitted to
prove the agreement.11
In the instant case, the oral contract of sale between Eugenia and Concepcion was evidenced by a
receipt signed by Eugenia. Antonio also stated that his wife admitted to him that she sold the property to
Concepcion.
It is undisputed that the subject property was conjugal and sold by Eugenia in April 1987 or prior to the
effectivity of the Family Code on August 3, 1988, Article 254 of which repealed Title V, Book I of the Civil
Code provisions on the property relations between husband and wife. However, Article 256 thereof
limited its retroactive effect only to cases where it would not prejudice or impair vested or acquired
rights in accordance with the Civil Code or other laws. In the case at bar, vested rights of Concepcion
will be impaired or prejudiced by the application of the Family Code; hence, the provisions of the Civil
Code should be applied.
In Felipe v. Heirs of Aldon, et al.,12 the legal effect of a sale of conjugal properties by the wife without the
consent of the husband was clarified, to wit:
The legal ground which deserves attention is the legal effect of a sale of lands belonging to the conjugal
partnership made by the wife without the consent of the husband.
It is useful at this point to re-state some elementary rules: The husband is the administrator of the
conjugal partnership. (Art. 165, Civil Code) Subject to certain exceptions, the husband cannot alienate
or encumber any real property of the conjugal partnership without the wifes consent. (Art. 166, Idem.)
And the wife cannot bind the conjugal partnership without the husbands consent, except in cases
provided by law. (Art. 172, Idem.).
In the instant case, Gimena, the wife, sold lands belonging to the conjugal partnership without the
consent of the husband and the sale is not covered by the phrase "except in cases provided by law."
The Court of Appeals described the sale as "invalid" a term which is imprecise when used in relation
to contracts because the Civil Code uses specific names in designating defective contracts,
namely: rescissible (Arts. 1380 et seq.), voidable (Arts. 1390et seq.), unenforceable (Arts. 1403, et
seq.), and void or inexistent (Arts. 1409 et seq.).1awphi1.zw+
The sale made by Gimena is certainly a defective contract but of what category? The answer: it
is a voidable contract.
According to Art. 1390 of the Civil Code, among the voidable contracts are "[T]hose where one of the
parties is incapable of giving consent to the contract." (Par. 1.) In the instant case Gimena had no
capacity to give consent to the contract of sale. The capacity to give consent belonged not even to the
husband alone but to both spouses.
The view that the contract made by Gimena is a voidable contract is supported by the legal
provision that contracts entered by the husband without the consent of the wife when such
consent is required, are annullable at her instance during the marriage and within ten years from
the transaction questioned. (Art. 173, Civil Code).
Gimenas contract is not rescissible for in such a contract all the essential elements are untainted but
Gimenas consent was tainted. Neither can the contract be classified as unenforceable because it does
not fit any of those described in Art. 1403 of the Civil Code. And finally, the contract cannot be void or
inexistent because it is not one of those mentioned in Art. 1409 of the Civil Code. By process of
elimination, it must perforce be a voidable contract.
The voidable contract of Gimena was subject to annulment by her husband only during the marriage
because he was the victim who had an interest in the contract. Gimena, who was the party responsible
for the defect, could not ask for its annulment. Their children could not likewise seek the annulment of
the contract while the marriage subsisted because they merely had an inchoate right to the lands sold.
(Emphasis supplied)
The consent of both Eugenia and Antonio is necessary for the sale of the conjugal property to be valid.
Antonios consent cannot be presumed.13 Except for the self-serving testimony of petitioner Natividad,
there is no evidence that Antonio participated or consented to the sale of the conjugal property. Eugenia
alone is incapable of giving consent to the contract. Therefore, in the absence of Antonios consent, the
disposition made by Eugenia is voidable.14
The contract of sale between Eugenia and Concepcion being an oral contract, the action to annul the
same must be commenced within six years from the time the right of action accrued. 15 Eugenia sold the
property in April 1987 hence Antonio should have asked the courts to annul the sale on or before April
1993. No action was commenced by Antonio to annul the sale, hence his right to seek its annulment
was extinguished by prescription.
Even assuming that the ten (10)-year prescriptive period under Art. 173 should apply, Antonio is still
barred from instituting an action to annul the sale because since April 1987, more than ten (10) years
had already lapsed without any such action being filed.
In sum, the sale of the conjugal property by Eugenia without the consent of her husband is voidable. It
is binding unless annulled. Antonio failed to exercise his right to ask for the annulment within the
prescribed period, hence, he is now barred from questioning the validity of the sale between his wife
and Concepcion.
WHEREFORE, the petition is GRANTED. The decision dated February 24, 2004 of the Court of
Appeals in CA-G.R. CV No. 70239 and its resolution dated September 28, 2004 are REVERSED and
SET ASIDE. The decision dated January 9, 2001 of the Regional Trial Court of Quezon City, Branch 85,
in Civil Case No. Q-99-37529, is REINSTATED.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 175444 December 14, 2011
JAIME ABALOS and SPOUSES FELIX SALAZAR and CONSUELO SALAZAR, GLICERIO ABALOS, HEIRS OF
AQUILINO ABALOS, namely: SEGUNDA BAUTISTA, ROGELIO ABALOS, DOLORES A. ROSARIO, FELICIDAD
ABALOS, ROBERTO ABALOS, JUANITO ABALOS, TITA ABALOS, LITA A. DELA CRUZ AND HEIRS OF AQUILINA
ABALOS, namely: ARTURO BRAVO, PURITA B. MENDOZA, LOURDES B. AGANON, CONSUELO B. SALAZAR,
PRIMA B. DELOS SANTOS, THELMA APOSTOL and GLECERIO ABALOS,Petitioners,
vs.
HEIRS OF VICENTE TORIO, namely: PUBLIO TORIO, LIBORIO TORIO, VICTORINA TORIO, ANGEL TORIO,
LADISLAO TORIO, PRIMO TORIO and NORBERTO TORIO, Respondents.
DECISION
PERALTA, J.:
Before the Court is a petition for review on certiorari seeking to set aside the Decision 1 dated June 30, 2006 and
Resolution2 dated November 13, 2006 by the Court of Appeals (CA) in CA-G.R. SP No. 91887. The assailed Decision
reversed and set aside the Decision 3 dated June 14, 2005 of the Regional Trial Court (RTC) of Lingayen, Pangasinan,
Branch 69, while the questioned Resolution denied petitioners' Motion for Reconsideration.
The factual and procedural antecedents of the case are as follows:
On July 24, 1996, herein respondents filed a Complaint for Recovery of Possession and Damages with the Municipal Trial
Court (MTC) of Binmaley, Pangasinan against Jaime Abalos (Jaime) and the spouses Felix and Consuelo Salazar.
Respondents contended that: they are the children and heirs of one Vicente Torio (Vicente) who died intestate on September
11, 1973; at the time of the death of Vicente, he left behind a parcel of land measuring 2,950 square meters, more or less,
which is located at San Isidro Norte, Binmaley, Pangasinan; during the lifetime of Vicente and through his tolerance, Jaime
and the Spouses Salazar were allowed to stay and build their respective houses on the subject parcel of land; even after the
death of Vicente, herein respondents allowed Jaime and the Spouses Salazar to remain on the disputed lot; however, in
1985, respondents asked Jaime and the Spouses Salazar to vacate the subject lot, but they refused to heed the demand of
respondents forcing respondents to file the complaint. 4
Jaime and the Spouses Salazar filed their Answer with Counterclaim, denying the material allegations in the Complaint and
asserting in their Special and Affirmative Defenses that: respondents' cause of action is barred by acquisitive prescription;
the court a quo has no jurisdiction over the nature of the action and the persons of the defendants; the absolute and
exclusive owners and possessors of the disputed lot are the deceased predecessors of defendants; defendants and their
predecessors-in-interest had been in actual, continuous and peaceful possession of the subject lot as owners since time
immemorial; defendants are faithfully and religiously paying real property taxes on the disputed lot as evidenced by Real
Property Tax Receipts; they have continuously introduced improvements on the said land, such as houses, trees and other
kinds of ornamental plants which are in existence up to the time of the filing of their Answer. 5
On the same date as the filing of defendants' Answer with Counterclaim, herein petitioners filed their Answer in Intervention
with Counterclaim. Like the defendants, herein petitioners claimed that their predecessors-in-interest were the absolute and
exclusive owners of the land in question; that petitioners and their predecessors had been in possession of the subject lot
since time immemorial up to the present; they have paid real property taxes and introduced improvements thereon. 6
After the issues were joined, trial ensued.
On December 10, 2003, the MTC issued a Decision, the dispositive portion of which reads as follows:
WHEREFORE, in view of the foregoing consideration[s], the Court adjudged the case in favor of the plaintiffs and against the
defendants and defendants-intervenors are ordered to turn over the land in question to the plaintiffs (Lot Nos. 869 and 870,
Cad. 467-D. Binmaley Cadastre located in Brgy. San Isidro Norte, Binmaley, Pangasinan with an area of 2,950 sq. m., more
or less, bounded and described in paragraph 3 of the Complaint[)]; ordering the defendants and defendants-intervenors to
remove their respective houses standing on the land in dispute; further ordering the defendants and defendants-intervenors,
either singly or jointly to pay the plaintiffs land rent in the amount of P12,000.00 per year to be reckoned starting the year
1996 until defendants and defendants-intervenors will finally vacate the premises; furthermore, defendants and defendants-
intervenors are also ordered to pay, either singly or jointly, the amount of P10,000.00 as and by way of attorney's fees and
costs of suit.
SO ORDERED.7
Jaime and the Spouses Salazar appealed the Decision of the MTC with the RTC of Lingayen, Pangasinan. 8 Herein (b) When the inference made is manifestly mistaken, absurd, or impossible;
petitioners, who were intervenors, did not file an appeal.
(c) When there is grave abuse of discretion;
In its Decision dated June 14, 2005, the RTC ruled in favor of Jaime and the Spouses Salazar, holding that they have
acquired the subject property through prescription. Accordingly, the RTC dismissed herein respondents' complaint.
(d) When the judgment is based on a misapprehension of facts;

Aggrieved, herein respondents filed a petition for review with the CA assailing the Decision of the RTC.
(e) When the findings of facts are conflicting;

On June 30, 2006, the CA promulgated its questioned Decision, the dispositive portion of which reads, thus:
(f) When in making its findings the CA went beyond the issues of the case, or its findings are contrary to the
admissions of both the appellant and the appellee;
WHEREFORE, the petition is GRANTED. The Decision dated June 14, 2005 of the Regional Trial Court, Branch 69,
Lingayen, Pangasinan is hereby REVERSED and SET ASIDE. In its stead, a new one is entered reinstating the Decision
(g) When the CAs findings are contrary to those by the trial court;
dated December 10, 2003 of the Municipal Trial Court of Binmaley, Pangasinan.

(h) When the findings are conclusions without citation of specific evidence on which they are based;
SO ORDERED.9

(i) When the facts set forth in the petition as well as in the petitioners main and reply briefs are not disputed by
Jaime and the Spouses Salazar filed a Motion for Reconsideration, but the same was denied by the CA in its Resolution
the respondent;
dated November 13, 2006.

(j) When the findings of fact are premised on the supposed absence of evidence and contradicted by the evidence
Hence, the instant petition based on a sole assignment of error, to wit:
on record; or

THE COURT OF APPEALS ERRED IN NOT APPRECIATING THAT THE PETITIONERS HEREIN ARE NOW THE
(k) When the CA manifestly overlooked certain relevant facts not disputed by the parties, which, if properly
ABSOLUTE AND EXCLUSIVE OWNERS OF THE LAND IN QUESTION BY VIRTUE OF ACQUISITIVE PRESCRIPTION. 10
considered, would justify a different conclusion.15

The main issue raised by petitioners is whether they and their predecessors-in-interest possessed the disputed lot in the
In the present case, the findings of fact of the MTC and the CA are in conflict with those of the RTC.
concept of an owner, or whether their possession is by mere tolerance of respondents and their predecessors-in-interest.
Corollarily, petitioners claim that the due execution and authenticity of the deed of sale upon which respondents'
predecessors-in-interest derived their ownership were not proven during trial. After a review of the records, however, the Court finds that the petition must fail as it finds no error in the findings of fact and
conclusions of law of the CA and the MTC.
The petition lacks merit.
Petitioners claim that they have acquired ownership over the disputed lot through ordinary acquisitive prescription.
Preliminarily, the Court agrees with the observation of respondents that some of the petitioners in the instant petition were
the intervenors11 when the case was filed with the MTC. Records would show that they did not appeal the Decision of the Acquisitive prescription of dominion and other real rights may be ordinary or extraordinary. 16 Ordinary acquisitive prescription
MTC.12 The settled rule is that failure to perfect an appeal renders the judgment final and executory. 13 Hence, insofar as the requires possession in good faith and with just title for ten (10) years. 17 Without good faith and just title, acquisitive
intervenors in the MTC are concerned, the judgment of the MTC had already become final and executory. prescription can only be extraordinary in character which requires uninterrupted adverse possession for thirty (30) years. 18

It also bears to point out that the main issue raised in the instant petition, which is the character or nature of petitioners'
possession of the subject parcel of land, is factual in nature.
Settled is the rule that questions of fact are not reviewable in petitions for review on certiorari under Rule 45 of the Rules of
Court.14 Section 1 of Rule 45 states that petitions for review on certiorari "shall raise only questions of law which must be
distinctly set forth."
Doubtless, the issue of whether petitioners possess the subject property as owners, or whether they occupy the same by
mere tolerance of respondents, is a question of fact. Thus, it is not reviewable.
Nonetheless, the Court has, at times, allowed exceptions from the abovementioned restriction. Among the recognized
exceptions are the following:
(a) When the findings are grounded entirely on speculation, surmises, or conjectures;
Possession "in good faith" consists in the reasonable belief that the person from whom the thing is received has been the
owner thereof, and could transmit his ownership. 19 There is "just title" when the adverse claimant came into possession of
the property through one of the modes recognized by law for the acquisition of ownership or other real rights, but the grantor
was not the owner or could not transmit any right. 20
In the instant case, it is clear that during their possession of the property in question, petitioners acknowledged ownership
thereof by the immediate predecessor-in-interest of respondents. This is clearly shown by the Tax Declaration in the name of
Jaime for the year 1984 wherein it contains a statement admitting that Jaime's house was built on the land of Vicente,
respondents' immediate predecessor-in-interest.21 Petitioners never disputed such an acknowledgment. Thus, having
knowledge that they nor their predecessors-in-interest are not the owners of the disputed lot, petitioners' possession could
not be deemed as possession in good faith as to enable them to acquire the subject land by ordinary prescription. In this
respect, the Court agrees with the CA that petitioners' possession of the lot in question was by mere tolerance of
respondents and their predecessors-in-interest. Acts of possessory character executed due to license or by mere tolerance
of the owner are inadequate for purposes of acquisitive prescription. 22 Possession, to constitute the foundation of a
prescriptive right, must be en concepto de dueo, or, to use the common law equivalent of the term, that possession should
be adverse, if not, such possessory acts, no matter how long, do not start the running of the period of prescription. 23
Moreover, the CA correctly held that even if the character of petitioners' possession of the subject property had become
adverse, as evidenced by their declaration of the same for tax purposes under the names of their predecessors-in-interest,
their possession still falls short of the required period of thirty (30) years in cases of extraordinary acquisitive prescription.
Records show that the earliest Tax Declaration in the name of petitioners was in 1974. Reckoned from such date, the thirty-
year period was completed in 2004. However, herein respondents' complaint was filed in 1996, effectively interrupting
petitioners' possession upon service of summons on them. 24Thus, petitioners possession also did not ripen into ownership,
because they failed to meet the required statutory period of extraordinary prescription.
This Court has held that the evidence relative to the possession upon which the alleged prescription is based, must be clear,
complete and conclusive in order to establish the prescription. 25 In the present case, the Court finds no error on the part of
the CA in holding that petitioners failed to present competent evidence to prove their alleged good faith in neither possessing
the subject lot nor their adverse claim thereon. Instead, the records would show that petitioners' possession was by mere
tolerance of respondents and their predecessors-in-interest.1avvphi1
Finally, as to the issue of whether the due execution and authenticity of the deed of sale upon which respondents anchor
their ownership were not proven, the Court notes that petitioners did not raise this matter in their Answer as well as in their
Pre-Trial Brief. It was only in their Comment to respondents' Petition for Review filed with the CA that they raised this issue.
Settled is the rule that points of law, theories, issues, and arguments not adequately brought to the attention of the trial court
need not be, and ordinarily will not be, considered by a reviewing court. 26 They cannot be raised for the first time on appeal.
To allow this would be offensive to the basic rules of fair play, justice and due process. 27
Even granting that the issue of due execution and authenticity was properly raised, the Court finds no cogent reason to
depart from the findings of the CA, to wit:
xxxx
Based on the foregoing, respondents [Jaime Abalos and the Spouses Felix and Consuelo Salazar] have not inherited the
disputed land because the same was shown to have already been validly sold to Marcos Torio, who, thereupon, assigned
the same to his son Vicente, the father of petitioners [herein respondents]. A valid sale was amply established and the said
validity subsists because the deed evidencing the same was duly notarized.
There is no doubt that the deed of sale was duly acknowledged before a notary public. As a notarized document, it has in its
favor the presumption of regularity and it carries the evidentiary weight conferred upon it with respect to its due execution. It
is admissible in evidence without further proof of its authenticity and is entitled to full faith and credit upon its face. 28
Indeed, settled is the rule in our jurisdiction that a notarized document has in its favor the presumption of regularity, and to
overcome the same, there must be evidence that is clear, convincing and more than merely preponderant; otherwise, the
document should be upheld. 29 In the instant case, petitioners' bare denials will not suffice to overcome the presumption of
regularity of the assailed deed of sale.
WHEREFORE, the petition is DENIED. The assailed Decision and Resolution of the Court of Appeals in CA-G.R. SP No.
91887 are AFFIRMED.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 184109 February 1, 2012
CELERINO E. MERCADO, Petitioner,
vs.
BELEN* ESPINOCILLA** AND FERDINAND ESPINOCILLA, Respondents.
DECISION
VILLARAMA, JR., J.:
The Case
Petitioner Celerino E. Mercado appeals the Decision1 dated April 28, 2008 and Resolution2 dated July
22, 2008 of the Court of Appeals (CA) in CA-G.R. CV No. 87480. The CA dismissed petitioners
complaint3 for recovery of possession, quieting of title, partial declaration of nullity of deeds and
documents, and damages, on the ground of prescription.
The Antecedent Facts
Doroteo Espinocilla owned a parcel of land, Lot No. 552, with an area of 570 sq. m., located at
Magsaysay Avenue, Zone 5, Bulan, Sorsogon. After he died, his five children, Salvacion, Aspren, Isabel,
Macario, and Dionisia divided Lot No. 552 equally among themselves. Later, Dionisia died without issue
ahead of her four siblings, and Macario took possession of Dionisias share. In an affidavit of transfer of
real property4 dated November 1, 1948, Macario claimed that Dionisia had donated her share to him in
May 1945.
Thereafter, on August 9, 1977, Macario and his daughters Betty Gullaba and Saida Gabelo sold 5 225
sq. m. to his son Roger Espinocilla, husband of respondent Belen Espinocilla and father of respondent
Ferdinand Espinocilla. On March 8, 1985, Roger Espinocilla sold 6 114 sq. m. to Caridad Atienza. Per
actual survey of Lot No. 552, respondent Belen Espinocilla occupies 109 sq. m., Caridad Atienza
occupies 120 sq. m., Caroline Yu occupies 209 sq. m., and petitioner, Salvacion's son, occupies 132 sq.
m.7
The Case For Petitioner
Petitioner sued the respondents to recover two portions: an area of 28.5 8 sq. m. which he bought from
Aspren and another 28.5 sq. m. which allegedly belonged to him but was occupied by Macarios
house.9 His claim has since been modified to an alleged encroachment of only 39 sq. m. that he claims
must be returned to him. He avers that he is entitled to own and possess 171 sq. m. of Lot No. 552,
having inherited 142.5 sq. m. from his mother Salvacion and bought 28.5 sq. m. from his aunt Aspren.
According to him, his mothers inheritance is 142.5 sq. m., that is, 114 sq. m. from Doroteo plus 28.5 sq.
m. from Dionisia. Since the area he occupies is only 132 sq. m.,10 he claims that respondents encroach
on his share by 39 sq. m.11
 The Case For Respondents
Respondents agree that Doroteos five children each inherited 114 sq. m. of Lot No. 552. However,
Macarios share increased when he received Dionisias share. Macarios increased share was then sold
to his son Roger, respondents husband and father. Respondents claim that they rightfully possess the
land they occupy by virtue of acquisitive prescription and that there is no basis for petitioners claim of
encroachment.12
The Trial Courts Decision
On May 15, 2006, the Regional Trial Court (RTC) ruled in favor of petitioner and held that he is entitled
to 171 sq. m. The RTC found that petitioner inherited 142.5 sq. m. from his mother Salvacion and
bought 28.5 sq. m. from his aunt Aspren. The RTC computed that Salvacion, Aspren, Isabel and
Macario each inherited 142.5 sq. m. of Lot No. 552. Each inherited 114 sq. m. from Doroteo and 28.5
sq. m. from Dionisia. The RTC further ruled that Macario was not entitled to 228 sq. m. Thus,
respondents must return 39 sq. m. to petitioner who occupies only 132 sq. m.13
There being no public document to prove Dionisias donation, the RTC also held that Macarios 1948
affidavit is void and is an invalid repudiation of the shares of his sisters Salvacion, Aspren, and Isabel in
Dionisias share. Accordingly, Macario cannot acquire said shares by prescription. The RTC further held
that the oral partition of Lot No. 552 by Doroteos heirs did not include Dionisias share and that partition
should have been the main action. Thus, the RTC ordered partition and deferred the transfer of
possession of the 39 sq. m. pending partition.14 The dispositive portion of the RTC decision reads:
WHEREFORE, in view of the foregoing premises, the court issues the following ORDER, thus -
a) Partially declaring the nullity of the Deed of Absolute Sale of Property dated August 9, 1977
x x x executed by Macario Espinocilla, Betty E. Gullaba and Saida E. Gabelo in favor of Roger
Espinocilla, insofar as it affects the portion or the share belonging to Salvacion Espinocilla,
mother of [petitioner,] relative to the property left by Dionisia Espinocilla, including [Tax
Declaration] No. 13667 and other documents of the same nature and character which
emanated from the said sale;
b) To leave as is the Deeds of Absolute Sale of May 11, 1983 and March 8, 1985, it having
been determined that they did not involve the portion belonging to [petitioner] x x x.
c) To effect an effective and real partition among the heirs for purposes of determining the
exact location of the share (114 sq. m.) of the late Dionisia Espinocilla together with the 28.5
sq. m. belonging to [petitioners] mother Salvacion, as well as, the exact location of the 39 sq.
m. portion belonging to the [petitioner] being encroached by the [respondents], with the
assistance of the Commissioner (Engr. Fundano) appointed by this court.
d) To hold in abeyance the transfer of possession of the 39 sq. m. portion to the [petitioner]
pending the completion of the real partition above-mentioned.15
The CA Decision
On appeal, the CA reversed the RTC decision and dismissed petitioners complaint on the ground that
extraordinary acquisitive prescription has already set in in favor of respondents. The CA found that
Doroteos four remaining children made an oral partition of Lot No. 552 after Dionisias death in 1945
and occupied specific portions. The oral partition terminated the co-ownership of Lot No. 552 in 1945.
Said partition also included Dionisias share because the lot was divided into four parts only. And since
petitioners complaint was filed only on July 13, 2000, the CA concluded that prescription has set
in.16 The CA disposed the appeal as follows:
WHEREFORE, the appeal is GRANTED. The assailed May 15, 2006 Decision of the Regional Trial
Court (RTC) of Bulan, Sorsogon is hereby REVERSED and SET ASIDE. The Complaint of the
[petitioner] is hereby DISMISSED. No costs.17
The Instant Petition
The core issue to be resolved is whether petitioners action to recover the subject portion is barred by
prescription.
Petitioner confirms oral partition of Lot No. 552 by Doroteo's heirs, but claims that his share increased
from 114 sq. m. to 171 sq. m. and that respondents encroached on his share by 39 sq. m. Since an oral
partition is valid, the corresponding survey ordered by the RTC to identify the 39 sq. m. that must be
returned to him could be made. 18Petitioner also alleges that Macario committed fraud in acquiring his
share; hence, any evidence adduced by him to justify such acquisition is inadmissible. Petitioner
concludes that if a person obtains legal title to property by fraud or concealment, courts of equity will
impress upon the title a so-called constructive trust in favor of the defrauded party.19
The Courts Ruling
We affirm the CA ruling dismissing petitioners complaint on the ground of prescription.1wphi1
Prescription, as a mode of acquiring ownership and other real rights over immovable property, is
concerned with lapse of time in the manner and under conditions laid down by law, namely, that the
possession should be in the concept of an owner, public, peaceful, uninterrupted, and adverse.
Acquisitive prescription of real rights may be ordinary or extraordinary. Ordinary acquisitive prescription
requires possession in good faith and with just title for 10 years. In extraordinary prescription, ownership
and other real rights over immovable property are acquired through uninterrupted adverse possession
for 30 years without need of title or of good faith.20
Here, petitioner himself admits the adverse nature of respondents possession with his assertion that
Macarios fraudulent acquisition of Dionisias share created a constructive trust. In a constructive trust,
there is neither a promise nor any fiduciary relation to speak of and the so-called trustee (Macario)
neither accepts any trust nor intends holding the property for the beneficiary (Salvacion, Aspren, Isabel).
The relation of trustee and cestui que trust does not in fact exist, and the holding of a constructive trust
is for the trustee himself, and therefore, at all times adverse. 21 Prescription may supervene even if the
trustee does not repudiate the relationship.22
Then, too, respondents uninterrupted adverse possession for 55 years of 109 sq. m. of Lot No. 552
was established. Macario occupied Dionisias share in 1945 although his claim that Dionisia donated it
to him in 1945 was only made in a 1948 affidavit. We also agree with the CA that Macarios possession Republic of the Philippines
of Dionisias share was public and adverse since his other co-owners, his three other sisters, also SUPREME COURT
Manila
occupied portions of Lot No. 552. Indeed, the 1977 sale made by Macario and his two daughters in
favor of his son Roger confirms the adverse nature of Macarios possession because said sale of 225
sq. m.23 was an act of ownership over Macarios original share and Dionisias share. In 1985, Roger also THIRD DIVISION
exercised an act of ownership when he sold 114 sq. m. to Caridad Atienza. It was only in the year 2000,
upon receipt of the summons to answer petitioners complaint, that respondents peaceful possession of G.R. No. 187451 August 29, 2012
the remaining portion (109 sq. m.) was interrupted. By then, however, extraordinary acquisitive
prescription has already set in in favor of respondents. That the RTC found Macarios 1948 affidavit void JESUS VIRTUCIO, represented by ABDON VIRTUCIO, Petitioner,
is of no moment. Extraordinary prescription is unconcerned with Macarios title or good faith. vs.
Accordingly, the RTC erred in ruling that Macario cannot acquire by prescription the shares of JOSE ALEGARBES, Respondent.
Salvacion, Aspren, and Isabel, in Dionisias 114-sq. m. share from Lot No. 552.
DECISION
Moreover, the CA correctly dismissed petitioners complaint as an action for reconveyance based on an
implied or constructive trust prescribes in 10 years from the time the right of action accrues. 24 This is the MENDOZA, J.:
other kind of prescription under the Civil Code, called extinctive prescription, where rights and actions
are lost by the lapse of time.25 Petitioners action for recovery of possession having been filed 55 years
This petition for review on certiorari under Rule 45 seeks to reverse and set aside the February 25, 2009
after Macario occupied Dionisias share, it is also barred by extinctive prescription. The CA while Decision1of the Court of Appeals (CA), in CA-G.R. CV No. 72613, reversing and setting aside the February
condemning Macarios fraudulent act of depriving his three sisters of their shares in Dionisias share, 19, 2001 Decision2 of the Regional Trial Court, Branch 1, Isabela, Basi Ian (RTC), in Civil Case No. 685-627,
equally emphasized the fact that Macarios sisters wasted their opportunity to question his acts. an action for "Recovery of Possession and Ownership with Preliminary Injunction."

WHEREFORE, we DENY the petition for review on certiorari for lack of merit and AFFIRM the assailed The Facts
Decision dated April 28, 2008 and Resolution dated July 22, 2008 of the Court of Appeals in CA-G.R.
CV No. 87480. Respondent Jose Alegarbes (Alegarbes) filed Homestead Application No. V-33203 (E-V-49150) for a 24-
hectare tract of unsurveyed land situated in Baas, Lantawan, Basilan in 1949. His application was approved
No pronouncement as to costs. on January 23, 1952.3 In 1955, however, the land was subdivided into three (3) lots Lot Nos. 138,139 and
140, Pls-19 - as a consequence of a public land subdivision. Lot 139 was allocated to Ulpiano
SO ORDERED. Custodio (Custodio), who filed Homestead Application No. 18-4493 (E-18-2958). Lot 140 was allocated to
petitioner Jesus Virtucio (Virtucio), who filed Homestead Application No. 18-4421 (E-18-2924).4

Alegarbes opposed the homestead applications filed by Custodio and Virtucio, claiming that his approved
application covered the whole area, including Lot Nos. 139 and 140.5

On October 30, 1961, the Director of Lands rendered a decision denying Alegarbes' protest and amending the
latter's application to exclude Lots 139 and 140. Only Lot 138 was given due course. The applications of
Custodio and Virtucio for Lots 139 and 140, respectively, were likewise given due course. 6

Alegarbes then appealed to the Secretary of Agriculture and Natural Resources, who dismissed his appeal on
July 28, 1967. He then sought relief from the Office of the President (OP), which, however, affirmed the
dismissal order of the Secretary of Agriculture and Natural Resources in a decision, dated October 25, 1974.
Alegarbes moved for a reconsideration, but the motion was subsequently denied. 7

On May 11, 1989, an order of execution 8 was issued by the Lands Management Bureau of the Department of
Environment and Natural Resources to enforce the decision of the OP. It ordered Alegarbes and all those
acting in his behalf to vacate the subject lot, but he refused.
On September 26, 1997, Virtucio then filed a complaint 9 for "Recovery of Possession and Ownership with
Preliminary Injunction" before the RTC.
In his Answer,10 Alegarbes claimed that the decision of the Bureau of Lands was void ab initio considering that
the Acting Director of Lands acted without jurisdiction and in violation of the provisions of the Public Land Act.
Alegarbes argued that the said decision conferred no rights and imposed no duties and left the parties in the
same position as they were before its issuance. He further alleged that the patent issued in favor of Virtucio
was procured through fraud and deceit, thus, void ab initio.
Alegarbes further argued, by way of special and/or affirmative defenses, that the approval of his homestead
application on January 23, 1952 by the Bureau of Lands had already attained finality and could not be
reversed, modified or set aside. His possession of Lot Nos. 138, 139 and 140 had been open, continuous,
peaceful and uninterrupted in the concept of an owner for more than 30 years and had acquired such lots by
acquisitive prescription.
In his Amended and Supplemental Answer,11 Alegarbes also averred that his now deceased brother, Alejandro
Alegarbes, and the latter's family helped him develop Lot 140 in 1955. Alejandro and his family, as well as
Alegarbes' wife and children, had been permanently occupying the said lot and, introducing permanent
improvements thereon since 1960.
The RTC Ruling
The RTC rendered its decision on February 19, 2001, favoring Virtucio. The decretal portion of which reads:
WHEREFORE, upon the merit of this case, this court finds for the plaintiff and against the defendant by:
1. Ordering the defendant and all those acting in his behalf to vacate Lot No. 140, Pls-19, located at Lower
Baas, Lantawan, Basilan and surrender the possession and ownership thereof to plaintiff;
2. Ordering the defendant to pay the plaintiff the amount of Fifteen Thousand Pesos (P 15,000.00) as
attorney's fees and another Ten Thousand Pesos (P 10,000.00) as expenses for litigation; and
3. To pay the cost of the suit in the amount of Five Hundred Pesos (500.00).
SO ORDERED.12
Not in conformity, Alegarbes appealed his case before the CA.
The CA Ruling
On February 25, 2009, the CA promulgated its decision declaring Alegarbes as the owner of Lot No. 140, Pls-
19, thereby reversing and setting aside the decision of the RTC. The CA ruled that Alegarbes became ipso
jure owner of Lot 140 and, therefore, entitled to retain possession of it.
Consequently, the awards of attorney's fees, litigation expenses and costs of suit were deleted.
In so ruling, the CA explained that even if the decision to approve Virtucio's homestead application over Lot
140 had become final, Alegarbes could still acquire the said lot by acquisitive prescription. The decisions on
the issues of the approval of Virtucio's homestead application and its validity were impertinent as Alegarbes
had earlier put in issue the matter of ownership of Lot 140 which he claimed by virtue of adverse possession.
The CA also found reversible error on the part of the RTC in disregarding the evidence before it and relying
entirely upon the decisions of the administrative bodies, none of which touched upon the issue of Alegarbes'
open, continuous and exclusive possession of over thirty (30) years of an alienable land. The CA held that the
Director of Lands, the Secretary of Agriculture and Natural Resources and the OP did not determine whether
Alegarbes' possession of the subject property had ipso jure segregated Lot 140 from the mass of public land
and, thus, was beyond their jurisdiction.
Aggrieved, Virtucio filed this petition.
ISSUES
Virtucio assigned the following errors in seeking the reversal of the assailed decision of the CA, to wit:
1. The Court of Appeals erred in setting aside the judgment of the trial court, which awarded the lot in
question to the respondent by virtue of acquisitive prescription and ordered herein petitioner to
surrender the ownership and possession of the same to them. 13
2. The Court of Appeals gravely erred in disregarding the decision in CA-G.R. CV-26286 for Recovery
of Possession and Ownership, Custodio vs. Alegarbes which contains same factual circumstances as
in this case and ruled against JOSE ALEGARBES.14
3. The Court of Appeals erred in deleting the award of attorney's fees to the petitioner.15
The lone issue in this case is whether or not Alegarbes acquired ownership over the subject property by
acquisitive prescription.
Ruling of the Court
The petition must fail.
Indeed, it is fundamental that questions of fact are not reviewable in petitions for review on certiorari under
Rule 45 of the Rules of Court. Only questions of law distinctly set forth shall be raised in the petition. 16
Here, the main issue is the alleged acquisition of ownership by Alegarbes through acquisitive prescription and
the character and length of possession of a party over a parcel of land subject of controversy is a factual
issue.17 The Court, however, is not precluded from reviewing facts when the case falls within the recognized
exceptions, to wit:
(a) When the findings are grounded entirely on speculation, surmises, or conjectures;
(b) When the inference made is manifestly mistaken, absurd, or impossible;
(c) When there is grave abuse of discretion;
(d) When the judgment is based on a misapprehension of facts;
(e) When the findings of facts are conflicting;
(f) When in making its findings the CA went beyond the issues of the case, or its findings are contrary to the
admissions of both the appellant and the appellee;
(g) When the CAs findings are contrary to those by the trial court;
(h) When the findings are conclusions without citation of specific evidence on which they are based;
(i) When the facts set forth in the petition as well as in the petitioners main and reply briefs are not disputed
by the respondent;
(j) When the findings of fact are premised on the supposed absence of evidence and contradicted by the
evidence on record; or
(k) When the CA manifestly overlooked certain relevant facts not disputed by the parties, which, if properly
considered, would justify a different conclusion.18 [Emphasis supplied]
In the case at bench, the findings and conclusions of the CA are apparently contrary to those of the RTC,
hence, the need to review the facts in order to arrive at the proper conclusion.
On Acquisitive Prescription
Virtucio insists that the period of acquisitive prescription was interrupted on October 30, 1961 (or in 1954
when Alegarbes filed the protest) when the Director of Lands rendered a decision giving due course to his
homestead application and that of Ulpiano Custodio. Virtucio further claims that since 1954, several
extrajudicial demands were also made upon Alegarbes demanding that he vacate said lot. Those demands
constitute the "extrajudicial demand" contemplated in Article 1155, thus, tolling the period of acquisitive
prescription.19
Article 1106 of the New Civil Code, in relation to its Article 712, provides that prescription is a mode of
acquiring ownership through the lapse of time in the manner and under the conditions laid down by law. Under
the same law, it states that acquisitive prescription may either be ordinary or extraordinary. 20 Ordinary
acquisitive prescription requires possession of things in good faith and with just title for a period of ten
years,21 while extraordinary acquisitive prescription requires uninterrupted adverse possession of thirty years,
without need of title or of good faith.22
There are two kinds of prescription provided in the Civil Code. One is acquisitive, that is, the acquisition of a
right by the lapse of time as expounded in par. 1, Article 1106. Other names for acquisitive prescription are
adverse possession and usucapcion. The other kind is extinctive prescription whereby rights and actions are
lost by the lapse of time as defined in Article 1106 and par. 2, Article 1139. Another name for extinctive
prescription is litigation of action.23 These two kinds of prescription should not be interchanged.
Article 1155 of the New Civil Code refers to the interruption of prescription of actions. Interruption of
acquisitive prescription, on the other hand, is found in Articles 1120-1125 of the same Code. Thus, Virtucios
reliance on Article 1155 for purposes of tolling the period of acquisitive prescription is misplaced. The only
kinds of interruption that effectively toll the period of acquisitive prescription are natural and civil interruption. 24
Civil interruption takes place with the service of judicial summons to the possessor. 25 When no action is filed,
then there is no occasion to issue a judicial summons against the respondents. The period of acquisitive
prescription continues to run.
In this case, Virtucio claims that the protest filed by Alegarbes against his homestead application interrupted
the thirty (30)-year period of acquisitive prescription. The law, as well as jurisprudence, however, dictates that
only a judicial summons can effectively toll the said period.
In the case of Heirs of Marcelina Azardon-Crisologo v. Raon,26 the Court ruled that a mere Notice of Adverse
Claim did not constitute an effective interruption of possession. In the case of Heirs of Bienvenido and Araceli
Tanyag v. Gabriel,27 which also cited the Raon Case, the Court stated that the acts of declaring again the
property for tax purposes and obtaining a Torrens certificate of title in one's name cannot defeat another's right
of ownership acquired through acquisitive prescription.28
In the same vein, a protest filed before an administrative agency and even the decision resulting from it
cannot effectively toll the running of the period of acquisitive prescription. In such an instance, no civil
interruption can take place. Only in cases filed before the courts may judicial summons be issued and, thus,
interrupt possession. Records show that it was only in 1997 when Virtucio filed a case before the RTC. The
CA was, therefore, correct in ruling that Alegarbesbecame ipso jure owner of Lot 140 entitling him to retain
possession of it because he was in open, continuous and exclusive possession for over thirty (30) years of
alienable public land.Virtucio emphasizes that the CA erred in disregarding the decisions of the administrative
agencies which amended Alegarbes' homestead application excluding Lot 140 and gave due course to his
own application for the said lot, which decisions were affirmed by the RTC.
Well-settled is the rule that factual findings of the lower courts are entitled to great weight and respect on
appeal and, in fact, are accorded finality when supported by substantial evidence on the record. 29 It appears,
however, that the conclusion made by the RTC was not substantially supported. Even the RTC itself noted in
its decision:
The approval of a Homestead Application merely authorizes the applicant to take possession of the land so
that he could comply with the requirements prescribed by law before a final patent could be issued in his favor
what divests the government of title to the land is the issuance of a patent and its subsequent registration
with the Register of Deeds.30
A perusal of the records would reveal that there was no issuance of any patent in favor of either parties. This
simply means that the land subject of the controversy remains to be in the name of the State. Hence, neither
Virtucio nor Alegarbes can claim ownership. There was, therefore, no substantial and legal basis for the RTC
to declare that Virtucio was entitled to possession and ownership of Lot 140.
It can be argued that the lower court had the decisions of the administrative agencies, which ultimately
attained finality, as legal bases in ruling that Virtucio had the right of possession and ownership. In fact, the
Department of Environment and Natural Resources (DENR) even issued the Order of Execution 31 on May 11,
1989 ordering Alegarbes to vacate Lot 140 and place Virtucio in peaceful possession of it. The CA, however,
was correct in finding that:
But appellant had earlier put in issue the matter of ownership of Lot 140 which he claims by virtue of adverse
possession. On this issue, the cited decisions are impertinent. Even if the decision to approve appellee's
homestead application over Lot 140 had become final, appellant could still acquire the said lot by acquisitive
prescription.32
In the case of Heirs of Gamos v. Heirs of Frando, 33 the Court ruled that the mere application for a patent,
coupled with the fact of exclusive, open, continuous and notorious possession for the required period, is
sufficient to vest in the applicant the grant applied for.34 It likewise cited the cases of Susi v. Razon35 and
Pineda v. CA,36 where the Court ruled that the possession of a parcel of agricultural land of the public domain
for the prescribed period of 30 years ipso jure converts the lot into private property.37
In this case, Alegarbes had applied for homestead patent as early as 1949. He had been in exclusive, open,
continuous and notorious possession of Lot 140 for at least 30 years. By the time the DENR issued its order
of execution in 1989, Alegarbes had Lot 140 in his possession for more than 30 years. Even more so when
Virtucio filed the complaint before the RTC in 1997, Alegarbes was already in possession of the subject
property for forty-eight (48) years.
The CA correctly observed that the RTC erred in disregarding the evidence before it and relying entirely upon
the decisions of the Director of Lands, the Secretary of Agriculture and Natural Resources and the OP, which
never touched the issue of whether Alegarbes open, continuous and exclusive possession of over thirty (30)
years of alienable land had ipso jure segregated Lot 140 from the mass of public land and beyond the
jurisdiction of these agencies.38
When the CA ruled that the RTC was correct in relying on the abovementioned decisions, it merely recognized
the primary jurisdiction of these administrative agencies. It was of the view that the RTC was not correct in the
other aspects of the case. Thus, it declared Alegarbes as owner ipso jure of Lot 140 and entitled to retain
possession of it. There is no reason for the Court to disturb these findings of the CA as they were supported
by substantial evidence, hence, are conclusive and binding upon this Court. 39
On the CA Decision involving a similar case
Virtucio insists that the CA gravely erred in disregarding its decision in Custodio v. Alegarbes, CA-G.R. CV
26286, for Recovery of Possession and Ownership, which involved the same factual circumstances and ruled
against Alegarbes.
It must be noted that the subject property in the said case was Lot 139 allocated to Custodio and that Virtucio
was not a party to that case. The latter cannot enjoy whatever benefits said favorable judgment may have had
just because it involved similar factual circumstances. The Court also found from the records that the period of
acquisitive prescription in that case was effectively interrupted by Custodio's filing of a complaint, which is
wanting in this case.
Moreover, it is settled that a decision of the CA does not establish judicial precedent. 40 "The principle of stare
decisis enjoins adherence by lower courts to doctrinal rules established by this Court in its final decisions. It
is based on the principle that once a question of law has been examined and decided, it should be deemed
settled and closed to further argument. "41
The Court agrees with the position of Alegarbes that by Virtucio's insistence that it was erroneous for the CA
to disregard its earlier decision in CA-G.R. CV 26286, he, in effect, calls upon this Court to adhere to that
decision by invoking the stare decisis principle, which is not legally possible because only final decisions of
this Court are considered precedents.42
In view of the foregoing, the Court need not dwell on the complaint of Virtucio with regard to the deletion of the
award of attorney's fees in his favor. It is ludicrous for the CA to order Alegarbes to pay attorney's fees, as a
measure of damages, and costs, after finding him to have acquired ownership over the property by acquisitive
prescription.
WHEREFORE, the petition is DENIED.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
G.R. No. 159508 August 29, 2012
JUAN B. BANEZ, JR., Petitioner,
vs.
HON. CRISANTO C. CONCEPCION, IN HIS CAPACITY AS THE PRESIDING JUDGE OF THE RTC-
BULACAN, MALOLOS CITY, AND THE ESTATE OF THE LATE RODRIGO GOMEZ, REPRESENTED
BY ITS ADMINISTRATRIX, TSUI YUK YING, Respondents.
DECISION
BERSAMIN, J.:
The petitioner has directly come to the Court via petition for certiorari1 filed on September 4, 2003 to
assail the orders dated March 24, 2003 (reversing an earlier order issued on February 18, 2003
granting his motion to dismiss on the ground of the action being already barred by prescription, and
reinstating the action),2 April 21, 2003 (denying his motion for reconsideration), 3and August 19, 2003
(denying his second motion for reconsideration and ordering him to file his answer within 10 days from
notice despite the principal defendant not having been yet validly served with summons and copy of the
complaint),4 all issued by the Regional Trial Court (RTC), Branch 12, in Malolos City in Civil Case No.
722-M-2002,5 an action for the recovery of ownership and possession. He alleges that respondent
Presiding Judge thereby acted with grave abuse of discretion amounting to lack or excess of
jurisdiction.
Antecedents
The present controversy started almost four decades ago when Leodegario B. Ramos (Ramos), one of
the defendants in Civil Case No. 722-M-2002, discovered that a parcel of land with an area of 1,233
square meters, more or less, which was a portion of a bigger tract of land with an area of 3,054 square
meters, more or less, located in Meycauayan, Bulacan that he had adjudicated solely to himself upon
his mothers death on November 16, 1982 had been earlier transferred by his mother to one Ricardo
Asuncion, who had, in turn, sold it to the late Rodrigo Gomez.
On February 1, 1990, Ramos, alleging that Gomez had induced him to sell the 1,233 square meters to
Gomez on the understanding that Gomez would settle Ramos obligation to three other persons,
commenced in the RTC in Valenzuela an action against Gomez, also known as Domingo Ng Lim,
seeking the rescission of their contract of sale and the payment of damages, docketed as Civil Case
No. 3287-V-90 entitled Leodegario B. Ramos v. Rodrigo Gomez, a.k.a. Domingo Ng Lim.6
On October 9, 1990, before the Valenzuela RTC could decide Civil Case No. 3287-V-90 on the merits,
Ramos and Gomez entered into a compromise agreement.7 The RTC approved their compromise
agreement through its decision rendered on the same date.8
The petitioner, being then the counsel of Ramos in Civil Case No. 3287-V-90, assisted Ramos in
entering into the compromise agreement "to finally terminate this case." The terms and conditions of the
compromise agreement were as follows:
COME NOW, the Parties, assisted by their respective counsels, and before this Honorable Court, most
respectfully submit this COMPROMISE AGREEMENT for approval, as to finally terminate this case, the
terms and conditions of which being as follows:
1. That out of the total area of Three Thousand and Fifty Four (3,054) sq. m., more or less,
covered by formerly O.C.T. No. P-2492 (M), Registry of Deeds of Bulacan, known as Lot No.
6821, Cad-337 Lot 4020-E, Csd-04-001618-D, and now by the Reconstituted Transfer
Certificate of Title No. T-10179-P (M) defendant shall cause survey of said property, at its own
expense, to segregate the area of One Thousand Two Hundred Thirty-Three, (1,233) sq. m.
more or less, to take along lines two (2) to three (3), then to four (4) and up to five (5) of said
plan, Csd-04-001618-D;
2. That upon completion of the technical survey and plan, defendant shall cause the
registration of the Deed of Absolute Sale executed by plaintiff over the 1,233 sq. m. in his favor
and that defendant shall deliver the survey and plan pertaining to the 1,821 sq, m. to the
plaintiff with both parties defraying the cost of registration and titling over their respective
shares;
3. That to carry out the foregoing, plaintiff shall entrust the Owners Duplicate of said TCT No.
T-10179-P (M), Registry of Deeds of Meycauayan, Bulacan, to the defendant, upon approval of
this COMPROMISE AGREEMENT by the Court;
4. That upon the approval of this Compromise Agreement plaintiff shall execute a Deed of
Absolute Sale in favor of defendant over the 1,233 sq. m. surveyed and segregated from the
1,821 sq. m. which should remain with the plaintiff and to be titled in his name;
5. That plaintiff obligates himself to return his loan obligation to the defendant, in the principal
sum of P 80,000.00 plus P 20,000.00 for the use thereof, and an additional sum of P 10,000.00
in the concept of attorneys fees, which sums shall be guaranteed by a post-dated check, in
the amount of P 110,000.00 in plaintiffs name with his prior endorsement, drawn and issued by
plaintiffs counsel, for a period of Sixty (60) days from October 9, 1990;
6. That in the event the check issued pursuant to paragraph 5 hereof, is dishonored for any
reason whatsoever, upon presentment for payment, then this Compromise Agreement, shall be
considered null and void and of no effect whatsoever;
7. That upon faithful compliance with the terms and conditions of this COMPROMISE
AGREEMENT and the Decision based thereon, the parties hereto shall have respectively
waived, conceded and abandoned all claims and rights of action of whatever kind or nature,
against each other over the subject property.
WHEREFORE, premises considered, the parties hereto hereby jointly and severally pray before this
Honorable Court to approve this COMPROMISE AGREEMENT and thereupon render its Decision
based thereon terminating the case.
One of the stipulations of the compromise agreement was for Ramos to execute a deed of absolute sale
in favor of Gomez respecting the parcel of land with an area of 1,233 square meters, and covered by
Transfer Certificate of Title (TCT) No. T-13005 P(M) in the name of Ramos. 9 Another stipulation was for
the petitioner to issue post-dated checks totaling P 110,000.00 to guarantee the payment by Ramos of
his monetary obligations towards Gomez as stated in the compromise agreement broken down as
follows: (a) P 80,000.00 as Ramos loan obligation to Gomez; (b) P 20,000.00 for the use of the loan;
and (c) P 10,000.00 as attorneys fees. Of these amounts, only P 80,000.00 was ultimately paid to
Gomez, because the petitioners check dated April 23, 1991 for the balance of P 30,000.00 was
dishonored for insufficiency of funds.
Gomez meanwhile died on November 7, 1990. He was survived by his wife Tsui Yuk Ying and their
minor children (collectively to be referred to as the Estate of Gomez). The Estate of Gomez sued
Ramos and the petitioner for specific performance in the RTC in Caloocan City to recover the balance
of P 30,000.00 (Civil Case No. C-15750). On February 28, 1994, however, Civil Case No. C-15750 was
amicably settled through a compromise agreement, whereby the petitioner directly bound himself to pay
to the Estate of Gomez P 10,000.00 on or before March 15, 1994; P 10,000.00 on or before April 15,
1994; and P 10,000.00 on or before May 15, 1994.
The Estate of Gomez performed the obligations of Gomez under the first paragraph of the compromise
agreement of October 9, 1990 by causing the survey of the bigger tract of land containing an area of
3,054 square meters, more or less, in order to segregate the area of 1,233 square meters that should
be transferred by Ramos to Gomez in accordance with Ramos undertaking under the second
paragraph of the compromise agreement of October 9, 1990. But Ramos failed to cause the registration
of the deed of absolute sale pursuant to the second paragraph of the compromise agreement of
October 9, 1990 despite the Estate of Gomez having already complied with Gomezs undertaking to
deliver the approved survey plan and to shoulder the expenses for that purpose. Nor did Ramos deliver
to the Estate of Gomez the owners duplicate copy of TCT No. T-10179 P(M) of the Registry of Deeds of
Meycauayan, Bulacan, as stipulated under the third paragraph of the compromise agreement of
October 9, 1990. Instead, Ramos and the petitioner caused to be registered the 1,233 square meter
portion in Ramoss name under TCT No. T-13005-P(M) of the Registry of Deeds of Meycauayan,
Bulacan.
Accordingly, on July 6, 1995, the Estate of Gomez brought a complaint for specific performance against
Ramos and the petitioner in the RTC in Valenzuela (Civil Case No. 4679-V-95) 10 in order to recover the
1,233 square meter lot. However, the Valenzuela RTC dismissed the complaint on April 1, 1996 upon
the motion of Ramos and the petitioner on the ground of improper venue because the objective was to
recover the ownership and possession of realty situated in Meycauayan, Bulacan, and because the
proper recourse was to enforce the judgment by compromise Agreement rendered on October 9, 1990
through a motion for execution.
The Estate of Gomez appealed the order of dismissal to the Court of Appeals (CA), which ruled on July
24, 2001 to affirm the Valenzuela RTC and to dismiss the appeal (CA-G.R. CV No. 54231).
On September 20, 2002, the Estate of Gomez commenced Civil Case No. 722-M-2002 in the
Valenzuela RTC, ostensibly to revive the judgment by compromise rendered on October 9, 1990 in Civil
Case No. 3287-V-90, praying that Ramos be ordered to execute the deed of absolute sale covering the
1,233 square meter lot pursuant to the fourth stipulation of the compromise agreement of October 9,
1990. The petitioner was impleaded as a party-defendant because of his having guaranteed the
performance by Ramos of his obligation and for having actively participated in the transaction.
On January 8, 2003, the petitioner moved for the dismissal of Civil Case No. 722-M-2002, alleging that
the action was already barred by res judicata and by prescription; that he was not a real party-in-
interest; and that the amount he had guaranteed with his personal check had already been paid by
Ramos with his own money.11
Initially, on February 18, 2003,12 the RTC granted the petitioners motion to dismiss, finding that the right
of action had already prescribed due to more than 12 years having elapsed from the approval of the
compromise agreement on October 9, 1990, citing Article 1143 (3) of the Civil Code (which provides a
10-year period within which a right of action based upon a judgment must be brought from).
On March 24, 2003,13 however, the RTC reversed itself upon motion of the Estate of Gomez and set
aside its order of February 18, 2003. The RTC reinstated Civil Case No. 722-M-2002, holding that the
filing of the complaint for specific performance on July 6, 1995 in the Valenzuela RTC (Civil Case No.
4679-V-95) had interrupted the prescriptive period pursuant to Article 1155 of the Civil Code.
The petitioner sought reconsideration, but the RTC denied his motion for that purpose on April 21, 2003.
On May 12, 2003, the petitioner filed a second motion for reconsideration, maintaining that the Estate of
Gomezs right of action had already prescribed; and that the judgment by compromise of October 9,
1990 had already settled the entire controversy between the parties.
On August 19, 2003,14 the RTC denied the second motion for reconsideration for lack of merit.
Hence, this special civil action for certiorari commenced on September 4, 2003 directly in this Court.
Issues
The petitioner insists that:
xxx the lower court acted with grave abuse of discretion, amounting to lack of, or in excess of
jurisdiction, when, after having correctly ordered the dismissal of the case below, on the ground of
prescription under Art. 1144, par. 3, of the Civil Code, it reconsidered and set aside the same, on the
factually baseless and legally untenable Motion for Reconsideration of Private Respondent, insisting,
with grave abuse of discretion, if not bordering on ignorance of law, and too afraid to face reality, that it
is Art. 1155 of the same code, as invoked by Private Respondents, that applies, and required herein
petitioner to file his answer, despite petitioners first Motion for Reconsideration, which it treated as a
mere scrap of paper, yet, at the same [sic] again it insisted that Article 1155 of the Civil Code should
apply, and, thereafter when, with like, if not greater grave abuse of discretion, amounting to lack, or in
excess of jurisdiction, it again denied petitioners Second Motion for Reconsideration for lack of merit,
and giving petitioner a non-extendible period of ten 10 days from notice, to file his answer.15
In his reply to the Estate of Gomezs comment,16 the petitioner elucidated as follows:
1) Whether or not, the Honorable public respondent Judge gravely abused his discretion, amounting to
lack of, or in excess of jurisdiction, when, after ordered the dismissal of Civil Case No. 722-M-2002, as
prescription has set in, under Art. 1143 of the Civil Code, he set aside and reconsidered his said Order,
on motion of plaintiff, by thereafter denied petitioners Motion for Reconsideration, and Second Motion
for Reconsideration, insisting, despite his being presumed to know the law, that the said action is not
barred by prescription, under Art. 1145 of the Civil Code;
2) Whether or not, the present pending action, Civil Case No. 722-M-2002, before Branch 12 of the
Regional Trial Court of Malolos, Bulacan, is barred, and should be ordered be dismissed, on the ground
of prescription, under the law and the rules, and applicable jurisprudence.
3) Whether or not, the same action may be dismissed on other valid grounds.17
The petitioner submits that Civil Case No. 722-M-2002 was one for the revival of the judgment upon a
compromise agreement rendered in Civil Case No. 3287-V-90 that attained finality on October 9, 1990;
that considering that an action for revival must be filed within 10 years from the date of finality, pursuant
to Article 1144 of the Civil Code, 18in relation to Section 6, Rule 39 of the Rules of Court, 19 Civil Case No.
722-M-2002 was already barred by prescription, having been filed beyond the 10-year prescriptive
period; that the RTC gravely abused its discretion in reinstating the complaint despite prescription
having already set in; that the dismissal of Civil Case No. 722-M-2002 was proper also because the
judgment had already been fully satisfied; that the claim relative to the 1,233 square meter lot under the
compromise agreement had been waived, abandoned, or otherwise extinguished on account of the
failure of the Estate of Gomezs counsel to move for the issuance of a writ of execution; and that the
Estate of Gomez could not rely upon the pendency and effects of the appeal from the action for specific
performance after its dismissal had been affirmed by the CA on grounds of improper venue, the
plaintiffs lack of personality, and improper remedy (due to the proper remedy being by execution of the
judgment).
The Estate of Gomez countered that the filing on July 6, 1995 of the action for specific performance in
the RTC in Valenzuela stopped the running of the prescriptive period; that the period commenced to run
again after the CA dismissed that action on July 24, 2001; that the total elapsed period was only five
years and 11 months; and that the action for the revival of judgment filed on September 20, 2002 was
within the period of 10 years to enforce a final and executory judgment by action.
Ruling
We dismiss the petition for certiorari.
The orders that the petitioner seeks to challenge and to annul are the orders denying his motion to
dismiss. It is settled, however, that an order denying a motion to dismiss, being merely interlocutory,
cannot be the basis of a petition for certiorari. An interlocutory order is not the proper subject of
a certiorari challenge by virtue of its not terminating the proceedings in which it is issued. To allow such
order to be the subject of review by certiorari not only delays the administration of justice, but also
unduly burdens the courts.20
But a petition for certiorari may be filed to assail an interlocutory order if it is issued without jurisdiction,
or with excess of jurisdiction, or in grave abuse of discretion amounting to lack or excess of jurisdiction.
This is because as to such order there is no appeal, or any plain, speedy, and adequate remedy in the
ordinary course of law. Rule 65 of the Rules of Court expressly recognizes the exception by providing
as follows:
Section 1. Petition for certiorari. When any tribunal, board or officer exercising judicial or quasi-
judicial functions has acted without or in excess of its or his 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, a person aggrieved thereby may file a verified petition in
the proper court, alleging the facts with certainty and praying that judgment be rendered annulling or
modifying the proceedings of such tribunal, board or officer, and granting such incidental reliefs as law
and justice may require.
The petition shall be accompanied by a certified true copy of the judgment, order or resolution subject
thereof, copies of all pleadings and documents relevant and pertinent thereto, and a sworn certification
of non-forum shopping as provided in the third paragraph of section 3, Rule 46. (1a)
The exception does not apply to this challenge. The petitioner has not demonstrated how the assailed
orders could have been issued without jurisdiction, or with excess of jurisdiction, or in grave abuse of
discretion amounting to lack or excess of jurisdiction. Nor has he convinced us that he had no plain,
speedy, and adequate remedy in the ordinary course of law. In fact and in law, he has, like filing his
answer and going to pre-trial and trial. In the end, should he still have the need to seek the review of the
decision of the RTC, he could also even appeal the denial of the motion to dismiss. That, in reality, was
his proper remedy in the ordinary course of law.
Yet another reason to dismiss the petition for certiorari exists. Although the Court, the CA and the RTC
have concurrence of jurisdiction to issue writs of certiorari, the petitioner had no unrestrained freedom to
choose which among the several courts might his petition for certiorari be filed in. In other words, he
must observe the hierarchy of courts, the policy in relation to which has been explicitly defined in
Section 4 of Rule 65 concerning the petitions for the extraordinary writs of certiorari, prohibition and
mandamus, to wit:
Section 4. When and where petition filed. - The petition shall be filed not later than sixty (60) days from
notice of the judgment, order or resolution. In case a motion for reconsideration or new trial is timely
filed, whether such motion is required or not, the sixty (60) day period shall be counted from notice of
the denial of the said motion.
The petition shall be filed in the Supreme Court or, if it relates to the acts or omissions of a lower court
or of a corporation, board, officer or person, in the Regional Trial Court exercising jurisdiction over the
territorial area as defined by the Supreme Court. It may also be filed in the Court of Appeals whether or
not the same is in the aid of its appellate jurisdiction, or in the Sandiganbayan if it is in aid of its
appellate jurisdiction. If it involves the acts or omissions of a quasi-judicial agency, unless otherwise
provided by law or these rules, the petition shall be filed in and cognizable only by the Court of Appeals.
No extension of time to file the petition shall be granted except for compelling reason and in no case
exceeding fifteen (15) days. (4a)21 (Emphasis supplied)
Accordingly, his direct filing of the petition for certiorari in this Court instead of in the CA should be
disallowed considering that he did not present in the petition any special and compelling reasons to
support his choice of this Court as the forum.
The Court must enjoin the observance of the policy on the hierarchy of courts, and now affirms that the
policy is not to be ignored without serious consequences. The strictness of the policy is designed to
shield the Court from having to deal with causes that are also well within the competence of the lower
courts, and thus leave time to the Court to deal with the more fundamental and more essential tasks
that the Constitution has assigned to it. The Court may act on petitions for the extraordinary writs
of certiorari, prohibition and mandamus only when absolutely necessary or when serious and important
reasons exist to justify an exception to the policy. This was why the Court stressed in Vergara, Sr. v.
Suelto:22
xxx. The Supreme Court is a court of last resort, and must so remain if it is to satisfactorily perform the
functions assigned to it by the fundamental charter and immemorial tradition. It cannot and should not
be burdened with the task of dealing with causes in the first instance. Its original jurisdiction to issue the
so-called extraordinary writs should be exercised only where absolutely necessary or where serious and
important reasons exist therefor. Hence, that jurisdiction should generally be exercised relative to
actions or proceedings before the Court of Appeals, or before constitutional or other tribunals, bodies or
agencies whose acts for some reason or another are not controllable by the Court of Appeals. Where
the issuance of an extraordinary writ is also within the competence of the Court of Appeals or a
Regional Trial Court, it is in either of these courts that the specific action for the writs procurement must
be presented. This is and should continue to be the policy in this regard, a policy that courts and
lawyers must strictly observe. (Emphasis supplied)
In People v. Cuaresma,23 the Court has also amplified the need for strict adherence to the policy of
hierarchy of courts. There, noting "a growing tendency on the part of litigants and lawyers to have their
applications for the so-called extraordinary writs, and sometimes even their appeals, passed upon and
adjudicated directly and immediately by the highest tribunal of the land," the Court has cautioned
lawyers and litigants against taking a direct resort to the highest tribunal, viz:
xxx. This Courts original jurisdiction to issue writs of certiorari (as well as prohibition, mandamus, quo
warranto, habeas corpus and injunction) is not exclusive. It is shared by this Court with Regional Trial
Courts x x x, which may issue the writ, enforceable in any part of their respective regions. It is also
shared by this Court, and by the Regional Trial Court, with the Court of Appeals x x x, although prior to
the effectivity of Batas Pambansa Bilang 129 on August 14, 1981, the latter's competence to issue the
extraordinary writs was restricted to those "in aid of its appellate jurisdiction." This concurrence of
jurisdiction is not, however, to be taken as according to parties seeking any of the writs an absolute,
unrestrained freedom of choice of the court to which application therefor will be directed. There is after
all a hierarchy of courts. That hierarchy is determinative of the venue of appeals, and should also serve
as a general determinant of the appropriate forum for petitions for the extraordinary writs. A becoming
regard for that judicial hierarchy most certainly indicates that petitions for the issuance of extraordinary
writs against first level ("inferior") courts should be filed with the Regional Trial Court, and those against
the latter, with the Court of Appeals. A direct invocation of the Supreme Court's original jurisdiction to
issue these writs should be allowed only when there are special and important reasons therefor, clearly
and specifically set out in the petition. This is established policy. It is a policy that is necessary to
prevent inordinate demands upon the Courts time and attention which are better devoted to those
matters within its exclusive jurisdiction, and to prevent further over-crowding of the Court's docket.
Indeed, the removal of the restriction on the jurisdiction of the Court of Appeals in this regard, supra
resulting from the deletion of the qualifying phrase, "in aid of its appellate jurisdiction" was evidently
intended precisely to relieve this Court pro tanto of the burden of dealing with applications for the
extraordinary writs which, but for the expansion of the Appellate Court corresponding jurisdiction, would
have had to be filed with it.
xxxx
The Court therefore closes this decision with the declaration for the information and evidence of all
concerned, that it will not only continue to enforce the policy, but will require a more strict observance
thereof. (Emphasis supplied)
There being no special, important or compelling reason that justified the direct filing of the petition
for certiorari in this Court in violation of the policy on hierarchy of courts, its outright dismissal is
unavoidable.
Still, even granting that the petition for certiorari might be directly filed in this Court, its dismissal must
also follow because its consideration and resolution would unavoidably demand the consideration and
evaluation of evidentiary matters. The Court is not a trier of facts, and cannot accept the petition
for certiorari for that reason.
Although commenced ostensibly for the recovery of possession and ownership of real property, Civil
Case No. 722-M-2002 was really an action to revive the judgment by compromise dated October 9,
1990 because the ultimate outcome would be no other than to order the execution of the judgment by
compromise. Indeed, it has been held that "there is no substantial difference between an action
expressly called one for revival of judgment and an action for recovery of property under a right
adjudged under and evidenced by a final judgment."24 In addition, the parties themselves have treated
the complaint in Civil Case No. 722-M-2002 as one for revival. Accordingly, the parties should be fully
heard on their respective claims like in any other independent action.1wphi1
The petitioners defense of prescription to bar Civil Case No. 722-M-2002 presents another evidentiary
concern. Article 1144 of the Civil Code requires, indeed, that an action to revive a judgment must be
brought before it is barred by prescription, which was ten years from the accrual of the right of
action.25 It is clear, however, that such a defense could not be determined in the hearing of the
petitioners motion to dismiss considering that the complaint did not show on its face that the period to
bring the action to revive had already lapsed. An allegation of prescription, as the Court put it in Pineda
v. Heirs of Eliseo Guevara,26 "can effectively be used in a motion to dismiss only when the complaint on
its face shows that indeed the action has already prescribed, [o]therwise, the issue of prescription is one
involving evidentiary matters requiring a full blown trial on the merits and cannot be determined in a
mere motion to dismiss."
At any rate, the mere lapse of the period per se did not render the judgment stale within the context of
the law on prescription, for events that effectively suspended the running of the period of limitation might
have intervened. In other words, the Estate of Gomez was not precluded from showing such events, if
any. The Court recognized this possibility of suspension in Lancita v. Magbanua:27
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.
Verily, the need to prove the existence or non-existence of significant matters, like supervening events,
in order to show either that Civil Case No. 722-M-2002 was batTed by prescription or not was present
and undeniable. Moreover, the petitioner himself raised factual issues in his motion to dismiss, like his
averment of full payment or discharge of the obligation of Ramos and the waiver or abandonment of
rights under the compromise agreement. The proof thereon cannot be received in certiorari proceedings
before the Court, but should be established in the RTC.
WHEREFORE, the Court DISMISSES the petition for certiorari; and DIRECTS the petitioner to pay the
cost of suit.
SO ORDERED
Republic of the Philippines
SUPREME COURT
Manila
G.R. No. 171514 July 18, 2012
REPUBLIC OF THE PHILIPPINES, Petitioner,
vs.
DOMINGO ESPINOSA, Respondent.
DECISION
REYES, J.:
This is a petition for review on certiorari from the Decision 1 dated November 11, 2004 and Resolution2 dated
February 13, 2006 of the Court of Appeals in CA-G.R. CV No. 72456.
On March 3, 1999, respondent Domingo Espinosa (Espinosa) tiled with the Municipal Trial Court (MTC) of
Consolacion, Cebu an application3 for land registration covering a parcel of land with an area of 5,525 square meters
and situated in Barangay Cabangahan, Consolacion, Cebu. In support of his application, which was docketed as
LRC Case No. N-81, Espinosa alleged that: (a) the property, which is more particularly known as Lot No. 8499 of
Cad. 545-D (New), is alienable and disposable; (b) he purchased the property from his mother, Isabel Espinosa
(Isabel), on July 4, 1970 and the latters other heirs had waived their rights thereto; and (c) he and his predecessor-
in-interest had been in possession of the property in the concept of an owner for more than thirty (30) years.
Espinosa submitted the blueprint of Advanced Survey Plan 07-000893 4 to prove the identity of the land. As proof that
the property is alienable and disposable, he marked as evidence the annotation on the advance survey plan made
by Cynthia L. Ibaez, Chief of the Map Projection Section, stating that "CONFORMED PER L.C. MAP NOTATION
L.C. Map No. 2545 Project No. 28 certified on June 25, 1963, verified to be within Alienable & Disposable
Area".5 Espinosa also presented two (2) tax declarations for the years 1965 and 1974 in Isabels name Tax
Declaration Nos. 013516 and 06137 to prove that she had been in possession of the property since 1965. To
support his claim that he had been religiously paying the taxes due on the property, Espinosa presented a
Certification6 dated December 1, 1998 issued by the Office of the Treasurer of Consolacion, Cebu and three (3) tax
declarations for the years 1978, 1980 and 1985 Tax Declaration Nos. 14010, 17681 and 010717.8
Petitioner opposed Espinosas application, claiming that: (a) Section 48(b) of Commonwealth Act No. 141 otherwise
known as the "Public Land Act" (PLA) had not been complied with as Espinosas predecessor-in-interest possessed
the property only after June 12, 1945; and (b) the tax declarations do not prove that his possession and that of his
predecessor-in-interest are in the character and for the length of time required by law.
On August 18, 2000, the MTC rendered a Judgment 9 granting Espinosas petition for registration, the dispositive
portion of which states:
WHEREFORE, and in view of all the foregoing, judgment is hereby rendered ordering for the registration and the
confirmation of title of Espinosa over Lot No. 8499, Cad 545-D (New), situated at Barangay Cabangahan,
Consolacion, Cebu, Philippines, containing an area of 5,525 square meters and that upon the finality of this decision,
let a corresponding decree of registration be issued in favor of the herein applicant in accordance with Section 39,
P.D. 1529.
SO ORDERED.10
According to the MTC, Espinosa was able to prove that the property is alienable and disposable and that he
complied with the requirements of Section 14(1) of Presidential Decree (P.D.) No. 1529. Specifically:
After a careful consideration of the evidence presented in the above-entitled case, the Court is convinced, and so
holds, that Espinosa was able to establish his ownership and possession over the subject lot which is within the area
considered by the Department of Environment and Natural Resources (DENR) as alienable and disposable land of
the public domain.
The Court is likewise convinced that the applicant and that of predecessor-in-interest have been in open, actual,
public, continuous, adverse and under claim of title thereto within the time prescribed by law (Sec. 14, sub-par. 1,
P.D. 1529) and/or in accordance with the Land Registration Act.11
Petitioner appealed to the CA and pointed Espinosas failure to prove that his possession and that of his
predecessor-in-interest were for the period required by law. As shown by Tax Declaration No. 013516, Isabels
possession commenced only in 1965 and not on June 12, 1945 or earlier as required by Section 48(b) of the PLA.
On the other hand, Espinosa came into possession of the property only in 1970 following the sale that transpired
between him and his mother and the earliest tax declaration in his name was for the year 1978. According to
petitioner, that Espinosa and his predecessor-in-interest were supposedly in possession for more than thirty (30)
years is inconsequential absent proof that such possession began on June 12, 1945 or earlier.12
Petitioner also claimed that Espinosas failure to present the original tracing cloth of the survey plan or a sepia copy
thereof is fatal to his application. Citing Del Rosario v. Republic of the Philippines 13 and Director of Lands v. Judge
Reyes,14 petitioner argued that the submission of the original tracing cloth is mandatory in establishing the identity of
the land subject of the application.15
Further, petitioner claimed that the annotation on the advance survey plan is not the evidence admissible to prove
that the subject land is alienable and disposable.16
By way of the assailed decision, the CA dismissed petitioners appeal and affirmed the MTC Decision dated August
18, 2000. The CA ruled that possession for at least thirty (30) years, despite the fact that it commenced after June
12, 1945, sufficed to convert the property to private. Thus:
The contention of petitioner is not meritorious on the following grounds:
a) The record of the case will show that Espinosa has successfully established valid title over the subject land and
that he and his predecessor-in-interest have been in continuous, adverse, public and undisturbed possession of said
land in the concept of an owner for more than 30 years before the filing of the application. Established jurisprudence
has consistently pronounced that "open, continuous and exclusive possession for at least 30 years of alienable
public land ipso jure converts the same into private property (Director of Lands vs. Intermediate Appellate Court, 214
SCRA 604). This means that occupation and cultivation for more than 30 years by applicant and his predecessor-in-
interest vests title on such applicant so as to segregate the land from the mass of public land (National Power
Corporation vs. Court of Appeals, 218 SCRA 41); and
b) It is true that the requirement of possession since June 12, 1945 is the latest amendment of Section 48(b) of the
Public Land Act (C.A. No. 141), but a strict implementation of the law would in certain cases result in inequity and
unfairness to Espinosa. As wisely stated by the Supreme Court in the case of Republic vs. Court of Appeals, 235
SCRA 567:
"Following the logic of the petitioner, any transferee is thus foreclosed to apply for registration of title over a parcel of
land notwithstanding the fact that the transferor, or his predecessor-in-interest has been in open, notorious and
exclusive possession thereof for thirty (30) years or more."17
The CA also ruled that registration can be based on other documentary evidence, not necessarily the original tracing
cloth plan, as the identity and location of the property can be established by other competent evidence.
Again, the aforesaid contention of [the petitioner] is without merit. While the best evidence to identify a piece of land
for registration purposes may be the original tracing cloth plan from the Land Registration Commission, the court
may sufficiently order the issuance of a decree of registration on the basis of the blue print copies and other evidence
(Republic of the Philippines vs. Intermediate Appellate Court, G.R. No. L-70594, October 10, 1986). The said case
provides further:
"The fact that the lower court finds the evidence of the applicant sufficient to justify the registration and confirmation
of her titles and did not find it necessary to avail of the original tracing cloth plan from the Land Registration
Commission for purposes of comparison, should not militate against the rights of the applicant. Such is especially
true in this case where no clear, strong, convincing and more preponderant proof has been shown by the oppositor
to overcome the correctness of said plans which were found both by the lower court and the Court of Appeals as
conclusive proofs of the description and identities of the parcels of land contained therein."
There is no dispute that, in case of Del Rosario vs. Republic, supra the Supreme Court pronounced that the
submission in evidence of the original tracing cloth plan, duly approved by the Bureau of Lands, in cases for
application of original registration of land is a mandatory requirement, and that failure to comply with such
requirement is fatal to ones application for registration. However, such pronouncement need not be taken as an iron
clad rule nor to be applied strictly in all cases without due regard to the rationale behind the submission of the tracing
cloth plan.
xxxx
As long as the identity of and location of the lot can be established by other competent evidence like a duly approved
blueprint copy of the advance survey plan of Lot 8499 and technical description of Lot 8499, containing and
identifying the boundaries, actual area and location of the lot, the presentation of the original tracing cloth plan may
be excused.18
Moreover, the CA ruled that Espinosa had duly proven that the property is alienable and disposable:
Espinosa has established that Lot 8499 is alienable and disposable. In the duly approved Advance Survey Plan As-
07-0000893 (sic) duly approved by the Land Management Services, DENR, Region 7, Cebu City, it is
certified/verified that the subject lot is inside the alienable and disposable area of the disposable and alienable land
of the public domain.19
Petitioner moved for reconsideration but this was denied by the CA in its Resolution 20 dated February 13, 2006.
Petitioners Case
Petitioner entreats this Court to reverse and set aside the CAs assailed decision and attributes the following errors:
(a) Espinosa failed to prove by competent evidence that the subject property is alienable and disposable; (b)
jurisprudence dictates that a survey plan identifies the property in preparation for a judicial proceeding but does not
convert the property into alienable, much less, private; (c) under Section 17 of P.D. No. 1529, the submission of the
original tracing cloth plan is mandatory to determine the exact metes and bounds of the property; and (d) a blueprint
copy of the survey plan may be admitted as evidence of the identity and location of the property only if it bears the
approval of the Director of Lands.
Issues
The resolution of the primordial question of whether Espinosa has acquired an imperfect title over the subject
property that is worthy of confirmation and registration is hinged on the determination of the following issues:
a. whether the blueprint of the advanced survey plan substantially complies with Section 17 of P.D. No.
1529; and
b. whether the notation on the blueprint copy of the plan made by the geodetic engineer who conducted
the survey sufficed to prove that the land applied for is alienable and disposable.
Our Ruling
The lower courts were unanimous in holding that Espinosas application is anchored on Section 14(1) of P.D. No.
1529 in relation to Section 48(b) of the PLA and the grant thereof is warranted in view of evidence supposedly
showing his compliance with the requirements thereof.
This Court is of a different view.
Based on Espinosas allegations and his supporting documents, it is patent that his claim of an imperfect title over
the property in question is based on Section 14(2) and not Section 14(1) of P.D. No. 1529 in relation to Section 48(b)
of the PLA. Espinosa did not allege that his possession and that of his predecessor-in-interest commenced on June
12, 1945 or earlier as prescribed under the two (2) latter provisions. On the contrary, Espinosa repeatedly alleged
that he acquired title thru his possession and that of his predecessor-in-interest, Isabel, of the subject property for
thirty (30) years, or through prescription. Therefore, the rule that should have been applied is Section 14(2) of P.D.
No. 1529, which states:
Sec. 14. Who may apply. The following persons may file in the proper Court of First Instance an application for
registration of title to land, whether personally or through their duly authorized representatives:
xxxx
(2) Those who have acquired ownership of private lands by prescription under the provision of existing laws.
Obviously, the confusion that attended the lower courts disposition of this case stemmed from their failure to apprise
themselves of the changes that Section 48(b) of the PLA underwent over the years. Section 48(b) of the PLA
originally states:
Sec. 48. The following described citizens of the Philippines, occupying lands of the public domain or claiming to own
any such lands or an interest therein, but whose titles have not been perfected or completed, may apply to the Court
of First Instance of the province where the land is located for confirmation of their claims and the issuance of a
certificate of title therefor, under the Land Registration Act, to wit:
xxxx
(b) Those who by themselves or through their predecessors-in-interest have been in the open, continuous, exclusive
and notorious possession and occupation of agricultural lands of the public domain, under a bona fide claim of
acquisition or ownership, except as against the Government, since July twenty-sixth, eighteen hundred and ninety-
four, except when prevented by war or force majeure. These shall be conclusively presumed to have performed all
the conditions essential to a Government grant and shall be entitled to a certificate of title under the provisions of this
chapter.
Thus, the required possession and occupation for judicial confirmation of imperfect title was since July 26, 1894 or
earlier.
On June 22, 1957, Republic Act (R.A.) No. 1942 amended Section 48(b) of the PLA by providing a thirty (30)-year
prescriptive period for judicial confirmation of imperfect title. Thus:
(b) Those who by themselves or through their predecessors-in-interest have been in the open, continuous, exclusive
and notorious possession and occupation of agricultural lands of the public domain, under a bona fide claim of
acquisition or ownership, for at least thirty years immediately preceding the filing of the application for confirmation of
title except when prevented by war or force majeure. These shall be conclusively presumed to have performed all the
conditions essential to a Government grant and shall be entitled to a certificate of title under the provisions of this
chapter.
On January 25, 1977, P.D. No. 1073 was issued, changing the requirement for possession and occupation for a
period of thirty (30) years to possession and occupation since June 12, 1945 or earlier. Section 4 of P.D. No. 1073
states:
Sec. 4. The provisions of Section 48(b) and Section 48(c), Chapter VIII of the Public Land Act are hereby amended in
the sense that these provisions shall apply only to alienable and disposable lands of the public domain which have
been in open, continuous, exclusive and notorious possession and occupation by the applicant himself or thru his
predecessor-in-interest, under a bona fide claim of acquisition of ownership, since June 12, 1945.
On June 11, 1978, P.D. No. 1529 was enacted. Notably, the requirement for possession and occupation since June
12, 1945 or earlier was adopted under Section 14(1) thereof.
P.D. No. 1073, in effect, repealed R.A. No. 1942 such that applications under Section 48(b) of the PLA filed after the
promulgation of P.D. No. 1073 should allege and prove possession and occupation that dated back to June 12, 1945
or earlier. However, vested rights may have been acquired under Section 48(b) prior to its amendment by P.D. No.
1073. That is, should petitions for registration filed by those who had already been in possession of alienable and
disposable lands of the public domain for thirty (30) years at the time P.D. No. 1073 was promulgated be denied
because their possession commenced after June 12, 1945? In Abejaron v. Nabasa, 21 this Court resolved this legal
predicament as follows:
However, as petitioner Abejarons 30-year period of possession and occupation required by the Public Land Act, as
amended by R.A. 1942 ran from 1945 to 1975, prior to the effectivity of P.D. No. 1073 in 1977, the requirement of
said P.D. that occupation and possession should have started on June 12, 1945 or earlier, does not apply to him. As
the Susi doctrine holds that the grant of title by virtue of Sec. 48(b) takes place by operation of law, then upon
Abejarons satisfaction of the requirements of this law, he would have already gained title over the disputed land in
1975. This follows the doctrine laid down in Director of Lands v. Intermediate Appellate Court, et al., that the law
cannot impair vested rights such as a land grant. More clearly stated, "Filipino citizens who by themselves or their
predecessors-in-interest have been, prior to the effectivity of P.D. 1073 on January 25, 1977, in open, continuous,
exclusive and notorious possession and occupation of agricultural lands of the public domain, under a bona fide
claim of acquisition of ownership, for at least 30 years, or at least since January 24, 1947" may apply for judicial
confirmation of their imperfect or incomplete title under Sec. 48(b) of the Public Land Act. 22 (Citations omitted)
Consequently, for one to invoke Section 48(b) and claim an imperfect title over an alienable and disposable land of
the public domain on the basis of a thirty (30)-year possession and occupation, it must be demonstrated that such
possession and occupation commenced on January 24, 1947 and the thirty (30)-year period was completed prior to
the effectivity of P.D. No. 1073.
There is nothing in Section 48(b) that would suggest that it provides for two (2) modes of acquisition. It is not the
case that there is an option between possession and occupation for thirty (30) years and possession and occupation
since June 12, 1945 or earlier. It is neither contemplated under Section 48(b) that if possession and occupation of an
alienable and disposable public land started after June 12, 1945, it is still possible to acquire an imperfect title if such
possession and occupation spanned for thirty (30) years at the time of the filing of the application.
In this case, the lower courts concluded that Espinosa complied with the requirements of Section 48(b) of the PLA in
relation to Section 14(1) of P.D. No. 1529 based on supposed evidence that he and his predecessor-in-interest had
been in possession of the property for at least thirty (30) years prior to the time he filed his application. However,
there is nothing on record showing that as of January 25, 1977 or prior to the effectivity of P.D. No. 1073, he or Isabel
had already acquired title by means of possession and occupation of the property for thirty (30) years. On the
contrary, the earliest tax declaration in Isabels name was for the year 1965 indicating that as of January 25, 1977,
only twelve (12) years had lapsed from the time she first came supposedly into possession.
The CAs reliance on Director of Lands v. Intermediate Appellate Court 23 is misplaced considering that the application
therein was filed on October 20, 1975 or before the effectivity of P.D. No. 1073. The same can be said with respect to
National Power Corporation v. Court of Appeals. 24 The petition for registration therein was filed on August 21, 1968
and at that time, the prevailing rule was that provided under Section 48(b) as amended by R.A. No. 1942.
In Republic v. Court of Appeals,25 the applicants therein entered into possession of the property on June 17, 1978
and filed their application on February 5, 1987. Nonetheless, there is evidence that the individuals from whom the
applicant purchased the property, or their predecessors-in-interest, had been in possession since 1937. Thus, during
the effectivity of Section 48(b) as amended by R.A. No. 1942, or while the prevailing rule was possession and
occupation for thirty (30) years, or prior to the issuance of P.D. No. 1073, the thirty (30)-year prescriptive period was
already completed.
Thus, assuming that it is Section 48(b) of the PLA in relation to Section 14(1) of P.D. No. 1529 that should apply in
this case, as the lower courts held, it was incumbent upon Espinosa to prove, among other things, that Isabels
possession of the property dated back at least to June 12, 1945. That in view of the established fact that Isabels
alleged possession and occupation started much later, the lower courts should have dismissed Espinosas
application outright.
In sum, the CA, as well as the MTC, erred in not applying the present text of Section 48(b) of the PLA. That there
were instances wherein applications were granted on the basis of possession and occupation for thirty (30) years
was for the sole reason discussed above. Regrettably, such reason does not obtain in this case.
Being clear that it is Section 14(2) of P.D. No. 1529 that should apply, it follows that the subject property being
supposedly alienable and disposable will not suffice. As Section 14(2) categorically provides, only private properties
may be acquired thru prescription and under Articles 420 and 421 of the Civil Code, only those properties, which are
not for public use, public service or intended for the development of national wealth, are considered private. In Heirs
of Mario Malabanan v. Republic,26 this Court held that there must be an official declaration to that effect before the
property may be rendered susceptible to prescription:
Nonetheless, Article 422 of the Civil Code states that "property of public dominion, when no longer intended for
public use or for public service, shall form part of the patrimonial property of the State." It is this provision that
controls how public dominion property may be converted into patrimonial property susceptible to acquisition by
prescription. After all, Article 420(2) makes clear that those property "which belong to the State, without being for
public use, and are intended for some public service or for the development of the national wealth" are public
dominion property. For as long as the property belongs to the State, although already classified as alienable or
disposable, it remains property of the public dominion if when it is "intended for some public service or for the
development of the national wealth." (Emphasis supplied)
Accordingly, there must be an express declaration by the State that the public dominion property is no longer
intended for public service or the development of the national wealth or that the property has been converted into
patrimonial. Without such express declaration, the property, even if classified as alienable or disposable, remains
property of the public dominion, pursuant to Article 420(2), and thus incapable of acquisition by prescription. It is only
when such alienable and disposable lands are expressly declared by the State to be no longer intended for public
service or for the development of the national wealth that the period of acquisitive prescription can begin to run. Such
declaration shall be in the form of a law duly enacted by Congress or a Presidential Proclamation in cases where the
President is duly authorized by law.27
Thus, granting that Isabel and, later, Espinosa possessed and occupied the property for an aggregate period of thirty
(30) years, this does not operate to divest the State of its ownership. The property, albeit allegedly alienable and
disposable, is not patrimonial. As the property is not held by the State in its private capacity, acquisition of title thereto
necessitates observance of the provisions of Section 48(b) of the PLA in relation to Section 14(1) of P.D. No. 1529 or
possession and occupation since June 12, 1945. For prescription to run against the State, there must be proof that
there was an official declaration that the subject property is no longer earmarked for public service or the
development of national wealth. Moreover, such official declaration should have been issued at least ten (10) or thirty
(30) years, as the case may be, prior to the filing of the application for registration. The period of possession and
occupation prior to the conversion of the property to private or patrimonial shall not be considered in determining
completion of the prescriptive period. Indeed, while a piece of land is still reserved for public service or the
development of national wealth, even if the same is alienable and disposable, possession and occupation no matter
how lengthy will not ripen to ownership or give rise to any title that would defeat that of the States if such did not
commence on June 12, 1945 or earlier.
At any rate, as petitioner correctly pointed out, the notation on the survey plan does not constitute incontrovertible
evidence that would overcome the presumption that the property belongs to the inalienable public domain.
All lands of the public domain belong to the State, which is the source of any asserted right to any ownership of land.
All lands not appearing to be clearly within private ownership are presumed to belong to the State. Accordingly,
public lands not shown to have been reclassified or released as alienable agricultural land, or alienated to a private
person by the State, remain part of the inalienable public domain. The burden of proof in overcoming the
presumption of State ownership of the lands of the public domain is on the person applying for registration (or
claiming ownership), who must prove that the land subject of the application is alienable or disposable. To overcome
this presumption, incontrovertible evidence must be established that the land subject of the application (or claim) is
alienable or disposable.28
In Republic v. Sarmiento,29 this Court reiterated the earlier ruling in Menguito v. Republic 30 that the notation made by
a surveyor-geodetic engineer that the property surveyed is alienable and disposable is not the positive government
act that would remove the property from the inalienable domain. Neither it is the evidence accepted as sufficient to
controvert the presumption that the property is inalienable:
To discharge the onus, respondent relies on the blue print copy of the conversion and subdivision plan approved by
the DENR Center which bears the notation of the surveyor-geodetic engineer that "this survey is inside the alienable
and disposable area, Project No. 27-B. L.C. Map No. 2623, certified on January 3, 1968 by the Bureau of Forestry."
Menguito v. Republic teaches, however, that reliance on such a notation to prove that the lot is alienable is
insufficient and does not constitute incontrovertible evidence to overcome the presumption that it remains part of the
inalienable public domain.
"To prove that the land in question formed part of the alienable and disposable lands of the public domain, petitioners
relied on the printed words which read: "This survey plan is inside Alienable and Disposable Land Area, Project No.
27-B as per L.C. Map No. 2623, certified by the Bureau of Forestry on January 3, 1968," appearing on Exhibit "E"
(Survey Plan No. Swo-13-000227).
This proof is not sufficient. Section 2, Article XII of the 1987 Constitution, provides: "All lands of the public domain,
waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, fisheries, forests or timber,
wildlife, flora and fauna, and other natural resources are owned by the State. . . ."
For the original registration of title, the applicant (petitioners in this case) must overcome the presumption that the
land sought to be registered forms part of the public domain. Unless public land is shown to have been reclassified
or alienated to a private person by the State, it remains part of the inalienable public domain. Indeed, "occupation
thereof in the concept of owner, no matter how long, cannot ripen into ownership and be registered as a title." To
overcome such presumption, incontrovertible evidence must be shown by the applicant. Absent such evidence, the
land sought to be registered remains inalienable.
In the present case, petitioners cite a surveyor geodetic engineers notation in Exhibit "E" indicating that the survey
was inside alienable and disposable land. Such notation does not constitute a positive government act validly
changing the classification of the land in question.
Verily, a mere surveyor has no authority to reclassify lands of the public domain. By relying solely on the said
surveyors assertion, petitioners have not sufficiently proven that the land in question has been declared
alienable."31 (Citations omitted and underscoring supplied)
Therefore, even if Espinosas application may not be dismissed due to his failure to present the original tracing cloth
of the survey plan, there are numerous grounds for its denial. The blueprint copy of the advanced survey plan may
be admitted as evidence of the identity and location of the subject property if: (a) it was duly executed by a licensed
geodetic engineer; (b) it proceeded officially from the Land Management Services (LMS) of the DENR; and (c) it is
accompanied by a technical description of the property which is certified as correct by the geodetic surveyor who
conducted the survey and the LMS of the DENR. As ruled in Republic v. Guinto-Aldana, 32 the identity of the land, its
boundaries and location can be established by other competent evidence apart from the original tracing cloth such
as a duly executed blueprint of the survey plan and technical description:
Yet if the reason for requiring an applicant to adduce in evidence the original tracing cloth plan is merely to provide a
convenient and necessary means to afford certainty as to the exact identity of the property applied for registration
and to ensure that the same does not overlap with the boundaries of the adjoining lots, there stands to be no reason
why a registration application must be denied for failure to present the original tracing cloth plan, especially where it
is accompanied by pieces of evidencesuch as a duly executed blueprint of the survey plan and a duly executed
technical description of the propertywhich may likewise substantially and with as much certainty prove the limits
and extent of the property sought to be registered.33
However, while such blueprint copy of the survey plan may be offered as evidence of the identity, location and the
boundaries of the property applied for, the notation therein may not be admitted as evidence of alienability and
disposability. In Republic v. Heirs of Juan Fabio, 34 this Court enumerated the documents that are deemed relevant
and sufficient to prove that the property is already outside the inalienable public domain as follows:
In Republic v. T.A.N. Properties, Inc., we ruled that it is not enough for the Provincial Environment and Natural
Resources Office (PENRO) or CENRO to certify that a land is alienable and disposable. The applicant for land
registration must prove that the DENR Secretary had approved the land classification and released the land of the
public domain as alienable and disposable, and that the land subject of the application for registration falls within the
approved area per verification through survey by the PENRO or CENRO. In addition, the applicant must present a
copy of the original classification of the land into alienable and disposable, as declared by the DENR Secretary, or as
proclaimed by the President. Such copy of the DENR Secretarys declaration or the Presidents proclamation must
be certified as a true copy by the legal custodian of such official record.1wphi1 These facts must be established to
prove that the land is alienable and disposable.35 (Citation omitted)
Based on the foregoing, it appears that Espinosa cannot avail the benefits of either Section 14(1) of P.O. No. 1529 in
relation to Section 48(b) of the PLA or Section 14(2) of P.O. No. 1529. Applying Section 14(1) of P.O. No. 1529 and
Section 48(b) of the PLA, albeit improper, Espinosa failed to prove that: (a) Isabel's possession of the property dated
back to June 12, 1945 or earlier; and (b) the property is alienable and disposable. On the other hand, applying
Section 14(2) of P.O. No. 1529, Espinosa failed to prove that the property is patrimonial. As to whether Espinosa was
able to prove that his possession and occupation and that of Isabel were of the character prescribed by law, the
resolution of this issue has been rendered unnecessary by the foregoing considerations.
WHEREFORE, premises considered, the petition is GIVEN DUE COURSE and GRANTED. The Decision dated
November 11, 2004 and Resolution dated February 13, 2006 of the Court of Appeals in CA-G.R. CV No. 72456 are
REVERSED and SET ASIDE and Domingo Espinosa's application for registration of title over Lot No. 8499 of Cad.
545-D (New) located at Barangay Cabangahan, Consolacion, Cebu is hereby DENIED for lack of merit. No
pronouncement as to costs.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 188494 November 26, 2014
REMMAN ENTERPRISES, INC., Petitioner,
vs.
REPUBLIC OF THE PHILIPPINES, Respondent.
DECISION
REYES, J.:
This resolves the petition for review on certiorari 1 filed by Remman Enterprises, Inc. (petitioner) under
Rule 45 of the Rules of Court to assail the Decision2 dated May 23, 2008 and Resolution3 dated June
22, 2009 of the Court of Appeals (CA) in CA-G.R. CV No. 74418. The CA reversed the Decision 4 dated
November 27, 2001 of the Regional Trial Court (RTC) of Pasig City, Branch 155, in LR Case No. N-
11379, which granted the petitioner's application for land registration of three (3) parcels of land situated
in Taguig, Metro Manila (subject properties).
The petitioner, through its authorized representative Ronnie P. Inocencio (Inocencio), filed with the RTC
on June 4, 1998 an application for registration of the subject properties situated in Barangay Napindan,
Taguig, Metro Manila, with an area of 27,477 square meters, 23,179 sq m and 45,636 sq m, more
particularly described as follows:
SWO-00-001771, being a conversion of Lot 3079, Mcadm-590-D, containing an area of Twenty[-]Seven
Thousand Four Hundred Seventy[-] Seven (27,477) square meters, more or less; SWO-00-001768,
being a conversion of Lot 3071, Mcadm-590-D, containing an area of Twenty[-] Three Thousand One
Hundred Seventy[-]Nine (23,179) square meters, more or less; and SWO-00-001773, being a
conversion of Lot 3082, Mcadm-590-D, containing an area of Forty[-]Five Thousand Six Hundred
Thirty[-]Six (45,636) square meters, more or less, all brought under the operation of the Property
Registration Decree (PD 1529) or Commonwealth Act 141, as amended x x x.5
The State, through the Office of the Solicitor General, interposed its opposition to the
application.1avvphi1 During the initial hearing of the case on May 4, 1999, the petitioner presented and
marked documentary evidence6 to prove its compliance with jurisdictional requirements.7
On October 25, 1999, the petitioner was allowed to present its evidence before the Branch Clerk of
Court of the RTC. Inocencio, the petitioners sales manager, testified that the subject properties were
purchased on August 28, 1989 by the petitioner from sellers Magdalena Samonte, Jaime Aldana and
Virgilio Navarro. The properties were declared for taxation purposes on August 9, 1989.After the sale,
the petitioner occupied the properties and planted thereon crops like rice, corn and vegetables.8
Witness Cenon Serquia (Serquia) supported the application for registration by claiming that he had
been the caretaker of the subject properties since 1957, long before the lots were purchased by the
petitioner. Serquia alleged that no person other than the applicant and its predecessors-in-interest had
claimed ownership or rights over the subject properties.9
On November 27, 2001, the RTC rendered its Decision10 granting the petitioners application. The
decretal portion of its decision reads:
WHEREFORE, in view of the foregoing, the Court finds the Applicant, Remman Enterprises, Inc.,
represented in this matter by its representative, Ronnie P. Inocencio, the absolute owner in fee simple of
three (3) parcels of land, all located at Barangay Napindan, Taguig, Metro Manila, more particularly
described as follows:
1.) SWO-00-001771, being a conversion of Lot 3079, Mcadm-590-D;
2.) SWO-00-001768, being a conversion of Lot 3071, Mcadm-590-D; and
3.) SWO-00-001773, being a conversion of Lot 3082, Mcadm-590-D
together with their corresponding technical descriptions.
Once the foregoing Decision has become final, let the corresponding decree of registration issue. SO
ORDERED.11
Dissatisfied, the State appealed to the CA by alleging substantive and procedural defects in the
petitioners application. It argued that the identity of the subject properties was not sufficiently
established. The State further claimed that the character and length of possession required by law in
land registration cases were not satisfied by the petitioner.
Finding merit in the appeal, the CA reversed the RTC decision. The dispositive portion of the CA
Decision dated May 23, 2008 reads:
WHEREFORE, the DECISION DATED NOVEMBER 27, 2001is REVERSEDand SET ASIDE and this
case is DISMISSED.
SO ORDERED.12
The CA explained that the survey plans and technical descriptions submitted by the petitioner failed to
establish the true identity of the subject properties. The application should have been accompanied by
the original tracing cloth plan duly approved by the Director of Lands. 13 The petitioner should have also
submitted a certification from the proper government office stating that the properties were already
declared alienable and disposable.14 The CA further cited a failure to establish that the petitioner and its
predecessors-in-interest possessed the subject parcels of land under a bona fide claim of ownership
since June 12, 1945 or earlier.15
Hence, this petition for review on certiorari filed by the petitioner to assail the CAs dismissal of its
application for land registration. The petitioner argues that the identity of the subject properties was
sufficiently established through the submission of the original tracing cloth plans, survey plans and
technical descriptions. The alienable and disposable character of the properties was also duly
established via a certification issued by the Community Environment and Natural Resources Office
(CENRO) of the Department of Environment and Natural Resources (DENR). Further, it claims that it
and its predecessors-in-interest possessed the parcels of land in the nature and within the length of
time required by law.
The petition is dismissible.
On the matter of proof of the subject propertys identity, jurisprudence provides that the presentation of
the original tracing cloth plan may be dispensed with, subject however to certain conditions. Contrary to
the petitioners claim, the original clothing plans that cover the subject properties do not form part of the
case records. The Court has nonetheless held in Republic v. Espinosa:16
As ruled in Republic v. Guinto-Aldana, the identity of the land, its boundaries and location can be
established by other competent evidence apart from the original tracing cloth such as a duly executed
blueprint of the survey plan and technical description:
"Yet if the reason for requiring an applicant to adduce in evidence the original tracing cloth plan is
merely to provide a convenient and necessary means to afford certainty as to the exact identity of the
property applied for registration and to ensure that the same does not overlap with the boundaries of the
adjoining lots, there stands to be no reason why a registration application must be denied for failure to
present the original tracing cloth plan, especially where it is accompanied by piecesof evidencesuch
as a duly executed blueprint of the survey plan and a duly executed technical description of the property
which may likewise substantially and with as much certainty prove the limits and extent of the
property sought to be registered."17 (Citations omitted)
Notwithstanding the foregoing, the CAs dismissal of the petitioners application for original registration
was proper considering the latters failure to sufficiently establish that the subject properties were
already declared alienable and disposable by the government. Its reliance on a Report, 18 issued by the
CENRO, DENR National Capital Region, West Sector, was misplaced. The Court ruled in Republic v.
Medida:19
In Republic v. T.A.N. Properties, Inc.,this Court explained that a Provincial Environment and Natural
Resources Office (PENRO) or CENRO certification, by itself, fails toprove the alienable and disposable
character of a parcel of land. We ruled:
[I]t is not enough for the PENRO or CENRO to certify that a land is alienable and disposable. The
applicant for land registration must prove that the DENR Secretary had approved the land classification
and released the land of the public domain as alienable and disposable, and that the land subject of the
application for registration falls within the approved area per verification through survey by the PENRO
or CENRO. In addition, the applicant for land registration must present a copy of the original
classification approved by the DENR Secretary and certified as a true copy by the legal custodian of the
official records.These facts must be established to prove that the land is alienable and disposable.
Respondents failed to do so because the certifications presented by respondent do not, by themselves,
prove that the land is alienable and disposable. x x x.
xxxx
The present rule on the matter then requires that an application for original registration be accompanied
by: (1) CENRO or PENRO Certification; and (2) a copy of the original classification approved by the
DENR Secretary and certified as a true copy by the legal custodian of the official records. x x
x.20 (Citations omitted and emphasis in the original)
The burden of proof in overcoming the presumption of State ownership of the lands of the public domain
is on the person applying for registration, who must provethat the properties subject of the application
are alienable and disposable.21 Even the notations on the survey plans submitted by the petitioner
cannot be admitted asevidence of the subject properties alienability and disposability. Such notations
do not constitute incontrovertible evidence to overcome the presumption that the subject properties
remain part of the inalienable public domain.22
Given the foregoing, the dismissal of the petitioner's application for registration was proper. Under
pertinent laws and jurisprudence, the petitioner had to sufficiently establish that: first, the subject
properties form part of the disposable and alienable lands of the public domain; second, the applicant
and his predecessors-in-interest have been in open, continuous, exclusive, and notorious possession
anq occupation of the same; and third, the possession is under a bona fide claim of ownership since
June 12, 1945 or earlier.23
Without sufficient proof that the subject properties had been declared alienable and disposable, the
Court finqs no reason to look further into the petitioner's claim that the CA erred in' finding that it failed
to satisfy the nature and length of possession that could qualify for land registration. WHEREFORE, the
petition if DENIED. The Decision dated May 23, 2008 and Resolution dated Jun~ 22, 2009 of the Court
of Appeals in CA-G.R. CV No. 74418 are AFFIRMED.
SO ORDERED.
 the Municipal Trial Court of Caba, La Union (MTC). In his complaint, petitioner alleged that he was the registered
owner and possessor of a parcel of land situated in Santiago Sur, Caba, La Union, with an area of 10,632 square
meters and covered by OCT No. RP-174 (FP-13 787) and Tax Declaration No. 014-00707; that on October 31, 2006,
petitioner, discovered that respondent stealthy intruded and occupied a portion of his property by constructing a
residential house thereon without his knowledge and consent; that he referred the matter to the Office of Lupong
Tagapamayapa for conciliation, but no settlement was reached, hence, a certification to file action was issued by the
Lupon; and that demand letters were sent to respondent but he still refused to vacate the premises, thus, he was
constrained to seek judicial remedy.3

Respondent denied the material allegations of the complaint and put up the following defenses, to wit: that he had
been a resident of Samara, Aringay, La Union, since birth and when he reached the age of reason, he started
occupying a parcel of land in that place then known as Sta. Lucia, Aringay, La Union; that years later, this parcel of
land was designated as part of Santiago Sur, Caba, La Union due to a survey made by the government; that he
introduced more improvements on the property by cultivating the land, and in March 2006, he put up a "bahay kubo";
that in October 2006, he installed a fence made of "bolo" to secure the property; that in installing the fence, he was
guided by the concrete monuments which he knew to be indicators of the boundaries of petitioner's property; that
while he could not locate some of the monuments, he based the boundaries on his recollection since he was around
when these were installed; that he knew the boundaries of petitioner's property because he knew the extent of the
"iron mining" activities done by a company on the said property; that petitioner was never in actual possession of the
property occupied by him, and it was only on October 31, 2006 when he discovered the al legccl intrusion; that it was
not correct to say that he refused to vacate and surrender the premises despite receipt of the demand letters
because in his letter-reply, he assured petitioner that he would voluntarily vacate the premises if he would only be
shown to have intruded into petitioner's titled lot after the boundaries were pointed out to him; and that instead of
shmving the boundaries to him, petitioner filed an action for forcible entry before the MTC.4

Republic of the Philippines

SUPREME COURT
Manila

MTC Ruling
SECOND DIVISION

On April 26, 2011, the MTC ruled in favor of respondent. It stated that petitioner failed to adduce any evidence to
G.R. No. 204926 December 3, 2014
prove that the lot occupied by respondent was within his lot titled under OCT No. RP-174 (13 789). The MTC opined
that petitioner could have presented a relocation survey, which would have pinpointed the exact location of the house
ANACLETO C. MANGASER, represented by his Attorney-in-fact EUSTAQUIO DUGENIA, Petitioner, and fence put up by respondent, and resolved the issue once and for all. 6 It also explained that petitioner failed to
vs. prove his prior physical possession of the subject property. The OCT No. RP-174(13789) registered under
DIONISIO UGAY, Respondent. petitioner's name and the Tax Declaration were not proof of actual possession of the property. The dispositive portion
of which reads:
DECISION
WHEREFORE, the plaintiff (petitioner) having failed to establish his case by preponderance of evidence, the
MENDOZA, J.: complaint is hereby DISMISSED.7

This is a petition for review on certiorari seeking to reverse and set aside the June 13, 2012 Decision 1 and the RTC Ruling
December 5, 2012 Resolution2 of the Court of Appeals (CA) in CA-G.R. SP No. 122153, entitled "Dionisio Ugay v.
Anacleto C. Mangaser, represented by his Attorney-in-fact Eustaquio Dugenia, "a case of forcible entry and Aggrieved, petitioner appealed to the Regional Trial Court of Bauang, La Union (RTC) and the case was raffled to
damages. Branch 33.

The Facts In its August 23, 2011 Decision, 8 the RTC reversed the MTC decision and ruled in favor of petitioner. It relied on the
cases of Barba v. Court of Appeals 9 and Nunez v. SLTEAS Phoenix Solutions, Inc., 10 which held that in ejectment
On October 30, 2007, petitioner Anacleto Mangaser, represented by his attorney-in-fact, Eustaquio Dugenia cases, possession of the land did not only mean actual or physical possession but also included the subject of the
(petitioner), filed a complaint for Forcible Entry with Damages against respondent Dionisio Ugay (respondent) before thing to the action of one's will or by the proper acts and legal formalities established for acquiring such right. The
RTC stated that petitioner had clearly shown his possession of the property as evidenced by his OCT No. RP-174(13 Hence, this petition, anchored on the following
789) issued in March 1987 and tax declaration, dating back as early as 1995. 11 It added that the boundaries of the
property were clearly indicated in the title, thus, there was no need to conduct a survey. As the owner, petitioner
STATEMENT OF ISSUES
knew the exact metes and bounds of his property so that when respondent intruded stealthily, he filed the subject
suit.12 The dispositive portion of the RTC decision reads:
I
WHEREFORE, after a thorough perusal of the facts and evidence in this case, this Court reverses the decision of the
MTC, Caba, La Union, dated April 26, 2011 and rules in favor of plaintiffappellant (petitioner) and against defendant- WHETHER OR NOT THE COURT OF APPEALS FAILED TO CONSIDER THE EVIDENCE OF OWNERSHIP OF
appellee (respondent), ordering the latter and all other persons claiming rights under him to: PETITIONER WHICH MAY ESTABLISH PRIOR POSSESSION OVER THE PROPERTY BY HEREIN PETITIONER.

1. VACATE the portion of the subject property encroached by him; II

2. SURRENDER actual physical possession of the subject portion peacefully to plaintiff-appellant; WHETHER OR NOT THE RESOLUTION DATED DECEMBER 5, 2012 OF THE COURT OF APPEALS, FORMER
SPECIAL FOURTH DIVISION, DENYING THE MOTION FOR RECONSIDERATION IS VALID.22
3. REMOVE all the improvements he introduced therein;
Petitioner argues that in ejectment cases, possession of the land does not only mean actual or physical possession
or occupation but also by the fact that a land is subject to the action of one's will or by proper acts and legal
4. PAY attorney's fees in the amount Php20,000.00 to plaintiff-appellant, and pay the cost of suit.
formalities established for acquiring such right; that the CA should have considered OCT No. RP-174(13789) his tax
declaration as proofs of prior physical possession over the property; and that the issuance of the same are
SO ORDERED.13 considered to by law as proper acts and legal formalities established for acquiring such right. Petitioner cited
Tolentino, as one of the authors and experts in Civil law, stating that the "proper acts and formalities" refer to juridical
acts, or the acquisition of possession by sufficient title, inter vivas or mortis causa, onerous or lucrative. These are
Undaunted, respondent appealed to the CA.
the acts which the law gives the force of acts of possession.

CA Ruling
Petitioner also avers that the December 5, 2012 CA Resolution was not valid as it did not state the legal basis
required by the Constitution.
The CA reversed and set aside the decision of the RTC. Citing Quizon v. Juan, 14 it emphasized that petitioner must
allege and prove that he was in prior physical possession of the property in dispute. The word "possession," as used
On May 28, 2013, respondent filed his Comment 23 before this Court. He stated that the issues raised and the
in forcible entry and unlawful detainer cases, meant nothing more than physical possession, not legal possession in
arguments presented by petitioner have been thoroughly resolved and ruled upon by the CA. The appellate court did
the sense contemplated in civil law. The CA wrote that petitioner was not in physical possession despite the
not err in reversing the RTC decision because petitioner was never in prior physical possession of the property in
presentation of the OCT No. RP-174(13789) and his tax declarations. 15 It reiterated that when the law would speak of
dispute. Respondent asserts that he has been in prior, actual, continuous, public, notorious, exclusive and peaceful
possession in forcible entry cases, it is prior physical possession or possession de facto, as distinguished from
possession in the concept of an owner of the property in dispute.24
possession de Jure. What petitioner proved was legal possession, not his prior physical possession. Furthermore,
the CA stated that the RTC misquoted Nunez v. SLTEAS Pheonix Solutions 16 by giving the wrong notion of what kind
of possession was contemplated in forcible entry cases. In other words, physical possession was the crux in forcible On March 28, 2014, petitioner filed his Reply,25 reiterating the case of Nunez v. SLTEAS Phoenix Solutions,
entry, not possession that stemmed upon ownership.17 The dispositive portion of the assailed decision reads: Inc.,26where a party was able to demonstrate that it had exercised acts of ownership over the property by having it
titled in its name and by paying real property taxes on it. Petitioner also laments the wrongful insistence of
respondent that his possession over the property was one in the concept of an owner. To petitioner's mind,
WHEREFORE, premises considered, the Petition for Review is GRANTED, accordingly, the Decision dated August
respondent failed to adequately adduce evidence to show proof of his right to possess the property when his
23, 2011 and Order dated October 25, 2011, of the RTC Branch 33, Bauang, La Union in Civil Case No. 2029-BG
possession came under attack with the filing of the subject case.27
are REVERSED and SET ASIDE. The Decision of the MTC dated April 26, 2011 is hereby REINSTATED.

The Court's Ruling

SO ORDERED.18

The Court finds the petition meritorious.

Petitioner filed a motion for reconsideration, 19 dated July 6, 2012, but it was subsequently denied by the CA in a
Resolution,20 dated December 5, 2012. It reads:
For a forcible entry suit to prosper, the plaintiffs must allege and prove: (a) that they have prior physical possession
of the property; (b) that they were deprived of possession either by force, intimidation, threat, strategy or stealth; and,
This Court, after a meticulous study of the arguments set forth in the Motion for Reconsideration filed by respondent,
(c) that the action was filed within one (1) year from the time the owners or legal possessors learned of their
finds no cogent reason to revise, amend, much less reverse, the assailed Decision dated June 13, 2012. The Motion
deprivation of the physical possession of the property.28
for Reconsideration is, thus, DENIED

SO ORDERED.21
There is only one issue in ejectment proceedings: who is entitled to physical or material possession of the premises,
that is, to possession de facto, not possession de Jure? Issues as to the right of possession or ownership are not
involved in the action; evidence thereon is not admissible, except only for the purpose of determining the issue of
possession.29
As a rule, the word "possession" in forcible entry suits indeed refers to nothing more than prior physical possession
or possession de facto, not possession de Jure or legal possession in the sense contemplated in civil law. Title is not
the issue, and the absence of it "is not a ground for the courts to withhold relief from the parties in an ejectment
case."30
The Court, however, has consistently ruled in a number of cases31 that while prior physical possession is an
indispensable requirement in forcible entry cases, the dearth of merit in respondent's position is evident from the
principle that possession can be acquired not only by material occupation, but also by the fact that a thing is subject
to the action of one's will or by the proper acts and legal formalities established for acquiring such right. The case of
Quizon v. Juan,32 which surprisingly was relied on by the CA, also stressed this doctrine.
Possession can be acquired by juridical acts. These are acts to which the law gives the force of acts of possession.
Examples of these are donations, succession, execution and registration of public instruments, inscription of
possessory information titles and the like.33 The reason for this exceptional rule is that possession in the eyes of the
law does not mean that a man has to have his feet on every square meter of ground before it can be said that he is
in possession.34 It is sufficient that petitioner was able to subject the property to the action of his will. 35 Here,
respondent failed to show that he falls under any of these circumstances. He could not even say that the subject
property was leased to him except that he promised that he would vacate it if petitioner would be able to show the
boundaries of the titled lot.
In the case of Nunez v. SLTEAS Phoenix Solutions, inc., 36 the subject parcel was acquired by the respondent by
virtue of the June 4, 1999 Deed of Assignment executed in its favor by Spouses Ong Tiko and Emerenciana
Sylianteng. The petitioner in the said case argued that, aside from the admission in the complaint that the subject
parcel was left idle and unguarded, the respondent's claim of prior possession was clearly negated by the fact that
he had been in occupancy thereof since 1999. The Court disagreed with the petitioner and said: Although it did not
immediately put the same to active use, respondent appears to have additionally caused the property to be
registered in its name as of February 27, 2002 and to have paid the real property taxes due thereon alongside the
sundry expenses incidental thereto. Viewed in the light of the foregoing juridical acts, it consequently did not matter
that, by the time respondent conducted its ocular inspection in October 2003, petitioner hml already been occupying
the land since 1999.
[Emphasis and underscoring supplied]
Hence, in that case, the Court ruled that such juridical acts were sufficient to establish the respondent's prior
possession of the subject property.
The case of Habagat Grill v. DMC-Urban Property Developer, Inc., 37 also involves an action for forcible entry. On
June 11, 1981, David M. Consunji, Inc. acquired a residential lot situated in Matin a, Davao City, which was covered
by TCT No. T-82338. On June 13, 1981, it transferred the said lot to respondent DMC. Alleging that the petitioner
forcibly entered the property in December 1993, the respondent filed on March 28, 1994 a complaint for forcible
entry. One of the issues raised therein was whether respondent DMC had prior possession of the subject property, to
which the Court answered in the affirmative. It ruled that:
Prior possession of the lot by respondent's predecessor was sufficiently proven by evidence of the execution and
registration of public instruments and by the fact that the lot was subject to its will from then until December 1, 1993,
when petitioner unlawfully entered the premises and deprived the former of possession thereof.
[Emphasis and underscoring supplied]
In the case at bench, the Court finds that pet1t1oner acquired possession of the subject property by juridical act,
specifically, through the issuance of a free patent under Commonwealth Act No. 141 and its subsequent registration
with the Register of Deeds on March 18, 1987.38
Before the Court continues any further, it must be determined first whether the issue of ownership is material and
relevant in resolving the issue of possession. The Rules of Court in fact expressly allow this: Section 16, Rule 70 of
the Rules of Court provides that the issue of ownership shall be resolved in deciding the issue of possession if the
question of possession is intertwined with the issue of ownership. But this provision is only an exception and is
allowed only in this limited instance - to determine the issue of possession and only if the question of possession
cannot be resolved without deciding the issue of ownership.39
This Court is of the strong view that the issue of ownership should be provisionally determined in this case. First, the
juridical act from which the right of ownership of petitioner arise would be the registration of the free patent and the
issuance of OCT No. RP-174(13789). Apparently, the Torrens title suggests ownership over the land. Second,
respondent also asserts ownership over the land based on his prior, actual, continuous, public, notorious, exclusive
and peaceful possession in the concept of an owner of the property in dispute. 40 Because there are conflicting claims
of ownership, then it is proper to provisionally determine the issue of ownership to settle the issue of possession de
facto.
Returning to the case, this Court cannot agree with the CA that petitioner's OCT No. RP-174(13789) and his tax
declarations should absolutely be disregarded. The issuance of an original certificate of title to the petitioner
evidences ownership and from it, a right to the possession of the property flows. Well-entrenched is the rule that a
person who has a Torrens title over the property is entitled to the possession thereof.41
Moreover, his claim of possession is coupled with tax declarations. While tax declarations are not conclusive proof of
possession of a parcel of land, they are good indicia of possession in the concept of an owner, for no one in his right
mind would be paying taxes for a property that is not in his actual or constructive possession. 42 Together with the
Torrens title, the tax declarations dated 1995 onwards presented by petitioner strengthens his claim of possession
over the land before his dispossession on October 31, 2006 by respondent.
The CA was in error in citing the case of De Grano v. Lacaba 43 to support its ruling. In that case, the respondent tried
to prove prior possession, by presenting only his tax declarations, tax receipt and a certification from the municipal
assessor attesting that he had paid real property tax from previous years. The Court did not give credence to his
claim because tax declarations and realty tax payments are not conclusive proof of possession. The situation in the
present case differs because aside from presenting his tax declarations, the petitioner submitted OCT No. RP-
174(13 789) which is the best evidence of ownership from where his right to possession arises.
Against the Torrens title and tax declarations of petitioner, the bare allegations of respondent that he had prior,
actual, continuous, public, notorious, exclusive and peaceful possession in the concept of an owner, has no leg to
stand on. Thus, by provisionally resolving the issue of ownership, the Court is satisfied that petitioner had prior
possession of the subject property. When petitioner discovered the stealthy intrusion of respondent over his
registered prope1iy, he immediately filed a complaint with the Lupong Tagapamayapa and subsequently filed an
action for forcible entry with the MTC. Instead of taking the law into his own hands and forcefully expelling
respondent from his property, petitioner composed himself and followed the established legal procedure to regain
possession of his land.
If the Court were to follow the ruling of the CA and disregard juridical acts to obtain prior possession, then it would
create an absurd situation. It would be putting premium in favor of land intruders against Torrens title holders, who
spent months, or even years, in order to register their land, and who religiously paid real property taxes thereon.
They cannot immediately repossess their properties simply because they have to prove their literal and physical
possession of their property prior to the controversy. The Torrens title holders would have to resort to ordinary civil
procedure by filing either an accion publiciana or accion reinvidicatoria and undergo arduous and protracted litigation
while the intruders continuously enjoy and rip the benefits of another man's land. It will defeat the very purpose of the
summary procedure of an action for forcible entry.
The underlying philosophy behind ejectment suits is to prevent breach of the peace and criminal disorder and to
compel the party out of possession to respect and resort to the law alone to obtain what he claims is his. Ejectment
proceedings are summary in nature so the authorities can speedily settle actions to recover possession because of
the overriding need to quell social disturbances.44
As to the other requirements of an action for forcible entry, the Court agrees with the RTC that petitioner had
sufficiently complied with them. Petitioner proved that he was deprived of possession of the property by
stealth.1wphi1 The complaint was also filed on October 30, 2007, within the one year reglementary period counted
from the discovery of the stealthy entry by respondent to the property on October 31, 2006.
The second issue raised is the validity of the CA Resolution dated December 5, 2012. Petitioner alleges that the CA
denied his reconsideration without indicating its legal basis in violation of the mandate of Section 14, Article VIII of
the Constitution, which provides that no petition for review or motion for reconsideration of a decision of the court
shall be refused due course or denied without stating the legal basis therefor. This requirement, however, was
complied with when the CA, in its resolution denying petitioner's motion for reconsideration, stated that it "finds no
cogent reason to reverse, amend, much less reverse the assailed Decision, dated June 13, 2012." 45
WHEREFORE, the petition is GRANTED. The June 13, 2012 Decision and the December 5, 2012 Resolution of the
Court of Appeals in CA-G.R. SP No. 122153 are hereby REVERSED and SET ASIDE. The August 23, 2011 Decision
of the Regional Trial Court, Branch 33, Bauang, La Union, is hereby REINSTATED.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 129018 November 15, 2001
CARMELITA LEAO, assisted by her husband GREGORIO CUACHON, petitioner,
vs.
COURT OF APPEALS and HERMOGENES FERNANDO, respondents.
PARDO, J.:
The Case
The case is a petition for review on certiorari of the decision 1 of the Court of Appeals affirming that of the Regional Trial
Court, Malolos, Branch 72 ordering petitioner Leao to pay respondent Hermogenes Fernando the sum of P183,687.70
corresponding to her outstanding obligations under the contract to sell, with interest and surcharges due thereon, attorney's
fees and costs.1wphi1.nt
The Facts
On November 13, 1985, Hermogenes Fernando, as vendor and Carmelita Leao, as vendee executed a contract to sell
involving a piece of land, Lot No. 876-B, with an area of 431 square meters, located at Sto. Cristo, Baliuag, Bulacan. 3
In the contract, Carmelita Leao bound herself to pay Hermogenes Fernando the sum of one hundred seven thousand and
seven hundred and fifty pesos (P107,750.00) as the total purchase price of the lot. The manner of paying the total purchase
price was as follows:
"The sum of TEN THOUSAND SEVEN HUNDRED SEVENTY FIVE (P10,775.00) PESOS, shall be paid at the
signing of this contract as DOWN PAYMENT, the balance of NINETY SIX THOUSAND NINE HUNDRED
SEVENTY FIVE PESOS (P96,975.00) shall be paid within a period of TEN (10) years at a monthly amortization of
P1,747.30 to begin from December 7, 1985 with interest at eighteen per cent (18%) per annum based on
balances."4
The contract also provided for a grace period of one month within which to make payments, together with the one
corresponding to the month of grace. Should the month of grace expire without the installments for both months having been
satisfied, an interest of 18% per annum will be charged on the unpaid installments. 5
Should a period of ninety (90) days elapse from the expiration of the grace period without the overdue and unpaid
installments having been paid with the corresponding interests up to that date, respondent Fernando, as vendor, was
authorized to declare the contract cancelled and to dispose of the parcel of land, as if the contract had not been entered into.
The payments made, together with all the improvements made on the premises, shall be considered as rents paid for the
use and occupation of the premises and as liquidated damages. 6
After the execution of the contract, Carmelita Leao made several payments in lump sum. 7 Thereafter, she constructed a
house on the lot valued at P800,000.00.8 The last payment that she made was on April 1, 1989.
On September 16, 1991, the trial court rendered a decision in an ejectment case 9 earlier filed by respondent Fernando
ordering petitioner Leao to vacate the premises and to pay P250.00 per month by way of compensation for the use and
occupation of the property from May 27, 1991 until she vacated the premises, attorney's fees and costs of the suit. 10 On
August 24, 1993, the trial court issued a writ of execution which was duly served on petitioner Leao.
On September 27, 1993, petitioner Leao filed with the Regional Trial Court of Malolos, Bulacan a complaint for specific
performance with preliminary injunction. 11 Petitioner Leao assailed the validity of the judgment of the municipal trial
court12 for being violative of her right to due process and for being contrary to the avowed intentions of Republic Act No.
6552 regarding protection to buyers of lots on installments. Petitioner Leao deposited P18,000.00 with the clerk of court,
Regional Trial Court, Bulacan, to cover the balance of the total cost of Lot 876-B. 13
On November 4, 1993, after petitioner Leao posted a cash bond of P50,000.00, 14 the trial court issued a writ of preliminary
injunction15 to stay the enforcement of the decision of the municipal trial court. 16
On February 6, 1995, the trial court rendered a decision, the dispositive portion of which reads:
"WHEREFORE, judgment is hereby rendered as follows:
"1. The preliminary injunction issued by this court per its order dated November 4, 1993 is hereby made
permanent;
"2. Ordering the plaintiff to pay to the defendant the sum of P103,090.70 corresponding to her outstanding
obligations under the contract to sell (Exhibit "A" Exhibit "B") consisting of the principal of said obligation
together with the interest and surcharges due thereon as of February 28, 1994, plus interest thereon at the rate of
18% per annum in accordance with the provision of said contract to be computed from March 1, 1994, until the
same becomes fully paid;
"3. Ordering the defendant to pay to plaintiff the amount of P10,000 as and by way of attorney's fees;
"4. Ordering the defendant to pay to plaintiff the costs of the suit in Civil Case No. 1680 aforementioned.
"SO ORDERED.
"Malolos, Bulacan, February 6, 1995.
"(sgd.) DANILO A. MANALASTAS
Judge"17
18 19
On February 21, 1995, respondent Fernando filed a motion for reconsideration and the supplement thereto. The trial court
increased the amount of P103,090.70 to P183,687.00 and ordered petitioner Leao ordered to pay attorney's fees. 20
According to the trial court, the transaction between the parties was an absolute sale, making petitioner Leao the owner of
the lot upon actual and constructive delivery thereof. Respondent Fernando, the seller, was divested of ownership and
cannot recover the same unless the contract is rescinded pursuant to Article 1592 of the Civil Code which requires a judicial
or notarial demand. Since there had been no rescission, petitioner Leao, as the owner in possession of the property, cannot
be evicted.
On the issue of delay, the trial court held:
"While the said contract provides that the whole purchase price is payable within a ten-year period, yet the same
contract clearly specifies that the purchase price shall be payable in monthly installments for which the
corresponding penalty shall be imposed in case of default. The plaintiff certainly cannot ignore the binding effect
of such stipulation by merely asserting that the ten-year period for payment of the whole purchase price has not
yet lapsed. In other words, the plaintiff has clearly defaulted in the payment of the amortizations due under the
contract as recited in the statement of account (Exhibit "2") and she should be liable for the payment of interest
and penalties in accordance with the stipulations in the contract pertaining thereto." 21
The trial court disregarded petitioner Leaos claim that she made a downpayment of P10,000.00, at the time of the
execution of the contract.
The trial court relied on the statement of account 22 and the summary23 prepared by respondent Fernando to determine
petitioner Leao's liability for the payment of interests and penalties.
The trial court held that the consignation made by petitioner Leao in the amount of P18,000.00 did not produce any legal
effect as the same was not done in accordance with Articles 1176, 1177 and 1178 of the Civil Code.
In time, petitioner Leao appealed the decision to the Court of Appeals. 24 On January 22, 1997, Court of Appeals
promulgated a decision affirming that of the Regional Trial Court in toto.25 On February 11, 1997, petitioner Leao filed a
motion for reconsideration.26 On April 18, 1997, the Court of Appeals denied the motion. 27
Hence, this petition.28
The Issues
The issues to be resolved in this petition for review are (1) whether the transaction between the parties in an absolute sale or
a conditional sale; (2) whether there was a proper cancellation of the contract to sell; and (3) whether petitioner was in delay
in the payment of the monthly amortizations.
The Court's Ruling
Contrary to the findings of the trial court, the transaction between the parties was a conditional sale not an absolute sale.
The intention of the parties was to reserve the ownership of the land in the seller until the buyer has paid the total purchase
price.
Consider the following:
First, the contract to sell makes the sale, cession and conveyance "subject to conditions" set forth in the contract to sell. 29
Second, what was transferred was the possession of the property, not ownership. The possession is even limited by the
following: (1) that the vendee may continue therewith "as long as the VENDEE complies with all the terms and conditions
mentioned, and (2) that the buyer may not sell, cede, assign, transfer or mortgage or in any way encumber any right, interest
or equity that she may have or acquire in and to the said parcel of land nor to lease or to sublease it or give possession to
another person without the written consent of the seller.30
Finally, the ownership of the lot was not transferred to Carmelita Leao. As the land is covered by a torrens title, the act of
registration of the deed of sale was the operative act that could transfer ownership over the lot. 31 There is not even a deed
that could be registered since the contract provides that the seller will execute such a deed "upon complete payment by the
VENDEE of the total purchase price of the property" with the stipulated interest. 32
In a contract to sell real property on installments, the full payment of the purchase price is a positive suspensive condition,
the failure of which is not considered a breach, casual or serious, but simply an event that prevented the obligation of the
vendor to convey title from acquiring any obligatory force. 33 The transfer of ownership and title would occur after full payment
of the price.34
In the case at bar, petitioner Leao's non-payment of the installments after April 1, 1989, prevented the obligation of
respondent Fernando to convey the property from arising. In fact, it brought into effect the provision of the contract on
cancellation.
Contrary to the findings of the trial court, Article 1592 of the Civil Code is inapplicable to the case at bar. 35 However, any
attempt to cancel the contract to sell would have to comply with the provisions of Republic Act No. 6552, the "Realty
Installment Buyer Protection Act."
R.A. No. 6552 recognizes in conditional sales of all kinds of real estate (industrial, commercial, residential) the right of the
seller to cancel the contract upon non-payment of an installment by the buyer, which is simply an event that prevents the
obligation of the vendor to convey title from acquiring binding force. 36 The law also provides for the rights of the buyer in case
of cancellation. Thus, Sec. 3 (b) of the law provides that:
 "If the contract is cancelled, the seller shall refund to the buyer the cash surrender value of the payments on the
property equivalent to fifty percent of the total payments made and, after five years of installments, an additional
five percent every year but not to exceed ninety percent of the total payment made: Provided, Thatthe actual
cancellation of the contract shall take place after thirty days from receipt by the buyer of the notice of cancellation
or the demand for rescission of the contract by a notarial act and upon full payment of the cash surrender value to
the buyer." [Emphasis supplied]
37
The decision in the ejectment case operated as the notice of cancellation required by Sec. 3(b). As petitioner Leao was
not given then cash surrender value of the payments that she made, there was still no actual cancellation of the contract.
Consequently, petitioner Leao may still reinstate the contract by updating the account during the grace period and before
actual cancellation.38
Should petitioner Leao wish to reinstate the contract, she would have to update her accounts with respondent Fernando in
accordance with the statement of account39 which amount was P183,687.00.40
On the issue of whether petitioner Leao was in delay in paying the amortizations, we rule that while the contract provided
that the total purchase price was payable within a ten-year period, the same contract specified that the purchase price shall
be paid in monthly installments for which the corresponding penalty shall be imposed in case of default. Petitioner Leao
cannot ignore the provision on the payment of monthly installments by claiming that the ten-year period within which to pay
has not elapsed.
Article 1169 of the Civil Code provides that in reciprocal obligations, neither party incurs in delay if the other does not comply
or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his
obligation, delay by the other begins.1wphi1.nt
In the case at bar, respondent Fernando performed his part of the obligation by allowing petitioner Leao to continue in
possession and use of the property. Clearly, when petitioner Leao did not pay the monthly amortizations in accordance with
the terms of the contract, she was in delay and liable for damages. 41 However, we agree with the trial court that the default
committed by petitioner Leao in respect of the obligation could be compensated by the interest and surcharges imposed
upon her under the contract in question.42
It is a cardinal rule in the interpretation of contracts that if the terms of a contract are clear and leave no doubt upon the
intention of the contracting parties, the literal meaning of its stipulation shall control. 43 Thus, as there is no ambiguity in the
language of the contract, there is no room for construction, only compliance.
The Fallo
IN VIEW WHEREOF, we DENY the petition and AFFIRM the decision of the Court of Appeals44 in toto.
No costs.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 127695 December 3, 2001
HEIRS OF LUIS BACUS, namely: CLARA RESMA BACUS, ROQUE R. BACUS, SR., SATURNINO R.
BACUS, PRISCILA VDA. DE CABANERO, CARMELITA B. SUQUIB, BERNARDITA B. CARDENAS, RAUL
R. BACUS, MEDARDO R. BACUS, ANSELMA B. ALBAN, RICARDO R. BACUS, FELICISIMA B. JUDICO,
and DOMINICIANA B. TANGAL, petitioners,
vs.
HON. COURT OF APPEALS and SPOUSES FAUSTINO DURAY and VICTORIANA DURAY, respondents.
QUISUMBING, J.:
This petition assails the decision dated November 29, 1996, of the Court of Appeals in CA-G.R. CV No.
37566, affirming the decision dated August 3, 1991, of the Regional Trial Court of Cebu City, Branch 6, in Civil
Case No. CEB-8935.
The facts, as culled from the records, are as follows:
On June 1, 1984, Luis Bacus leased to private respondent Faustino Duray a parcel of agricultural land in
Bulacao, Talisay, Cebu. Designated as Lot No. 3661-A-3-B-2, it had an area of 3,002 square meters, covered
by Transfer Certificate of Title No. 48866. The lease was for six years, ending May 31, 1990. The contract
contained an option to buy clause. Under said option, the lessee had the exclusive and irrevocable right to
buy 2,000 square meters of the property within five years from a year after the effectivity of the contract, at
P200 per square meter. That rate shall be proportionately adjusted depending on the peso rate against the US
dollar, which at the time of the execution of the contract was fourteen pesos. 1
Close to the expiration of the contract, Luis Bacus died on October 10, 1989. Thereafter, on March 15, 1990,
the Duray spouses informed Roque Bacus, one of the heirs of Luis Bacus, that they were willing and ready to
purchase the property under the option to buy clause. They requested Roque Bacus to prepare the necessary
documents, such as a Special Power of Attorney authorizing him to enter into a contract of sale, 2 on behalf of
his sisters who were then abroad.
On March 30, 1990, due to the refusal of petitioners to sell the property, Faustino Duray's adverse claim was
annotated by the Register of Deeds of Cebu, at the back of TCT No. 63269, covering the segregated 2,000
square meter portion of Lot No. 3661-A-3-B-2-A.3
Subsequently, on April 5, 1990, Duray filed a complaint for specific performance against the heirs of Luis
Bacus with the Lupon Tagapamayapa of Barangay Bulacao, asking that he be allowed to purchase the lot
specifically referred to in the lease contract with option to buy. At the hearing, Duray presented a
certification4 from the manager of Standard Chartered Bank, Cebu City, addressed to Luis Bacus, stating that
at the request of Mr. Lawrence Glauber, a bank client, arrangements were being made to allow Faustino
Duray to borrow funds of approximately P700,000 to enable him to meet his obligations under the contract
with Luis Bacus.5
Having failed to reach an agreement before the Lupon, on April 27, 1990, private respondents filed a
complaint for specific performance with damages against petitioners before the Regional Trial Court, praying
that the latter, (a) execute a deed of sale over the subject property in favor of private respondents; (b) receive
the payment of the purchase price; and (c) pay the damages.
On the other hand, petitioners alleged that before Luis Bacus' death, private respondents conveyed to them
the former's lack of interest to exercise their option because of insufficiency of funds, but they were surprised
to learn of private respondents' demand. In turn, they requested private respondents to pay the purchase price
in full but the latter refused. They further alleged that private respondents did not deposit the money as
required by the Lupon and instead presented a bank certification which cannot be deemed legal tender.
On October 30, 1990, private respondents manifested in court that they caused the issuance of a cashier's
check in the amount of P650,0006 payable to petitioners at anytime upon demand.
On August 3, 1991, the Regional Trial Court ruled in favor of private respondents, the dispositive portion of
which reads:
Premises considered, the court finds for the plaintiffs and orders the defendants to specifically
perform their obligation in the option to buy and to execute a document of sale over the property
covered by Transfer Certificate of Title # T-63269 upon payment by the plaintiffs to them in the
amount of Six Hundred Seventy-Five Thousand Six Hundred Seventy-Five (P675,675.00) Pesos
within a period of thirty (30) days from the date this decision becomes final.
SO ORDERED.7
Unsatisfied, petitioners appealed to the respondent Court of Appeals which denied the appeal on November
29, 1996, on the ground that the private respondents exercised their option to buy the leased property before
the expiration of the contract of lease. It held:
. . . After a careful review of the entire records of this case, we are convinced that the plaintiffs-
appellees validly and effectively exercised their option to buy the subject property. As opined by the
lower court, "the readiness and preparedness of the plaintiff on his part, is manifested by his
cautionary letters, the prepared bank certification long before the date of May 31, 1990, the final day
of the option, and his filing of this suit before said date. If the plaintiff-appellee Francisco Duray had
no intention to purchase the property, he would not have bothered to write those letters to the
defendant-appellants (which were all received by them) and neither would he be interested in having
his adverse claim annotated at the back of the T.C.T. of the subject property, two (2) months before
the expiration of the lease. Moreover, he even went to the extent of seeking the help of the Lupon
Tagapamayapa to compel the defendants-appellants to recognize his right to purchase the property
and for them to perform their corresponding obligation.8
xxx xxx xxx
We therefore find no merit in this appeal.
9
WHEREFORE, the decision appealed from is hereby AFFIRMED.
Hence, this petition where petitioners aver that the Court of Appeals gravely erred and abused its discretion in:
I. . . . UPHOLDING THE TRIAL COURT'S RULING IN THE SPECIFIC PERFORMANCE CASE BY
ORDERING PETITIONERS (DEFENDANTS THEREIN) TO EXECUTE A DOCUMENT OF SALE
OVER THE PROPERTY IN QUESTION (WITH TCT NO. T-63269) TO THEM IN THE AMOUNT OF
P675,675.00 WITHIN THIRTY (30) DAYS FROM THE DATE THE DECISION BECOMES FINAL;
II. . . . DISREGARDING LEGAL PRINCIPLES, SPECIFIC PROVISIONS OF LAW AND
JURISPRUDENCE IN UPHOLDING THE DECISION OF THE TRIAL COURT TO THE EFFECT
THAT PRIVATE RESPONDENTS HAD EXERCISED THEIR RIGHT OF OPTION TO BUY ON TIME;
THUS THE PRESENTATION OF THE CERTIFICATION OF THE BANK MANAGER OF A BANK
DEPOSIT IN THE NAME OF ANOTHER PERSON FOR LOAN TO RESPONDENTS WAS
EQUIVALENT TO A VALID TENDER OF PAYMENT AND A SUFFICIENT COMPLAINCE (SIC) OF A
CONDITION FOR THE EXERCISE OF THE OPTION TO BUY; AND
III. . . . UPHOLDING THE TRIAL COURT'S RULING THAT THE PRESENTATION OF A CASHER'S
(SIC) CHECK BY THE RESPONDENTS IN THE AMOUNT OF P625,000.00 EVEN AFTER THE
TERMINATION OF THE TRIAL ON THE MERITS WITH BOTH PARTIES ALREADY HAVING
RESTED THEIR CASE, WAS STILL VALID COMPLIANCE OF THE CONDITION FOR THE
PRIVATE RESPONDENTS' (PLAINTIFFS THEREIN) EXERCISE OF RIGHT OF OPTION TO BUY
AND HAD A FORCE OF VALID AND FULL TENDER OF PAYMENT WITHIN THE AGREED
PERIOD.10
Petitioners insist that they cannot be compelled to sell the disputed property by virtue of the nonfulfillment of
the obligation under the option contract of the private respondents.
Private respondents first aver that petitioners are unclear if Rule 65 or Rule 45 of the Rules of Court govern
their petition, and that petitioners only raised questions of facts which this Court cannot properly entertain in a
petition for review. They claim that even assuming that the instant petition is one under Rule 45, the same
must be denied for the Court of Appeals has correctly determined that they had validly exercised their option
to buy the leased property before the contract expired.
In response, petitioners state that private respondents erred in initially classifying the instant petition as one
under Rule 65 of the Rules of Court. They argue that the petition is one under Rule 45 where errors of the
Court of Appeals, whether evidentiary or legal in nature, may be reviewed.
We agree with private respondents that in a petition for review under Rule 45, only questions of law may be
raised.11 However, a close reading of petitioners' arguments reveal the following legal issues which may
properly be entertained in the instant petition:
a) When private respondents opted to buy the property covered by the lease contract with option to
buy, were they already required to deliver the money or consign it in court before petitioner executes
a deed of transfer?
b) Did private respondents incur in delay when they did not deliver the purchase price or consign it in
court on or before the expiration of the contract?
On the first issue, petitioners contend that private respondents failed to comply with their obligation because
there was neither actual delivery to them nor consignation in court or with the Municipal, City or Provincial
Treasurer of the purchase price before the contract expired. Private respondents' bank certificate stating that
arrangements were being made by the bank to release P700,000 as a loan to private respondents cannot be
considered as legal tender that may substitute for delivery of payment to petitioners nor was it a consignation.
Obligations under an option to buy are reciprocal obligations. 12 The performance of one obligation is
conditioned on the simultaneous fulfillment of the other obligation. 13 In other words, in an option to buy, the
payment of the purchase price by the creditor is contingent upon the execution and delivery of a deed of sale
by the debtor. In this case, when private respondents opted to buy the property, their obligation was to advise
petitioners of their decision and their readiness to pay the price. They were not yet obliged to make actual
payment. Only upon petitioners' actual execution and delivery of the deed of sale were they required to pay.
As earlier stated, the latter was contingent upon the former. In Nietes vs. Court of Appeals, 46 SCRA 654
(1972), we held that notice of the creditor's decision to exercise his option to buy need not be coupled with
actual payment of the price, so long as this is delivered to the owner of the property upon performance of his
part of the agreement. Consequently, since the obligation was not yet due, consignation in court of the
purchase price was not yet required.
Consignation is the act of depositing the thing due with the court or judicial authorities whenever the creditor
cannot accept or refuses to accept payment and it generally requires a prior tender of payment. In instances,
where no debt is due and owing, consignation is not proper.14 Therefore, petitioners' contention that private
respondents failed to comply with their obligation under the option to buy because they failed to actually
deliver the purchase price or consign it in court before the contract expired and before they execute a deed,
has no leg to stand on.
Corollary, private respondents did not incur in delay when they did not yet deliver payment nor make a
consignation before the expiration of the contract. In reciprocal obligations, neither party incurs in delay if the
other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. Only
from the moment one of the parties fulfills his obligation, does delay by the other begin. 15
In this case, private respondents, as early as March 15, 1990, communicated to petitioners their intention to
buy the property and they were at that time undertaking to meet their obligation before the expiration of the
contract on May 31, 1990. However, petitioners refused to execute the deed of sale and it was their demand
to private respondents to first deliver the money before they would execute the same which prompted private
respondents to institute a case for specific performance in the Lupong Tagapamayapa and then in the RTC.
On October 30, 1990, after the case had been submitted for decision but before the trial court rendered its
decision, private respondents issued a cashier's check in petitioners' favor purportedly to bolster their claim
that they were ready to pay the purchase price. The trial court considered this in private respondents' favor
and we believe that it rightly did so, because at the time the check was issued, petitioners had not yet
executed a deed of sale nor expressed readiness to do so. Accordingly, as there was no compliance yet with
what was incumbent upon petitioners under the option to buy, private respondents had not incurred in delay
when the cashier's check was issued even after the contract expired.
WHEREFORE, the instant petition is DENIED. The decision dated November 29, 1996 of the Court of
Appeals is hereby AFFIRMED.
Costs against petitioners.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
G.R. No. 181206 October 9, 2009
MEGAWORLD GLOBUS ASIA, INC., Petitioner,
vs.
MILA S. TANSECO, Respondent.
DECISION
CARPIO MORALES, J.:
On July 7, 1995, petitioner Megaworld Globus Asia, Inc. (Megaworld) and respondent Mila S. Tanseco
(Tanseco) entered into a Contract to Buy and Sell 1 a 224 square-meter (more or less) condominium unit at a
pre-selling project, "The Salcedo Park," located along Senator Gil Puyat Avenue, Makati City.
The purchase price was P16,802,037.32, to be paid as follows: (1) 30% less the reservation fee of P100,000,
orP4,940,611.19, by postdated check payable on July 14, 1995; (2) P9,241,120.50 through 30 equal monthly
installments of P308,037.35 from August 14, 1995 to January 14, 1998; and (3) the balance of P2,520,305.63
onOctober 31, 1998, the stipulated delivery date of the unit; provided that if the construction is completed
earlier, Tanseco would pay the balance within seven days from receipt of a notice of turnover.
Section 4 of the Contract to Buy and Sell provided for the construction schedule as follows:
4. CONSTRUCTION SCHEDULE The construction of the Project and the unit/s herein purchased shall be
completed and delivered not later than October 31, 1998 with additional grace period of six (6) months within
which to complete the Project and the unit/s, barring delays due to fire, earthquakes, the elements, acts of
God, war, civil disturbances, strikes or other labor disturbances, government and economic controls making it,
among others, impossible or difficult to obtain the necessary materials, acts of third person, or any other
cause or conditions beyond the control of the SELLER. In this event, the completion and delivery of the unit
are deemed extended accordingly without liability on the part of the SELLER. The foregoing notwithstanding,
the SELLER reserves the right to withdraw from this transaction and refund to the BUYER without interest the
amounts received from him under this contract if for any reason not attributable to SELLER, such as but not
limited to fire, storms, floods, earthquakes, rebellion, insurrection, wars, coup de etat, civil disturbances or for
other reasons beyond its control, the Project may not be completed or it can only be completed at a financial
loss to the SELLER. In any event, all construction on or of the Project shall remain the property of the
SELLER. (Underscoring supplied)
Tanseco paid all installments due up to January, 1998, leaving unpaid the balance of P2,520,305.63 pending
delivery of the unit.2 Megaworld, however, failed to deliver the unit within the stipulated period on October 31,
1998 or April 30, 1999, the last day of the six-month grace period.
A few days shy of three years later, Megaworld, by notice dated April 23, 2002 (notice of turnover), informed
Tanseco that the unit was ready for inspection preparatory to delivery.3 Tanseco replied through counsel, by
letter of May 6, 2002, that in view of Megaworlds failure to deliver the unit on time, she was demanding the
return ofP14,281,731.70 representing the total installment payment she had made, with interest at 12% per
annum from April 30, 1999, the expiration of the six-month grace period. Tanseco pointed out that none of the
excepted causes of delay existed.4
Her demand having been unheeded, Tanseco filed on June 5, 2002 with the Housing and Land Use
Regulatory Boards (HLURB) Expanded National Capital Region Field Office a complaint against Megaworld
for rescission of contract, refund of payment, and damages. 5
In its Answer, Megaworld attributed the delay to the 1997 Asian financial crisis which was beyond its control;
and argued that default had not set in, Tanseco not having made any judicial or extrajudicial demand for
delivery before receipt of the notice of turnover.6
By Decision of May 28, 2003, 7 the HLURB Arbiter dismissed Tansecos complaint for lack of cause of action,
finding that Megaworld had effected delivery by the notice of turnover before Tanseco made a demand.
Tanseco was thereupon ordered to pay Megaworld the balance of the purchase price, plus P25,000 as moral
damages, P25,000 as exemplary damages, and P25,000 as attorneys fees.
On appeal by Tanseco, the HLURB Board of Commissioners, by Decision of November 28, 2003, 8 sustained
the HLURB Arbiters Decision on the ground of laches for failure to demand rescission when the right thereto
accrued. It deleted the award of damages, however. Tansecos Motion for Reconsideration having been
denied,9 she appealed to the Office of the President which dismissed the appeal by Decision of April 28,
200610 for failure to show that the findings of the HLURB were tainted with grave abuse of discretion. Her
Motion for Reconsideration having been denied by Resolution dated August 30, 2006, 11 Tanseco filed a
Petition for Review under Rule 43 with the Court of Appeals.12
By Decision of September 28, 2007,13 the appellate court granted Tansecos petition, disposing thus:
WHEREFORE, premises considered, petition is hereby GRANTED and the assailed May 28, 2003 decision of
the HLURB Field Office, the November 28, 2003 decision of the HLURB Board of Commissioners in HLURB
Case No. REM-A-030711-0162, the April 28, 2006 Decision and August 30, 2006 Resolution of the Office of
the President in O.P. Case No. 05-I-318, are hereby REVERSED and SET ASIDE and a new one entered:
(1) RESCINDING, as prayed for by TANSECO, the aggrieved party, the contract to buy and sell;
(2) DIRECTING MEGAWORLD TO PAYTANSECO the amount she had paid totaling P14,281,731.70 with
Twelve (12%) Percent interest per annum from October 31, 1998; (3) ORDERING MEGAWORLD TO
PAY TANSECO P200,000.00 by way of exemplary damages; (4) ORDERING MEGAWORLD TO
PAY TANSECO P200,000.00 as attorneys fees; and (5) ORDERINGMEGAWORLD TO PAY TANSECO the
cost of suit. (Emphasis in the original; underscoring supplied)
The appellate court held that under Article 1169 of the Civil Code, no judicial or extrajudicial demand is
needed to put the obligor in default if the contract, as in the herein parties contract, states the date when the
obligation should be performed; that time was of the essence because Tanseco relied on Megaworlds
promise of timely delivery when she agreed to part with her money; that the delay should be reckoned from
October 31, 1998, there being no force majeure to warrant the application of the April 30, 1999 alternative
date; and that specific performance could not be ordered in lieu of rescission as the right to choose the
remedy belongs to the aggrieved party.
The appellate court awarded Tanseco exemplary damages on a finding of bad faith on the part of Megaworld
in forcing her to accept its long-delayed delivery; and attorneys fees, she having been compelled to sue to
protect her rights.
Its Motion for Reconsideration having been denied by Resolution of January 8, 2008, 14 Megaworld filed the
present Petition for Review on Certiorari, echoing its position before the HLURB, adding that Tanseco had not
shown any basis for the award of damages and attorneys fees.15
Tanseco, on the other hand, maintained her position too, and citing Megaworlds bad faith which became
evident when it insisted on making the delivery despite the long delay, 16 insisted that she deserved the award
of damages and attorneys fees.
Article 1169 of the Civil Code provides:
Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or
extrajudicially demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order that delay may exist:
(1) When the obligation or the law expressly so declares; or
(2) When from the nature and the circumstances of the obligation it appears that the designation of
the time when the thing is to be delivered or the service is to be rendered was a controlling motive
for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond his power to
perform.
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in
a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation,
delay by the other begins. (Underscoring supplied)
The Contract to Buy and Sell of the parties contains reciprocal obligations, i.e., to complete and deliver the
condominium unit on October 31, 1998 or six months thereafter on the part of Megaworld, and to pay the
balance of the purchase price at or about the time of delivery on the part of Tanseco. Compliance by
Megaworld with its obligation is determinative of compliance by Tanseco with her obligation to pay the balance
of the purchase price. Megaworld having failed to comply with its obligation under the contract, it is liable
therefor.17
That Megaworlds sending of a notice of turnover preceded Tansecos demand for refund does not abate her
cause. For demand would have been useless, Megaworld admittedly having failed in its obligation to deliver
the unit on the agreed date.
Article 1174 of the Civil Code provides: Finally, since Article 119125 of the Civil Code does not apply to a contract to buy and sell, the suspensive
condition of full payment of the purchase price not having occurred to trigger the obligation to convey
Art. 1174. Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or title, cancellation, not rescission, of the contract is thus the correct remedy in the premises. 26
when the nature of the obligation requires the assumption of risk, no person shall be responsible for those
events which could not be foreseen, or which, though foreseen, were inevitable. 18 WHEREFORE, the challenged Decision of the Court of Appeals is, in light of the foregoing, AFFIRMED with
MODIFICATION.
The Court cannot generalize the 1997 Asian financial crisis to be unforeseeable and beyond the control of a
business corporation. A real estate enterprise engaged in the pre-selling of condominium units is concededly a As modified, the dispositive portion of the Decision reads:
master in projections on commodities and currency movements, as well as business risks. The fluctuating
movement of the Philippine peso in the foreign exchange market is an everyday occurrence, hence, not an The July 7, 1995 Contract to Buy and Sell between the parties is cancelled. Petitioner, Megaworld Globus
instance of caso fortuito.19 Megaworlds excuse for its delay does not thus lie. Asia, Inc., is directed to pay respondent, Mila S. Tanseco, the amount of P14,281,731.70, to bear 6% interest
per annum starting May 6, 2002 and 12% interest per annum from the time the judgment becomes final and
As for Megaworlds argument that Tansecos claim is considered barred by laches on account of her belated executory; and to pay P200,000 attorneys fees, P100,000 exemplary damages, and costs of suit.
demand, it does not lie too. Laches is a creation of equity and its application is controlled by equitable
considerations.20 It bears noting that Tanseco religiously paid all the installments due up to January, 1998, Costs against petitioner.
whereas Megaworld reneged on its obligation to deliver within the stipulated period. A circumspect weighing of
equitable considerations thus tilts the scale of justice in favor of Tanseco.
SO ORDERED.
21
Pursuant to Section 23 of Presidential Decree No. 957 which reads:
Republic of the Philippines
SUPREME COURT
Sec. 23. Non-Forfeiture of Payments. - No installment payment made by a buyer in a subdivision or
condominium project for the lot or unit he contracted to buy shall be forfeited in favor of the owner or Manila
developer when the buyer, after due notice to the owner or developer, desists from further payment due to the
failure of the owner or developer to develop the subdivision or condominium project according to the approved THIRD DIVISION
plans and within the time limit for complying with the same.
Such buyer may, at his option, be reimbursed the total amount paid including amortizationinterests but
excluding delinquency interests, with interest thereon at the legal rate. (Emphasis and underscoring supplied), G.R. No. 193723 July 20, 2011

Tanseco is, as thus prayed for, entitled to be reimbursed the total amount she paid Megaworld. GENERAL MILLING CORPORATION, Petitioner,
vs.
While the appellate court correctly awarded P14,281,731.70 then, the interest rate should, however, be 6% SPS. LIBRADO RAMOS and REMEDIOS RAMOS, Respondents.
per annum accruing from the date of demand on May 6, 2002, and then 12% per annum from the time this
judgment becomes final and executory, conformably with Eastern Shipping Lines, Inc. v. Court of Appeals. 22 DECISION

The award of P200,000 attorneys fees and of costs of suit is in order too, the parties having stipulated in the VELASCO, JR., J.:
Contract to Buy and Sell that these shall be borne by the losing party in a suit based thereon, 23 not to mention
that Tanseco was compelled to retain the services of counsel to protect her interest. And so is the award of
exemplary damages. With pre-selling ventures mushrooming in the metropolis, there is an increasing need to The Case
correct the insidious practice of real estate companies of proffering all sorts of empty promises to entice
innocent buyers and ensure the profitability of their projects. This is a petition for review of the April 15, 2010 Decision of the Court of Appeals (CA) in CA-G.R. CR-
H.C. No. 85400 entitled Spouses Librado Ramos & Remedios Ramos v. General Milling Corporation, et
The Court finds the appellate courts award of P200,000 as exemplary damages excessive, however. al., which affirmed the May 31, 2005 Decision of the Regional Trial Court (RTC), Branch 12 in Lipa City,
Exemplary damages are imposed not to enrich one party or impoverish another but to serve as a deterrent
in Civil Case No. 00-0129 for Annulment and/or Declaration of Nullity of Extrajudicial Foreclosure Sale
against or as a negative incentive to curb socially deleterious actions. 24 The Court finds that P100,000 is
reasonable in this case. with Damages.

The Facts
On August 24, 1989, General Milling Corporation (GMC) entered into a Growers Contract with spouses
Librado and Remedios Ramos (Spouses Ramos). Under the contract, GMC was to supply broiler
chickens for the spouses to raise on their land in Barangay Banaybanay, Lipa City, Batangas. 1 To
guarantee full compliance, the Growers Contract was accompanied by a Deed of Real Estate Mortgage
over a piece of real property upon which their conjugal home was built. The spouses further agreed to
put up a surety bond at the rate of PhP 20,000 per 1,000 chicks delivered by GMC. The Deed of Real
Estate Mortgage extended to Spouses Ramos a maximum credit line of PhP 215,000 payable within an
indefinite period with an interest of twelve percent (12%) per annum.2
The Deed of Real Estate Mortgage contained the following provision:
WHEREAS, the MORTGAGOR/S has/have agreed to guarantee and secure the full and faithful
compliance of [MORTGAGORS] obligation/s with the MORTGAGEE by a First Real Estate Mortgage in
favor of the MORTGAGEE, over a 1 parcel of land and the improvements existing thereon, situated in
the Barrio/s of Banaybanay, Municipality of Lipa City, Province of Batangas, Philippines, his/her/their
title/s thereto being evidenced by Transfer Certificate/s No./s T-9214 of the Registry of Deeds for the
Province of Batangas in the amount of TWO HUNDRED FIFTEEN THOUSAND (P 215,000.00),
Philippine Currency, which the maximum credit line payable within a x x x day term and to secure the
payment of the same plus interest of twelve percent (12%) per annum.
Spouses Ramos eventually were unable to settle their account with GMC. They alleged that they
suffered business losses because of the negligence of GMC and its violation of the Growers Contract.3
On March 31, 1997, the counsel for GMC notified Spouses Ramos that GMC would institute foreclosure
proceedings on their mortgaged property.4
On May 7, 1997, GMC filed a Petition for Extrajudicial Foreclosure of Mortgage. On June 10, 1997, the
property subject of the foreclosure was subsequently sold by public auction to GMC after the required
posting and publication.5 It was foreclosed for PhP 935,882,075, an amount representing the losses on
chicks and feeds exclusive of interest at 12% per annum and attorneys fees. 6 To complicate matters, on
October 27, 1997, GMC informed the spouses that its Agribusiness Division had closed its business and
poultry operations.7
On March 3, 2000, Spouses Ramos filed a Complaint for Annulment and/or Declaration of Nullity of the
Extrajudicial Foreclosure Sale with Damages. They contended that the extrajudicial foreclosure sale on
June 10, 1997 was null and void, since there was no compliance with the requirements of posting and
publication of notices under Act No. 3135, as amended, or An Act to Regulate the Sale of Property
under Special Powers Inserted in or Annexed to Real Estate Mortgages. They likewise claimed that
there was no sheriffs affidavit to prove compliance with the requirements on posting and publication of
notices. It was further alleged that the Deed of Real Estate Mortgage had no fixed term. A prayer for
moral and exemplary damages and attorneys fees was also included in the complaint. 8Librado Ramos
alleged that, when the property was foreclosed, GMC did not notify him at all of the foreclosure.9
During the trial, the parties agreed to limit the issues to the following: (1) the validity of the Deed of Real
Estate Mortgage; (2) the validity of the extrajudicial foreclosure; and (3) the party liable for damages.10
In its Answer, GMC argued that it repeatedly reminded Spouses Ramos of their liabilities under the
Growers Contract. It argued that it was compelled to foreclose the mortgage because of Spouses
Ramos failure to pay their obligation. GMC insisted that it had observed all the requirements of posting
and publication of notices under Act No. 3135.11
The Ruling of the Trial Court
Holding in favor of Spouses Ramos, the trial court ruled that the Deed of Real Estate Mortgage was
valid even if its term was not fixed. Since the duration of the term was made to depend exclusively upon
the will of the debtors-spouses, the trial court cited jurisprudence and said that "the obligation is not due
and payable until an action is commenced by the mortgagee against the mortgagor for the purpose of
having the court fix the date on and after which the instrument is payable and the date of maturity is
fixed in pursuance thereto."12
The trial court held that the action of GMC in moving for the foreclosure of the spouses properties was
premature, because the latters obligation under their contract was not yet due.
The trial court awarded attorneys fees because of the premature action taken by GMC in filing
extrajudicial foreclosure proceedings before the obligation of the spouses became due.
The RTC ruled, thus:
WHEREFORE, premises considered, judgment is rendered as follows:
1. The Extra-Judicial Foreclosure Proceedings under docket no. 0107-97 is hereby declared
null and void;
2. The Deed of Real Estate Mortgage is hereby declared valid and legal for all intents and
puposes;
3. Defendant-corporation General Milling Corporation is ordered to pay Spouses Librado and
Remedios Ramos attorneys fees in the total amount of P 57,000.00 representing acceptance
fee of P30,000.00 and P3,000.00 appearance fee for nine (9) trial dates or a total appearance
fee of P 27,000.00;
4. The claims for moral and exemplary damages are denied for lack of merit.
IT IS SO ORDERED.13
The Ruling of the Appellate Court
On appeal, GMC argued that the trial court erred in: (1) declaring the extrajudicial foreclosure
proceedings null and void; (2) ordering GMC to pay Spouses Ramos attorneys fees; and (3) not
awarding damages in favor of GMC.
The CA sustained the decision of the trial court but anchored its ruling on a different ground. Contrary to
the findings of the trial court, the CA ruled that the requirements of posting and publication of notices
under Act No. 3135 were complied with. The CA, however, still found that GMCs action against
Spouses Ramos was premature, as they were not in default when the action was filed on May 7,
1997.14
The CA ruled:
In this case, a careful scrutiny of the evidence on record shows that defendant-appellant GMC made no
demand to spouses Ramos for the full payment of their obligation. While it was alleged in the Answer as
well as in the Affidavit constituting the direct testimony of Joseph Dominise, the principal witness of
defendant-appellant GMC, that demands were sent to spouses Ramos, the documentary evidence
proves otherwise. A perusal of the letters presented and offered as evidence by defendant-appellant
GMC did not "demand" but only request spouses Ramos to go to the office of GMC to "discuss" the
settlement of their account.15
According to the CA, however, the RTC erroneously awarded attorneys fees to Spouses Ramos, since
the presumption of good faith on the part of GMC was not overturned.
The CA disposed of the case as follows:
WHEREFORE, and in view of the foregoing considerations, the Decision of the Regional Trial Court of
Lipa City, Branch 12, dated May 21, 2005 is hereby AFFIRMED with MODIFICATION by deleting the
award of attorneys fees to plaintiffs-appellees spouses Librado Ramos and Remedios Ramos.16
Hence, We have this appeal.
The Issues
A. WHETHER [THE CA] MAY CONSIDER ISSUES NOT ALLEGED AND DISCUSSED IN THE
LOWER COURT AND LIKEWISE NOT RAISED BY THE PARTIES ON APPEAL,
THEREFORE HAD DECIDED THE CASE NOT IN ACCORD WITH LAW AND APPLICABLE
DECISIONS OF THE SUPREME COURT.
B. WHETHER [THE CA] ERRED IN RULING THAT PETITIONER GMC MADE NO DEMAND
TO RESPONDENT SPOUSES FOR THE FULL PAYMENT OF THEIR OBLIGATION
CONSIDERING THAT THE LETTER DATED MARCH 31, 1997 OF PETITIONER GMC TO
RESPONDENT SPOUSES IS TANTAMOUNT TO A FINAL DEMAND TO PAY, THEREFORE IT
DEPARTED FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL PROCEEDINGS.17
The Ruling of this Court
Can the CA consider matters not alleged?
GMC asserts that since the issue on the existence of the demand letter was not raised in the trial court,
the CA, by considering such issue, violated the basic requirements of fair play, justice, and due
process.18
In their Comment,19 respondents-spouses aver that the CA has ample authority to rule on matters not
assigned as errors on appeal if these are indispensable or necessary to the just resolution of the
pleaded issues.
In Diamonon v. Department of Labor and Employment,20 We explained that an appellate court has a
broad discretionary power in waiving the lack of assignment of errors in the following instances:
(a) Grounds not assigned as errors but affecting the jurisdiction of the court over the subject
matter;
(b) Matters not assigned as errors on appeal but are evidently plain or clerical errors within
contemplation of law;
(c) Matters not assigned as errors on appeal but consideration of which is necessary in arriving
at a just decision and complete resolution of the case or to serve the interests of a justice or to
avoid dispensing piecemeal justice;
(d) Matters not specifically assigned as errors on appeal but raised in the trial court and are
matters of record having some bearing on the issue submitted which the parties failed to raise
or which the lower court ignored;
(e) Matters not assigned as errors on appeal but closely related to an error assigned;
(f) Matters not assigned as errors on appeal but upon which the determination of a question
properly assigned, is dependent.
Paragraph (c) above applies to the instant case, for there would be a just and complete resolution of the
appeal if there is a ruling on whether the Spouses Ramos were actually in default of their obligation to
GMC.
Was there sufficient demand?
We now go to the second issue raised by GMC. GMC asserts error on the part of the CA in finding that
no demand was made on Spouses Ramos to pay their obligation. On the contrary, it claims that its
March 31, 1997 letter is akin to a demand.
We disagree. WHEREFORE, the petition is DENIED. The CA Decision in CA-G.R. CR-H.C. No. 85400 is AFFIRMED.

There are three requisites necessary for a finding of default. First, the obligation is demandable and SO ORDERED.
liquidated; second, the debtor delays performance; and third, the creditor judicially or extrajudicially
requires the debtors performance.21

According to the CA, GMC did not make a demand on Spouses Ramos but merely requested them to
go to GMCs office to discuss the settlement of their account. In spite of the lack of demand made on
the spouses, however, GMC proceeded with the foreclosure proceedings. Neither was there any
provision in the Deed of Real Estate Mortgage allowing GMC to extrajudicially foreclose the mortgage
without need of demand.

Indeed, Article 1169 of the Civil Code on delay requires the following:

Those obliged to deliver or to do something incur in delay from the time the obligee judicially or
Republic of the Philippines
extrajudicially demands from them the fulfilment of their obligation.
Supreme Court
Manila
However, the demand by the creditor shall not be necessary in order that delay may exist:

(1) When the obligation or the law expressly so declares; x x x THIRD DIVISION

As the contract in the instant case carries no such provision on demand not being necessary for delay
to exist, We agree with the appellate court that GMC should have first made a demand on the spouses R.S. TOMAS, INC., G.R. No. 173155
before proceeding to foreclose the real estate mortgage. Petitioner, March 21, 2012

Development Bank of the Philippines v. Licuanan finds application to the instant case: - versus -

The issue of whether demand was made before the foreclosure was effected is essential.1avvphi1 If RIZAL CEMENT COMPANY, INC.,
demand was made and duly received by the respondents and the latter still did not pay, then they were Respondent.
already in default and foreclosure was proper. However, if demand was not made, then the loans had
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
not yet become due and demandable. This meant that respondents had not defaulted in their payments
and the foreclosure by petitioner was premature. Foreclosure is valid only when the debtor is in default
DECISION
in the payment of his obligation.22
PERALTA, J.:

In turn, whether or not demand was made is a question of fact.23 This petition filed under Rule 45 of the
Rules of Court shall raise only questions of law. For a question to be one of law, it must not involve an
examination of the probative value of the evidence presented by the litigants or any of them. The
resolution of the issue must rest solely on what the law provides on the given set of circumstances.
Once it is clear that the issue invites a review of the evidence presented, the question posed is one of
fact.24 It need not be reiterated that this Court is not a trier of facts.25 We will defer to the factual findings
of the trial court, because petitioner GMC has not shown any circumstances making this case an
exception to the rule.
This is a petition for review on certiorari under Rule 45 of the Rules of Court filed by petitioner R.S.
Tomas, Inc. against respondent Rizal Cement Company, Inc. assailing the Court of Appeals (CA)
Decision[1] dated December 19, 2005 and Resolution [2] dated June 6, 2006 in CA-G.R. CV No. 61049.
The assailed decision reversed and set aside the Regional Trial Court [3] (RTC) Decision[4] dated June 5,
1998 in Civil Case No. 92-1562.
The facts of the case, as culled from the records, are as follows:
On December 28, 1990, respondent and petitioner entered into a Contract [5] for the supply of labor,
materials, and technical supervision of the following projects:
1. J.O. #P-90-212 Wiring and installation of primary and secondary lines system.
2. J.O. #P-90-213 Supply and installation of primary protection and disconnecting
switch.
3. J.O. #P-90-214 Rewinding and conversion of one (1) unit 3125 KVA, 34.5
KV/2.4 KV, 3 Transformer to 4000 KVA, 34.5 KV/480V, 3 Delta Primary, Wye with
neutral secondary.[6]
Petitioner agreed to perform the above-mentioned job orders. Specifically, it undertook to
supply the labor, equipment, supervision, and materials as specified in the detailed scope of work. [7] For
its part, respondent agreed to pay the total sum of P2,944,000.00 in consideration of the performance of
the job orders. Petitioner undertook to complete the projects within one hundred twenty (120) days from
the effectivity of the contract.[8] It was agreed upon that petitioner would be liable to respondent for
liquidated damages in the amount of P29,440.00 per day of delay in the completion of the projects
which shall be limited to 10% of the project cost. [9] To secure the full and faithful performance of all its
obligations and responsibilities under the contract, petitioner obtained from Times Surety & Insurance
Co. Inc. (Times Insurance) a performance bond [10] in an amount equivalent to fifty percent (50%) of the
contract price or P1,458,618.18. Pursuant to the terms of the contract, respondent made an initial
payment of P1,458,618.18 on January 8, 1991.[11]
In a letter[12] dated March 9, 1991, petitioner requested for an extension of seventy-five (75)
days within which to complete the projects because of the need to import some of the materials needed.
In the same letter, it also asked for a price adjustment of P255,000.00 to cover the higher cost of
materials.[13] In another letter[14] dated March 27, 1991, petitioner requested for another 75 days
extension for the completion of the transformer portion of the projects for failure of its supplier to deliver
the materials.
On June 14, 1991,[15] petitioner manifested its desire to complete the project as soon as
possible to prevent further losses and maintain goodwill between the companies. Petitioner requested
for respondents assistance by facilitating the acquisition of materials and supplies needed to complete
J.O. #P-90-212 and J.O. #P-90-213 by directly paying the suppliers. It further sought that it be allowed
to back out from J.O. #P-90-214 covering the rewinding and conversion of the damaged transformer.
In response[16] to petitioners requests, respondent, through counsel, manifested its observation
that petitioners financial status showed that it could no longer complete the projects as agreed upon.
Respondent also informed petitioner that it was already in default having failed to complete the projects
within 120 days from the effectivity of the contract. Respondent further notified petitioner that the former
was terminating the contract. It also demanded for the refund of the amount already paid to petitioner,
otherwise, the necessary action would be instituted. Respondent sent another demand letter [17] to Times
Insurance for the payment of P1,472,000.00 pursuant to the performance bond it issued.
On November 14, 1991,[18] respondent entered into two contracts with Geostar Philippines, Inc.
(Geostar) for the completion of the projects commenced but not completed by petitioner for a total
consideration ofP3,435,000.00.
On December 14, 1991, petitioner reiterated its desire to complete J.O. #P-90-212 and J.O.
#P-90-213 and to exclude J.O. #P-90-214,[19] but the same was denied by respondent in a letter[20] dated
January 14, 1992. In the same letter, respondent pointed out that amicable settlement is impossible.
Hence, the Complaint for Sum of Money[21] filed by respondent against petitioner and Times Surety &
Insurance Co., Inc. praying for the payment of the following: P493,695.00 representing the amount
which they owed respondent from the downpayment and advances made by the latter vis--vis the work
accomplishment; P2,550,945.87 representing the amount incurred in excess of the cost of the projects
as agreed upon; P294,000.00 as liquidated damages; plus interest and attorneys fees.[22]
Times Insurance did not file any pleading nor appeared in court. For its part, petitioner
denied[23] liability and claimed instead that it failed to complete the projects due to respondents fault. It
explained that it relied in good faith on respondents representation that the transformer subject of the
contract could still be rewound and converted but upon dismantling the core-coil assembly, it discovered
that the coils were already badly damaged and the primary bushing broken. This discovery allegedly
entailed price adjustment. Petitioner thus requested respondent for additional time within which to
complete the project and additional amount to finance the same. Petitioner also insisted that the
proximate cause of the delay is the misrepresentation of the respondent on the extent of the defect of
the transformer.
After the presentation of the parties respective evidence, the RTC rendered a decision on June
5, 1998 in favor of petitioner, the dispositive portion of which reads:
Wherefore, finding defendant-contractors evidence more preponderant than
that of the plaintiff, judgment is hereby rendered in favor of the defendant-contractor
against the plaintiff and hereby orders:
(1) that the instant case be DISMISSED;
(2) that plaintiff pays defendant the amount of P4,000,000.00; for
moral and exemplary & other damages;
(3) P100,000.00 for attorneys fees and cost of suit.
SO ORDERED.[24]
The RTC held that the failure of petitioner to complete the projects was not solely due to its
fault but more on respondents misrepresentation and bad faith. [25] Therefore, the Court dismissed
respondents complaint. Since respondent was found to have committed deceit in its dealings with
petitioner, the court awarded damages in favor of the latter.[26]
Respondent, however, successfully obtained a favorable decision when its appeal was granted
by the CA. The appellate court reversed and set aside the RTC decision and awarded
respondent P493,695.34 for the excess payment made to petitioner, P508,510.00 for the amount spent
in contracting Geostar and P294,400.00 as liquidated damages.[27] Contrary to the conclusion of the
RTC, the CA found that petitioner failed to prove that respondent made fraudulent misrepresentation to
induce the former to enter into the contract. It further held that petitioner was given the opportunity to
inspect the transformer before offering its bid. [28] This being so, the CA added that petitioners failure to
avail of such opportunity is inexcusable, considering that it is a company engaged in the electrical
business and the contract involved a sizable amount of money.[29] As to the condition of the subject
transformer unit, the appellate court found the testimony of petitioners president insufficient to prove
that the same could no longer be rewound or converted. [30] Considering that advance payments had
been made to petitioner, the court deemed it necessary to require it to return to respondent the excess
amounts, vis--vis its actual accomplishment.[31] In addition to the refund of the excess payment, the CA
also ordered the reimbursement of what respondent paid to Geostar for the unfinished projects of
petitioner as well as the payment of liquidated damages as stipulated in the contract.[32]
Aggrieved, petitioner comes before the Court in this petition for review on certiorari under Rule
45 of the Rules of Court raising the following issues: (1) whether or not respondent was guilty of fraud or
misrepresentation as to the actual condition of the transformer subject of the contract; [33] (2) whether or
not the evidence presented by petitioner adequately established the true nature and condition of the
subject transformer;[34] (3) whether or not petitioner is guilty of inexcusable delay in the completion of the
projects;[35] (4) whether or not petitioner is liable for liquidated damages; [36] and (5) whether or not
petitioner is liable for the cost of the contract between respondent and Geostar.[37]
The petition is without merit.
The case stemmed from an action for sum of money or damages arising from breach of
contract. The contract involved in this case refers to the rewinding and conversion of one unit of
transformer to be installed and energized to supply respondents power requirements. [38] This project
was embodied in three (3) job orders, all of which were awarded to petitioner who represented itself to
be capable, competent, and duly licensed to handle the projects. [39] Petitioner, however, failed to
complete the projects within the agreed period allegedly because of misrepresentation and fraud
committed by respondent as to the true nature of the subject transformer. The trial court found that
respondent indeed failed to inform petitioner of the true condition of the transformer which amounted to
fraud thereby justifying the latters failure to complete the projects. The CA, however, had a different
conclusion and decided in favor of respondent. Ultimately, the issue before us is whether or not there
was breach of contract which essentially is a factual matter not usually reviewable in a petition filed
under Rule 45.[40]
In resolving the issues, the Court inquires into the probative value of the evidence presented
before the trial court.[41] Petitioner, indeed, endeavors to convince us to determine once again the
weight, credence, and probative value of the evidence presented before the trial court.[42] While in
general, the findings of fact of the CA are final and conclusive and cannot be reviewed on appeal to the
Court because it is not a trier of facts, [43] there are recognized exceptions[44] as when the findings of fact
are conflicting, which is obtaining in this case. The conflicting conclusions of the trial and appellate
courts impel us to re-examine the evidence presented.
After a thorough review of the records of the case, we find no reason to depart from the
conclusions of the CA.
It is undisputed that petitioner and respondent entered into a contract for the supply of labor,
materials, and technical supervision primarily for the rewinding and conversion of one (1) unit of
transformer and related works aimed at providing the power needs of respondent. As agreed upon by
the parties, the projects were to be completed within 120 days from the effectivity of the contract.
Admittedly, however, respondent failed, not only to perform its part of the contract on time but, in fact, to
complete the projects. Petitioner tried to exempt itself from the consequences of said breach by passing
the fault to respondent. It explained that its failure to complete the project was due to the
misrepresentation of the respondent. It claimed that more time and money were needed, because the
condition of the subject transformer was worse than the representations of respondent. Is this defense
tenable?
We answer in the negative.
Records show that petitioner indeed asked for price adjustment and extension of time within
which to complete the projects. In its letter [45] dated March 9, 1991, petitioner anchored its request for
extension on the following grounds:
1. To maximize the existing 3125 KVA to 4000 KVA capacity using
the same core, we will replace the secondary windings from rectangular type to
copper sheet which is more accurate in winding to the required number of turns than
using parallel rectangular or circular type of copper magnet wires. However, these
copper sheets are not readily available locally in volume quantities, and therefore, we
will be importing this material and it will take 60 days minimum time for its delivery.
2. We also find it difficult to source locally the replacement for the
damaged high voltage bushing.
3. The delivery of power cable no. 2/0 will also be delayed. This
will take 90 days to deliver from January 1991.[46]
Also in its letter [47] dated March 27, 1991, petitioner informed respondent that the projects
would be completed within the contract time table but explained that the delivery of the transformer
would only be delayed. The reasons advanced by petitioner to justify the delay are as follows:
1. Our supplier for copper sheets cannot complete the delivery until April 30,
1991.
2. Importation of HV Bushing will take approximately 45 days delivery per
advice of our supplier. x x x[48]
Clearly, in the above letters, petitioner justified its inability to complete the projects within the
stipulated period on the alleged unavailability of the materials to be used to perform the projects as
stated in the job orders. Nowhere in said letters did petitioner claim that it could not finish the projects,
particularly the conversion of the transformer unit because the defects were worse than the
representation of respondent. In other words, there was no allegation of fraud, bad faith, concealment or
misrepresentation on the part of respondent as to the true condition of the subject transformer. Even in
its letter[49] dated May 25, 1991, petitioner only requested respondent that payment to the first progress
billing be released as soon as possible and without deduction. It further proposed that respondent make
a direct payment to petitioners suppliers.
It was only in its June 14, 1991 letter[50] when petitioner raised its observations that the subject
transformer needed more repairs than what it knew during the bidding. [51] In the same letter, however,
petitioner repeated its request that direct payment be made by respondent to petitioners suppliers.
[52]
More importantly, petitioner admitted that it made a judgment error when it quoted for
only P440,770.00 for the contract relating to J.O. #P-90-214 based on limited information.
It can be inferred from the foregoing facts that there was not only a delay but a failure to complete the
projects as stated in the contract; that petitioner could not complete the projects because it did not have
the materials needed; and that it is in need of financial assistance.
As the Court sees it, the bid submitted by petitioner may have been sufficient to be declared the winner
but it failed to anticipate all expenses necessary to complete the projects. [53] When it incurred expenses
it failed to foresee, it began requesting for price adjustment to cover the cost of high voltage bushing
and difference in cost of copper sheet and rectangular wire. [54] However, the scope of work presented by
respondent specifically stated that the wires to be used shall be pure copper and that there was a need
to supply new bushings for the complete rewinding and conversion of 3125 KVA to 4 MVA Transformer.
[55]
In other words, petitioner was aware that there was a need for complete replacement of windings to
copper and of secondary bushings. [56] It is, therefore, improper for petitioner to ask for additional
amount to answer for the expenses that were already part and parcel of the undertaking it was bound to
perform. For petitioner, the contract entered into may have turned out to be an unwise investment, but
there is no one to blame but petitioner for plunging into an undertaking without fully studying it in its
entirety.[57]
The Court likewise notes that petitioner repeatedly asked for extension allegedly because it
needed to import the materials and that the same could not be delivered on time. Petitioner also
repeatedly requested that respondent make a direct payment to the suppliers notwithstanding the fact
that it contracted with respondent for the supply of labor, materials, and technical supervision. It is,
therefore, expected that petitioner would be responsible in paying its suppliers because respondent is
not privy to their (petitioner and its suppliers) contract. This is especially true in this case since
respondent had already made advance payments to petitioner. It appears, therefore, that in offering its
bid, the source and cost of materials were not seriously taken into consideration. It appears, further, that
petitioner had a hard time in fulfilling its obligations under the contract that is why it asked for financial
assistance from respondent. This is contrary to petitioners representation that it was capable,
competent, and duly licensed to handle the projects.
As to the alleged damaged condition of the subject transformer, we quote with approval the CA
conclusion in this wise:
In the same vein, We cannot readily accept the testimony of Tomas that the
transformer unit was severely damaged and was beyond repair as it was not
substantiated with any other evidence. R.S. Tomas could have presented an
independent expert witness whose opinion may corroborate its stance that the
transformer unit was indeed incapable of being restored. To our mind, the testimony
of Tomas is self-serving as it is easy to concoct, yet difficult to verify.[58]
This lack of evidence, coupled with petitioners failure to raise the same at the earliest opportunity, belies
petitioners claim that it could not complete the projects because the subject transformer could no longer
be repaired.
Assuming for the sake of argument that the subject transformer was indeed in a damaged condition
even before the bidding which makes it impossible for petitioner to perform its obligations under the
contract, we also agree with the CA that petitioner failed to prove that respondent was guilty of bad faith,
fraud, deceit or misrepresentation.
Bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose
or some moral obliquity and conscious doing of a wrong, a breach of a known duty through some
motive or interest or ill will that partakes of the nature of fraud. [59] Fraud has been defined to include an
inducement through insidious machination. Insidious machination refers to a deceitful scheme or plot
with an evil or devious purpose. Deceit exists where the party, with intent to deceive, conceals or omits
to state material facts and, by reason of such omission or concealment, the other party was induced to
give consent that would not otherwise have been given. [60] These are allegations of fact that demand
clear and convincing proof. They are serious accusations that can be so conveniently and casually
invoked, and that is why they are never presumed. [61] In this case, the evidence presented is insufficient
to prove that respondent acted in bad faith or fraudulently in dealing with petitioner.
Petitioner in fact admitted that its representatives were given the opportunity to inspect the
subject transformer before it offered its bid. If indeed the transformer was completely sealed, it should
have demanded that the same be opened if it found it necessary before it offered its bid. As contractor,
petitioner had been remiss in its obligation to obtain as much information as possible on the actual
condition of the subject transformer or at least it should have provided a qualification in its bid so as to
make clear its right to claim contract price and time adjustment.[62] As aptly held by the CA, considering
that petitioner is a company engaged in the electrical business and the contract it had entered into
involved a sizable amount of money, its failure to conduct an inspection of the subject transformer is
inexcusable.[63]
In sum, the evidence presented by the parties lead to the following conclusions: (1) that the
projects were not completed by petitioner; (2) that petitioner was given the opportunity to inspect the
subject transformer; (3) that petitioner failed to thoroughly study the entirety of the projects before it
offered its bid; (4) that petitioner failed to complete the projects because of the unavailability of the
required materials and that petitioner needed financial assistance; (5) that the evidence presented by
petitioner were inadequate to prove that the subject transformer could no longer be repaired; and (6)
that there was no evidence to show that respondent was in bad faith, acted fraudulently, or guilty of
deceit and misrepresentation in dealing with petitioner.
In view of the foregoing disquisitions, we find that there was not only delay but non-completion
of the projects undertaken by petitioner without justifiable ground. Undoubtedly, petitioner is guilty of
breach of contract.Breach of contract is defined as the failure without legal reason to comply with the
terms of a contract. It is also defined as the failure, without legal excuse, to perform any promise which
forms the whole or part of the contract. [64] In the present case, petitioner did not complete the projects.
This gives respondent the right to terminate the contract by serving petitioner a written notice. The
contract specifically stated that it may be terminated for any of the following causes:

1. Violation by Contractor of the terms and conditions of this Contract;

2. Non-completion of the Work within the time agreed upon, or upon the
expiration of extension agreed upon;

3. Institution of insolvency or receivership proceedings involving Contractor;

and

4. Other causes provided by law applicable to this contract.[65]

Consequently, and pursuant to the agreement of the parties,[66] petitioner is liable for liquidated damages
in the amount of P29,440.00 per day of delay, which shall be limited to a maximum of 10% of the project
cost orP294,400.00. In this case, petitioner bound itself to complete the projects within 120 days from
December 29, 1990. However, petitioner failed to fulfill the same prompting respondent to engage the Republic of the Philippines
services of another contractor on November 14, 1991. Thus, despite the lapse of eleven months from SUPREME COURT
the time of the effectivity of the contract entered into between respondent and petitioner, the latter had
Manila
not completed the projects. Undoubtedly, petitioner may be held to answer for liquidated damages in its
maximum amount which is 10% of the contract price. While we have reduced the amount of liquidated
damages in some cases,[67] because of partial fulfillment of the contract and/or the amount is SECOND DIVISION
unconscionable, we do not find the same to be applicable in this case. It must be recalled that the
contract entered into by petitioner consists of three projects, all of which were not completed by G.R. No. 191431 March 13, 2013
petitioner. Moreover, the percentage of work accomplishment was not adequately shown by petitioner.
Hence, we apply the general rule not to ignore the freedom of the parties to agree on such terms and
conditions as they see fit as long as they are not contrary to law, morals, good customs, public order or RODOLFO G. CRUZ and ESPERANZA IBIAS, Petitioners,
public policy.[68] Thus, as agreed upon by the parties, we apply the 10% liquidated damages. vs.
ATTY. DELFIN GRUSPE, Respondent.
Considering that petitioner was already in delay and in breach of contract, it is liable for damages that
are the natural and probable consequences of its breach of obligation.[69] Since advanced payments had
DECISION
been made by respondent, petitioner is bound to return the excess vis--vis its work accomplishments. In
order to finish the projects, respondent had to contract the services of another contractor. We, therefore,
find no reason to depart from the CA conclusion requiring the return of the excess payments as well as BRION, J.:
the payment of the cost of contracting Geostar, in addition to liquidated damages.[70]
WHEREFORE, premises considered, the petition is hereby DENIED. The Court of Appeals Decision Before the Court is the petition for review on certiorari 1 filed under Rule 45 of the Rules of Court, assailing the
dated December 19, 2005 and Resolution dated June 6, 2006 in CA-G.R. CV No. 61049
decision2 dated July 30, 2009 and the resolution3 dated February 19, 2010 of the Court of Appeals (CA) in CA-
are AFFIRMED.
G.R. CV No. 86083. The CA rulings affirmed with modification the decision dated September 27, 2004 of the
SO ORDERED. Regional Trial Court (RTC) of Bacoor, Cavite, Branch 19, in Civil Case No. BCV-99-146 which granted
respondent Atty. Delfin Grupes claim for payment of sum of money against petitioners Rodolfo G. Cruz and
Esperanza Ibias.4
 THE FACTUAL BACKGROUND
The claim arose from an accident that occurred on October 24, 1999, when the mini bus owned and operated
by Cruz and driven by one Arturo Davin collided with the Toyota Corolla car of Gruspe; Gruspes car was a
total wreck. The next day, on October 25, 1999, Cruz, along with Leonardo Q. Ibias went to Gruspes office,
apologized for the incident, and executed a Joint Affidavit of Undertaking promising jointly and severally to
replace the Gruspes damaged car in 20 days, or until November 15, 1999, of the same model and of at least
the same quality; or, alternatively, they would pay the cost of Gruspes car amounting to P350,000.00, with
interest at
5
12% per month for any delayed payment after November 15, 1999, until fully paid. When Cruz and Leonardo
failed to comply with their undertaking, Gruspe filed a complaint for collection of sum of money against them
on November 19, 1999 before the RTC.
In their answer, Cruz and Leonardo denied Gruspes allegation, claiming that Gruspe, a lawyer, prepared the
Joint Affidavit of Undertaking and forced them to affix their signatures thereon, without explaining and
informing them of its contents; Cruz affixed his signature so that his mini bus could be released as it was his
only means of income; Leonardo, a barangay official, accompanied Cruz to Gruspes office for the release of
the mini bus, but was also deceived into signing the Joint Affidavit of Undertaking.
Leonardo died during the pendency of the case and was substituted by his widow, Esperanza. Meanwhile,
Gruspe sold the wrecked car for P130,000.00.
In a decision dated September 27, 2004, the RTC ruled in favor of Gruspe and ordered Cruz and Leonardo to
payP220,000.00,6 plus 15% per annum from November 15, 1999 until fully paid, and the cost of suit.
On appeal, the CA affirmed the RTC decision, but reduced the interest rate to 12% per annum pursuant to the
Joint Affidavit of Undertaking.7 It declared that despite its title, the Joint Affidavit of Undertaking is a contract,
as it has all the essential elements of consent, object certain, and consideration required under Article 1318 of
the Civil
Code. The CA further said that Cruz and Leonardo failed to present evidence to support their contention of
vitiated consent. By signing the Joint Affidavit of Undertaking, they voluntarily assumed the obligation for the
damage they caused to Gruspes car; Leonardo, who was not a party to the incident, could have refused to
sign the affidavit, but he did not.
THE PETITION
In their appeal by certiorari with the Court, Cruz and Esperanza assail the CA ruling, contending that the Joint
Affidavit of Undertaking is not a contract that can be the basis of an obligation to pay a sum of money in favor
of Gruspe. They consider an affidavit as different from a contract: an affidavits purpose is simply to attest to
facts that are within his knowledge, while a contract requires that there be a meeting of the minds between the
two contracting parties.
Even if the Joint Affidavit of Undertaking was considered as a contract, Cruz and Esperanza claim that it is
invalid because Cruz and Leonardos consent thereto was vitiated; the contract was prepared by Gruspe who
is a lawyer, and its contents were never explained to them. Moreover, Cruz and Leonardo were simply forced
to affix their signatures, otherwise, the mini van would not be released.
Also, they claim that prior to the filing of the complaint for sum of money, Gruspe did not make any demand
upon them. Hence, pursuant to Article 1169 of the Civil Code, they could not be considered in default. Without
this demand, Cruz and Esperanza contend that Gruspe could not yet take any action.
THE COURTS RULING
The Court finds the petition partly meritorious and accordingly modifies the judgment of the CA.
Contracts are obligatory no matter what their forms may be, whenever the essential requisites for their validity
are present. In determining whether a document is an affidavit or a contract, the Court looks beyond the title of
the document, since the denomination or title given by the parties in their document is not conclusive of the
nature of its contents.8 In the construction or interpretation of an instrument, the intention of the parties is
primordial and is to be pursued. If the terms of the document are clear and leave no doubt on the intention of
the contracting parties, the literal meaning of its stipulations shall control. If the words appear to be contrary to
the parties evident intention, the latter shall prevail over the former.9
A simple reading of the terms of the Joint Affidavit of Undertaking readily discloses that it contains stipulations
characteristic of a contract. As quoted in the CA decision, 10 the Joint Affidavit of Undertaking contained a
stipulation where Cruz and Leonardo promised to replace the damaged car of Gruspe, 20 days from October
25, 1999 or up to November 15, 1999, of the same model and of at least the same quality. In the event that
they cannot replace the car within the same period, they would pay the cost of Gruspes car in the total
amount of P350,000.00, with interest at 12% per month for any delayed payment after November 15, 1999,
until fully paid. These, as read by the CA, are very simple terms that both Cruz and Leonardo could easily
understand.
There is also no merit to the argument of vitiated consent.1wphi1 An allegation of vitiated consent must be annum interest imposed on the amount due shall accrue only from November 19, 1999, when judicial demand
proven by preponderance of evidence; Cruz and Leonardo failed to support their allegation. was made.

Although the undertaking in the affidavit appears to be onerous and lopsided, this does not necessarily prove SO ORDERED.
the alleged vitiation of consent. They, in fact, admitted the genuineness and due execution of the Joint
Affidavit and Undertaking when they said that they signed the same to secure possession of their vehicle. If
they truly believed that the vehicle had been illegally impounded, they could have refused to sign the Joint
Affidavit of Undertaking and filed a complaint, but they did not. That the release of their mini bus was
conditioned on their signing the Joint Affidavit of Undertaking does not, by itself, indicate that their consent
was forced they may have given it grudgingly, but it is not indicative of a vitiated consent that is a ground for
the annulment of a contract.

Thus, on the issue of the validity and enforceability of the Joint Affidavit of Undertaking, the CA did not commit
any legal error that merits the reversal of the assailed decision.
Republic of the Philippines
SUPREME COURT
Nevertheless, the CA glossed over the issue of demand which is material in the computation of interest on the
Manila
amount due. The RTC ordered Cruz and Leonardo to pay Gruspe "P350,000.00 as cost of the car xxx plus
fifteen percent (15%) per annum from November 15, 1999 until fully paid." 11 The 15% interest (later modified SECOND DIVISION
by the CA to be 12%) was computed from November 15, 1999 the date stipulated in the Joint Affidavit of
G.R. No. L-55300 March 15, 1990
Undertaking for the payment of the value of Gruspes car. In the absence of a finding by the lower courts that
Gruspe made a demand prior to the filing of the complaint, the interest cannot be computed from November
FRANKLIN G. GACAL and CORAZON M. GACAL, the latter assisted by her husband, FRANKLIN G.
15, 1999 because until a demand has been made, Cruz and Leonardo could not be said to be in default. 12 "In GACAL,petitioners,
order that the debtor may be in default, it is necessary that the following requisites be present: (1) that the vs.
PHILIPPINE AIR LINES, INC., and THE HONORABLE PEDRO SAMSON C. ANIMAS, in his capacity as
obligation be demandable and already liquidated; (2) that the debtor delays performance; and (3) that the PRESIDING JUDGE of the COURT OF FIRST INSTANCE OF SOUTH COTABATO, BRANCH I, respondents.
creditor requires the performance judicially and extrajudicially." 13 Default generally begins from the moment
the creditor demands the performance of the obligation. In this case, demand could be considered to have Vicente A. Mirabueno for petitioners.
been made upon the filing of the complaint on November 19, 1999, and it is only from this date that the
Siguion Reyna, Montecillo & Ongsiako for private respondent.
interest should be computed.

Although the CA upheld the Joint Affidavit of Undertaking, we note that it imposed interest rate on a per
annum basis, instead of the per month basis that was stated in the Joint Affidavit of Undertaking without PARAS, J.:
explaining its reason for doing so.14 Neither party, however, questioned the change. Nonetheless, the Court
This is a, petition for review on certiorari of the decision of the Court of First Instance of South Cotabato, Branch
affirms the change in the interest rate from 12% per month to 12% per annum, as we find the interest rate
1, *promulgated on August 26, 1980 dismissing three (3) consolidated cases for damages: Civil Case No. 1701, Civil
agreed upon in the Joint Affidavit of Undertaking excessive.15 Case No. 1773 and Civil Case No. 1797 (Rollo, p. 35).

WHEREFORE, we AFFIRM the decision dated July 30, 2009 and the resolution dated February 19, 2010 of The facts, as found by respondent court, are as follows:

the Court of Appeals in CA-G.R. CV No. 86083, subject to the Modification that the twelve percent (12%) per
Plaintiffs Franklin G. Gacal and his wife, Corazon M. Gacal, Bonifacio S. Anislag and his wife,
Mansueta L. Anislag, and the late Elma de Guzman, were then passengers boarding
defendant's BAC 1-11 at Davao Airport for a flight to Manila, not knowing that on the same flight,
Macalinog, Taurac Pendatum known as Commander Zapata, Nasser Omar, Liling Pusuan
Radia, Dimantong Dimarosing and Mike Randa, all of Marawi City and members of the Moro
National Liberation Front (MNLF), were their co-passengers, three (3) armed with grenades, two
(2) with .45 caliber pistols, and one with a .22 caliber pistol. Ten (10) minutes after take off at
about 2:30 in the afternoon, the hijackers brandishing their respective firearms announced the
hijacking of the aircraft and directed its pilot to fly to Libya. With the pilot explaining to them
especially to its leader, Commander Zapata, of the inherent fuel limitations of the plane and that
they are not rated for international flights, the hijackers directed the pilot to fly to Sabah. With the
same explanation, they relented and directed the aircraft to land at Zamboanga Airport,
Zamboanga City for refueling. The aircraft landed at 3:00 o'clock in the afternoon of May 21,
1976 at Zamboanga Airport. When the plane began to taxi at the runway, it was met by two
armored cars of the military with machine guns pointed at the plane, and it stopped there. The
rebels thru its commander demanded that a DC-aircraft take them to Libya with the President of
the defendant company as hostage and that they be given $375,000 and six (6) armalites,
otherwise they will blow up the plane if their demands will not be met by the government and
Philippine Air Lines. Meanwhile, the passengers were not served any food nor water and it was
only on May 23, a Sunday, at about 1:00 o'clock in the afternoon that they were served 1/4 slice
of a sandwich and 1/10 cup of PAL water. After that, relatives of the hijackers were allowed to
board the plane but immediately after they alighted therefrom, an armored car bumped the
stairs. That commenced the battle between the military and the hijackers which led ultimately to
the liberation of the surviving crew and the passengers, with the final score of ten (10)
passengers and three (3) hijackers dead on the spot and three (3) hijackers captured.
City Fiscal Franklin G. Gacal was unhurt. Mrs. Corazon M. Gacal suffered injuries in the course
of her jumping out of the plane when it was peppered with bullets by the army and after two (2)
hand grenades exploded inside the plane. She was hospitalized at General Santos Doctors
Hospital, General Santos City, for two (2) days, spending P245.60 for hospital and medical
expenses, Assistant City Fiscal Bonifacio S. Anislag also escaped unhurt but Mrs. Anislag
suffered a fracture at the radial bone of her left elbow for which she was hospitalized and
operated on at the San Pedro Hospital, Davao City, and therefore, at Davao Regional Hospital,
Davao City, spending P4,500.00. Elma de Guzman died because of that battle. Hence, the
action of damages instituted by the plaintiffs demanding the following damages, to wit:
Civil Case No. 1701
City Fiscal Franklin G. Gacal and Mrs. Corazon M. Gacal actual
damages: P245.60 for hospital and medical expenses of Mrs Gacal;
P8,995.00 for their personal belongings which were lost and not recovered;
P50,000.00 each for moral damages; and P5,000.00 for attorney's fees,
apart from the prayer for an award of exemplary damages (Record, pp. 4-6,
Civil Case No. 1701).
Civil Case No. 1773
xxx xxx xxx
Civil Case No. 1797
xxx xxx xxx
The trial court, on August 26, 1980, dismissed the complaints finding that all the damages sustained in the premises
were attributed to force majeure.
On September 12, 1980 the spouses Franklin G. Gacal and Corazon M. Gacal, plaintiffs in Civil Case No. 1701, filed
a notice of appeal with the lower court on pure questions of law (Rollo, p. 55) and the petition for review
oncertiorari was filed with this Court on October 20, 1980 (Rollo, p. 30).
The Court gave due course to the petition (Rollo, p. 147) and both parties filed their respective briefs but petitioner
failed to file reply brief which was noted by the Court in the resolution dated May 3, 1982 (Rollo, p. 183).
Petitioners alleged that the main cause of the unfortunate incident is the gross, wanton and inexcusable negligence
of respondent Airline personnel in their failure to frisk the passengers adequately in order to discover hidden
weapons in the bodies of the six (6) hijackers. They claimed that despite the prevalence of skyjacking, PAL did not
use a metal detector which is the most effective means of discovering potential skyjackers among the passengers
(Rollo, pp. 6-7).
Respondent Airline averred that in the performance of its obligation to safely transport passengers as far as human
care and foresight can provide, it has exercised the utmost diligence of a very cautious person with due regard to all
circumstances, but the security checks and measures and surveillance precautions in all flights, including the
inspection of baggages and cargo and frisking of passengers at the Davao Airport were performed and rendered
solely by military personnel who under appropriate authority had assumed exclusive jurisdiction over the same in all
airports in the Philippines.
Similarly, the negotiations with the hijackers were a purely government matter and a military operation, handled by
and subject to the absolute and exclusive jurisdiction of the military authorities. Hence, it concluded that the accident
that befell RP-C1161 was caused by fortuitous event, force majeure and other causes beyond the control of the
respondent Airline.
The determinative issue in this case is whether or not hijacking or air piracy during martial law and under the
circumstances obtaining herein, is a caso fortuito or force majeure which would exempt an aircraft from payment of
damages to its passengers whose lives were put in jeopardy and whose personal belongings were lost during the
incident.
Under the Civil Code, common carriers are required to exercise extraordinary diligence in their vigilance over the
goods and for the safety of passengers transported by them, according to all the circumstances of each case (Article
1733). They are presumed at fault or to have acted negligently whenever a passenger dies or is injured (Philippine
Airlines, Inc. v. National Labor Relations Commission, 124 SCRA 583 [1983]) or for the loss, destruction or
deterioration of goods in cases other than those enumerated in Article 1734 of the Civil Code (Eastern Shipping
Lines, Inc. v. Intermediate Appellate Court, 150 SCRA 463 [1987]).
The source of a common carrier's legal liability is the contract of carriage, and by entering into said contract, it binds
itself to carry the passengers safely as far as human care and foresight can provide. There is breach of this
obligation if it fails to exert extraordinary diligence according to all the circumstances of the case in exercise of the
utmost diligence of a very cautious person (Isaac v. Ammen Transportation Co., 101 Phil. 1046 [1957]; Juntilla v. SO ORDERED.
Fontanar, 136 SCRA 624 [1985]).

It is the duty of a common carrier to overcome the presumption of negligence (Philippine National Railways v. Court
of Appeals, 139 SCRA 87 [1985]) and it must be shown that the carrier had observed the required extraordinary
diligence of a very cautious person as far as human care and foresight can provide or that the accident was caused
by a fortuitous event (Estrada v. Consolacion, 71 SCRA 523 [1976]). Thus, as ruled by this Court, no person shall be
responsible for those "events which could not be foreseen or which though foreseen were inevitable. (Article 1174,
Civil Code). The term is synonymous with caso fortuito (Lasam v. Smith, 45 Phil. 657 [1924]) which is of the same
sense as "force majeure" (Words and Phrases Permanent Edition, Vol. 17, p. 362).

In order to constitute a caso fortuito or force majeure that would exempt a person from liability under Article 1174 of
the Civil Code, it is necessary that the following elements must concur: (a) the cause of the breach of the obligation
must be independent of the human will (the will of the debtor or the obligor); (b) the event must be either
unforeseeable or unavoidable; (c) the event must be such as to render it impossible for the debtor to fulfill his
obligation in a normal manner; and (d) the debtor must be free from any participation in, or aggravation of the injury
to the creditor (Lasam v. Smith, 45 Phil. 657 [1924]; Austria v. Court of Appeals, 39 SCRA 527 [1971]; Estrada v.
Consolacion, supra; Vasquez v. Court of Appeals, 138 SCRA 553 [1985]; Juan F. Nakpil & Sons v. Court of Appeals,
144 SCRA 596 [1986]). Caso fortuito or force majeure, by definition, are extraordinary events not foreseeable or
avoidable, events that could not be foreseen, or which, though foreseen, are inevitable. It is, therefore, not enough
that the event should not have been foreseen or anticipated, as is commonly believed, but it must be one impossible
to foresee or to avoid. The mere difficulty to foresee the happening is not impossibility to foresee the same (Republic Republic of the Philippines
v. Luzon Stevedoring Corporation, 21 SCRA 279 [1967]). SUPREME COURT
Manila
Applying the above guidelines to the case at bar, the failure to transport petitioners safely from Davao to Manila was
due to the skyjacking incident staged by six (6) passengers of the same plane, all members of the Moro National EN BANC
Liberation Front (MNLF), without any connection with private respondent, hence, independent of the will of either the
PAL or of its passengers. G.R. No. L-49188 January 30, 1990

Under normal circumstances, PAL might have foreseen the skyjacking incident which could have been avoided had PHILIPPINE AIRLINES, INC., petitioner,
there been a more thorough frisking of passengers and inspection of baggages as authorized by R.A. No. 6235. But vs.
the incident in question occurred during Martial Law where there was a military take-over of airport security including HON. COURT OF APPEALS, HON. JUDGE RICARDO D. GALANO, Court of First Instance of Manila, Branch
the frisking of passengers and the inspection of their luggage preparatory to boarding domestic and international XIII, JAIME K. DEL ROSARIO, Deputy Sheriff, Court of First Instance, Manila, and AMELIA TAN, respondents.
flights. In fact military take-over was specifically announced on October 20, 1973 by General Jose L. Rancudo,
Commanding General of the Philippine Air Force in a letter to Brig. Gen. Jesus Singson, then Director of the Civil
Aeronautics Administration (Rollo, pp. 71-72) later confirmed shortly before the hijacking incident of May 21, 1976 by
Letter of Instruction No. 399 issued on April 28, 1976 (Rollo, p. 72).
GUTIERREZ, JR., J.:

Otherwise stated, these events rendered it impossible for PAL to perform its obligations in a nominal manner and Behind the simple issue of validity of an alias writ of execution in this case is a more fundamental question. Should
obviously it cannot be faulted with negligence in the performance of duty taken over by the Armed Forces of the
the Court allow a too literal interpretation of the Rules with an open invitation to knavery to prevail over a more
Philippines to the exclusion of the former. discerning and just approach? Should we not apply the ancient rule of statutory construction that laws are to be
interpreted by the spirit which vivifies and not by the letter which killeth?
Finally, there is no dispute that the fourth element has also been satisfied. Consequently the existence of force
majeure has been established exempting respondent PAL from the payment of damages to its passengers who This is a petition to review on certiorari the decision of the Court of Appeals in CA-G.R. No. 07695 entitled "Philippine
suffered death or injuries in their persons and for loss of their baggages.
Airlines, Inc. v. Hon. Judge Ricardo D. Galano, et al.", dismissing the petition for certiorari against the order of the
Court of First Instance of Manila which issued an alias writ of execution against the petitioner.
PREMISES CONSIDERED, the petition is hereby DISMISSED for lack of merit and the decision of the Court of First
Instance of South Cotabato, Branch I is hereby AFFIRMED.
The petition involving the alias writ of execution had its beginnings on November 8, 1967, when respondent Amelia
Tan, under the name and style of Able Printing Press commenced a complaint for damages before the Court of First
Instance of Manila. The case was docketed as Civil Case No. 71307, entitled Amelia Tan, et al. v. Philippine Airlines,
Inc.
After trial, the Court of First Instance of Manila, Branch 13, then presided over by the late Judge Jesus P. Morfe
rendered judgment on June 29, 1972, in favor of private respondent Amelia Tan and against petitioner Philippine
Airlines, Inc. (PAL) as follows:
WHEREFORE, judgment is hereby rendered, ordering the defendant Philippine Air Lines:
1. On the first cause of action, to pay to the plaintiff the amount of P75,000.00 as actual
damages, with legal interest thereon from plaintiffs extra-judicial demand made by the letter of
July 20, 1967;
2. On the third cause of action, to pay to the plaintiff the amount of P18,200.00, representing the
unrealized profit of 10% included in the contract price of P200,000.00 plus legal interest thereon
from July 20,1967;
3. On the fourth cause of action, to pay to the plaintiff the amount of P20,000.00 as and for moral
damages, with legal interest thereon from July 20, 1 967;
4. On the sixth cause of action, to pay to the plaintiff the amount of P5,000.00 damages as and
for attorney's fee.
Plaintiffs second and fifth causes of action, and defendant's counterclaim, are dismissed.
With costs against the defendant. (CA Rollo, p. 18)
On July 28, 1972, the petitioner filed its appeal with the Court of Appeals. The case was docketed as CA-G.R. No.
51079-R.
On February 3, 1977, the appellate court rendered its decision, the dispositive portion of which reads:
IN VIEW WHEREOF, with the modification that PAL is condemned to pay plaintiff the sum of
P25,000.00 as damages and P5,000.00 as attorney's fee, judgment is affirmed, with costs. (CA
Rollo, p. 29)
Notice of judgment was sent by the Court of Appeals to the trial court and on dates subsequent thereto, a motion for
reconsideration was filed by respondent Amelia Tan, duly opposed by petitioner PAL.
On May 23,1977, the Court of Appeals rendered its resolution denying the respondent's motion for reconsideration
for lack of merit.
No further appeal having been taken by the parties, the judgment became final and executory and on May 31, 1977,
judgment was correspondingly entered in the case.
The case was remanded to the trial court for execution and on September 2,1977, respondent Amelia Tan filed a
motion praying for the issuance of a writ of execution of the judgment rendered by the Court of Appeals. On October
11, 1977, the trial court, presided over by Judge Galano, issued its order of execution with the corresponding writ in
favor of the respondent. The writ was duly referred to Deputy Sheriff Emilio Z. Reyes of Branch 13 of the Court of
First Instance of Manila for enforcement.
Four months later, on February 11, 1978, respondent Amelia Tan moved for the issuance of an alias writ of execution
stating that the judgment rendered by the lower court, and affirmed with modification by the Court of Appeals,
remained unsatisfied.
On March 1, 1978, the petitioner filed an opposition to the motion for the issuance of an alias writ of execution stating
that it had already fully paid its obligation to plaintiff through the deputy sheriff of the respondent court, Emilio Z.
Reyes, as evidenced by cash vouchers properly signed and receipted by said Emilio Z. Reyes.
On March 3,1978, the Court of Appeals denied the issuance of the alias writ for being premature, ordering the
executing sheriff Emilio Z. Reyes to appear with his return and explain the reason for his failure to surrender the
amounts paid to him by petitioner PAL. However, the order could not be served upon Deputy Sheriff Reyes who had
absconded or disappeared.
On March 28, 1978, motion for the issuance of a partial alias writ of execution was filed by respondent Amelia Tan.
On April 19, 1978, respondent Amelia Tan filed a motion to withdraw "Motion for Partial Alias Writ of Execution" with
Substitute Motion for Alias Writ of Execution. On May 1, 1978, the respondent Judge issued an order which reads:
As prayed for by counsel for the plaintiff, the Motion to Withdraw 'Motion for Partial Alias Writ of
Execution with Substitute Motion for Alias Writ of Execution is hereby granted, and the motion for
partial alias writ of execution is considered withdrawn.
Let an Alias Writ of Execution issue against the defendant for the fall satisfaction of the judgment
rendered. Deputy Sheriff Jaime K. del Rosario is hereby appointed Special Sheriff for the
enforcement thereof. (CA Rollo, p. 34)
On May 18, 1978, the petitioner received a copy of the first alias writ of execution issued on the same day directing
Special Sheriff Jaime K. del Rosario to levy on execution in the sum of P25,000.00 with legal interest thereon from
July 20,1967 when respondent Amelia Tan made an extra-judicial demand through a letter. Levy was also ordered for
the further sum of P5,000.00 awarded as attorney's fees.
On May 23, 1978, the petitioner filed an urgent motion to quash the alias writ of execution stating that no return of
the writ had as yet been made by Deputy Sheriff Emilio Z. Reyes and that the judgment debt had already been fully
satisfied by the petitioner as evidenced by the cash vouchers signed and receipted by the server of the writ of
execution, Deputy Sheriff Emilio Z. Reyes.
On May 26,1978, the respondent Jaime K. del Rosario served a notice of garnishment on the depository bank of
petitioner, Far East Bank and Trust Company, Rosario Branch, Binondo, Manila, through its manager and garnished
the petitioner's deposit in the said bank in the total amount of P64,408.00 as of May 16, 1978. Hence, this petition for
certiorari filed by the Philippine Airlines, Inc., on the grounds that:
 I actions taken under the writ of execution. Where such information can be established in some other manner, the
AN ALIAS WRIT OF EXECUTION CANNOT BE ISSUED WITHOUT PRIOR RETURN OF THE
ORIGINAL WRIT BY THE IMPLEMENTING OFFICER.
II
PAYMENT OF JUDGMENT TO THE IMPLEMENTING OFFICER AS DIRECTED IN THE WRIT
OF EXECUTION CONSTITUTES SATISFACTION OF JUDGMENT.
III
INTEREST IS NOT PAYABLE WHEN THE DECISION IS SILENT AS TO THE PAYMENT
THEREOF.
IV
SECTION 5, RULE 39, PARTICULARLY REFERS TO LEVY OF PROPERTY OF JUDGMENT
DEBTOR AND DISPOSAL OR SALE THEREOF TO SATISFY JUDGMENT.
Can an alias writ of execution be issued without a prior return of the original writ by the implementing officer?
We rule in the affirmative and we quote the respondent court's decision with approval:
The issuance of the questioned alias writ of execution under the circumstances here obtaining is
justified because even with the absence of a Sheriffs return on the original writ, the unalterable
fact remains that such a return is incapable of being obtained (sic) because the officer who is to
make the said return has absconded and cannot be brought to the Court despite the earlier
order of the court for him to appear for this purpose. (Order of Feb. 21, 1978, Annex C, Petition).
Obviously, taking cognizance of this circumstance, the order of May 11, 1978 directing the
issuance of an alias writ was therefore issued. (Annex D. Petition). The need for such a return as
a condition precedent for the issuance of an alias writ was justifiably dispensed with by the court
below and its action in this regard meets with our concurrence. A contrary view will produce an
abhorent situation whereby the mischief of an erring officer of the court could be utilized to
impede indefinitely the undisputed and awarded rights which a prevailing party rightfully
deserves to obtain and with dispatch. The final judgment in this case should not indeed be
permitted to become illusory or incapable of execution for an indefinite and over extended
period, as had already transpired. (Rollo, pp. 35-36)
Judicium non debet esse illusorium; suum effectum habere debet (A judgment ought not to be illusory it ought to
have its proper effect).
Indeed, technicality cannot be countenanced to defeat the execution of a judgment for execution is the fruit and end
of the suit and is very aptly called the life of the law (Ipekdjian Merchandising Co. v. Court of Tax Appeals, 8 SCRA 59
[1963]; Commissioner of Internal Revenue v. Visayan Electric Co., 19 SCRA 697, 698 [1967]). A judgment cannot be
rendered nugatory by the unreasonable application of a strict rule of procedure. Vested rights were never intended to
rest on the requirement of a return, the office of which is merely to inform the court and the parties, of any and all
absence of an executing officer's return will not preclude a judgment from being treated as discharged or being
executed through an alias writ of execution as the case may be. More so, as in the case at bar. Where the return
cannot be expected to be forthcoming, to require the same would be to compel the enforcement of rights under a
judgment to rest on an impossibility, thereby allowing the total avoidance of judgment debts. So long as a judgment is
not satisfied, a plaintiff is entitled to other writs of execution (Government of the Philippines v. Echaus and Gonzales,
71 Phil. 318). It is a well known legal maxim that he who cannot prosecute his judgment with effect, sues his case
vainly.
More important in the determination of the propriety of the trial court's issuance of an alias writ of execution is the
issue of satisfaction of judgment.
Under the peculiar circumstances surrounding this case, did the payment made to the absconding sheriff by check in
his name operate to satisfy the judgment debt? The Court rules that the plaintiff who has won her case should not be
adjudged as having sued in vain. To decide otherwise would not only give her an empty but a pyrrhic victory.
It should be emphasized that under the initial judgment, Amelia Tan was found to have been wronged by PAL.
She filed her complaint in 1967.
After ten (10) years of protracted litigation in the Court of First Instance and the Court of Appeals, Ms. Tan won her
case.
It is now 1990.
Almost twenty-two (22) years later, Ms. Tan has not seen a centavo of what the courts have solemnly declared as
rightfully hers. Through absolutely no fault of her own, Ms. Tan has been deprived of what, technically, she should
have been paid from the start, before 1967, without need of her going to court to enforce her rights. And all because
PAL did not issue the checks intended for her, in her name.
Under the peculiar circumstances of this case, the payment to the absconding sheriff by check in his name did not
operate as a satisfaction of the judgment debt.
In general, a payment, in order to be effective to discharge an obligation, must be made to the proper person. Article
1240 of the Civil Code provides:
Payment shall be made to the person in whose favor the obligation has been constituted, or his
successor in interest, or any person authorized to receive it. (Emphasis supplied)
Thus, payment must be made to the obligee himself or to an agent having authority, express or implied, to receive
the particular payment (Ulen v. Knecttle 50 Wyo 94, 58 [2d] 446, 111 ALR 65). Payment made to one having
apparent authority to receive the money will, as a rule, be treated as though actual authority had been given for its
receipt. Likewise, if payment is made to one who by law is authorized to act for the creditor, it will work a discharge
(Hendry v. Benlisa 37 Fla. 609, 20 SO 800,34 LRA 283). The receipt of money due on ajudgment by an officer
authorized by law to accept it will, therefore, satisfy the debt (See 40 Am Jm 729, 25; Hendry v. Benlisa supra;
Seattle v. Stirrat 55 Wash. 104 p. 834,24 LRA [NS] 1275).
The theory is where payment is made to a person authorized and recognized by the creditor, the payment to such a
person so authorized is deemed payment to the creditor. Under ordinary circumstances, payment by the judgment
debtor in the case at bar, to the sheriff should be valid payment to extinguish the judgment debt.
There are circumstances in this case, however, which compel a different conclusion.
The payment made by the petitioner to the absconding sheriff was not in cash or legal tender but in checks. The
checks were not payable to Amelia Tan or Able Printing Press but to the absconding sheriff.
Did such payments extinguish the judgment debt?
Article 1249 of the Civil Code provides:
The payment of debts in money shall be made in the currency stipulated, and if it is not possible
to deliver such currency, then in the currency which is legal tender in the Philippines.
The delivery of promissory notes payable to order, or bills of exchange or other mercantile
documents shall produce the effect of payment only when they have been cashed, or when
through the fault of the creditor they have been impaired.
In the meantime, the action derived from the original obligation shall be held in abeyance.
In the absence of an agreement, either express or implied, payment means the discharge of a debt or obligation in
money (US v. Robertson, 5 Pet. [US] 641, 8 L. ed. 257) and unless the parties so agree, a debtor has no rights,
except at his own peril, to substitute something in lieu of cash as medium of payment of his debt (Anderson v. Gill, 79
Md.. 312, 29 A 527, 25 LRA 200,47 Am. St. Rep. 402). Consequently, unless authorized to do so by law or by
consent of the obligee a public officer has no authority to accept anything other than money in payment of an
obligation under a judgment being executed. Strictly speaking, the acceptance by the sheriff of the petitioner's
checks, in the case at bar, does not, per se, operate as a discharge of the judgment debt.
Since a negotiable instrument is only a substitute for money and not money, the delivery of such an instrument does
not, by itself, operate as payment (See. 189, Act 2031 on Negs. Insts.; Art. 1249, Civil Code; Bryan Landon Co. v.
American Bank, 7 Phil. 255; Tan Sunco v. Santos, 9 Phil. 44; 21 R.C.L. 60, 61). A check, whether a manager's check
or ordinary cheek, is not legal tender, and an offer of a check in payment of a debt is not a valid tender of payment
and may be refused receipt by the obligee or creditor. Mere delivery of checks does not discharge the obligation
under a judgment. The obligation is not extinguished and remains suspended until the payment by commercial
document is actually realized (Art. 1249, Civil Code, par. 3).
If bouncing checks had been issued in the name of Amelia Tan and not the Sheriff's, there would have been no
payment. After dishonor of the checks, Ms. Tan could have run after other properties of PAL. The theory is that she
has received no value for what had been awarded her. Because the checks were drawn in the name of Emilio Z.
Reyes, neither has she received anything. The same rule should apply.
It is argued that if PAL had paid in cash to Sheriff Reyes, there would have been payment in full legal contemplation.
The reasoning is logical but is it valid and proper? Logic has its limits in decision making. We should not follow
rulings to their logical extremes if in doing so we arrive at unjust or absurd results.
In the first place, PAL did not pay in cash. It paid in cheeks.
And second, payment in cash always carries with it certain cautions. Nobody hands over big amounts of cash in a
careless and inane manner. Mature thought is given to the possibility of the cash being lost, of the bearer being
waylaid or running off with what he is carrying for another. Payment in checks is precisely intended to avoid the
possibility of the money going to the wrong party. The situation is entirely different where a Sheriff seizes a car, a
tractor, or a piece of land. Logic often has to give way to experience and to reality. Having paid with checks, PAL
should have done so properly.
Payment in money or cash to the implementing officer may be deemed absolute payment of the judgment debt but
the Court has never, in the least bit, suggested that judgment debtors should settle their obligations by turning over
huge amounts of cash or legal tender to sheriffs and other executing officers. Payment in cash would result in
damage or interminable litigations each time a sheriff with huge amounts of cash in his hands decides to abscond.
As a protective measure, therefore, the courts encourage the practice of payments by cheek provided adequate
controls are instituted to prevent wrongful payment and illegal withdrawal or disbursement of funds. If particularly big
amounts are involved, escrow arrangements with a bank and carefully supervised by the court would be the safer
procedure. Actual transfer of funds takes place within the safety of bank premises. These practices are perfectly
legal. The object is always the safe and incorrupt execution of the judgment.
It is, indeed, out of the ordinary that checks intended for a particular payee are made out in the name of another.
Making the checks payable to the judgment creditor would have prevented the encashment or the taking of undue
advantage by the sheriff, or any person into whose hands the checks may have fallen, whether wrongfully or in
behalf of the creditor. The issuance of the checks in the name of the sheriff clearly made possible the
misappropriation of the funds that were withdrawn.
As explained and held by the respondent court:
... [K]nowing as it does that the intended payment was for the private party respondent Amelia
Tan, the petitioner corporation, utilizing the services of its personnel who are or should be
knowledgeable about the accepted procedures and resulting consequences of the checks
drawn, nevertheless, in this instance, without prudence, departed from what is generally
observed and done, and placed as payee in the checks the name of the errant Sheriff and not
the name of the rightful payee. Petitioner thereby created a situation which permitted the said
Sheriff to personally encash said checks and misappropriate the proceeds thereof to his
exclusive personal benefit. For the prejudice that resulted, the petitioner himself must bear the
fault. The judicial guideline which we take note of states as follows:
As between two innocent persons, one of whom must suffer the consequence of a breach of
trust, the one who made it possible by his act of confidence must bear the loss. (Blondeau, et al.
v. Nano, et al., L-41377, July 26, 1935, 61 Phil. 625)
Having failed to employ the proper safeguards to protect itself, the judgment debtor whose act made possible the
loss had but itself to blame.
The attention of this Court has been called to the bad practice of a number of executing officers, of requiring checks
in satisfaction of judgment debts to be made out in their own names. If a sheriff directs a judgment debtor to issue
the checks in the sheriff's name, claiming he must get his commission or fees, the debtor must report the sheriff
immediately to the court which ordered the execution or to the Supreme Court for appropriate disciplinary action.
Fees, commissions, and salaries are paid through regular channels. This improper procedure also allows such
officers, who have sixty (60) days within which to make a return, to treat the moneys as their personal finds and to
deposit the same in their private accounts to earn sixty (60) days interest, before said finds are turned over to the
court or judgment creditor (See Balgos v. Velasco, 108 SCRA 525 [1981]). Quite as easily, such officers could put up
the defense that said checks had been issued to them in their private or personal capacity. Without a receipt
evidencing payment of the judgment debt, the misappropriation of finds by such officers becomes clean and
complete. The practice is ingenious but evil as it unjustly enriches court personnel at the expense of litigants and the
proper administration of justice. The temptation could be far greater, as proved to be in this case of the absconding
sheriff. The correct and prudent thing for the petitioner was to have issued the checks in the intended payee's name.
The pernicious effects of issuing checks in the name of a person other than the intended payee, without the latter's
agreement or consent, are as many as the ways that an artful mind could concoct to get around the safeguards
provided by the law on negotiable instruments. An angry litigant who loses a case, as a rule, would not want the
winning party to get what he won in the judgment. He would think of ways to delay the winning party's getting what
has been adjudged in his favor. We cannot condone that practice especially in cases where the courts and their
officers are involved. We rule against the petitioner.
Anent the applicability of Section 15, Rule 39, as follows:
Section 15. Execution of money judgments. The officer must enforce an execution of a money
judgment by levying on all the property, real and personal of every name and nature whatsoever,
and which may be disposed of for value, of the judgment debtor not exempt from execution, or
on a sufficient amount of such property, if they be sufficient, and selling the same, and paying to
the judgment creditor, or his attorney, so much of the proceeds as will satisfy the judgment. ...
the respondent court held:
We are obliged to rule that the judgment debt cannot be considered satisfied and therefore the
orders of the respondent judge granting the alias writ of execution may not be pronounced as a
nullity.
xxx xxx xxx
It is clear and manifest that after levy or garnishment, for a judgment to be executed there is the
requisite of payment by the officer to the judgment creditor, or his attorney, so much of the
proceeds as will satisfy the judgment and none such payment had been concededly made yet
by the absconding Sheriff to the private respondent Amelia Tan. The ultimate and essential step
to complete the execution of the judgment not having been performed by the City Sheriff, the
judgment debt legally and factually remains unsatisfied.
Strictly speaking execution cannot be equated with satisfaction of a judgment. Under unusual circumstances as
those obtaining in this petition, the distinction comes out clearly.
Execution is the process which carries into effect a decree or judgment (Painter v. Berglund, 31 Cal. App. 2d. 63, 87
P 2d 360, 363; Miller v. London, 294 Mass 300, 1 NE 2d 198, 200; Black's Law Dictionary), whereas the satisfaction
of a judgment is the payment of the amount of the writ, or a lawful tender thereof, or the conversion by sale of the
debtor's property into an amount equal to that due, and, it may be done otherwise than upon an execution (Section
47, Rule 39). Levy and delivery by an execution officer are not prerequisites to the satisfaction of a judgment when
the same has already been realized in fact (Section 47, Rule 39). Execution is for the sheriff to accomplish while
satisfaction of the judgment is for the creditor to achieve. Section 15, Rule 39 merely provides the sheriff with his
duties as executing officer including delivery of the proceeds of his levy on the debtor's property to satisfy the
judgment debt. It is but to stress that the implementing officer's duty should not stop at his receipt of payments but
must continue until payment is delivered to the obligor or creditor.
Finally, we find no error in the respondent court's pronouncement on the inclusion of interests to be recovered under
the alias writ of execution. This logically follows from our ruling that PAL is liable for both the lost checks and interest.
The respondent court's decision in CA-G.R. No. 51079-R does not totally supersede the trial court's judgment in Civil
Case No. 71307. It merely modified the same as to the principal amount awarded as actual damages.
WHEREFORE, IN VIEW OF THE FOREGOING, the petition is hereby DISMISSED. The judgment of the respondent
Court of Appeals is AFFIRMED and the trial court's issuance of the alias writ of execution against the petitioner is
upheld without prejudice to any action it should take against the errant sheriff Emilio Z. Reyes. The Court
Administrator is ordered to follow up the actions taken against Emilio Z. Reyes.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 126389 July 10, 1998
SOUTHEASTERN COLLEGE INC., petitioner,
vs.
COURT OF APPEALS, JUANITA DE JESUS VDA. DE DIMAANO, EMERITA DIMAANO, REMEDIOS DIMAANO,
CONSOLACION DIMAANO and MILAGROS DIMAANO, respondents.
PURISIMA, J.:
Petition for review under Rule 45 of the Rules of Court seeking to set aside the Decision 1 promulgated on July 31,
1996, and Resolution 2 dated September 12, 1996 of the Court of Appeals 3 in CA-G.R. No. 41422, entitled "Juanita
de Jesus vda. de Dimaano, et al. vs. Southeastern College, Inc.", which reduced the moral damages awarded below
from P1,000,000.00 to P200,000.00. 4 The Resolution under attack denied petitioner's motion for reconsideration.
Private respondents are owners of a house at 326 College Road, Pasay City, while petitioner owns a four-storey
school building along the same College Road. On October 11, 1989, at about 6:30 in the morning, a powerful
typhoon "Saling" hit Metro Manila. Buffeted by very strong winds, the roof of petitioner's building was partly ripped off
and blown away, landing on and destroying portions of the roofing of private respondents' house. After the typhoon
had passed, an ocular inspection of the destroyed building was conducted by a team of engineers headed by the city
building official, Engr. Jesus L. Reyna. Pertinent aspects of the latter's Report 5 dated October 18, 1989 stated, as
follows:
5. One of the factors that may have led to this calamitous event is the formation of the building in
the area and the general direction of the wind. Situated in the peripheral lot is an almost U-
shaped formation of 4-storey building. Thus, with the strong winds having a westerly direction,
the general formation of the building becomes a big funnel-like structure, the one situated along
College Road, receiving the heaviest impact of the strong winds. Hence, there are portions of
the roofing, those located on both ends of the building, which remained intact after the storm.
6. Another factor and perhaps the most likely reason for the dislodging of the roofing structural
trusses is the improper anchorage of the said trusses to the roof beams. The 1/2' diameter steel
bars embedded on the concrete roof beams which serve as truss anchorage are not bolted nor
nailed to the trusses. Still, there are other steel bars which were not even bent to the trusses,
thus, those trusses are not anchored at all to the roof beams.
It then recommended that "to avoid any further loss and damage to lives, limbs and property of persons
living in the vicinity," the fourth floor of subject school building be declared as a "structural hazard."
In their Complaint 6 before the Regional Trial Court of Pasay City, Branch 117, for damages based on culpa
aquiliana, private respondents alleged that the damage to their house rendered the same uninhabitable, forcing them
to stay temporarily in others' houses. And so they sought to recover from petitioner P117,116.00, as actual damages,
P1,000,000.00, as moral damages, P300,000.00, as exemplary damages and P100,000.00, for and as attorney's
fees; plus costs.
In its Answer, petitioner averred that subject school building had withstood several devastating typhoons and other
calamities in the past, without its roofing or any portion thereof giving way; that it has not been remiss in its
responsibility to see to it that said school building, which houses school children, faculty members, and employees, is
"in tip-top condition"; and furthermore, typhoon "Saling" was "an act of God and therefore beyond human control"
such that petitioner cannot be answerable for the damages wrought thereby, absent any negligence on its part.
The trial court, giving credence to the ocular inspection report to the effect that subject school building had a
"defective roofing structure," found that, while typhoon "Saling" was accompanied by strong winds, the damage to
private respondents' houses "could have been avoided if the construction of the roof of [petitioner's] building was not
faulty." The dispositive portion of the lower court's decision 7 reads, thus:
WHEREFORE, in view of the foregoing, the Court renders judgment ( sic) in favor of the plaintiff
(sic) and against the defendants, (sic) ordering the latter to pay jointly and severally the former
as follows:
a) P117,116.00, as actual damages, plus litigation
expenses;
b) P1,000,000.00 as moral damages;
c) P100,000.00 as attorney's fees;
d) Costs of the instant suit.
The claim for exemplary damages is denied for the reason that the defendants (sic) did in a
wanton fraudulent, reckless, oppressive or malevolent manner.
In its appeal to the Court of Appeals, petitioner assigned as errors, 8 that:
I
THE TRIAL COURT ERRED IN HOLDING THAT TYPHOON "SALING", AS AN ACT OF GOD,
IS NOT "THE SOLE AND ABSOLUTE REASON" FOR THE RIPPING-OFF OF THE SMALL
PORTION OF THE ROOF OF SOUTHEASTERN'S FOUR (4) STOREY SCHOOL BUILDING.
II
THE TRIAL COURT ERRED IN HOLDING THAT "THE CONSTRUCTION OF THE ROOF OF
DEFENDANT'S SCHOOL BUILDING WAS FAULTY" NOTWITHSTANDING THE ADMISSION
THAT THERE WERE TYPHOONS BEFORE BUT NOT AS GRAVE AS TYPHOON "SALING"
WHICH IS THE DIRECT AND PROXIMATE CAUSE OF THE INCIDENT.
III
THE TRIAL COURT ERRED IN AWARDING ACTUAL AND MORAL DAMAGES AS WELL AS
ATTORNEY'S FEES AND LITIGATION EXPENSES AND COSTS OF SUIT TO DIMAANOS
WHEN THEY HAVE NOT INCURRED ACTUAL DAMAGES AT ALL AS DIMAANOS HAVE
ALREADY SOLD THEIR PROPERTY, AN INTERVENING EVENT THAT RENDERS THIS CASE
MOOT AND ACADEMIC.
IV
THE TRIAL COURT ERRED IN ORDERING THE ISSUANCE OF THE WRIT OF EXECUTION
INSPITE OF THE PERFECTION OF SOUTHEASTERN'S APPEAL WHEN THERE IS NO
COMPELLING REASON FOR THE ISSUANCE THERETO.
As mentioned earlier, respondent Court of Appeals affirmed with modification the trial court's disposition by reducing
the award of moral damages from P1,000,000.00 to P200,000.00. Hence, petitioner's resort to this Court, raising for
resolution the issues of:
1. Whether or not the award of actual damages [sic] to respondent Dimaanos on the basis of
speculation or conjecture, without proof or receipts of actual damage, [sic] legally feasible or
justified.
2. Whether or not the award of moral damages to respondent Dimaanos, with the latter having
suffered, actual damage has legal basis.
 3. Whether or not respondent Dimaanos who are no longer the owner of the property, subject
matter of the case, during its pendency, has the right to pursue their complaint against petitioner
when the case was already moot and academic by the sale of the property to third party.
4. Whether or not the award of attorney's fees when the case was already moot academic [sic]
legally justified.
5. Whether or not petitioner is liable for damage caused to others by typhoon "Saling" being an
act of God.
6. Whether or not the issuance of a writ of execution pending appeal, ex-parte or without
hearing, has support in law.
The pivot of inquiry here, determinative of the other issues, is whether the damage on the roof of the building of
private respondents resulting from the impact of the falling portions of the school building's roof ripped off by the
strong winds of typhoon "Saling", was, within legal contemplation, due to fortuitous event? If so, petitioner cannot be
held liable for the damages suffered by the private respondents. This conclusion finds support in Article 1174 of Civil
Code, which provides:
Art 1174. Except in cases expressly specified by the law, or when it is otherwise declared by
stipulation, or when the nature of the obligation requires the assumption of risk, no person shall
be responsible for those events which could not be foreseen, or which, though foreseen, were
inevitable.
The antecedent of fortuitous event or caso fortuito is found in the Partidas which defines it as "an event which takes
place by accident and could not have been foreseen." 9 Escriche elaborates it as "an unexpected event or act of God
which could neither be foreseen nor resisted." 10 Civilist Arturo M. Tolentino adds that "[f]ortuitous events may be
produced by two general causes: (1) by nature, such as earthquakes, storms, floods, epidemics, fires, etc. and (2) by
the act of man, such as an armed invasion, attack by bandits, governmental prohibitions, robbery, etc." 11
In order that a fortuitous event may exempt a person from liability, it is necessary that he be free from any previous
negligence or misconduct by reason of which the loss may have been occasioned. 12 An act of God cannot be
invoked for the protection of a person who has been guilty of gross negligence in not trying to forestall its possible
adverse consequences. When a person's negligence concurs with an act of God in producing damage or injury to
another, such person is not exempt from liability by showing that the immediate or proximate cause of the damages
or injury was a fortuitous event. When the effect is found to be partly the result of the participation of man whether
it be from active intervention, or neglect, or failure to act the whole occurrence is hereby humanized, and removed
from the rules applicable to acts of God. 13
In the case under consideration, the lower court accorded full credence to the finding of the investigating team that
subject school building's roofing had "no sufficient anchorage to hold it in position especially when battered by strong
winds." Based on such finding, the trial court imputed negligence to petitioner and adjudged it liable for damages to
private respondents.
After a thorough study and evaluation of the evidence on record, this Court believes otherwise, notwithstanding the
general rule that factual findings by the trail court, especially when affirmed by the appellate court, are binding and
conclusive upon this Court. 14 After a careful scrutiny of the records and the pleadings submitted by the parties, we
find exception to this rule and hold that the lower courts misappreciated the evidence proffered.
There is no question that a typhoon or storm is a fortuitous event, a natural occurrence which may be foreseen but is
unavoidable despite any amount of foresight, diligence or care. 15 In order to be exempt from liability arising from any
adverse consequence engendered thereby, there should have been no human participation amounting to a negligent
act. 16In other words; the person seeking exoneration from liability must not be guilty of negligence. Negligence, as
commonly understood, is conduct which naturally or reasonably creates undue risk or harm to others. It may be the
failure to observe that degree of care, precaution, and vigilance which the circumstances justify demand, 17 or the
omission to do something which a prudent and reasonable man, guided by considerations which ordinarily regulate
the conduct of human affairs, would
do. 18 From these premises, we proceed to determine whether petitioner was negligent, such that if it were not, the
damage caused to private respondents' house could have been avoided?
At the outset, it bears emphasizing that a person claiming damages for the negligence of another has the burden of
proving the existence of fault or negligence causative of his injury or loss. The facts constitutive of negligence must
be affirmatively established by competent evidence, 19 not merely by presumptions and conclusions without basis in
fact. Private respondents, in establishing the culpability of petitioner, merely relied on the aforementioned report
submitted by a team which made an ocular inspection of petitioner's school building after the typhoon. As the term
imparts, an ocularinspection is one by means of actual sight or viewing. 20 What is visual to the eye through, is not
always reflective of the real cause behind. For instance, one who hears a gunshot and then sees a wounded person,
cannot always definitely conclude that a third person shot the victim. It could have been self-inflicted or caused
accidentally by a stray bullet. The relationship of cause and effect must be clearly shown.
In the present case, other than the said ocular inspection, no investigation was conducted to determine the real
cause of the partial unroofing of petitioner's school building. Private respondents did not even show that the plans,
specifications and design of said school building were deficient and defective. Neither did they prove any substantial
deviation from the approved plans and specifications. Nor did they conclusively establish that the construction of
such building was basically flawed. 21
On the other hand, petitioner elicited from one of the witnesses of private respondents, city building official Jesus
Reyna, that the original plans and design of petitioner's school building were approved prior to its construction. Engr.
Reyna admitted that it was a legal requirement before the construction of any building to obtain a permit from the city
building official (city engineer, prior to the passage of the Building Act of 1977). In like manner, after construction of
the building, a certification must be secured from the same official attesting to the readiness for occupancy of the
edifice. Having obtained both building permit and certificate of occupancy, these are, at the very least, prima
facieevidence of the regular and proper construction of subject school building. 22
Furthermore, when part of its roof needed repairs of the damage inflicted by typhoon "Saling", the same city official
gave the go-signal for such repairs without any deviation from the original design and subsequently, authorized
the use of the entire fourth floor of the same building. These only prove that subject building suffers from no
structural defect, contrary to the report that its "U-shaped" form was "structurally defective." Having given his
unqualified imprimatur, the city building official is presumed to have properly performed his duties 23 in connection
therewith.
In addition, petitioner presented its vice president for finance and administration who testified that an annual
maintenance inspection and repair of subject school building were regularly undertaken. Petitioner was even willing
to present its maintenance supervisor to attest to the extent of such regular inspection but private respondents
agreed to dispense with his testimony and simply stipulated that it would be corroborative of the vice president's
narration.
Moreover, the city building official, who has been in the city government service since 1974, admitted in open court
that no complaint regarding any defect on the same structure has ever been lodged before his office prior to the
institution of the case at bench. It is a matter of judicial notice that typhoons are common occurrences in this country.
If subject school building's roofing was not firmly anchored to its trusses, obviously, it could not have withstood long
years and several typhoons even stronger than "Saling."

In light of the foregoing, we find no clear and convincing evidence to sustain the judgment of the appellate court. We
thus hold that petitioner has not been shown negligent or at fault regarding the construction and maintenance of its
school building in question and that typhoon "Saling" was the proximate cause of the damage suffered by private
respondents' house.

With this disposition on the pivotal issue, private respondents' claim for actual and moral damages as well as
attorney's fees must fail. 24 Petitioner cannot be made to answer for a purely fortuitous event. 25 More so because no
bad faith or willful act to cause damage was alleged and proven to warrant moral damages.

Private respondents failed to adduce adequate and competent proof of the pecuniary loss they actually incurred. 26It
is not enough that the damage be capable of proof but must be actually proved with a reasonable degree of
certainty, pointing out specific facts that afford a basis for measuring whatever compensatory damages are
borne. 27 Private respondents merely submitted an estimated amount needed for the repair of the roof their subject
building. What is more, whether the "necessary repairs" were caused ONLY by petitioner's alleged negligence in the
maintenance of its school building, or included the ordinary wear and tear of the house itself, is an essential question
that remains indeterminable.

The Court deems unnecessary to resolve the other issues posed by petitioner. Republic of the Philippines
SUPREME COURT
As regards the sixth issue, however, the writ of execution issued on April 1, 1993 by the trial court is hereby nullified Manila
and set aside. Private respondents are ordered to reimburse any amount or return to petitioner any property which
they may have received by virtue of the enforcement of said writ. SECOND DIVISION

WHEREFORE, the petition is GRANTED and the challenged Decision is REVERSED. The complaint of private G.R. No. 147324 May 25, 2004
respondents in Civil Case No. 7314 before the trial court a quo is ordered DISMISSED and the writ of execution
issued on April 1, 1993 in said case is SET ASIDE. Accordingly, private respondents are ORDERED to return to PHILIPPINE COMMUNICATIONS SATELLITE CORPORATION, petitioner,
petitioner any amount or property received by them by virtue of said writ. Costs against the private respondents. vs.
GLOBE TELECOM, INC. (formerly Globe Mckay Cable and Radio Corporation), respondents.
SO ORDERED.
x-----------------------------x

GLOBE TELECOM, INC., petitioner,

vs.
PHILIPPINE COMMUNICATION SATELLITE CORPORATION, respondent.

DECISION

TINGA, J.:

Before the Court are two Petitions for Review assailing the Decision of the Court of Appeals, dated 27 February
2001, in CA-G.R. CV No. 63619.1
The facts of the case are undisputed.
For several years prior to 1991, Globe Mckay Cable and Radio Corporation, now Globe Telecom, Inc. (Globe), had
been engaged in the coordination of the provision of various communication facilities for the military bases of the
United States of America (US) in Clark Air Base, Angeles, Pampanga and Subic Naval Base in Cubi Point,
Zambales. The said communication facilities were installed and configured for the exclusive use of the US Defense
Communications Agency (USDCA), and for security reasons, were operated only by its personnel or those of
American companies contracted by it to operate said facilities. The USDCA contracted with said American
companies, and the latter, in turn, contracted with Globe for the use of the communication facilities. Globe, on the
other hand, contracted with local service providers such as the Philippine Communications Satellite Corporation
(Philcomsat) for the provision of the communication facilities.
On 07 May 1991, Philcomsat and Globe entered into an Agreement whereby Philcomsat obligated itself to establish,
operate and provide an IBS Standard B earth station (earth station) within Cubi Point for the exclusive use of the
USDCA.2 The term of the contract was for 60 months, or five (5) years. 3 In turn, Globe promised to pay Philcomsat
monthly rentals for each leased circuit involved.4
At the time of the execution of the Agreement, both parties knew that the Military Bases Agreement between the
Republic of the Philippines and the US (RP-US Military Bases Agreement), which was the basis for the occupancy of
the Clark Air Base and Subic Naval Base in Cubi Point, was to expire in 1991. Under Section 25, Article XVIII of the
1987 Constitution, foreign military bases, troops or facilities, which include those located at the US Naval Facility in
Cubi Point, shall not be allowed in the Philippines unless a new treaty is duly concurred in by the Senate and ratified
by a majority of the votes cast by the people in a national referendum when the Congress so requires, and such new
treaty is recognized as such by the US Government.
party is thus precluded from performing its obligation until such force majeure or fortuitous event shall
terminate. For the purpose of this paragraph, force majeure shall mean circumstances beyond the control
of the party involved including, but not limited to, any law, order, regulation, direction or request of the
Government of the Philippines, strikes or other labor difficulties, insurrection riots, national emergencies,
war, acts of public enemies, fire, floods, typhoons or other catastrophies or acts of God.
Philcomsat sent a reply letter dated 10 August 1992 to Globe, stating that "we expect [Globe] to know its commitment
to pay the stipulated rentals for the remaining terms of the Agreement even after [Globe] shall have discontinue[d]
the use of the earth station after November 08, 1992."7 Philcomsat referred to Section 7 of the Agreement, stating as
follows:
7. DISCONTINUANCE OF SERVICE
Should [Globe] decide to discontinue with the use of the earth station after it has been put into operation, a
written notice shall be served to PHILCOMSAT at least sixty (60) days prior to the expected date of
termination. Notwithstanding the non-use of the earth station, [Globe] shall continue to pay PHILCOMSAT
for the rental of the actual number of T1 circuits in use, but in no case shall be less than the first two (2) T1
circuits, for the remaining life of the agreement. However, should PHILCOMSAT make use or sell the earth
station subject to this agreement, the obligation of [Globe] to pay the rental for the remaining life of the
agreement shall be at such monthly rate as may be agreed upon by the parties.8
After the US military forces left Subic Naval Base, Philcomsat sent Globe a letter dated 24 November 1993
demanding payment of its outstanding obligations under the Agreement amounting to US$4,910,136.00 plus interest
and attorneys fees. However, Globe refused to heed Philcomsats demand.

Subsequently, Philcomsat installed and established the earth station at Cubi Point and the USDCA made use of the
On 27 January 1995, Philcomsat filed with the Regional Trial Court of Makati a Complaint against Globe, praying that
same.
the latter be ordered to pay liquidated damages under the Agreement, with legal interest, exemplary damages,
attorneys fees and costs of suit. The case was raffled to Branch 59 of said court.
On 16 September 1991, the Senate passed and adopted Senate Resolution No. 141, expressing its decision not to
concur in the ratification of the Treaty of Friendship, Cooperation and Security and its Supplementary Agreements
Globe filed an Answer to the Complaint, insisting that it was constrained to end the Agreement due to the termination
that was supposed to extend the term of the use by the US of Subic Naval Base, among others. 5 The last two
of the RP-US Military Bases Agreement and the non-ratification by the Senate of the Treaty of Friendship and
paragraphs of the Resolution state:
Cooperation, which events constituted force majeure under the Agreement. Globe explained that the occurrence of
said events exempted it from paying rentals for the remaining period of the Agreement.
FINDING that the Treaty constitutes a defective framework for the continuing relationship between the two
countries in the spirit of friendship, cooperation and sovereign equality: Now, therefore, be it Resolved by
On 05 January 1999, the trial court rendered its Decision, the dispositive portion of which reads:
the Senate, as it is hereby resolved, To express its decision not to concur in the ratification of the Treaty of
Friendship, Cooperation and Security and its Supplementary Agreements, at the same time reaffirming its
desire to continue friendly relations with the government and people of the United States of America.6 WHEREFORE, premises considered, judgment is hereby rendered as follows:

On 31 December 1991, the Philippine Government sent a Note Verbale to the US Government through the US
Embassy, notifying it of the Philippines termination of the RP-US Military Bases Agreement. The Note Verbalestated
that since the RP-US Military Bases Agreement, as amended, shall terminate on 31 December 1992, the withdrawal
of all US military forces from Subic Naval Base should be completed by said date.
In a letter dated 06 August 1992, Globe notified Philcomsat of its intention to discontinue the use of the earth station
effective 08 November 1992 in view of the withdrawal of US military personnel from Subic Naval Base after the
termination of the RP-US Military Bases Agreement. Globe invoked as basis for the letter of termination Section 8
(Default) of the Agreement, which provides:
Neither party shall be held liable or deemed to be in default for any failure to perform its obligation under
this Agreement if such failure results directly or indirectly from force majeure or fortuitous event. Either
1. Ordering the defendant to pay the plaintiff the amount of Ninety Two Thousand Two Hundred
Thirty Eight US Dollars (US$92,238.00) or its equivalent in Philippine Currency (computed at the
exchange rate prevailing at the time of compliance or payment) representing rentals for the
month of December 1992 with interest thereon at the legal rate of twelve percent (12%) per
annum starting December 1992 until the amount is fully paid;
2. Ordering the defendant to pay the plaintiff the amount of Three Hundred Thousand
(P300,000.00) Pesos as and for attorneys fees;
3. Ordering the DISMISSAL of defendants counterclaim for lack of merit; and
4. With costs against the defendant.
 SO ORDERED.9
Both parties appealed the trial courts Decision to the Court of Appeals.
Philcomsat claimed that the trial court erred in ruling that: (1) the non-ratification by the Senate of the Treaty of
Friendship, Cooperation and Security and its Supplementary Agreements constitutes force majeure which exempts
Globe from complying with its obligations under the Agreement; (2) Globe is not liable to pay the rentals for the
remainder of the term of the Agreement; and (3) Globe is not liable to Philcomsat for exemplary damages.
Globe, on the other hand, contended that the RTC erred in holding it liable for payment of rent of the earth station for
December 1992 and of attorneys fees. It explained that it terminated Philcomsats services on 08 November 1992;
hence, it had no reason to pay for rentals beyond that date.
On 27 February 2001, the Court of Appeals promulgated its Decision dismissing Philcomsats appeal for lack of merit
and affirming the trial courts finding that certain events constituting force majeure under Section 8 the Agreement
occurred and justified the non-payment by Globe of rentals for the remainder of the term of the Agreement.
The appellate court ruled that the non-ratification by the Senate of the Treaty of Friendship, Cooperation and
Security, and its Supplementary Agreements, and the termination by the Philippine Government of the RP-US
Military Bases Agreement effective 31 December 1991 as stated in the Philippine Governments Note Verbale to the
US Government, are acts, directions, or requests of the Government of the Philippines which constitute force
majeure. In addition, there were circumstances beyond the control of the parties, such as the issuance of a formal
order by Cdr. Walter Corliss of the US Navy, the issuance of the letter notification from ATT and the complete
withdrawal of all US military forces and personnel from Cubi Point, which prevented further use of the earth station
under the Agreement.
However, the Court of Appeals ruled that although Globe sought to terminate Philcomsats services by 08 November
1992, it is still liable to pay rentals for the December 1992, amounting to US$92,238.00 plus interest, considering that
the US military forces and personnel completely withdrew from Cubi Point only on 31 December 1992. 10
Both parties filed their respective Petitions for Review assailing the Decision of the Court of Appeals.
In G.R. No. 147324,11 petitioner Philcomsat raises the following assignments of error:
A. THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING A DEFINITION OF FORCE
MAJEUREDIFFERENT FROM WHAT ITS LEGAL DEFINITION FOUND IN ARTICLE 1174 OF THE CIVIL
CODE, PROVIDES, SO AS TO EXEMPT GLOBE TELECOM FROM COMPLYING WITH ITS
OBLIGATIONS UNDER THE SUBJECT AGREEMENT.
B. THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT GLOBE TELECOM IS NOT
LIABLE TO PHILCOMSAT FOR RENTALS FOR THE REMAINING TERM OF THE AGREEMENT,
DESPITE THE CLEAR TENOR OF SECTION 7 OF THE AGREEMENT.
C. THE HONORABLE OCURT OF APPEALS ERRED IN DELETING THE TRIAL COURTS AWARD OF
ATTORNEYS FEES IN FAVOR OF PHILCOMSAT.
D. THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT GLOBE TELECOM IS NOT
LIABLE TO PHILCOMSAT FOR EXEMPLARY DAMAGES.12
Philcomsat argues that the termination of the RP-US Military Bases Agreement cannot be considered a fortuitous
event because the happening thereof was foreseeable. Although the Agreement was freely entered into by both
parties, Section 8 should be deemed ineffective because it is contrary to Article 1174 of the Civil Code. Philcomsat
posits the view that the validity of the parties definition of force majeure in Section 8 of the Agreement as
"circumstances beyond the control of the party involved including, but not limited to, any law, order, regulation,
direction or request of the Government of the Philippines, strikes or other labor difficulties, insurrection riots, national
emergencies, war, acts of public enemies, fire, floods, typhoons or other catastrophies or acts of God," should be
deemed subject to Article 1174 which defines fortuitous events as events which could not be foreseen, or which,
though foreseen, were inevitable.13
Philcomsat further claims that the Court of Appeals erred in holding that Globe is not liable to pay for the rental of the
earth station for the entire term of the Agreement because it runs counter to what was plainly stipulated by the
parties in Section 7 thereof. Moreover, said ruling is inconsistent with the appellate courts pronouncement that Globe
is liable to pay rentals for December 1992 even though it terminated Philcomsats services effective 08 November
1992, because the US military and personnel completely withdrew from Cubi Point only in December 1992.
Philcomsat points out that it was Globe which proposed the five-year term of the Agreement, and that the other
provisions of the Agreement, such as Section 4.1 14 thereof, evince the intent of Globe to be bound to pay rentals for
the entire five-year term.15
Philcomsat also maintains that contrary to the appellate courts findings, it is entitled to attorneys fees and exemplary
damages.16
In its Comment to Philcomsats Petition, Globe asserts that Section 8 of the Agreement is not contrary to Article 1174
of the Civil Code because said provision does not prohibit parties to a contract from providing for other instances
when they would be exempt from fulfilling their contractual obligations. Globe also claims that the termination of the
RP-US Military Bases Agreement constitutes force majeure and exempts it from complying with its obligations under
the Agreement.17 On the issue of the propriety of awarding attorneys fees and exemplary damages to Philcomsat,
Globe maintains that Philcomsat is not entitled thereto because in refusing to pay rentals for the remainder of the
term of the Agreement, Globe only acted in accordance with its rights.18
In G.R. No. 147334,19 Globe, the petitioner therein, contends that the Court of Appeals erred in finding it liable for the
amount of US$92,238.00, representing rentals for December 1992, since Philcomsats services were actually
terminated on 08 November 1992.20
In its Comment, Philcomsat claims that Globes petition should be dismissed as it raises a factual issue which is not
cognizable by the Court in a petition for review on certiorari.21
On 15 August 2001, the Court issued a Resolution giving due course to Philcomsats Petition in G.R. No.
147324 and required the parties to submit their respective memoranda.22
Similarly, on 20 August 2001, the Court issued a Resolution giving due course to the Petition filed by Globe in G.R.
No. 147334 and required both parties to submit their memoranda.23
Philcomsat and Globe thereafter filed their respective Consolidated Memoranda in the two cases, reiterating their
arguments in their respective petitions.
The Court is tasked to resolve the following issues: (1) whether the termination of the RP-US Military Bases
Agreement, the non-ratification of the Treaty of Friendship, Cooperation and Security, and the consequent withdrawal
of US military forces and personnel from Cubi Point constitute force majeure which would exempt Globe from
complying with its obligation to pay rentals under its Agreement with Philcomsat; (2) whether Globe is liable to pay
rentals under the Agreement for the month of December 1992; and (3) whether Philcomsat is entitled to attorneys
fees and exemplary damages.
No reversible error was committed by the Court of Appeals in issuing the assailed Decision; hence the petitions are
denied.
There is no merit is Philcomsats argument that Section 8 of the Agreement cannot be given effect because the
enumeration of events constituting force majeure therein unduly expands the concept of a fortuitous event under
Article 1174 of the Civil Code and is therefore invalid.
In support of its position, Philcomsat contends that under Article 1174 of the Civil Code, an event must be unforeseen
in order to exempt a party to a contract from complying with its obligations therein. It insists that since the expiration
of the RP-US Military Bases Agreement, the non-ratification of the Treaty of Friendship, Cooperation and Security
and the withdrawal of US military forces and personnel from Cubi Point were not unforeseeable, but were
possibilities known to it and Globe at the time they entered into the Agreement, such events cannot exempt Globe
from performing its obligation of paying rentals for the entire five-year term thereof.
However, Article 1174, which exempts an obligor from liability on account of fortuitous events or force majeure, refers
not only to events that are unforeseeable, but also to those which are foreseeable, but inevitable:
Art. 1174. Except in cases specified by the law, or when it is otherwise declared by stipulation, or when the
nature of the obligation requires the assumption of risk, no person shall be responsible for those events
which, could not be foreseen, or which, though foreseen were inevitable.
A fortuitous event under Article 1174 may either be an "act of God," or natural occurrences such as floods or
typhoons,24 or an "act of man," such as riots, strikes or wars.25
Philcomsat and Globe agreed in Section 8 of the Agreement that the following events shall be deemed events
constituting force majeure:
1. Any law, order, regulation, direction or request of the Philippine Government;
2. Strikes or other labor difficulties;
3. Insurrection;
4. Riots;
5. National emergencies;
6. War;
7. Acts of public enemies;
8. Fire, floods, typhoons or other catastrophies or acts of God;
9. Other circumstances beyond the control of the parties.
Clearly, the foregoing are either unforeseeable, or foreseeable but beyond the control of the parties. There is nothing
in the enumeration that runs contrary to, or expands, the concept of a fortuitous event under Article 1174.
Furthermore, under Article 130626 of the Civil Code, parties to a contract may establish such stipulations, clauses,
terms and conditions as they may deem fit, as long as the same do not run counter to the law, morals, good
customs, public order or public policy.27
Article 1159 of the Civil Code also provides that "[o]bligations arising from contracts have the force of law between
the contracting parties and should be complied with in good faith." 28 Courts cannot stipulate for the parties nor amend
their agreement where the same does not contravene law, morals, good customs, public order or public policy, for to
do so would be to alter the real intent of the parties, and would run contrary to the function of the courts to give force
and effect thereto.29
Not being contrary to law, morals, good customs, public order, or public policy, Section 8 of the Agreement which
Philcomsat and Globe freely agreed upon has the force of law between them.30
In order that Globe may be exempt from non-compliance with its obligation to pay rentals under Section 8, the
concurrence of the following elements must be established: (1) the event must be independent of the human will; (2)
the occurrence must render it impossible for the debtor to fulfill the obligation in a normal manner; and (3) the obligor
must be free of participation in, or aggravation of, the injury to the creditor.31
The Court agrees with the Court of Appeals and the trial court that the abovementioned requisites are present in the
instant case. Philcomsat and Globe had no control over the non-renewal of the term of the RP-US Military Bases
Agreement when the same expired in 1991, because the prerogative to ratify the treaty extending the life thereof
belonged to the Senate. Neither did the parties have control over the subsequent withdrawal of the US military forces
and personnel from Cubi Point in December 1992:
Obviously the non-ratification by the Senate of the RP-US Military Bases Agreement (and its Supplemental
Agreements) under its Resolution No. 141. (Exhibit "2") on September 16, 1991 is beyond the control of
the parties. This resolution was followed by the sending on December 31, 1991 o[f] a "Note
Verbale" (Exhibit "3") by the Philippine Government to the US Government notifying the latter of the
formers termination of the RP-US Military Bases Agreement (as amended) on 31 December 1992 and that
accordingly, the withdrawal of all U.S. military forces from Subic Naval Base should be completed by said
date. Subsequently, defendant [Globe] received a formal order from Cdr. Walter F. Corliss II Commander
USN dated July 31, 1992 and a notification from ATT dated July 29, 1992 to terminate the provision of T1s
services (via an IBS Standard B Earth Station) effective November 08, 1992. Plaintiff [Philcomsat] was
furnished with copies of the said order and letter by the defendant on August 06, 1992.
Resolution No. 141 of the Philippine Senate and the Note Verbale of the Philippine Government to the US
Government are acts, direction or request of the Government of the Philippines and circumstances beyond
the control of the defendant. The formal order from Cdr. Walter Corliss of the USN, the letter notification
from ATT and the complete withdrawal of all the military forces and personnel from Cubi Point in the year-
end 1992 are also acts and circumstances beyond the control of the defendant.
Considering the foregoing, the Court finds and so holds that the afore-narrated circumstances constitute
"force majeure or fortuitous event(s) as defined under paragraph 8 of the Agreement.
 From the foregoing, the Court finds that the defendant is exempted from paying the rentals for the facility Exemplary damages may be awarded in cases involving contracts or quasi-contracts, if the erring party acted in a
for the remaining term of the contract. wanton, fraudulent, reckless, oppressive or malevolent manner.41 In the present case, it was not shown that Globe
acted wantonly or oppressively in not heeding Philcomsats demands for payment of rentals. It was established
during the trial of the case before the trial court that Globe had valid grounds for refusing to comply with its
As a consequence of the termination of the RP-US Military Bases Agreement (as amended) the continued
contractual obligations after 1992.
stay of all US Military forces and personnel from Subic Naval Base would no longer be allowed, hence,
plaintiff would no longer be in any position to render the service it was obligated under the Agreement. To
put it blantly (sic), since the US military forces and personnel left or withdrew from Cubi Point in the year WHEREFORE, the Petitions are DENIED for lack of merit. The assailed Decision of the Court of Appeals in CA-G.R.
end December 1992, there was no longer any necessity for the plaintiff to continue maintaining the IBS CV No. 63619 is AFFIRMED.
facility.32 (Emphasis in the original.)
SO ORDERED.
The aforementioned events made impossible the continuation of the Agreement until the end of its five-year term
without fault on the part of either party. The Court of Appeals was thus correct in ruling that the happening of such
fortuitous events rendered Globe exempt from payment of rentals for the remainder of the term of the Agreement.

Moreover, it would be unjust to require Globe to continue paying rentals even though Philcomsat cannot be
compelled to perform its corresponding obligation under the Agreement. As noted by the appellate court:

We also point out the sheer inequity of PHILCOMSATs position. PHILCOMSAT would like to charge
GLOBE rentals for the balance of the lease term without there being any corresponding
telecommunications service subject of the lease. It will be grossly unfair and iniquitous to hold GLOBE
liable for lease charges for a service that was not and could not have been rendered due to an act of the
government which was clearly beyond GLOBEs control. The binding effect of a contract on both parties is
based on the principle that the obligations arising from contracts have the force of law between the
contracting parties, and there must be mutuality between them based essentially on their equality under
which it is repugnant to have one party bound by the contract while leaving the other party free therefrom
(Allied Banking Corporation v. Court of Appeals, 284 SCRA 357).33

With respect to the issue of whether Globe is liable for payment of rentals for the month of December 1992, the
Court likewise affirms the appellate courts ruling that Globe should pay the same.

Although Globe alleged that it terminated the Agreement with Philcomsat effective 08 November 1992 pursuant to
the formal order issued by Cdr. Corliss of the US Navy, the date when they actually ceased using the earth station
subject of the Agreement was not established during the trial. 34 However, the trial court found that the US military
forces and personnel completely withdrew from Cubi Point only on 31 December 1992. 35 Thus, until that date, the
USDCA had control over the earth station and had the option of using the same. Furthermore, Philcomsat could not
have removed or rendered ineffective said communication facility until after 31 December 1992 because Cubi Point
was accessible only to US naval personnel up to that time. Hence, the Court of Appeals did not err when it affirmed
the trial courts ruling that Globe is liable for payment of rentals until December 1992.

Republic of the Philippines

Neither did the appellate court commit any error in holding that Philcomsat is not entitled to attorneys fees and
SUPREME COURT
exemplary damages.
Manila

The award of attorneys fees is the exception rather than the rule, and must be supported by factual, legal and
FIRST DIVISION
equitable justifications.36 In previously decided cases, the Court awarded attorneys fees where a party acted in gross
and evident bad faith in refusing to satisfy the other partys claims and compelled the former to litigate to protect his
rights;37 when the action filed is clearly unfounded, 38 or where moral or exemplary damages are awarded. 39 However, G.R. No. 147839 June 8, 2006
in cases where both parties have legitimate claims against each other and no party actually prevailed, such as in the
present case where the claims of both parties were sustained in part, an award of attorneys fees would not be
warranted.40 GAISANO CAGAYAN, INC. Petitioner,
vs.
INSURANCE COMPANY OF NORTH AMERICA, Respondent.
 DECISION
AUSTRIA-MARTINEZ, J.:
Before the Court is a petition for review on certiorari of the Decision 1 dated October 11, 2000 of the Court of Appeals
(CA) in CA-G.R. CV No. 61848 which set aside the Decision dated August 31, 1998 of the Regional Trial Court,
Branch 138, Makati (RTC) in Civil Case No. 92-322 and upheld the causes of action for damages of Insurance
Company of North America (respondent) against Gaisano Cagayan, Inc. (petitioner); and the CA Resolution dated
April 11, 2001 which denied petitioner's motion for reconsideration.
The factual background of the case is as follows:
Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans. Levi Strauss (Phils.) Inc. (LSPI) is the
local distributor of products bearing trademarks owned by Levi Strauss & Co.. IMC and LSPI separately obtained
from respondent fire insurance policies with book debt endorsements. The insurance policies provide for coverage
on "book debts in connection with ready-made clothing materials which have been sold or delivered to various
customers and dealers of the Insured anywhere in the Philippines." 2 The policies defined book debts as the "unpaid
account still appearing in the Book of Account of the Insured 45 days after the time of the loss covered under this
Policy."3 The policies also provide for the following conditions:
1. Warranted that the Company shall not be liable for any unpaid account in respect of the merchandise
sold and delivered by the Insured which are outstanding at the date of loss for a period in excess of six (6)
months from the date of the covering invoice or actual delivery of the merchandise whichever shall first
occur.
2. Warranted that the Insured shall submit to the Company within twelve (12) days after the close of every
calendar month all amount shown in their books of accounts as unpaid and thus become receivable item
from their customers and dealers. x x x4
xxxx
Petitioner is a customer and dealer of the products of IMC and LSPI. On February 25, 1991, the Gaisano Superstore
Complex in Cagayan de Oro City, owned by petitioner, was consumed by fire. Included in the items lost or destroyed
in the fire were stocks of ready-made clothing materials sold and delivered by IMC and LSPI.
On February 4, 1992, respondent filed a complaint for damages against petitioner. It alleges that IMC and LSPI filed
with respondent their claims under their respective fire insurance policies with book debt endorsements; that as of
February 25, 1991, the unpaid accounts of petitioner on the sale and delivery of ready-made clothing materials with
IMC was P2,119,205.00 while with LSPI it was P535,613.00; that respondent paid the claims of IMC and LSPI and,
by virtue thereof, respondent was subrogated to their rights against petitioner; that respondent made several
demands for payment upon petitioner but these went unheeded.5
In its Answer with Counter Claim dated July 4, 1995, petitioner contends that it could not be held liable because the
property covered by the insurance policies were destroyed due to fortuities event or force majeure; that respondent's
right of subrogation has no basis inasmuch as there was no breach of contract committed by it since the loss was
due to fire which it could not prevent or foresee; that IMC and LSPI never communicated to it that they insured their
properties; that it never consented to paying the claim of the insured.6
At the pre-trial conference the parties failed to arrive at an amicable settlement.7 Thus, trial on the merits ensued.
On August 31, 1998, the RTC rendered its decision dismissing respondent's complaint. 8 It held that the fire was
purely accidental; that the cause of the fire was not attributable to the negligence of the petitioner; that it has not
been established that petitioner is the debtor of IMC and LSPI; that since the sales invoices state that "it is further
agreed that merely for purpose of securing the payment of purchase price, the above-described merchandise
remains the property of the vendor until the purchase price is fully paid", IMC and LSPI retained ownership of the
delivered goods and must bear the loss.
Dissatisfied, petitioner appealed to the CA. 9 On October 11, 2000, the CA rendered its decision setting aside the
decision of the RTC. The dispositive portion of the decision reads:
WHEREFORE, in view of the foregoing, the appealed decision is REVERSED and SET ASIDE and a new one is
entered ordering defendant-appellee Gaisano Cagayan, Inc. to pay:
1. the amount of P2,119,205.60 representing the amount paid by the plaintiff-appellant to the insured Inter
Capitol Marketing Corporation, plus legal interest from the time of demand until fully paid;
2. the amount of P535,613.00 representing the amount paid by the plaintiff-appellant to the insured Levi
Strauss Phil., Inc., plus legal interest from the time of demand until fully paid.
With costs against the defendant-appellee.
SO ORDERED.10
The CA held that the sales invoices are proofs of sale, being detailed statements of the nature, quantity and cost of
the thing sold; that loss of the goods in the fire must be borne by petitioner since the proviso contained in the sales
invoices is an exception under Article 1504 (1) of the Civil Code, to the general rule that if the thing is lost by a
fortuitous event, the risk is borne by the owner of the thing at the time the loss under the principle of res perit domino;
that petitioner's obligation to IMC and LSPI is not the delivery of the lost goods but the payment of its unpaid account
and as such the obligation to pay is not extinguished, even if the fire is considered a fortuitous event; that by
subrogation, the insurer has the right to go against petitioner; that, being a fire insurance with book debt
endorsements, what was insured was the vendor's interest as a creditor.11
Petitioner filed a motion for reconsideration12 but it was denied by the CA in its Resolution dated April 11, 2001.13
Hence, the present petition for review on certiorari anchored on the following Assignment of Errors:
THE COURT OF APPEALS ERRED IN HOLDING THAT THE INSURANCE IN THE INSTANT CASE WAS ONE
OVER CREDIT.
THE COURT OF APPEALS ERRED IN HOLDING THAT ALL RISK OVER THE SUBJECT GOODS IN THE INSTANT
CASE HAD TRANSFERRED TO PETITIONER UPON DELIVERY THEREOF.
THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS AUTOMATIC SUBROGATION UNDER ART.
2207 OF THE CIVIL CODE IN FAVOR OF RESPONDENT.14
Anent the first error, petitioner contends that the insurance in the present case cannot be deemed to be over credit
since an insurance "on credit" belies not only the nature of fire insurance but the express terms of the policies; that it
was not credit that was insured since respondent paid on the occasion of the loss of the insured goods to fire and not
because of the non-payment by petitioner of any obligation; that, even if the insurance is deemed as one over credit,
there was no loss as the accounts were not yet due since no prior demands were made by IMC and LSPI against
petitioner for payment of the debt and such demands came from respondent only after it had already paid IMC and
LSPI under the fire insurance policies.15
As to the second error, petitioner avers that despite delivery of the goods, petitioner-buyer IMC and LSPI assumed
the risk of loss when they secured fire insurance policies over the goods.
Concerning the third ground, petitioner submits that there is no subrogation in favor of respondent as no valid
insurance could be maintained thereon by IMC and LSPI since all risk had transferred to petitioner upon delivery of
the goods; that petitioner was not privy to the insurance contract or the payment between respondent and its insured
nor was its consent or approval ever secured; that this lack of privity forecloses any real interest on the part of
respondent in the obligation to pay, limiting its interest to keeping the insured goods safe from fire.
For its part, respondent counters that while ownership over the ready- made clothing materials was transferred upon
delivery to petitioner, IMC and LSPI have insurable interest over said goods as creditors who stand to suffer direct
pecuniary loss from its destruction by fire; that petitioner is liable for loss of the ready-made clothing materials since it
failed to overcome the presumption of liability under Article 126516 of the Civil Code; that the fire was caused through
petitioner's negligence in failing to provide stringent measures of caution, care and maintenance on its property
because electric wires do not usually short circuit unless there are defects in their installation or when there is lack of
proper maintenance and supervision of the property; that petitioner is guilty of gross and evident bad faith in refusing
to pay respondent's valid claim and should be liable to respondent for contracted lawyer's fees, litigation expenses
and cost of suit.17
As a general rule, in petitions for review, the jurisdiction of this Court in cases brought before it from the CA is limited
to reviewing questions of law which involves no examination of the probative value of the evidence presented by the
litigants or any of them.18 The Supreme Court is not a trier of facts; it is not its function to analyze or weigh evidence
all over again.19 Accordingly, findings of fact of the appellate court are generally conclusive on the Supreme Court. 20
Nevertheless, jurisprudence has recognized several exceptions in which factual issues may be resolved by this
Court, such as: (1) when the findings are grounded entirely on speculation, surmises or conjectures; (2) when the
inference made is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4) when
the judgment is based on a misapprehension of facts; (5) when the findings of facts are conflicting; (6) when in
making its findings the CA went beyond the issues of the case, or its findings are contrary to the admissions of both
the appellant and the appellee; (7) when the findings are contrary to the trial court; (8) when the findings are
conclusions without citation of specific evidence on which they are based; (9) when the facts set forth in the petition
as well as in the petitioner's main and reply briefs are not disputed by the respondent; (10) when the findings of fact
are premised on the supposed absence of evidence and contradicted by the evidence on record; and (11) when the
CA manifestly overlooked certain relevant facts not disputed by the parties, which, if properly considered, would
justify a different conclusion.21 Exceptions (4), (5), (7), and (11) apply to the present petition.
At issue is the proper interpretation of the questioned insurance policy. Petitioner claims that the CA erred in
construing a fire insurance policy on book debts as one covering the unpaid accounts of IMC and LSPI since such
insurance applies to loss of the ready-made clothing materials sold and delivered to petitioner.
The Court disagrees with petitioner's stand.
It is well-settled that when the words of a contract are plain and readily understood, there is no room for
construction.22 In this case, the questioned insurance policies provide coverage for "book debts in connection with
ready-made clothing materials which have been sold or delivered to various customers and dealers of the Insured
anywhere in the Philippines."23 ; and defined book debts as the "unpaid account still appearing in the Book of
Account of the Insured 45 days after the time of the loss covered under this Policy." 24 Nowhere is it provided in the
questioned insurance policies that the subject of the insurance is the goods sold and delivered to the customers and
dealers of the insured.
Indeed, when the terms of the agreement are clear and explicit that they do not justify an attempt to read into it any
alleged intention of the parties, the terms are to be understood literally just as they appear on the face of the
contract.25 Thus, what were insured against were the accounts of IMC and LSPI with petitioner which remained
unpaid 45 days after the loss through fire, and not the loss or destruction of the goods delivered.
Petitioner argues that IMC bears the risk of loss because it expressly reserved ownership of the goods by stipulating
in the sales invoices that "[i]t is further agreed that merely for purpose of securing the payment of the purchase price
the above described merchandise remains the property of the vendor until the purchase price thereof is fully paid." 26
The Court is not persuaded.
The present case clearly falls under paragraph (1), Article 1504 of the Civil Code:
ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk until the ownership therein is transferred to
the buyer, but when the ownership therein is transferred to the buyer the goods are at the buyer's risk whether actual
delivery has been made or not, except that:
(1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in pursuance of the contract
and the ownership in the goods has been retained by the seller merely to secure performance by the buyer of his
obligations under the contract, the goods are at the buyer's risk from the time of such delivery; (Emphasis supplied)
xxxx
Thus, when the seller retains ownership only to insure that the buyer will pay its debt, the risk of loss is borne by the
buyer.27 Accordingly, petitioner bears the risk of loss of the goods delivered.
IMC and LSPI did not lose complete interest over the goods. They have an insurable interest until full payment of the
value of the delivered goods. Unlike the civil law concept of res perit domino, where ownership is the basis for
consideration of who bears the risk of loss, in property insurance, one's interest is not determined by concept of title,
but whether insured has substantial economic interest in the property.28
Section 13 of our Insurance Code defines insurable interest as "every interest in property, whether real or personal,
or any relation thereto, or liability in respect thereof, of such nature that a contemplated peril might directly damnify
the insured." Parenthetically, under Section 14 of the same Code, an insurable interest in property may consist in: (a)
an existing interest; (b) an inchoate interest founded on existing interest; or (c) an expectancy, coupled with an
existing interest in that out of which the expectancy arises.
Therefore, an insurable interest in property does not necessarily imply a property interest in, or a lien upon, or
possession of, the subject matter of the insurance, and neither the title nor a beneficial interest is requisite to the
existence of such an interest, it is sufficient that the insured is so situated with reference to the property that he would
be liable to loss should it be injured or destroyed by the peril against which it is insured. 29 Anyone has an insurable
interest in property who derives a benefit from its existence or would suffer loss from its destruction. 30Indeed, a
vendor or seller retains an insurable interest in the property sold so long as he has any interest therein, in other
words, so long as he would suffer by its destruction, as where he has a vendor's lien. 31 In this case, the insurable
interest of IMC and LSPI pertain to the unpaid accounts appearing in their Books of Account 45 days after the time of
the loss covered by the policies.
The next question is: Is petitioner liable for the unpaid accounts?
As to LSPI, respondent failed to present sufficient evidence to prove its cause of action. No evidentiary weight can be
given to Exhibit "F Levi Strauss", 42 a letter dated April 23, 1991 from petitioner's General Manager, Stephen S.
Gaisano, Jr., since it is not an admission of petitioner's unpaid account with LSPI. It only confirms the loss of Levi's
products in the amount of P535,613.00 in the fire that razed petitioner's building on February 25, 1991.
Moreover, there is no proof of full settlement of the insurance claim of LSPI; no subrogation receipt was offered in
evidence. Thus, there is no evidence that respondent has been subrogated to any right which LSPI may have
against petitioner. Failure to substantiate the claim of subrogation is fatal to petitioner's case for recovery of the
amount of P535,613.00.

Petitioner's argument that it is not liable because the fire is a fortuitous event under Article 1174 32 of the Civil Code is WHEREFORE, the petition is partly GRANTED. The assailed Decision dated October 11, 2000 and Resolution dated
misplaced. As held earlier, petitioner bears the loss under Article 1504 (1) of the Civil Code. April 11, 2001 of the Court of Appeals in CA-G.R. CV No. 61848 are AFFIRMED with the MODIFICATIONthat the
order to pay the amount of P535,613.00 to respondent is DELETED for lack of factual basis.
Moreover, it must be stressed that the insurance in this case is not for loss of goods by fire but for petitioner's
accounts with IMC and LSPI that remained unpaid 45 days after the fire. Accordingly, petitioner's obligation is for the No pronouncement as to costs.
payment of money. As correctly stated by the CA, where the obligation consists in the payment of money, the failure
of the debtor to make the payment even by reason of a fortuitous event shall not relieve him of his liability. 33 The SO ORDERED.
rationale for this is that the rule that an obligor should be held exempt from liability when the loss occurs thru a
fortuitous event only holds true when the obligation consists in the delivery of a determinate thing and there is no
stipulation holding him liable even in case of fortuitous event. It does not apply when the obligation is pecuniary in
nature.34

Under Article 1263 of the Civil Code, "[i]n an obligation to deliver a generic thing, the loss or destruction of anything
of the same kind does not extinguish the obligation." If the obligation is generic in the sense that the object thereof is
designated merely by its class or genus without any particular designation or physical segregation from all others of
the same class, the loss or destruction of anything of the same kind even without the debtor's fault and before he has
incurred in delay will not have the effect of extinguishing the obligation. 35 This rule is based on the principle that the
genus of a thing can never perish. Genus nunquan perit. 36 An obligation to pay money is generic; therefore, it is not
excused by fortuitous loss of any specific property of the debtor.37

Thus, whether fire is a fortuitous event or petitioner was negligent are matters immaterial to this case. What is
relevant here is whether it has been established that petitioner has outstanding accounts with IMC and LSPI.

Republic of the Philippines

With respect to IMC, the respondent has adequately established its claim. Exhibits "C" to "C-22" 38 show that SUPREME COURT
petitioner has an outstanding account with IMC in the amount of P2,119,205.00. Exhibit "E"39 is the check voucher Manila
evidencing payment to IMC. Exhibit "F" 40 is the subrogation receipt executed by IMC in favor of respondent upon
receipt of the insurance proceeds. All these documents have been properly identified, presented and marked as
G.R. No. 159617 August 8, 2007
exhibits in court. The subrogation receipt, by itself, is sufficient to establish not only the relationship of respondent as
insurer and IMC as the insured, but also the amount paid to settle the insurance claim. The right of subrogation
accrues simply upon payment by the insurance company of the insurance claim. 41 Respondent's action against ROBERTO C. SICAM and AGENCIA de R.C. SICAM, INC., petitioners,
petitioner is squarely sanctioned by Article 2207 of the Civil Code which provides: vs.
LULU V. JORGE and CESAR JORGE, respondents.

Art. 2207. If the plaintiff's property has been insured, and he has received indemnity from the insurance company for
DECISION
the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be
subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract. x x x
AUSTRIA-MARTINEZ, J.:

Petitioner failed to refute respondent's evidence.

Before us is a Petition for Review on Certiorari filed by Roberto C. Sicam, Jr. (petitioner Sicam) and Agencia de R.C. Sicam,
Inc. (petitioner corporation) seeking to annul the Decision 1 of the Court of Appeals dated March 31, 2003, and its
Resolution2 dated August 8, 2003, in CA G.R. CV No. 56633.
It appears that on different dates from September to October 1987, Lulu V. Jorge (respondent Lulu) pawned several pieces
of jewelry with Agencia de R. C. Sicam located at No. 17 Aguirre Ave., BF Homes Paraaque, Metro Manila, to secure a loan
in the total amount of P59,500.00.
On October 19, 1987, two armed men entered the pawnshop and took away whatever cash and jewelry were found inside
the pawnshop vault. The incident was entered in the police blotter of the Southern Police District, Paraaque Police Station
as follows:
Investigation shows that at above TDPO, while victims were inside the office, two (2) male unidentified persons
entered into the said office with guns drawn. Suspects(sic) (1) went straight inside and poked his gun toward
Romeo Sicam and thereby tied him with an electric wire while suspects (sic) (2) poked his gun toward Divina
Mata and Isabelita Rodriguez and ordered them to lay (sic) face flat on the floor. Suspects asked forcibly the case
and assorted pawned jewelries items mentioned above.
Suspects after taking the money and jewelries fled on board a Marson Toyota unidentified plate number. 3
Petitioner Sicam sent respondent Lulu a letter dated October 19, 1987 informing her of the loss of her jewelry due to the
robbery incident in the pawnshop. On November 2, 1987, respondent Lulu then wrote a letter 4 to petitioner Sicam expressing
disbelief stating that when the robbery happened, all jewelry pawned were deposited with Far East Bank near the pawnshop
since it had been the practice that before they could withdraw, advance notice must be given to the pawnshop so it could
withdraw the jewelry from the bank. Respondent Lulu then requested petitioner Sicam to prepare the pawned jewelry for
withdrawal on November 6, 1987 but petitioner Sicam failed to return the jewelry.
On September 28, 1988, respondent Lulu joined by her husband, Cesar Jorge, filed a complaint against petitioner Sicam
with the Regional Trial Court of Makati seeking indemnification for the loss of pawned jewelry and payment of actual, moral
and exemplary damages as well as attorney's fees. The case was docketed as Civil Case No. 88-2035.
Petitioner Sicam filed his Answer contending that he is not the real party-in-interest as the pawnshop was incorporated on
April 20, 1987 and known as Agencia de R.C. Sicam, Inc; that petitioner corporation had exercised due care and diligence in
the safekeeping of the articles pledged with it and could not be made liable for an event that is fortuitous.
Respondents subsequently filed an Amended Complaint to include petitioner corporation.
Thereafter, petitioner Sicam filed a Motion to Dismiss as far as he is concerned considering that he is not the real party-in-
interest. Respondents opposed the same. The RTC denied the motion in an Order dated November 8, 1989. 5
After trial on the merits, the RTC rendered its Decision 6 dated January 12, 1993, dismissing respondents complaint as well
as petitioners counterclaim. The RTC held that petitioner Sicam could not be made personally liable for a claim arising out of
a corporate transaction; that in the Amended Complaint of respondents, they asserted that "plaintiff pawned assorted
jewelries in defendants' pawnshop"; and that as a consequence of the separate juridical personality of a corporation, the
corporate debt or credit is not the debt or credit of a stockholder.
The RTC further ruled that petitioner corporation could not be held liable for the loss of the pawned jewelry since it had not
been rebutted by respondents that the loss of the pledged pieces of jewelry in the possession of the corporation was
occasioned by armed robbery; that robbery is a fortuitous event which exempts the victim from liability for the loss, citing the
case of Austria v. Court of Appeals;7 and that the parties transaction was that of a pledgor and pledgee and under Art. 1174
of the Civil Code, the pawnshop as a pledgee is not responsible for those events which could not be foreseen.
Respondents appealed the RTC Decision to the CA. In a Decision dated March 31, 2003, the CA reversed the RTC, the
dispositive portion of which reads as follows:
WHEREFORE, premises considered, the instant Appeal is GRANTED, and the Decision dated January 12,
1993,of the Regional Trial Court of Makati, Branch 62, is hereby REVERSED and SET ASIDE, ordering the
appellees to pay appellants the actual value of the lost jewelry amounting to P272,000.00, and attorney' fees
of P27,200.00.8
In finding petitioner Sicam liable together with petitioner corporation, the CA applied the doctrine of piercing the veil of
corporate entity reasoning that respondents were misled into thinking that they were dealing with the pawnshop owned by
petitioner Sicam as all the pawnshop tickets issued to them bear the words " Agencia de R.C. Sicam"; and that there was no
indication on the pawnshop tickets that it was the petitioner corporation that owned the pawnshop which explained why
respondents had to amend their complaint impleading petitioner corporation.
The CA further held that the corresponding diligence required of a pawnshop is that it should take steps to secure and
protect the pledged items and should take steps to insure itself against the loss of articles which are entrusted to its custody
as it derives earnings from the pawnshop trade which petitioners failed to do; that Austria is not applicable to this case since
the robbery incident happened in 1961 when the criminality had not as yet reached the levels attained in the present day;
that they are at least guilty of contributory negligence and should be held liable for the loss of jewelries; and that robberies
and hold-ups are foreseeable risks in that those engaged in the pawnshop business are expected to foresee.
The CA concluded that both petitioners should be jointly and severally held liable to respondents for the loss of the pawned
jewelry.
Petitioners motion for reconsideration was denied in a Resolution dated August 8, 2003.
Hence, the instant petition for review with the following assignment of errors:
THE COURT OF APPEALS ERRED AND WHEN IT DID, IT OPENED ITSELF TO REVERSAL, WHEN IT
ADOPTED UNCRITICALLY (IN FACT IT REPRODUCED AS ITS OWN WITHOUT IN THE MEANTIME
ACKNOWLEDGING IT) WHAT THE RESPONDENTS ARGUED IN THEIR BRIEF, WHICH ARGUMENT WAS
PALPABLY UNSUSTAINABLE.
THE COURT OF APPEALS ERRED, AND WHEN IT DID, IT OPENED ITSELF TO REVERSAL BY THIS
HONORABLE COURT, WHEN IT AGAIN ADOPTED UNCRITICALLY (BUT WITHOUT ACKNOWLEDGING IT)
THE SUBMISSIONS OF THE RESPONDENTS IN THEIR BRIEF WITHOUT ADDING ANYTHING MORE
THERETO DESPITE THE FACT THAT THE SAID ARGUMENT OF THE RESPONDENTS COULD NOT HAVE
BEEN SUSTAINED IN VIEW OF UNREBUTTED EVIDENCE ON RECORD. 9
Anent the first assigned error, petitioners point out that the CAs finding that petitioner Sicam is personally liable for the loss
of the pawned jewelries is "a virtual and uncritical reproduction of the arguments set out on pp. 5-6 of the Appellants brief." 10
Petitioners argue that the reproduced arguments of respondents in their Appellants Brief suffer from infirmities, as follows:
 (1) Respondents conclusively asserted in paragraph 2 of their Amended Complaint that Agencia de R.C. Sicam,
Inc. is the present owner of Agencia de R.C. Sicam Pawnshop, and therefore, the CA cannot rule against said
conclusive assertion of respondents;
(2) The issue resolved against petitioner Sicam was not among those raised and litigated in the trial court; and
Notably, the evidence on record shows that at the time respondent Lulu pawned her jewelry, the pawnshop was owned by
petitioner Sicam himself. As correctly observed by the CA, in all the pawnshop receipts issued to respondent Lulu in
September 1987, all bear the words "Agencia de R. C. Sicam," notwithstanding that the pawnshop was allegedly
incorporated in April 1987. The receipts issued after such alleged incorporation were still in the name of " Agencia de R. C.
Sicam," thus inevitably misleading, or at the very least, creating the wrong impression to respondents and the public as well,
that the pawnshop was owned solely by petitioner Sicam and not by a corporation.

(3) By reason of the above infirmities, it was error for the CA to have pierced the corporate veil since a corporation
Even petitioners counsel, Atty. Marcial T. Balgos, in his letter 16 dated October 15, 1987 addressed to the Central Bank,
has a personality distinct and separate from its individual stockholders or members.
expressly referred to petitioner Sicam as the proprietor of the pawnshop notwithstanding the alleged incorporation in April
1987.
Anent the second error, petitioners point out that the CA finding on their negligence is likewise an unedited reproduction of
respondents brief which had the following defects:
We also find no merit in petitioners' argument that since respondents had alleged in their Amended Complaint that petitioner
corporation is the present owner of the pawnshop, the CA is bound to decide the case on that basis.
(1) There were unrebutted evidence on record that petitioners had observed the diligence required of them, i.e,
they wanted to open a vault with a nearby bank for purposes of safekeeping the pawned articles but was
Section 4 Rule 129 of the Rules of Court provides that an admission, verbal or written, made by a party in the course of the
discouraged by the Central Bank (CB) since CB rules provide that they can only store the pawned articles in a
proceedings in the same case, does not require proof. The admission may be contradicted only by showing that it was made
vault inside the pawnshop premises and no other place;
through palpable mistake or that no such admission was made.

(2) Petitioners were adjudged negligent as they did not take insurance against the loss of the pledged jelweries,
Thus, the general rule that a judicial admission is conclusive upon the party making it and does not require proof, admits of
but it is judicial notice that due to high incidence of crimes, insurance companies refused to cover pawnshops and
two exceptions, to wit: (1) when it is shown that such admission was made through palpable mistake, and (2) when it is
banks because of high probability of losses due to robberies;
shown that no such admission was in fact made. The latter exception allows one to contradict an admission by denying
that he made such an admission.17
(3) In Hernandez v. Chairman, Commission on Audit (179 SCRA 39, 45-46), the victim of robbery was exonerated
from liability for the sum of money belonging to others and lost by him to robbers.
The Committee on the Revision of the Rules of Court explained the second exception in this wise:

Respondents filed their Comment and petitioners filed their Reply thereto. The parties subsequently submitted their
x x x if a party invokes an "admission" by an adverse party, but cites the admission "out of context," then the one
respective Memoranda.
making the "admission" may show that he made no "such" admission, or that his admission was taken out of
context.
We find no merit in the petition.

x x x that the party can also show that he made no "such admission", i.e., not in the sense in which the
To begin with, although it is true that indeed the CA findings were exact reproductions of the arguments raised in admission is made to appear.
respondents (appellants) brief filed with the CA, we find the same to be not fatally infirmed. Upon examination of the
Decision, we find that it expressed clearly and distinctly the facts and the law on which it is based as required by Section 8,
That is the reason for the modifier "such" because if the rule simply states that the admission may be contradicted
Article VIII of the Constitution. The discretion to decide a case one way or another is broad enough to justify the adoption of
by showing that "no admission was made," the rule would not really be providing for a contradiction of the
the arguments put forth by one of the parties, as long as these are legally tenable and supported by law and the facts on
admission but just a denial.18 (Emphasis supplied).
records.11

While it is true that respondents alleged in their Amended Complaint that petitioner corporation is the present owner of the
Our jurisdiction under Rule 45 of the Rules of Court is limited to the review of errors of law committed by the appellate court.
pawnshop, they did so only because petitioner Sicam alleged in his Answer to the original complaint filed against him that he
Generally, the findings of fact of the appellate court are deemed conclusive and we are not duty-bound to analyze and
was not the real party-in-interest as the pawnshop was incorporated in April 1987. Moreover, a reading of the Amended
calibrate all over again the evidence adduced by the parties in the court a quo.12 This rule, however, is not without
Complaint in its entirety shows that respondents referred to both petitioner Sicam and petitioner corporation where they
exceptions, such as where the factual findings of the Court of Appeals and the trial court are conflicting or contradictory 13 as
(respondents) pawned their assorted pieces of jewelry and ascribed to both the failure to observe due diligence
is obtaining in the instant case.
commensurate with the business which resulted in the loss of their pawned jewelry.

However, after a careful examination of the records, we find no justification to absolve petitioner Sicam from liability.
Markedly, respondents, in their Opposition to petitioners Motion to Dismiss Amended Complaint, insofar as petitioner Sicam
is concerned, averred as follows:
The CA correctly pierced the veil of the corporate fiction and adjudged petitioner Sicam liable together with petitioner
corporation. The rule is that the veil of corporate fiction may be pierced when made as a shield to perpetrate fraud and/or
Roberto C. Sicam was named the defendant in the original complaint because the pawnshop tickets involved in
confuse legitimate issues. 14 The theory of corporate entity was not meant to promote unfair objectives or otherwise to shield
this case did not show that the R.C. Sicam Pawnshop was a corporation. In paragraph 1 of his Answer, he
them.15
admitted the allegations in paragraph 1 and 2 of the Complaint. He merely added "that defendant is not now the
real party in interest in this case."
 It was defendant Sicam's omission to correct the pawnshop tickets used in the subject transactions in this case
which was the cause of the instant action. He cannot now ask for the dismissal of the complaint against him
simply on the mere allegation that his pawnshop business is now incorporated. It is a matter of defense, the merit
of which can only be reached after consideration of the evidence to be presented in due course. 19
Unmistakably, the alleged admission made in respondents' Amended Complaint was taken "out of context" by petitioner
Sicam to suit his own purpose. Ineluctably, the fact that petitioner Sicam continued to issue pawnshop receipts under his
name and not under the corporation's name militates for the piercing of the corporate veil.
We likewise find no merit in petitioners' contention that the CA erred in piercing the veil of corporate fiction of petitioner
corporation, as it was not an issue raised and litigated before the RTC.
Petitioner Sicam had alleged in his Answer filed with the trial court that he was not the real party-in-interest because since
April 20, 1987, the pawnshop business initiated by him was incorporated and known as Agencia de R.C. Sicam. In the pre-
trial brief filed by petitioner Sicam, he submitted that as far as he was concerned, the basic issue was whether he is the real
party in interest against whom the complaint should be directed. 20 In fact, he subsequently moved for the dismissal of the
complaint as to him but was not favorably acted upon by the trial court. Moreover, the issue was squarely passed upon,
although erroneously, by the trial court in its Decision in this manner:
x x x The defendant Roberto Sicam, Jr likewise denies liability as far as he is concerned for the reason that he
cannot be made personally liable for a claim arising from a corporate transaction.
This Court sustains the contention of the defendant Roberto C. Sicam, Jr. The amended complaint itself asserts
that "plaintiff pawned assorted jewelries in defendant's pawnshop." It has been held that " as a consequence of
the separate juridical personality of a corporation, the corporate debt or credit is not the debt or credit of the
stockholder, nor is the stockholder's debt or credit that of a corporation. 21
Clearly, in view of the alleged incorporation of the pawnshop, the issue of whether petitioner Sicam is personally liable is
inextricably connected with the determination of the question whether the doctrine of piercing the corporate veil should or
should not apply to the case.
The next question is whether petitioners are liable for the loss of the pawned articles in their possession.
Petitioners insist that they are not liable since robbery is a fortuitous event and they are not negligent at all.
We are not persuaded.
Article 1174 of the Civil Code provides:
Art. 1174. Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when
the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which
could not be foreseen or which, though foreseen, were inevitable.
Fortuitous events by definition are extraordinary events not foreseeable or avoidable. It is therefore, not enough that the
event should not have been foreseen or anticipated, as is commonly believed but it must be one impossible to foresee or to
avoid. The mere difficulty to foresee the happening is not impossibility to foresee the same. 22
To constitute a fortuitous event, the following elements must concur: (a) the cause of the unforeseen and unexpected
occurrence or of the failure of the debtor to comply with obligations must be independent of human will; (b) it must be
impossible to foresee the event that constitutes the caso fortuito or, if it can be foreseen, it must be impossible to avoid; (c)
the occurrence must be such as to render it impossible for the debtor to fulfill obligations in a normal manner; and, (d) the
obligor must be free from any participation in the aggravation of the injury or loss. 23
The burden of proving that the loss was due to a fortuitous event rests on him who invokes it. 24 And, in order for a fortuitous
event to exempt one from liability, it is necessary that one has committed no negligence or misconduct that may have
occasioned the loss. 25
It has been held that an act of God cannot be invoked to protect a person who has failed to take steps to forestall the
possible adverse consequences of such a loss. One's negligence may have concurred with an act of God in producing
damage and injury to another; nonetheless, showing that the immediate or proximate cause of the damage or injury was a
fortuitous event would not exempt one from liability. When the effect is found to be partly the result of a person's participation
-- whether by active intervention, neglect or failure to act -- the whole occurrence is humanized and removed from the rules
applicable to acts of God. 26
Petitioner Sicam had testified that there was a security guard in their pawnshop at the time of the robbery. He likewise
testified that when he started the pawnshop business in 1983, he thought of opening a vault with the nearby bank for the
purpose of safekeeping the valuables but was discouraged by the Central Bank since pawned articles should only be stored
in a vault inside the pawnshop. The very measures which petitioners had allegedly adopted show that to them the possibility
of robbery was not only foreseeable, but actually foreseen and anticipated. Petitioner Sicams testimony, in effect, contradicts
petitioners defense of fortuitous event.
Moreover, petitioners failed to show that they were free from any negligence by which the loss of the pawned jewelry may
have been occasioned.
Robbery per se, just like carnapping, is not a fortuitous event. It does not foreclose the possibility of negligence on the part of
herein petitioners. In Co v. Court of Appeals,27 the Court held:
It is not a defense for a repair shop of motor vehicles to escape liability simply because the damage or loss of a
thing lawfully placed in its possession was due to carnapping. Carnapping per se cannot be considered as a
fortuitous event. The fact that a thing was unlawfully and forcefully taken from another's rightful
possession, as in cases of carnapping, does not automatically give rise to a fortuitous event. To be
considered as such, carnapping entails more than the mere forceful taking of another's property. It must
be proved and established that the event was an act of God or was done solely by third parties and that
neither the claimant nor the person alleged to be negligent has any participation. In accordance with the
Rules of Evidence, the burden of proving that the loss was due to a fortuitous event rests on him who
invokes it which in this case is the private respondent. However, other than the police report of the alleged
carnapping incident, no other evidence was presented by private respondent to the effect that the incident was
not due to its fault. A police report of an alleged crime, to which only private respondent is privy, does not suffice
to establish the carnapping. Neither does it prove that there was no fault on the part of private respondent
notwithstanding the parties' agreement at the pre-trial that the car was carnapped. Carnapping does not foreclose
the possibility of fault or negligence on the part of private respondent. 28
Just like in Co, petitioners merely presented the police report of the Paraaque Police Station on the robbery committed
based on the report of petitioners' employees which is not sufficient to establish robbery. Such report also does not prove
that petitioners were not at fault.
On the contrary, by the very evidence of petitioners, the CA did not err in finding that petitioners are guilty of concurrent or
contributory negligence as provided in Article 1170 of the Civil Code, to wit:
 Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those
who in any manner contravene the tenor thereof, are liable for damages. 29
Article 2123 of the Civil Code provides that with regard to pawnshops and other establishments which are engaged in
making loans secured by pledges, the special laws and regulations concerning them shall be observed, and subsidiarily, the
provisions on pledge, mortgage and antichresis.
The provision on pledge, particularly Article 2099 of the Civil Code, provides that the creditor shall take care of the thing
pledged with the diligence of a good father of a family. This means that petitioners must take care of the pawns the way a
prudent person would as to his own property.
In this connection, Article 1173 of the Civil Code further provides:
Art. 1173. The fault or negligence of the obligor consists in the omission of that diligence which is required by the
nature of the obligation and corresponds with the circumstances of the persons, of time and of the place. When
negligence shows bad faith, the provisions of Articles 1171 and 2201, paragraph 2 shall apply.
If the law or contract does not state the diligence which is to be observed in the performance, that which is
expected of a good father of a family shall be required.
We expounded in Cruz v. Gangan30 that negligence is the omission to do something which a reasonable man, guided by
those considerations which ordinarily regulate the conduct of human affairs, would do; or the doing of something which a
prudent and reasonable man would not do.31 It is want of care required by the circumstances.
A review of the records clearly shows that petitioners failed to exercise reasonable care and caution that an ordinarily
prudent person would have used in the same situation. Petitioners were guilty of negligence in the operation of their
pawnshop business. Petitioner Sicam testified, thus:
Court:
Q. Do you have security guards in your pawnshop?
A. Yes, your honor.
Q. Then how come that the robbers were able to enter the premises when according to you there was a security
guard?
A. Sir, if these robbers can rob a bank, how much more a pawnshop.
Q. I am asking you how were the robbers able to enter despite the fact that there was a security guard?
A. At the time of the incident which happened about 1:00 and 2:00 o'clock in the afternoon and it happened on a
Saturday and everything was quiet in the area BF Homes Paraaque they pretended to pawn an article in the
pawnshop, so one of my employees allowed him to come in and it was only when it was announced that it was a
hold up.
Q. Did you come to know how the vault was opened?
A. When the pawnshop is official (sic) open your honor the pawnshop is partly open. The combination is off.
Q. No one open (sic) the vault for the robbers?
A. No one your honor it was open at the time of the robbery.
Q. It is clear now that at the time of the robbery the vault was open the reason why the robbers were able to get
all the items pawned to you inside the vault.
A. Yes sir.32
revealing that there were no security measures adopted by petitioners in the operation of the pawnshop. Evidently, no
sufficient precaution and vigilance were adopted by petitioners to protect the pawnshop from unlawful intrusion. There was
no clear showing that there was any security guard at all. Or if there was one, that he had sufficient training in securing a
pawnshop. Further, there is no showing that the alleged security guard exercised all that was necessary to prevent any
untoward incident or to ensure that no suspicious individuals were allowed to enter the premises. In fact, it is even doubtful
that there was a security guard, since it is quite impossible that he would not have noticed that the robbers were armed with
caliber .45 pistols each, which were allegedly poked at the employees. 33 Significantly, the alleged security guard was not
presented at all to corroborate petitioner Sicam's claim; not one of petitioners' employees who were present during the
robbery incident testified in court.
Furthermore, petitioner Sicam's admission that the vault was open at the time of robbery is clearly a proof of petitioners'
failure to observe the care, precaution and vigilance that the circumstances justly demanded. Petitioner Sicam testified that
once the pawnshop was open, the combination was already off. Considering petitioner Sicam's testimony that the robbery
took place on a Saturday afternoon and the area in BF Homes Paraaque at that time was quiet, there was more reason for
petitioners to have exercised reasonable foresight and diligence in protecting the pawned jewelries. Instead of taking the
precaution to protect them, they let open the vault, providing no difficulty for the robbers to cart away the pawned articles.
We, however, do not agree with the CA when it found petitioners negligent for not taking steps to insure themselves against
loss of the pawned jewelries.
Under Section 17 of Central Bank Circular No. 374, Rules and Regulations for Pawnshops, which took effect on July 13,
1973, and which was issued pursuant to Presidential Decree No. 114, Pawnshop Regulation Act, it is provided that pawns
pledged must be insured, to wit:
Sec. 17. Insurance of Office Building and Pawns- The place of business of a pawnshop and the pawns pledged to
it must be insured against fire and against burglary as well as for the latter(sic), by an insurance company
accredited by the Insurance Commissioner.
However, this Section was subsequently amended by CB Circular No. 764 which took effect on October 1, 1980, to wit:
Sec. 17 Insurance of Office Building and Pawns The office building/premises and pawns of a pawnshop must be
insured against fire. (emphasis supplied).
where the requirement that insurance against burglary was deleted. Obviously, the Central Bank considered it not feasible to
require insurance of pawned articles against burglary.
The robbery in the pawnshop happened in 1987, and considering the above-quoted amendment, there is no statutory duty wages for sustenance; and (2) that choosing Marilao as a safer destination, being nearer, and in view of the comparative
imposed on petitioners to insure the pawned jewelry in which case it was error for the CA to consider it as a factor in hazards in the trips to the two places, said decision seemed logical at that time. We further held that the fact that two robbers
concluding that petitioners were negligent. attacked him in broad daylight in the jeep while it was on a busy highway and in the presence of other passengers could not
be said to be a result of his imprudence and negligence.
Nevertheless, the preponderance of evidence shows that petitioners failed to exercise the diligence required of them under
the Civil Code. Unlike in Hernandez where the robbery happened in a public utility, the robbery in this case took place in the pawnshop
which is under the control of petitioners. Petitioners had the means to screen the persons who were allowed entrance to the
premises and to protect itself from unlawful intrusion. Petitioners had failed to exercise precautionary measures in ensuring
The diligence with which the law requires the individual at all times to govern his conduct varies with the nature of the
that the robbers were prevented from entering the pawnshop and for keeping the vault open for the day, which paved the
situation in which he is placed and the importance of the act which he is to perform. 34 Thus, the cases of Austria v. Court of
way for the robbers to easily cart away the pawned articles.
Appeals,35 Hernandez v. Chairman, Commission on Audit 36 and Cruz v. Gangan37 cited by petitioners in their pleadings,
where the victims of robbery were exonerated from liability, find no application to the present case.
In Cruz, Dr. Filonila O. Cruz, Camanava District Director of Technological Education and Skills Development Authority
(TESDA), boarded the Light Rail Transit (LRT) from Sen. Puyat Avenue to Monumento when her handbag was slashed and
In Austria, Maria Abad received from Guillermo Austria a pendant with diamonds to be sold on commission basis, but which
the contents were stolen by an unidentified person. Among those stolen were her wallet and the government-issued cellular
Abad failed to subsequently return because of a robbery committed upon her in 1961. The incident became the subject of a
phone. She then reported the incident to the police authorities; however, the thief was not located, and the cellphone was not
criminal case filed against several persons. Austria filed an action against Abad and her husband (Abads) for recovery of the
recovered. She also reported the loss to the Regional Director of TESDA, and she requested that she be freed from
pendant or its value, but the Abads set up the defense that the robbery extinguished their obligation. The RTC ruled in favor
accountability for the cellphone. The Resident Auditor denied her request on the ground that she lacked the diligence
of Austria, as the Abads failed to prove robbery; or, if committed, that Maria Abad was guilty of negligence. The CA, however,
required in the custody of government property and was ordered to pay the purchase value in the total amount of P4,238.00.
reversed the RTC decision holding that the fact of robbery was duly established and declared the Abads not responsible for
The COA found no sufficient justification to grant the request for relief from accountability. We reversed the ruling and found
the loss of the jewelry on account of a fortuitous event. We held that for the Abads to be relieved from the civil liability of
that riding the LRT cannot per se be denounced as a negligent act more so because Cruzs mode of transit was influenced
returning the pendant under Art. 1174 of the Civil Code, it would only be sufficient that the unforeseen event, the robbery,
by time and money considerations; that she boarded the LRT to be able to arrive in Caloocan in time for her 3 pm meeting;
took place without any concurrent fault on the debtors part, and this can be done by preponderance of evidence; that to be
that any prudent and rational person under similar circumstance can reasonably be expected to do the same; that
free from liability for reason of fortuitous event, the debtor must, in addition to the casus itself, be free of any concurrent or
possession of a cellphone should not hinder one from boarding the LRT coach as Cruz did considering that whether she
contributory fault or negligence.38
rode a jeep or bus, the risk of theft would have also been present; that because of her relatively low position and pay, she
was not expected to have her own vehicle or to ride a taxicab; she did not have a government assigned vehicle; that placing
We found in Austria that under the circumstances prevailing at the time the Decision was promulgated in 1971, the City of the cellphone in a bag away from covetous eyes and holding on to that bag as she did is ordinarily sufficient care of a
Manila and its suburbs had a high incidence of crimes against persons and property that rendered travel after nightfall a cellphone while traveling on board the LRT; that the records did not show any specific act of negligence on her part and
matter to be sedulously avoided without suitable precaution and protection; that the conduct of Maria Abad in returning alone negligence can never be presumed.
to her house in the evening carrying jewelry of considerable value would have been negligence per se and would not exempt
her from responsibility in the case of robbery. However we did not hold Abad liable for negligence since, the robbery
Unlike in the Cruz case, the robbery in this case happened in petitioners' pawnshop and they were negligent in not
happened ten years previously; i.e., 1961, when criminality had not reached the level of incidence obtaining in 1971.
exercising the precautions justly demanded of a pawnshop.

In contrast, the robbery in this case took place in 1987 when robbery was already prevalent and petitioners in fact had
WHEREFORE, except for the insurance aspect, the Decision of the Court of Appeals dated March 31, 2003 and its
already foreseen it as they wanted to deposit the pawn with a nearby bank for safekeeping. Moreover, unlike in Austria,
Resolution dated August 8, 2003, are AFFIRMED.
where no negligence was committed, we found petitioners negligent in securing their pawnshop as earlier discussed.

Costs against petitioners.

In Hernandez, Teodoro Hernandez was the OIC and special disbursing officer of the Ternate Beach Project of the Philippine
Tourism in Cavite. In the morning of July 1, 1983, a Friday, he went to Manila to encash two checks covering the wages of
the employees and the operating expenses of the project. However for some reason, the processing of the check was SO ORDERED.
delayed and was completed at about 3 p.m. Nevertheless, he decided to encash the check because the project employees
would be waiting for their pay the following day; otherwise, the workers would have to wait until July 5, the earliest time,
when the main office would open. At that time, he had two choices: (1) return to Ternate, Cavite that same afternoon and
arrive early evening; or (2) take the money with him to his house in Marilao, Bulacan, spend the night there, and leave for
Ternate the following day. He chose the second option, thinking it was the safer one. Thus, a little past 3 p.m., he took a Republic of the Philippines
passenger jeep bound for Bulacan. While the jeep was on Epifanio de los Santos Avenue, the jeep was held up and the SUPREME COURT
money kept by Hernandez was taken, and the robbers jumped out of the jeep and ran. Hernandez chased the robbers and Manila
caught up with one robber who was subsequently charged with robbery and pleaded guilty. The other robber who held the
stolen money escaped. The Commission on Audit found Hernandez negligent because he had not brought the cash
SECOND DIVISION
proceeds of the checks to his office in Ternate, Cavite for safekeeping, which is the normal procedure in the handling of
funds. We held that Hernandez was not negligent in deciding to encash the check and bringing it home to Marilao, Bulacan
instead of Ternate, Cavite due to the lateness of the hour for the following reasons: (1) he was moved by unselfish motive for G.R. No. 177921 December 4, 2013
his co-employees to collect their wages and salaries the following day, a Saturday, a non-working, because to encash the
check on July 5, the next working day after July 1, would have caused discomfort to laborers who were dependent on their
METRO CONCAST STEEL CORPORATION, SPOUSES JOSE S. DYCHIAO AND TIUOH YAN, SPOUSES P401,608.89 June 20, 1995 Trust Receipt No. 95-20171016
GUILLERMO AND MERCEDES DYCHIAO, AND SPOUSES VICENTE AND FILOMENA DYCHIAO, Petitioners,
vs.
P750,089.25 December 13, 1995 Trust Receipt No. 96-37908917
ALLIED BANK CORPORATION, Respondent.

P92,919.00 December 13, 1995 Trust Receipt No. 96/20258118

RESOLUTION

P224,713.58
PERLAS-BERNABE, J.:

The interest rate under Promissory Note No. 96-21301 was pegged at 15.25% per annum (p.a.), with penalty charge
Assailed in this petition for review on certiorari1 are the Decision2 dated February 12, 2007 and the Resolution 3dated
of 3% per month in case of default; while the twelve (12) trust receipts uniformly provided for an interest rate of 14%
May 10, 2007 of the Court of Appeals (CA) in CA-G.R. CV No. 86896 which reversed and set aside the
p.a. and 1% penalty charge. By way of security, the individual petitioners executed several Continuing
Decision4 dated January 17, 2006 of the Regional Trial Court of Makati, Branch 57 (RTC) in Civil Case No. 00-1563,
Guaranty/Comprehensive Surety Agreements19 in favor of Allied Bank. Petitioners failed to settle their obligations
thereby ordering petitioners Metro Concast Steel Corporation (Metro Concast), Spouses Jose S. Dychiao and Tiu Oh
under the aforementioned promissory note and trust receipts, hence, Allied Bank, through counsel, sent them
Yan, Spouses Guillermo and Mercedes Dychiao, and Spouses Vicente and Filomena Duchiao (individual petitioners)
demand letters,20 all dated December 10, 1998, seeking payment of the total amount of P51,064,093.62, but to no
to solidarily pay respondent Allied Bank Corporation (Allied Bank) the aggregate amount ofP51,064,094.28, with
avail. Thus, Allied Bank was prompted to file a complaint for collection of sum of money 21 (subject complaint) against
applicable interests and penalty charges.
petitioners before the RTC, docketed as Civil Case No. 00-1563. In their second 22 Amended Answer,23petitioners
admitted their indebtedness to Allied Bank but denied liability for the interests and penalties charged, claiming to
The Facts have paid the total sum of P65,073,055.73 by way of interest charges for the period covering 1992 to 1997.24

On various dates and for different amounts, Metro Concast, a corporation duly organized and existing under and by
virtue of Philippine laws and engaged in the business of manufacturing steel, 5 through its officers, herein individual
petitioners, obtained several loans from Allied Bank. These loan transactions were covered by a promissory note and
separate letters of credit/trust receipts, the details of which are as follows:
<<Reference: http://www.scribd.com/doc/196404620/177921>>
Date Document Amount
December 13, 1996 Promissory Note No. 96-213016
P2,000,000.00 November 7, 1995 Trust Receipt No. 96-2023657
They also alleged that the economic reverses suffered by the Philippine economy in 1998 as well as the devaluation
of the peso against the US dollar contributed greatly to the downfall of the steel industry, directly affecting the
business of Metro Concast and eventually leading to its cessation. Hence, in order to settle their debts with Allied
Bank, petitioners offered the sale of Metro Concasts remaining assets, consisting of machineries and equipment, to
Allied Bank, which the latter, however, refused. Instead, Allied Bank advised them to sell the equipment and apply
the proceeds of the sale to their outstanding obligations. Accordingly, petitioners offered the equipment for sale, but
since there were no takers, the equipment was reduced into ferro scrap or scrap metal over the years. In 2002,
Peakstar Oil Corporation (Peakstar), represented by one Crisanta Camiling (Camiling), expressed interest in buying
the scrap metal. During the negotiations with Peakstar, petitioners claimed that Atty. Peter Saw (Atty. Saw), a
member of Allied Banks legal department, acted as the latters agent. Eventually, with the alleged conformity of Allied
Bank, through Atty. Saw, a Memorandum of Agreement 25 dated November 8, 2002 (MoA) was drawn between Metro
Concast, represented by petitioner Jose Dychiao, and Peakstar, through Camiling, under which Peakstar obligated
itself to purchase the scrap metal for a total consideration of P34,000,000.00, payable as follows:

(a) P4,000,000.00 by way of earnest money P2,000,000.00 to be paid in cash and the other P2,000,000.00 to be
P608,603.04 May 13, 1996 Trust Receipt No. 96-9605228 paid in two (2) post-dated checks of P1,000,000.00 each;26 and

P3,753,777.40 May 24, 1996 Trust Receipt No. 96-9605249 (b) the balance of P30,000,000.00 to be paid in ten (10) monthly installments of P3,000,000.00, secured by bank
guarantees from Bankwise, Inc. (Bankwise) in the form of separate post-dated checks.27
P4,602,648.08 March 21, 1997 Trust Receipt No. 97-20472410
Unfortunately, Peakstar reneged on all its obligations under the MoA. In this regard, petitioners asseverated that:
P7,289,757.79 June 7, 1996 Trust Receipt No. 96-20328011
(a) their failure to pay their outstanding loan obligations to Allied Bank must be considered as force majeure ; and
P17,340,360.73 July 26, 1995 Trust Receipt No. 95-20194312
(b) since Allied Bank was the party that accepted the terms and conditions of payment proposed by Peakstar,
P670,709.24 August 31, 1995 Trust Receipt No. 95-20205313 petitioners must therefore be deemed to have settled their obligations to Allied Bank. To bolster their defense,
petitioner Jose Dychiao (Jose Dychiao) testified28 during trial that it was Atty. Saw himself who drafted the MoA and
subsequently received29 the P2,000,000.00 cash and the two (2) Bankwise post-dated checks worth P1,000,000.00
P313,797.41 November 16, 1995 Trust Receipt No. 96-20243914
each from Camiling. However, Atty. Saw turned over only the two (2) checks and P1,500,000.00 in cash to the wife of
Jose Dychiao.30
P13,015,109.87 July 3, 1996 Trust Receipt No. 96-20355215
Claiming that the subject complaint was falsely and maliciously filed, petitioners prayed for the award of moral
damages in the amount of P20,000,000.00 in favor of Metro Concast and at least P25,000,000.00 for each individual
petitioner, P25,000,000.00 as exemplary damages, P1,000,000.00 as attorneys fees, P500,000.00 for other litigation
expenses, including costs of suit.
The RTC Ruling
After trial on the merits, the RTC, in a Decision 31 dated January 17, 2006, dismissed the subject complaint, holding
that the "causes of action sued upon had been paid or otherwise extinguished." It ruled that since Allied Bank was
duly represented by its agent, Atty. Saw, in all the negotiations and transactions with Peakstar considering that Atty.
Saw
(a) drafted the MoA,
(b) accepted the bank guarantee issued by Bankwise, and
(c) was apprised of developments regarding the sale and disposition of the scrap metal then it stands to reason
that the MoA between Metro Concast and Peakstar was binding upon said bank.
The CA Ruling
Allied Bank appealed to the CA which, in a Decision 32 dated February 12, 2007, reversed and set aside the ruling of
the RTC, ratiocinating that there was "no legal basis in fact and in law to declare that when Bankwise reneged its
guarantee under the [MoA], herein [petitioners] should be deemed to be discharged from their obligations lawfully
incurred in favor of [Allied Bank]."33
The CA examined the MoA executed between Metro Concast, as seller of the ferro scrap, and Peakstar, as the buyer
thereof, and found that the same did not indicate that Allied Bank intervened or was a party thereto. It also pointed
out the fact that the post-dated checks pursuant to the MoA were issued in favor of Jose Dychiao. Likewise, the CA
found no sufficient evidence on record showing that Atty. Saw was duly and legally authorized to act for and on
behalf of Allied Bank, opining that the RTC was "indulging in hypothesis and speculation" 34 when it made a contrary
pronouncement. While Atty. Saw received the earnest money from Peakstar, the receipt was signed by him on behalf
of Jose Dychiao.35
It also added that "[i]n the final analysis, the aforesaid checks and receipts were signed by [Atty.] Saw either as
representative of [petitioners] or as partner of the latters legal counsel, and not in anyway as representative of [Allied
Bank]."36
Consequently, the CA granted the appeal and directed petitioners to solidarily pay Allied Bank their corresponding
obligations under the aforementioned promissory note and trust receipts, plus interests, penalty charges and
attorneys fees. Petitioners sought reconsideration 37 which was, however, denied in a Resolution 38 dated May 10,
2007. Hence, this petition.
The Issue Before the Court
At the core of the present controversy is the sole issue of whether or not the loan obligations incurred by the
petitioners under the subject promissory note and various trust receipts have already been extinguished.
The Courts Ruling
Article 1231 of the Civil Code states that obligations are extinguished either by payment or performance, the loss of
the thing due, the condonation or remission of the debt, the confusion or merger of the rights of creditor and debtor,
compensation or novation.
In the present case, petitioners essentially argue that their loan obligations to Allied Bank had already been
extinguished due to Peakstars failure to perform its own obligations to Metro Concast pursuant to the MoA.
Petitioners classify Peakstars default as a form of force majeure in the sense that they have, beyond their control,
lost the funds they expected to have received from the Peakstar (due to the MoA) which they would, in turn, use to
pay their own loan obligations to Allied Bank. They further state that Allied Bank was equally bound by Metro
Concasts MoA with Peakstar since its agent, Atty. Saw, actively represented it during the negotiations and execution
of the said agreement. Petitioners arguments are untenable. At the outset, the Court must dispel the notion that the
MoA would have any relevance to the performance of petitioners obligations to Allied Bank. The MoA is a sale of
assets contract, while petitioners obligations to Allied Bank arose from various loan transactions. Absent any
showing that the terms and conditions of the latter transactions have been, in any way, modified or novated by the
terms and conditions in the MoA, said contracts should be treated separately and distinctly from each other, such
that the existence, performance or breach of one would not depend on the existence, performance or breach of the
other. In the foregoing respect, the issue on whether or not Allied Bank expressed its conformity to the assets sale
transaction between Metro Concast and Peakstar (as evidenced by the MoA) is actually irrelevant to the issues
related to petitioners loan obligations to the bank. Besides, as the CA pointed out, the fact of Allied Banks
representation has not been proven in this case and hence, cannot be deemed as a sustainable defense to
exculpate petitioners from their loan obligations to Allied Bank. Now, anent petitioners reliance on force majeure,
suffice it to state that Peakstars breach of its obligations to Metro Concast arising from the MoA cannot be classified
as a fortuitous event under jurisprudential formulation. As discussed in Sicam v. Jorge:39
Fortuitous events by definition are extraordinary events not foreseeable or avoidable. It is therefore, not enough that
the event should not have been foreseen or anticipated, as is commonly believed but it must be one impossible to
foresee or to avoid. The mere difficulty to foresee the happening is not impossibility to foresee the same. To
constitute a fortuitous event, the following elements must concur: (a) the cause of the unforeseen and unexpected
occurrence or of the failure of the debtor to comply with obligations must be independent of human will; (b) it must
be impossible to foresee the event that constitutes the caso fortuito or, if it can be foreseen, it must be impossible to
avoid; (c) the occurrence must be such as to render it impossible for the debtor to fulfill obligations in a
normal manner; and (d) the obligor must be free from any participation in the aggravation of the injury or
loss.40(Emphases supplied)
While it may be argued that Peakstars breach of the MoA was unforseen by petitioners, the same us clearly not
"impossible"to foresee or even an event which is independent of human will." Neither has it been shown that said
occurrence rendered it impossible for petitioners to pay their loan obligations to Allied Bank and thus, negates the
formers force majeure theory altogether. In any case, as earlier stated, the performance or breach of the MoA bears
no relation to the performance or breach of the subject loan transactions, they being separate and distinct sources of
obligations. The fact of the matter is that petitioners loan obligations to Allied Bank remain subsisting for the basic
reason that the former has not been able to prove that the same had already been paid 41 or, in any way,
extinguished. In this regard, petitioners liability, as adjudged by the CA, must perforce stand. Considering, however,
that Allied Banks extra-judicial demand on petitioners appears to have been made only on December 10, 1998, the
computation of the applicable interests and penalty charges should be reckoned only from such date.
WHEREFORE, the petition is DENIED. The Decision dated February 12, 2007 and Resolution dated May 10, 2007
of the Court of Appeals in CA-G.R. CV No. 86896 are hereby AFFIRMED with MODIFICATION reckoning the
applicable interests and penalty charges from the date of the extrajudicial demand or on December 10, 1998. The
rest of the appellate courts dispositions stand.
SO ORDERED.
 approved by the Executive Committee pursuant to Bd. Res. No. 3577, s. of 1975. This note is secured by mortgages
on the existing assets of the firms.7
Republic of the Philippines
SUPREME COURT On the other hand, all accrued interest and charges due amounting to P3,074,672.21 were denominated as "Notes
Manila Taken for Interests" and evidenced by a separate promissory note 8 dated November 12, 1975. The following
annotation appears at the bottom portion of the note:
SECOND DIVISION
This promissory note represents all accrued interests and charges which are taken up as "NOTES TAKEN FOR
INTEREST" due on the accounts of PHILIMCO and PHUMACO approved under Bd. Res. No. 3577, s. of 1975. This
G.R. No. 138703 June 30, 2006
note is secured by (a) mortgage on the existing assets of the firm.9

DEVELOPMENT BANK OF THE PHILIPPINES1 and PRIVATIZATION AND MANAGEMENT OFFICE (formerly
Both notes provided for the following additional charges and penalties:
ASSET PRIVATIZATION TRUST), Petitioners,
vs.
HON. COURT OF APPEALS, PHILIPPINE UNITED FOUNDRY AND MACHINERY CORP. and PHILIPPINE IRON (1) 12% interest per annum on unpaid amortizations10 ;
MANUFACTURING CO., INC., Respondents.
(2) 10% penalty charge per annum on the total amortizations past due effective 30 days from the date
DECISION respondents failed to comply with any of the terms stipulated in the notes11 ; and,

AZCUNA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court of the decision of the Court of Appeals
(CA) dated May 7, 1999 in CA-G.R. CV No. 49239 entitled "Philippine United Foundry and Machinery Corp. and
Philippine Iron Manufacturing Co., Inc. v. Development Bank of the Philippines and Asset Privatization Trust" which
upheld the decision of the Regional Trial Court (RTC), Branch 98 of Quezon City in Civil Case No. Q-49650.
(3) Bank advances for insurance premiums, taxes, rentals, litigation and acquired assets expenses,
collection and other out-of-pocket expenses not covered by inspection and processing fees subject to the
following charges12 :
(a) One time service charge of % on the amount advanced to be included in the receivable
account;

Sometime in March 1968, the Development Bank of the Philippines (DBP) granted to respondents Philippine United (b) Penalty charge of 8% per annum on past due advances; and
Foundry and Machineries Corporation and Philippine Iron Manufacturing Company, Inc. an industrial loan in the
amount of P2,500,000 consisting of P500,000 in cash and P2,000,000 in DBP Progress Bonds. The loan was (c) Interest at 12% per annum.
evidenced by a promissory note 2 dated June 26, 1968 and secured by a mortgage 3 executed by respondents over
their present and future properties such as buildings, permanent improvements, various machineries and equipment
Notwithstanding the restructuring, respondents were still unable to comply with the terms and conditions of the new
for manufacture.
promissory notes. As a result, respondents requested DBP to refinance the matured obligation. The request was
granted by DBP, pursuant to which three foreign currency denominated loans sourced from DBPs own foreign
Subsequently, DBP granted to respondents another loan in the form of a five-year revolving guarantee amounting borrowings were extended to respondents on various dates between 1980 and 1981. 13 These loans were secured by
toP1,700,000 which was reflected in the amended mortgage contract 4 dated November 20, 1968. According to mortgages14 on the properties of respondents and were evidenced by the following promissory notes:
respondents, the loan guarantee was extended to them when they encountered difficulty in negotiating the DBP
Progress Bonds. Respondents were only able to sell the bonds in 1972 or about five years from its issuance for an
amount that was 25% less than its face value.5 Face Value Maturity Date Interest Rate Per Annum

(1) Promissory Note15 $661,330 December 15, 1990 3% over DBPs borrowing rate16
On September 10, 1975, the outstanding accounts of respondents with DBP were restructured in view of their failure dated December 11, 1980
to pay. Thus, the outstanding principal balance of the loans and advances amounting to P4,655,992.35 were
consolidated into a single account. The restructured loan was evidenced by a new promissory note 6 dated November (2) Promissory Note17 $666,666 June 23, 1991 3% over DBPs borrowing rate18
12, 1975 payable within seven years, with partial payments on the principal to be made beginning on the third year dated June 5, 1981
plus a 12% interest per annum payable every month. The following paragraph appears at the bottom portion of the (3) Promissory Note19 $486,472.37 December 31, 1982 4% over DBPs borrowing cost
note: dated December 16, 1981

This promissory note represents the consolidation into one account of the outstanding principal balance of
Apart from the interest, the promissory notes imposed additional charges and penalties if respondents defaulted on
PHILIMCO and PHUMACOs account, and is prepared pursuant to Res. No. 228, dated September 10, 1975,
their payments. The notes dated December 11, 1980 and June 5, 1981 specifically provided for a 2% annual service
fee computed on the outstanding principal balance of the loans as well as the following additional interest and
penalty charges on the loan amortizations or portions in arrears:
(a) If in arrears for thirty (30) days or less:
i. Additional interest at the basic loan interest rate per annum computed on total amortizations
past due, irrespective of age.
ii. No penalty charge
(b) If in arrears for more than thirty (30) days:
i. Additional interest at the basic loan interest rate per annum computed on total amortizations
past due, irrespective of age, plus,
ii. Penalty charge of 16% per annum computed on amortizations or portions thereof in arrears
for more than thirty (30) days counted from the date the amount in arrears becomes liable to this
charge.20
Under these two notes, respondents also bound themselves to pay bank advances for insurance premiums, taxes,
litigation and acquired assets expenses and other out-of-pocket expenses not covered by inspection and processing
fees as follows:
(a) One-time service charge of 2% of the amount advanced, same to be included in the receivable
account.
(b) Interest at 16% per annum.
(c) Penalty charge from date of advance at 16% per annum.
The note dated December 16, 1981, on the other hand, provided for the interest and penalty charges on loan
amortizations or portions of it in arrears as follows:
(a) Additional interest at the basic loan interest per annum computed on total amortizations past due
irrespective of age; plus
(b) Penalty charges of 8% per annum computed on total amortizations in arrears, irrespective of age.21
Respondents were likewise bound to pay bank advances for insurance premiums, taxes, litigation and acquired
assets expenses and other out-of-pocket expenses not covered by inspection and processing fees as follows:
(a) One-time service charge of 2% of (the) amount advanced, same to be included and debited to the
advances account;
(b) Interest at the basic loan interest rate; and
(c) Penalty charge from date of advance at 8% per annum.22
Sometime in October 1985, DBP initiated foreclosure proceedings upon its computation that respondents loans were
in arrears by P62,954,473.68.23 According to DBP, this figure already took into account the intermittent payments
made by respondents between 1968 and 1981 in the aggregate amount of P5,150,827.71.24
However, the foreclosure proceedings were suspended on twelve separate occasions from October 1985 to
December 1986 upon the representations of respondents that a financial rehabilitation fund arising from a contract
with the military was forthcoming. On December 23, 1986, before DBP could proceed with the foreclosure
proceedings, respondents instituted the present suit for injunction.
On January 6, 1987, the complaint was amended to include the annulment of mortgage. On December 15, 1987, the
complaint was amended a second time to implead the Asset Privatization Trust (APT) (now the Privatization and
Management Office [PMO])25 as a party defendant.
Respondents cause of action arose from their claim that DBP was collecting from them an unconscionable if not
unlawful or usurious obligation of P62,954,473.68 as of September 30, 1985, out of a mere P6,200,000 loan.
Primarily, respondents contended that the amount claimed by DBP is erroneous since they have remitted to DBP
approximately P5,300,000 to repay their original debt. Additionally, respondents assert that since the loans were
procured for the Self-Reliant Defense Posture Program of the Armed Forces of the Philippines (AFP), the latters
breach of its commitment to purchase military armaments and equipment from respondents amounts to a failure of
consideration that would justify the annulment of the mortgage on respondents properties.26
On December 24, 1986, the RTC issued a temporary restraining order. A Writ of Preliminary Injunction was
subsequently issued on May 4, 1987. After trial on the merits, the court rendered a decision in favor of
respondents,27 the dispositive portion of which reads:
WHEREFORE, in view of the foregoing consideration, judgment is hereby rendered in favor of the [respondents] and
against the defendants [DBP and APT], ordering that:
(1) The Writ of Preliminary Injunction already issued be made permanent;
(2) The [respondents] be made to pay the original loans in the aggregate amount of Six Million Two
Hundred Thousand (P6,200,000) Pesos;
(3) The [respondents] payment in the amount of Five Million Three Hundred Thirty-Five Thousand, Eight
Hundred Twenty-seven Pesos and Seventy-one Centavos (P5,335,827.71) be applied to payment for
interest and penalties; and
(4) No further interest and/or penalties on the aforementioned principal obligation of P6.2 million shall be
imposed/charged upon the [respondents] for failure of the military establishment to honor their commitment
to a valid and consummated contract with the former. Costs against the defendants.
SO ORDERED.
Both DBP and PMO appealed the decision to the CA. The CA, however, affirmed the decision of the RTC. Aggrieved,
DBP filed with the CA a motion for a reconsideration 28 dated May 26, 1999, which motion has not been resolved by
the CA to date. PMO, on the other hand, sought relief directly with the Court by filing this present petition upon the
following grounds:
I. THE CA DISREGARDED THE BINDING AND OBLIGATORY FORCE OF CONTRACTS WHICH IS THE
LAW BETWEEN THE PARTIES.
xxx
II. THE CA VIOLATED THE PRINCIPLE OF LAW THAT CONTRACTS TAKE EFFECT ONLY BETWEEN
THE PARTIES AS IT LINKED RESPONDENTS CONTRACTS WITH THE AFP WITH RESPONDENTS
LOANS WITH DBP.
xxx
III. THE CA ERRED IN PERMANENTLY ENJOINING THE DBP AND APT FROM FORECLOSING THE
MORTGAGES ON RESPONDENTS PROPERTIES THEREBY VIOLATING THE PROVISIONS OF
P[RESIDENTIAL] D[ECREE NO.] 385 AND PROCLAMATION NO. 50.29
On the first issue, PMO asserts that the CA erred in declaring that the interest rate on the loans had been unilaterally
increased by DBP despite the evidence on record (consisting of promissory notes and testimonies of witnesses for
DBP) showing otherwise. PMO also claims that the CA failed to take into account the effect of the restructuring and
refinancing of the loans granted by DBP upon the request of respondents.
Anent the second issue, PMO argues that the failure of the AFP to honor its commitment to respondents should have
had no bearing on respondents loan obligations to DBP as DBP was not a party to their contract. Hence, PMO
contends that the CA ran afoul of the principle of relativity of contracts when it ruled that no further interest could be
imposed on the loans.
Finally, PMO claims that DBP, being a government financial institution, could not be enjoined by any restraining order
or injunction, whether permanent or temporary, from proceeding with the foreclosure proceedings mandated under
Section 1 of Presidential Decree No. 385.
For their part, respondents moved for the denial of the petition in their comment dated October 27, 1999, 30 stating
that (1) the petition merely raises questions of fact and not of law; (2) PMO is engaged in forum shopping
considering that the motion for reconsideration filed by its co-defendant, DBP, against the CA decision was still
pending before the appellate court; and, (3) the petition is fatally defective because the attached certification against
non-forum shopping does not conform to the requirements set by law. After PMO filed its reply denying the foregoing
allegations, the parties submitted their respective memoranda.
The petition is partly meritorious.
Prefatorily, it bears stressing that only questions of law may be raised in a petition for review on certiorari under Rule
45 of the Rules of Court. This Court is not a trier of facts, its jurisdiction in such a proceeding being limited to
reviewing only errors of law that may have been committed by the lower courts. Consequently, findings of fact of the
trial court and the CA are final and conclusive, and cannot be reviewed on appeal. 31 It is not the function of the Court
to reexamine or reevaluate evidence, whether testimonial or documentary, adduced by the parties in the proceedings
below.32 Nevertheless, the rule admits of certain exceptions and has, in the past, been relaxed when the lower courts
findings were not supported by the evidence on record or were based on a misapprehension of facts, 33 or when
certain relevant and undisputed facts were manifestly overlooked that, if properly considered, would justify a different
conclusion.34
The resolution of the present controversy turns on the issue regarding the precise amount of respondents principal
obligation under the series of mortgages which DBP, as mortgagee-creditor, attempted to foreclose. In this case, the
total amount of respondents indebtedness is not simply a question of fact but is a question of law, one requiring the
application of legal principles for the computation of the amount owed, and is thus a matter that can be properly
brought up for the Courts determination.35
PMO claims that the total outstanding obligation of respondents reached P62.9 Million on September 30, 1985. This
amount was purportedly the peso equivalent of the foreign-currency denominated loans granted to respondents to
refinance the original loans they procured, and is inclusive of interest, penalties and other surcharges incurred from
that date as a result of respondents past defaults. Respondents contend, on the other hand, that DBP grossly
misstated the extent of their obligation, and insist that they should be made liable only for the amount of P6.2 Million
which they actually received from DBP.
As mentioned, the RTC ultimately sustained respondents and made permanent the writ of preliminary injunction it
issued to enjoin the foreclosure proceedings. Respondents were directed to pay only the amount of the original
loans, that is, P6.2 Million, with the P5.3 Million which they previously paid to be applied as interest and penalties.
The RTC did not find respondents culpable for defaulting on their loan obligations and passed the blame to the AFP
for not fulfilling its contractual obligations to respondents.
The CA affirmed the RTC decision and agreed that DBP cannot be allowed to foreclose on the mortgage securing
respondents loan. The CA surmised that since DBP failed to adequately explain how it arrived at P62.9 Million, the
original loan amount of P6.2 Million could only have been "blatantly enlarged or erroneously computed" by DBP
through the imposition of an "unconscionable rate of interest and charges." The CA also agreed with the trial court
that there was no consideration for the mortgage contracts executed by respondents considering the proceeds from
the alleged foreign currency loans were never actually received by the latter. This view is untenable and lacks
foundation.
As correctly pointed out by PMO, the original loans alluded to by respondents had been refinanced and restructured
in order to extend their maturity dates. Refinancing is an exchange of an old debt for a new debt, as by negotiating a
different interest rate or term or by repaying the existing loan with money acquired from a new loan. 36 On the other
hand, restructuring, as applied to a debt, implies not only a postponement of the maturity 37 but also a modification of
the essential terms of the debt (e.g., conversion of debt into bonds or into equity,38 or a change in or amendment of
collateral security) in order to make the account of the debtor current. 39
In this instance, it is important to note that DBP accommodated respondents request to restructure and refinance
their account twice in view of the financial difficulties the latter were experiencing. The first restructuring/refinancing
was granted in 1975 while the second one was undertaken sometime in the early 1980s. Pursuant to the
restructuring schemes, respondents executed promissory notes and mortgage contracts in favor of DBP, 40 the
second restructuring being evidenced by three promissory notes dated December 11, 1980, June 5, 1981 and
December 16, 1981 in the total amount of $1.8 Million. The reason respondents seek to be excused from fulfilling
their obligation under the second batch of promissory notes is that first, they allegedly had "no choice" but to sign the
documents in order to have the loan restructured 41 and thus avert the foreclosure of their properties, and second,
they never received any proceeds from the same. This reasoning cannot be sustained.
Respondents allegation that they had no "choice" but to sign is tantamount to saying that DBP exerted undue
influence upon them. The Court is mindful that the law grants an aggrieved party the right to obtain the annulment of
a contract on account of factors such as mistake, violence, intimidation, undue influence and fraud which vitiate
consent.42 However, the fact that the representatives were "forced" to sign the promissory notes and mortgage
contracts in order to have respondents original loans restructured and to prevent the foreclosure of their properties
does not amount to vitiated consent.
The financial condition of respondents may have motivated them to contract with DBP, but undue influence cannot be
attributed to DBP simply because the latter had lent money. The concept of undue influence is defined as follows:
There is undue influence when a person takes improper advantage of his power over the will of another, depriving
the latter of a reasonable freedom of choice. The following circumstances shall be considered: the confidential,
family, spiritual and other relations between the parties or the fact that the person alleged to have been unduly
influenced was suffering from mental weakness, or was ignorant or in financial distress. 43
While respondents were purportedly financially distressed, there is no clear showing that those acting on their behalf
had been deprived of their free agency when they executed the promissory notes representing respondents
refinanced obligations to DBP. For undue influence to be present, the influence exerted must have so overpowered
or subjugated the mind of a contracting party as to destroy the latters free agency, making such party express the
will of another rather than its own. The alleged lingering financial woes of a debtor per se cannot be equated with the
presence of undue influence.44
Corollarily, the threat to foreclose the mortgage would not in itself vitiate consent as it is a threat to enforce a just or
legal claim through competent authority.45 It bears emphasis that the foreclosure of mortgaged properties in case of
default in payment of a debtor is a legal remedy given by law to a creditor. 46 In the event of default by the mortgage
debtor in the performance of the principal obligation, the mortgagee undeniably has the right to cause the sale at
public auction of the mortgaged property for payment of the proceeds to the mortgagee.47
It is likewise of no moment that respondents never physically received the proceeds of the foreign currency loans.
When the loan was refinanced and restructured, the proceeds were understandably not actually given by DBP to
respondents since the transaction was but a renewal of the first or original loan and the supposed proceeds were
applied as payment for the latter.
It also bears emphasis that the second set of promissory notes executed by respondents must govern the
contractual relation of the parties for they unequivocally express the terms and conditions of the parties loan
agreement, which are binding and conclusive between them. Parties are free to enter into stipulations, clauses,
terms and conditions they may deem convenient; that is, as long as these are not contrary to law, morals, good
customs, public order or public policy.48 With the signatures of their duly authorized representatives on the subject
notes and mortgage contracts, the genuineness and due execution of which having been admitted, 49 respondents in
effect freely and voluntarily affirmed all the concurrent rights and obligations flowing therefrom. Accordingly,
respondents are barred from claiming the contrary without transgressing the principle of estoppel and mutuality of
contracts. Contracts must bind both contracting parties; their validity or compliance cannot be left to the will of one of
them.50
The significance of the promissory notes should not have been overlooked by the trial court and the CA. By
completely disregarding the promissory notes, the lower courts unilaterally modified the contractual obligations of
respondents after the latter already benefited from the extension of the maturity date on their original loans, to the
damage and prejudice of PMO which steps into the shoes of DBP as mortgagee-creditor.
At this juncture, it must be emphasized that a party to a contract cannot deny its validity after enjoying its benefits
without outrage to ones sense of justice and fairness. Where parties have entered into a well-defined contractual
relationship, it is imperative that they should honor and adhere to their rights and obligations as stated in their
contracts because obligations arising from it have the force of law between the contracting parties and should be
complied with in good faith.51
As a rule, a court in such a case has no alternative but to enforce the contractual stipulations in the manner they
have been agreed upon and written. Courts, whether trial or appellate, generally have no power to relieve parties
from obligations voluntarily assumed simply because their contract turned out to be disastrous or unwise
investments.52
Thus, respondents cannot be absolved from their loan obligations on the basis of the failure of the AFP to fulfill its
commitment under the manufacturing agreement53 entered by them allegedly upon the prompting of certain AFP and
DBP officials. While it is true that the DBP representatives appear to have been aware that the proceeds from the
sale to the AFP were supposed to be applied to the loan, the records are bereft of any proof that would show that
DBP was a party to the contract itself or that DBP would condone respondents credit if the contract did not
materialize. Even assuming that the AFP defaulted in its obligations under the manufacturing agreement,
respondents cause of action lies with the AFP, and not with DBP or PMO. The loan contract of respondents is
separate and distinct from their manufacturing agreement with the AFP.
Incidentally, the CA sustained the validity of a loan obligation but annulled the mortgage securing it on the ground of
failure of consideration. This is erroneous. A mortgage is a mere accessory contract and its validity would depend on
the validity of the loan secured by it. 54 Hence, the consideration of the mortgage contract is the same as that of the
principal contract from which it receives life, and without which it cannot exist as an independent contract. 55 The
debtor cannot escape the consequences of the mortgage contract once the validity of the loan is upheld.
Again, as a rule, courts cannot intervene to save parties from disadvantageous provisions of their contracts if they
consented to the same freely and voluntarily.56 Thus, respondents cannot now protest against the fact that the loans
were denominated in foreign currency and were to be paid in its peso equivalent after they had already given their
consent to such terms.57 There is no legal impediment to having obligations or transactions paid in a foreign currency
as long as the parties agree to such an arrangement. In fact, obligations in foreign currency may be discharged in
Philippine currency based on the prevailing rate at the time of payment. 58 For this reason, it was improper for the CA
to reject outright DBPs claim that the conversion of the remaining balance of the foreign currency loans into peso
accounted for the considerable differential in the total indebtedness of respondents mainly because the exchange
rates at the time of demand had been volatile and led to the depreciation of the peso.59
PMO also denies that a unilateral increase in the interest rates on the loans caused the substantial increase in the
indebtedness of respondents and points out that the promissory notes themselves specifically provided for the rates
of interest as well as penalty and other charges which were merely applied on respondents outstanding obligations.
It should be noted, however, that at the time of the transaction, Act No. 2655, as amended by Presidential Decree
No. 116 (Usury Law), was still in full force and effect. Basic is the rule that the laws in force at the time the contract is
made governs the effectivity of its provisions.60 Section 2 of the Usury Law specifically provides as follows:
Sec. 2. No person or corporation shall directly or indirectly take or receive in money or other property, real or
personal, or choses in action, a higher rate of interest or a greater sum or value, including commissions, premiums,
fines and penalties, for the loan or renewal thereof or forbearance of money, goods, or credits, where such loan or
renewal or forbearance is secured in whole or in part by a mortgage upon real estate the title to which is duly
registered, or by any document conveying such real estate or interest therein, than twelve per centum per annum or
the maximum rate prescribed by the Monetary Board and in force at the time the loan or renewal thereof or
forbearance is granted: Provided, that the rate of interest under this section or the maximum rate of interest that may
be prescribed by the monetary board under this section may likewise apply to loans secured by other types of
security as may be specified by the Monetary Board.
A perusal of the promissory notes reveals that the interest charged upon the notes is dependent upon the borrowing
cost of DBP which, however, would be pegged at a fixed rate assuming certain factors. The notes dated December
11, 1980 and June 5, 1981, for example, had a per annum interest rate of 3% over DBPs borrowing rate that will
become 1 % per annum in the event the loan is drawn under the Central Banks Jumbo Loan. These were further
subject to the condition that should the loan from where they were drawn be fully repaid, the interest to be charged
on respondents remaining dollar obligation would be pegged at 16% per annum. 61 The promissory note dated
December 16, 1981, on the other hand, had a per annum interest rate of 4% over DBPs borrowing rate. This rate
would also become 1 % per annum in the event the loan is drawn under the Central Banks Jumbo Loan. However,
should the loan from where respondents foreign currency loan was drawn be fully repaid, the interest to be charged
on their remaining dollar obligation would be pegged at 18% per annum.62
direct appeal to this Court does not bar PMO from seeking relief from the judgment by taking the latter course of
action.
It must be remembered that PMO was impleaded as party defendant through the amended complaint 69 dated
November 25, 1987. Persons made parties-defendants via a supplemental complaint possess locus standi or legal
personality to seek a review by the Court of the decision by the CA which they assail even if their co-defendants did
not appeal the said ruling of the appellate court. 70 Even assuming that separate actions have been filed by two
different parties involving essentially the same subject matter, no forum shopping is committed where the parties did
not resort to multiple judicial remedies. 71
In any event, the Court deems it fit to put an end to this controversy and to finally adjudicate the rights and
obligations of the parties in the interest of a speedy dispensation of justice, taking into account the length of time this
action has been pending with the courts as well as in light of the fact that PMO is the real party-in-interest in this
case, being the successor-in-interest of DBP.

Due to the variable factors mentioned above, it cannot be determined whether DBP did in fact apply an interest rate
higher than what is prescribed under the law. It appears on the records, however, that DBP attempted to explain how
it arrived at the amount stated in the Statement of Account 63 it submitted in support of its claim but was not allowed
by the trial court to do so citing the rule that the best evidence of the same is the document itself. 64 DBP should have
been given the opportunity to explain its entries in the Statement of Account in order to place the figures that were
cited in the proper context. Assuming the interest applied to the principal obligation did, in fact, exceed 12%, in
addition to the other penalties stipulated in the note, this should be stricken out for being usurious.
WHEREFORE, the petition is PARTLY GRANTED and the assailed Decision dated May 7, 1999 rendered by the
Court of Appeals in CA-G.R. CV No. 49239 is REVERSED AND SET ASIDE. The case is hereby remanded to the
trial court for determination of the total amount of the respondents obligation based on the promissory notes dated
December 11, 1980, June 5, 1981 and December 16, 1981 according to the interest rate agreed upon by the parties
or the interest rate of 12% per annum, whichever is lower.
No costs.

In usurious loans, the entire obligation does not become void because of an agreement for usurious interest; the
unpaid principal debt still stands and remains valid but the stipulation as to the interest is void. The debt is then SO ORDERED.
considered to be without stipulation as to the interest. In the absence of an express stipulation as to the rate of
interest, the legal rate of 12% per annum shall be imposed.65

As to the issue raised by PMO that the injunction issued by the lower courts violated Presidential Decree No. 385,
the Court agrees with the ruling of the CA. Presidential Decree No. 385 was issued primarily to see to it that
government financial institutions are not denied substantial cash inflows which are necessary to finance development
projects all over the country, by large borrowers who, when they become delinquent, resort to court actions in order
to prevent or delay the governments collection of their debts and loans.66

The government, however, is bound by basic principles of fairness and decency under the due process clause of the
Bill of Rights. Presidential Decree No. 385 does not provide the government blanket authority to unqualifiedly impose
the mandatory provisions of the decree without due regard to the constitutional rights of the borrowers. In fact, it is
required that a hearing first be conducted to determine whether or not 20% of the outstanding arrearages has been
paid, as a prerequisite for the issuance of a temporary restraining order or a writ of preliminary injunction. Hence, the
trial court can, on the basis of the evidence then in its possession, make a provisional determination on the matter of
the actual existence of the arrearages and the amount on which the 20% requirement is to be computed.
Consequently, Presidential Decree No. 385 cannot be invoked where the extent of the loan actually received by the
borrower is still to be determined.67

Finally, respondents allegation that PMO is engaged in forum shopping is untenable. Forum shopping is the act of a
party, against whom an adverse judgment has been rendered in one forum, of seeking another and possibly
favorable opinion in another forum by appeal or a special civil action of certiorari. 68 As correctly pointed out by PMO,
the present petition is merely an appeal from the adverse decision rendered in the same action where it was
impleaded as co-defendant with DBP. That DBP opted to file a motion for reconsideration with the CA rather than a

Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 112127 July 17, 1995
CENTRAL PHILIPPINE UNIVERSITY, petitioner,
vs.
COURT OF APPEALS, REMEDIOS FRANCO, FRANCISCO N. LOPEZ, CECILIA P. VDA. DE LOPEZ, REDAN
LOPEZ AND REMARENE LOPEZ, respondents.
BELLOSILLO, J.:
CENTRAL PHILIPPINE UNIVERSITY filed this petition for review on certiorari of the decision of the
Court of Appeals which reversed that of the Regional Trial Court of Iloilo City directing petitioner to
reconvey to private respondents the property donated to it by their predecessor-in-interest.
Sometime in 1939, the late Don Ramon Lopez, Sr., who was then a member of the Board of Trustees of
the Central Philippine College (now Central Philippine University [CPU]), executed a deed of donation in
favor of the latter of a parcel of land identified as Lot No. 3174-B-1 of the subdivision plan Psd-1144,
then a portion of Lot No. 3174-B, for which Transfer Certificate of Title No. T-3910-A was issued in the
name of the donee CPU with the following annotations copied from the deed of donation
1. The land described shall be utilized by the CPU exclusively for the establishment
and use of a medical college with all its buildings as part of the curriculum;
2. The said college shall not sell, transfer or convey to any third party nor in any way
encumber said land;
3. The said land shall be called "RAMON LOPEZ CAMPUS", and the said college
shall be under obligation to erect a cornerstone bearing that name. Any net income
from the land or any of its parks shall be put in a fund to be known as the "RAMON
LOPEZ CAMPUS FUND" to be used for improvements of said campus and erection
of a building thereon. 1
On 31 May 1989, private respondents, who are the heirs of Don Ramon Lopez, Sr., filed an action for
annulment of donation, reconveyance and damages against CPU alleging that since 1939 up to the
time the action was filed the latter had not complied with the conditions of the donation. Private
respondents also argued that petitioner had in fact negotiated with the National Housing Authority
(NHA) to exchange the donated property with another land owned by the latter.
In its answer petitioner alleged that the right of private respondents to file the action had prescribed; that
it did not violate any of the conditions in the deed of donation because it never used the donated
property for any other purpose than that for which it was intended; and, that it did not sell, transfer or
convey it to any third party.
On 31 May 1991, the trial court held that petitioner failed to comply with the conditions of the donation
and declared it null and void. The court a quo further directed petitioner to execute a deed of the
reconveyance of the property in favor of the heirs of the donor, namely, private respondents herein.
Petitioner appealed to the Court of Appeals which on 18 June 1993 ruled that the annotations at the
back of petitioner's certificate of title were resolutory conditions breach of which should terminate the
rights of the donee thus making the donation revocable.
The appellate court also found that while the first condition mandated petitioner to utilize the donated
property for the establishment of a medical school, the donor did not fix a period within which the
condition must be fulfilled, hence, until a period was fixed for the fulfillment of the condition, petitioner
could not be considered as having failed to comply with its part of the bargain. Thus, the appellate court
rendered its decision reversing the appealed decision and remanding the case to the court of origin for
the determination of the time within which petitioner should comply with the first condition annotated in
the certificate of title.
Petitioner now alleges that the Court of Appeals erred: (a) in holding that the quoted annotations in the
certificate of title of petitioner are onerous obligations and resolutory conditions of the donation which
must be fulfilled non-compliance of which would render the donation revocable; (b) in holding that the
issue of prescription does not deserve "disquisition;" and, (c) in remanding the case to the trial court for
the fixing of the period within which petitioner would establish a medical college. 2
We find it difficult to sustain the petition. A clear perusal of the conditions set forth in the deed of
donation executed by Don Ramon Lopez, Sr., gives us no alternative but to conclude that his donation
was onerous, one executed for a valuable consideration which is considered the equivalent of the
donation itself, e.g., when a donation imposes a burden equivalent to the value of the donation. A gift of
land to the City of Manila requiring the latter to erect schools, construct a children's playground and
open streets on the land was considered an onerous donation. 3 Similarly, where Don Ramon Lopez
donated the subject parcel of land to petitioner but imposed an obligation upon the latter to establish a
medical college thereon, the donation must be for an onerous consideration.
Under Art. 1181 of the Civil Code, on conditional obligations, the acquisition of rights, as well as the
extinguishment or loss of those already acquired, shall depend upon the happening of the event which
constitutes the condition. Thus, when a person donates land to another on the condition that the latter
would build upon the land a school, the condition imposed was not a condition precedent or a
suspensive condition but a resolutory one. 4 It is not correct to say that the schoolhouse had to be
constructed before the donation became effective, that is, before the donee could become the owner of
the land, otherwise, it would be invading the property rights of the donor. The donation had to be valid
before the fulfillment of the condition. 5 If there was no fulfillment or compliance with the condition, such
as what obtains in the instant case, the donation may now be revoked and all rights which the donee
may have acquired under it shall be deemed lost and extinguished.
The claim of petitioner that prescription bars the instant action of private respondents is unavailing.
The condition imposed by the donor, i.e., the building of a medical school upon the land
donated, depended upon the exclusive will of the donee as to when this condition shall be
fulfilled. When petitioner accepted the donation, it bound itself to comply with the condition
thereof. Since the time within which the condition should be fulfilled depended upon the
exclusive will of the petitioner, it has been held that its absolute acceptance and the
acknowledgment of its obligation provided in the deed of donation were sufficient to prevent
the statute of limitations from barring the action of private respondents upon the original
contract which was the deed of donation. 6
Moreover, the time from which the cause of action accrued for the revocation of the donation and
recovery of the property donated cannot be specifically determined in the instant case. A cause of action
arises when that which should have been done is not done, or that which should not have been done is
done. 7 In cases where there is no special provision for such computation, recourse must be had to the
rule that the period must be counted from the day on which the corresponding action could have been
instituted. It is the legal possibility of bringing the action which determines the starting point for the
computation of the period. In this case, the starting point begins with the expiration of a reasonable
period and opportunity for petitioner to fulfill what has been charged upon it by the donor.
The period of time for the establishment of a medical college and the necessary buildings and
improvements on the property cannot be quantified in a specific number of years because of the
presence of several factors and circumstances involved in the erection of an educational institution,
such as government laws and regulations pertaining to education, building requirements and property
restrictions which are beyond the control of the donee.
Thus, when the obligation does not fix a period but from its nature and circumstances it can be inferred
that a period was intended, the general rule provided in Art. 1197 of the Civil Code applies, which
provides that the courts may fix the duration thereof because the fulfillment of the obligation itself cannot
be demanded until after the court has fixed the period for compliance therewith and such period has
arrived. 8
This general rule however cannot be applied considering the different set of circumstances existing in
the instant case. More than a reasonable period of fifty (50) years has already been allowed petitioner
to avail of the opportunity to comply with the condition even if it be burdensome, to make the donation in
its favor forever valid. But, unfortunately, it failed to do so. Hence, there is no more need to fix the
duration of a term of the obligation when such procedure would be a mere technicality and formality and
would serve no purpose than to delay or lead to an unnecessary and expensive multiplication of
suits. 9 Moreover, under Art. 1191 of the Civil Code, when one of the obligors cannot comply with what is
incumbent upon him, the obligee may seek rescission and the court shall decree the same unless there
is just cause authorizing the fixing of a period. In the absence of any just cause for the court to
determine the period of the compliance, there is no more obstacle for the court to decree the rescission
claimed.
Finally, since the questioned deed of donation herein is basically a gratuitous one, doubts referring to
incidental circumstances of a gratuitous contract should be resolved in favor of the least transmission of
rights and interests.10 Records are clear and facts are undisputed that since the execution of the deed of
donation up to the time of filing of the instant action, petitioner has failed to comply with its obligation as
donee. Petitioner has slept on its obligation for an unreasonable length of time. Hence, it is only just and
equitable now to declare the subject donation already ineffective and, for all purposes, revoked so that
petitioner as donee should now return the donated property to the heirs of the donor, private
respondents herein, by means of reconveyance.
WHEREFORE, the decision of the Regional Trial Court of Iloilo, Br. 34, of 31 May 1991 is REINSTATED
and AFFIRMED, and the decision of the Court of Appeals of 18 June 1993 is accordingly MODIFIED.
Consequently, petitioner is directed to reconvey to private respondents Lot No. 3174-B-1 of the
subdivision plan Psd-1144 covered by Transfer Certificate of Title No. T-3910-A within thirty (30) days
from the finality of this judgment.
Costs against petitioner.
SO ORDERED.
 is the subject matter of the present litigation between the heirs of Juan Galicia, Sr. who assert breach of the
conditions as against private respondent's claim anchored on full payment and compliance with the stipulations
thereof.

The court of origin which tried the suit for specific performance filed by private respondent on account of the herein
petitioners' reluctance to abide by the covenant, ruled in favor of the vendee (p. 64, Rollo) while respondent court
practically agreed with the trial court except as to the amount to be paid to petitioners and the refund to private
respondent are concerned (p. 46, Rollo).

There is no dispute that the sum of P3,000.00 listed as first installment was received by Juan Galicia, Sr. According
to petitioners, of the P10,000.00 to be paid within ten days from execution of the instrument, only P9,707.00 was
tendered to, and received by, them on numerous occasions from May 29, 1975, up to November 3, 1979.
Concerning private respondent's assumption of the vendors' obligation to the Philippine Veterans Bank, the vendee
paid only the sum of P6,926.41 while the difference the indebtedness came from Celerina Labuguin (p. 73, Rollo).
Moreover, petitioners asserted that not a single centavo of the P27,000.00 representing the remaining balance was
Republic of the Philippines paid to them. Because of the apprehension that the heirs of Juan Galicia, Sr. are disavowing the contract inked by
SUPREME COURT their predecessor, private respondent filed the complaint for specific performance.
Manila

In addressing the issue of whether the conditions of the instrument were performed by herein private respondent as
THIRD DIVISION vendee, the Honorable Godofredo Rilloraza, Presiding Judge of Branch 31 of the Regional Trial Court, Third Judicial
Region stationed at Guimba, Nueva Ecija, decided to uphold private respondent's theory on the basis of constructive
fulfillment under Article 1186 and estoppel through acceptance of piecemeal payments in line with Article 1235 of the
Civil Code.
G.R. No. 96053 March 3, 1993
Anent the P10,000.00 specified as second installment, the lower court counted against the vendors the candid
statement of Josefina Tayag who sat on the witness stand and made the admission that the check issued as
JOSEFINA TAYAG, RICARDO GALICIA, TERESITA GALICIA, EVELYN GALICIA, JUAN GALICIA, JR. and
payment thereof was nonetheless paid on a staggered basis when the check was dishonored (TSN, September 1,
RODRIGO GALICIA, petitioners,
1983, pp. 3-4; p. 3, Decision; p. 66, Rollo). Regarding the third condition, the trial court noted that plaintiff below paid
vs.
more than P6,000.00 to the Philippine Veterans Bank but Celerina Labuguin, the sister and co-vendor of Juan
COURT OF APPEALS and ALBRIGIDO LEYVA, respondents.
Galicia, Sr. paid P3,778.77 which circumstance was construed to be a ploy under Article 1186 of the Civil Code that
"prematurely prevented plaintiff from paying the installment fully" and "for the purpose of withdrawing the title to the
MELO, J.: lot". The acceptance by petitioners of the various payments even beyond the periods agreed upon, was perceived by
the lower court as tantamount to faithful performance of the obligation pursuant to Article 1235 of the Civil Code.
Furthermore, the trial court noted that private respondent consigned P18,520.00, an amount sufficient to offset the
The deed of conveyance executed on May 28, 1975 by Juan Galicia, Sr., prior to his demise in 1979, and Celerina
remaining balance, leaving the sum of P1,315.00 to be credited to private respondent.
Labuguin, in favor of Albrigido Leyva involving the undivided one-half portion of a piece of land situated at Poblacion,
Guimba, Nueva Ecija for the sum of P50,000.00 under the following terms:
On September 12, 1984, judgment was rendered:
1. The sum of PESOS: THREE THOUSAND (P3,000.00) is HEREBY acknowledged to have
been paid upon the execution of this agreement; 1. Ordering the defendants heirs of Juan Galicia, to execute the Deed of Sale of their
undivided ONE HALF (1/2) portion of Lot No. 1130, Guimba Cadastre, covered by TCT No. NT-
120563, in favor of plaintiff Albrigido Leyva, with an equal frontage facing the national road upon
2. The sum of PESOS: TEN THOUSAND (P10,000.00) shall be paid within ten (10) days from
finality of judgment; that, in their default, the Clerk of Court II, is hereby ordered to execute the
and after the execution of this agreement;
deed of conveyance in line with the provisions of Section 10, Rule 39 of the Rules of Court;

3. The sum of PESOS: TEN THOUSAND (P10,000.00) represents the VENDORS' indebtedness
2. Ordering the defendants, heirs of Juan Galicia, jointly and severally to pay attorney's fees of
with the Philippine Veterans Bank which is hereby assumed by the VENDEE; and
P6,000.00 and the further sum of P3,000.00 for actual and compensatory damages;

4. The balance of PESOS: TWENTY SEVEN THOUSAND (P27,000.00.) shall be paid within one
3. Ordering Celerina Labuguin and the other defendants herein to surrender to the Court the
(1) year from and after the execution of this instrument. (p. 53, Rollo)
owner's duplicate of TCT No. NT-120563, province of Nueva Ecija, for the use of plaintiff in
registering the portion, subject matter of the instant suit;
 4. Ordering the withdrawal of the amount of P18,520.00 now consigned with the Court, and the
amount of P17,204.75 be delivered to the heirs of Juan Galicia as payment of the balance of the
sale of the lot in question, the defendants herein after deducting the amount of attorney's fees
and damages awarded to the plaintiff hereof and the delivery to the plaintiff of the further sum of
P1,315.25 excess or over payment and, defendants to pay the cost of the suit. (p. 69, Rollo)
and following the appeal interposed with respondent court, Justice Dayrit with whom Justices Purisima and Aldecoa,
Jr. concurred, modified the fourth paragraph of the decretal portion to read:
4. Ordering the withdrawal of the amount of P18,500.00 now consigned with the Court, and that
the amount of P16,870.52 be delivered to the heirs of Juan Galicia, Sr. as payment to the unpaid
balance of the sale, including the reimbursement of the amount paid to Philippine Veterans
Bank, minus the amount of attorney's fees and damages awarded in favor of plaintiff. The
excess of P1,649.48 will be returned to plaintiff. The costs against defendants. (p. 51, Rollo)
As to how the foregoing directive was arrived at, the appellate court declared:
With respect to the fourth condition stipulated in the contract, the period indicated therein is
deemed modified by the parties when the heirs of Juan Galicia, Sr. accepted payments without
objection up to November 3, 1979. On the basis of receipts presented by appellee commencing
from August 8, 1975 up to November 3, 1979, a total amount of P13,908.25 has been paid,
thereby leaving a balance of P13,091.75. Said unpaid balance plus the amount reimbursable to
appellant in the amount of P3,778.77 will leave an unpaid total of P16,870.52. Since appellee
consigned in court the sum of P18,500.00, he is entitled to get the excess of P1,629.48. Thus,
when the heirs of Juan Galicia, Sr. (obligees) accepted the performance, knowing its
incompleteness or irregularity and without expressing any protest or objection, the obligation is
deemed fully complied with (Article 1235, Civil Code). (p. 50,Rollo)
Petitioners are of the impression that the decision appealed from, which agreed with the conclusions of the trial
court, is vulnerable to attack via the recourse before Us on the principal supposition that the full consideration of the
agreement to sell was not paid by private respondent and, therefore, the contract must be rescinded.
The suggestion of petitioners that the covenant must be cancelled in the light of private respondent's so-called
breach seems to overlook petitioners' demeanor who, instead of immediately filing the case precisely to rescind the
instrument because of non-compliance, allowed private respondent to effect numerous payments posterior to the
grace periods provided in the contract. This apathy of petitioners who even permitted private respondent to take the
initiative in filing the suit for specific performance against them, is akin to waiver or abandonment of the right to
rescind normally conferred by Article 1191 of the Civil Code. As aptly observed by Justice Gutierrez, Jr. in Angeles
vs. Calasanz (135 SCRA 323 [1985]; 4 Paras, Civil Code of the Philippines Annotated, Twelfth Ed. [1989], p. 203:
. . . We agree with the plaintiffs-appellees that when the defendants-appellants, instead of
availing of their alleged right to rescind, have accepted and received delayed payments of
installments, though the plaintiffs-appellees have been in arrears beyond the grace period
mentioned in paragraph 6 of the contract, the defendants-appellants have waived, and are now
estopped from exercising their alleged right of rescission . . .
In Development Bank of the Philippines vs. Sarandi (5 CAR (25) 811; 817-818; cited in 4 Padilla, Civil Code
Annotated, Seventh Ed. [1987], pp. 212-213) a similar opinion was expressed to the effect that:
In a perfected contract of sale of land under an agreed schedule of payments, while the parties
may mutually oblige each other to compel the specific performance of the monthly amortization
plan, and upon failure of the buyer to make the payment, the seller has the right to ask for a
rescission of the contract under Art. 1191 of the Civil Code, this shall be deemed waived by
acceptance of posterior payments.
Both the trial and appellate courts were, therefore, correct in sustaining the claim of private respondent anchored on
estoppel or waiver by acceptance of delayed payments under Article 1235 of the Civil Code in that:
When the obligee accepts the performance, knowing its incompleteness or irregularity, and
without expressing any protest or objection, the obligation is deemed fully complied with.
considering that the heirs of Juan Galicia, Sr. accommodated private respondent by accepting the latter's delayed
payments not only beyond the grace periods but also during the pendency of the case for specific performance (p.
27, Memorandum for petitioners; p. 166, Rollo). Indeed, the right to rescind is not absolute and will not be granted
where there has been substantial compliance by partial payments (4 Caguioa, Comments and Cases on Civil Law,
First Ed. [1968] p. 132). By and large, petitioners' actuation is susceptible of but one construction that they are
now estopped from reneging from their commitment on account of acceptance of benefits arising from overdue
accounts of private respondent.
Now, as to the issue of whether payments had in fact been made, there is no doubt that the second installment was
actually paid to the heirs of Juan Galicia, Sr. due to Josefina Tayag's admission in judicio that the sum of P10,000.00
was fully liquidated. It is thus erroneous for petitioners to suppose that "the evidence in the records do not support
this conclusion" (p. 18, Memorandum for Petitioners; p. 157, Rollo). A contrario, when the court of origin, as well as
the appellate court, emphasized the frank representation along this line of Josefina Tayag before the trial court (TSN,
September l, 1983, pp. 3-4; p. 5, Decision in CA-G.R. CV No. 13339, p. 50, Rollo; p. 3, Decision in Civil Case No.
681-G, p. 66, Rollo), petitioners chose to remain completely mute even at this stage despite the opportunity
accorded to them, for clarification. Consequently, the prejudicial aftermath of Josefina Tayag's spontaneous reaction
may no longer be obliterated on the basis of estoppel (Article 1431, Civil Code; Section 4, Rule 129; Section 2(a),
Rule 131, Revised Rules on Evidence).
Insofar as the third item of the contract is concerned, it may be recalled that respondent court applied Article 1186 of
the Civil Code on constructive fulfillment which petitioners claim should not have been appreciated because they are
the obligees while the proviso in point speaks of the obligor. But, petitioners must concede that in a reciprocal
obligation like a contract of purchase, (Ang vs. Court of Appeals, 170 SCRA 286 [1989]; 4 Paras, supra, at p. 201),
both parties are mutually obligors and also obligees (4 Padilla, supra, at p. 197), and any of the contracting parties
may, upon non-fulfillment by the other privy of his part of the prestation, rescind the contract or seek fulfillment
(Article 1191, Civil Code). In short, it is puerile for petitioners to say that they are the only obligees under the contract
since they are also bound as obligors to respect the stipulation in permitting private respondent to assume the loan
with the Philippine Veterans Bank which petitioners impeded when they paid the balance of said loan. As vendors,
they are supposed to execute the final deed of sale upon full payment of the balance as determined hereafter.
Lastly, petitioners argue that there was no valid tender of payment nor consignation of the sum of P18,520.00 which
they acknowledge to have been deposited in court on January 22, 1981 five years after the amount of P27,000.00
had to be paid (p. 23, Memorandum for Petitioners; p. 162, Rollo). Again this suggestion ignores the fact that
consignation alone produced the effect of payment in the case at bar because it was established below that two or
more heirs of Juan Galicia, Sr. claimed the same right to collect (Article 1256, (4), Civil Code; pp. 4-5, Decision in
Civil Case No. 681-G; pp. 67-68, Rollo). Moreover, petitioners did not bother to refute the evidence on hand that,
aside from the P18,520.00 (not P18,500.00 as computed by respondent court) which was consigned, private
respondent also paid the sum of P13,908.25 (Exhibits "F" to "CC"; p. 50, Rollo). These two figures representing
private respondent's payment of the fourth condition amount to P32,428.25, less the P3,778.77 paid by petitioners to
the bank, will lead us to the sum of P28,649.48 or a refund of P1,649.48 to private respondent as overpayment of the
P27,000.00 balance.
WHEREFORE, the petition is hereby DISMISSED and the decision appealed from is hereby AFFIRMED with the
slight modification of Paragraph 4 of the dispositive thereof which is thus amended to read:

4. ordering the withdrawal of the sum of P18,520.00 consigned with the Regional Trial Court,
and that the amount of P16,870.52 be delivered by private respondent with legal rate of interest
until fully paid to the heirs of Juan Galicia, Sr. as balance of the sale including reimbursement of
the sum paid to the Philippine Veterans Bank, minus the attorney's fees and damages awarded
in favor of private respondent. The excess of P1,649.48 shall be returned to private respondent
also with legal interest until fully paid by petitioners. With costs against petitioners.

SO ORDERED.