Civil Law Review 2

Obligations and Contracts

General Provisions

(1) (Uypitching v. Quiamco, G.R. No. 146322, [December 6, 2006], 539 PHIL 227-236)

SECOND DIVISION

[G.R. No. 146322. December 6, 2006.]

ERNESTO RAMAS UYPITCHING and RAMAS UYPITCHING SONS,

INC., petitioners, vs. ERNESTO QUIAMCO, respondent.

DECISION

CORONA, J : p

Honeste vivere, non alterum laedere et jus suum cuique tribuere. To live virtuously, not to
injure others and to give everyone his due. These supreme norms of justice are the
underlying principles of law and order in society. We reaffirm them in this petition for review
on certiorari assailing the July 26, 2000 decision 1 and October 18, 2000 resolution of the
Court of Appeals (CA) in CA-G.R. CV No. 47571.
In 1982, respondent Ernesto C. Quiamco was approached by Juan Davalan, 2 Josefino
Gabutero and Raul Generoso to amicably settle the civil aspect of a criminal case for
robbery 3 filed by Quiamco against them. They surrendered to him a red Honda XL-100
motorcycle and a photocopy of its certificate of registration. Respondent asked for the original
certificate of registration but the three accused never came to see him again. Meanwhile, the
motorcycle was parked in an open space inside respondent's business establishment,
Avesco-AVNE Enterprises, where it was visible and accessible to the public.
It turned out that, in October 1981, the motorcycle had been sold on installment basis to
Gabutero by petitioner Ramas Uypitching Sons, Inc., a family-owned corporation managed by
petitioner Atty. Ernesto Ramas Uypitching. To secure its payment, the motorcycle was
mortgaged to petitioner corporation. 4
When Gabutero could no longer pay the installments, Davalan assumed the obligation and
continued the payments. In September 1982, however, Davalan stopped paying the
remaining installments and told petitioner corporation's collector, Wilfredo Verao, that the
motorcycle had allegedly been "taken by respondent's men."
Nine years later, on January 26, 1991, petitioner Uypitching, accompanied by
policemen, 5 went to Avesco-AVNE Enterprises to recover the motorcycle. The leader of the
police team, P/Lt. Arturo Vendiola, talked to the clerk in charge and asked for respondent.
While P/Lt. Vendiola and the clerk were talking, petitioner Uypitching paced back and forth
inside the establishment uttering "Quiamco is a thief of a motorcycle."
On learning that respondent was not in Avesco-AVNE Enterprises, the policemen left to look
for respondent in his residence while petitioner Uypitching stayed in the establishment to take
photographs of the motorcycle. Unable to find respondent, the policemen went back to
Avesco-AVNE Enterprises and, on petitioner Uypitching's instruction and over the clerk's
objection, took the motorcycle. EDIHSC
On February 18, 1991, petitioner Uypitching filed a criminal complaint for qualified theft and/or
violation of the Anti-Fencing Law 6 against respondent in the Office of the City Prosecutor of
Dumaguete City. 7 Respondent moved for dismissal because the complaint did not charge an
offense as he had neither stolen nor bought the motorcycle. The Office of the City Prosecutor
dismissed the complaint 8 and denied petitioner Uypitching's subsequent motion for
reconsideration.
Respondent filed an action for damages against petitioners in the RTC of Dumaguete City,
Negros Oriental, Branch 37. 9 He sought to hold the petitioners liable for the following: (1)
unlawful taking of the motorcycle; (2) utterance of a defamatory remark (that respondent was
a thief) and (3) precipitate filing of a baseless and malicious complaint. These acts humiliated
and embarrassed the respondent and injured his reputation and integrity.
On July 30, 1994, the trial court rendered a decision 10 finding that petitioner Uypitching was
motivated with malice and ill will when he called respondent a thief, took the motorcycle in an
abusive manner and filed a baseless complaint for qualified theft and/or violation of the Anti-
Fencing Law. Petitioners' acts were found to be contrary to Articles 19 11 and 20 12 of the Civil
Code. Hence, the trial court held petitioners liable to respondent for P500,000 moral
damages, P200,000 exemplary damages and P50,000 attorney's fees plus costs.
Petitioners appealed the RTC decision but the CA affirmed the trial court's decision with
modification, reducing the award of moral and exemplary damages to P300,000 and
P100,000, respectively. 13 Petitioners sought reconsideration but it was denied. Thus, this
petition.
In their petition and memorandum, petitioners submit that the sole (allegedly) issue to be
resolved here is whether the filing of a complaint for qualified theft and/or violation of the Anti-
Fencing Law in the Office of the City Prosecutor warranted the award of moral damages,
exemplary damages, attorney's fees and costs in favor of respondent.
Petitioners' suggestion is misleading. They were held liable for damages not only for
instituting a groundless complaint against respondent but also for making a slanderous
remark and for taking the motorcycle from respondent's establishment in an abusive manner.
CORRECTNESS OF THE FINDINGS
OF THE RTC AND CA
As they never questioned the findings of the RTC and CA that malice and ill will attended not
only the public imputation of a crime to respondent 14 but also the taking of the motorcycle,
petitioners were deemed to have accepted the correctness of such findings. This alone was
sufficient to hold petitioners liable for damages to respondent.
Nevertheless, to address petitioners' concern, we also find that the trial and appellate courts
correctly ruled that the filing of the complaint was tainted with malice and bad faith. Petitioners
themselves in fact described their action as a "precipitate act." 15 Petitioners were bent on
portraying respondent as a thief. In this connection, we quote with approval the following
findings of the RTC, as adopted by the CA:
. . . There was malice or ill-will [in filing the complaint before the City Prosecutor's
Office] because Atty. Ernesto Ramas Uypitching knew or ought to have known as he
is a lawyer, that there was no probable cause at all for filing a criminal complaint for
qualified theft and fencing activity against [respondent]. Atty. Uypitching had no
personal knowledge that [respondent] stole the motorcycle in question. He was merely
told by his bill collector ([i.e.] the bill collector of Ramas Uypitching Sons, Inc.)[,]
Wilfredo Verao[,] that Juan Dabalan will [no longer] pay the remaining installment(s)
for the motorcycle because the motorcycle was taken by the men of [respondent]. It
must be noted that the term used by Wilfredo Verao in informing Atty. Ernesto
Ramas Uypitching of the refusal of Juan Dabalan to pay for the remaining installment
was [']taken['], not [']unlawfully taken['] or 'stolen.' Yet, despite the double hearsay,
Atty. Ernesto Ramas Uypitching not only executed the [complaint-affidavit] wherein he
named [respondent] as 'the suspect' of the stolen motorcycle but also charged
[respondent] of 'qualified theft and fencing activity' before the City [Prosecutor's] Office
of Dumaguete. The absence of probable cause necessarily signifies the presence of
 malice. What is deplorable in all these is that Juan Dabalan, the owner of the
motorcycle, did not accuse [respondent] or the latter's men of stealing the
motorcycle[,] much less bother[ed] to file a case for qualified theft before the
authorities. That Atty. Uypitching's act in charging [respondent] with qualified theft and
fencing activity is tainted with malice is also shown by his answer to the question of
Cupid Gonzaga 16 [during one of their conversations] "why should you still file a
complaint? You have already recovered the motorcycle. . ."[:] "Aron motagam ang
kawatan ug motor." ("To teach a lesson to the thief of motorcycle.") 17
Moreover, the existence of malice, ill will or bad faith is a factual matter. As a rule, findings of
fact of the trial court, when affirmed by the appellate court, are conclusive on this Court. We
see no compelling reason to reverse the findings of the RTC and the CA. SEIcHa

PETITIONERS ABUSED THEIR

RIGHT OF RECOVERY AS
MORTGAGEE(S)
Petitioners claim that they should not be held liable for petitioner corporation's exercise of its
right as seller-mortgagee to recover the mortgaged vehicle preliminary to the enforcement of
its right to foreclose on the mortgage in case of default. They are clearly mistaken.
True, a mortgagee may take steps to recover the mortgaged property to enable it to enforce
or protect its foreclosure right thereon. There is, however, a well-defined procedure for the
recovery of possession of mortgaged property: if a mortgagee is unable to obtain possession
of a mortgaged property for its sale on foreclosure, he must bring a civil action either to
recover such possession as a preliminary step to the sale, or to obtain judicial foreclosure. 18
Petitioner corporation failed to bring the proper civil action necessary to acquire legal
possession of the motorcycle. Instead, petitioner Uypitching descended on respondent's
establishment with his policemen and ordered the seizure of the motorcycle without a search
warrant or court order. Worse, in the course of the illegal seizure of the motorcycle,
petitioner Uypitching even mouthed a slanderous statement.
No doubt, petitioner corporation, acting through its co-petitioner Uypitching, blatantly
disregarded the lawful procedure for the enforcement of its right, to the prejudice of
respondent. Petitioners' acts violated the law as well as public morals, and transgressed the
proper norms of human relations.
The basic principle of human relations, embodied in Article 19 of the Civil Code, provides:
Art. 19. Every person must in the exercise of his rights and in the performance of his
duties, act with justice, give every one his due, and observe honesty and good faith.
Article 19, also known as the "principle of abuse of right," prescribes that a person should not
use his right unjustly or contrary to honesty and good faith, otherwise he opens himself to
liability. 19 It seeks to preclude the use of, or the tendency to use, a legal right (or duty) as a
means to unjust ends.

There is an abuse of right when it is exercised solely to prejudice or injure another. 20 The
exercise of a right must be in accordance with the purpose for which it was established and
must not be excessive or unduly harsh; there must be no intention to harm
another. 21 Otherwise, liability for damages to the injured party will attach.
In this case, the manner by which the motorcycle was taken at petitioners' instance was not
only attended by bad faith but also contrary to the procedure laid down by law. Considered in
conjunction with the defamatory statement, petitioners' exercise of the right to recover the
mortgaged vehicle was utterly prejudicial and injurious to respondent. On the other hand, the
precipitate act of filing an unfounded complaint could not in any way be considered to be in
accordance with the purpose for which the right to prosecute a crime was established. Thus,
the totality of petitioners' actions showed a calculated design to embarrass, humiliate and
publicly ridicule respondent. Petitioners acted in an excessively harsh fashion to the prejudice
of respondent. Contrary to law, petitioners willfully caused damage to respondent. Hence,
they should indemnify him. 22
WHEREFORE, the petition is hereby DENIED. The July 26, 2000 decision and October 18,
2000 resolution of the Court of Appeals in CA-G.R. CV No. 47571 are AFFIRMED.
Triple costs against petitioners, considering that petitioner Ernesto Ramas Uypitching is a
lawyer and an officer of the court, for his improper behavior. SDIaHE

SO ORDERED.
Puno, Sandoval-Gutierrez, Azcuna and Garcia, JJ., concur.

(2)

THIRD DIVISION

[G.R. No. 139442. December 6, 2006.]

LOURDES DELA CRUZ, petitioner, vs. HON. COURT OF APPEALS and

MELBA TAN TE, respondents.

DECISION

VELASCO, JR., J : p

For unto every one that hath shall be given, and he shall have abundance: but from him
that hath not shall be taken away even that which he hath.
Holy Bible, Matthew 25:29
The Case
This petition for review seeks to nullify the April 30, 1999 Decision and the July 16, 1999
Resolution of the Court of Appeals in CA-G.R. SP No. 49097, which reversed the
Decision of the Manila Regional Trial Court (RTC), Branch 35, in Civil Case No. 98-89174, and
reinstated the Decision of the Manila Metropolitan Trial Court (MeTC), Branch 20, which
ordered petitioner Dela Cruz to vacate the subject lot in favor of respondent Tan Te. 1
The Facts
The Reyes family, represented by Mr. Lino Reyes, owned the lot located at No. 1332 Lacson
Street (formerly Gov. Forbes Street), Sampaloc, Manila. Petitioner LourdesDela Cruz was
one of their lessees, and she religiously paid rent over a portion of the lot for well over 40 years.
Sometime in 1989, a fire struck the premises and destroyed, among others, petitioner's
dwelling. After the fire, petitioner and some tenants returned to the said lot and rebuilt their
respective houses; simultaneously, the Reyes family made several verbal demands on the
remaining lessees, including petitioner, to vacate the lot but the latter did not comply. On
February 21, 1994, petitioner was served a written demand to vacate said lot but refused to
leave. Despite the setback, the Reyes family did not initiate court proceedings against any ofthe
lessees.
On November 26, 1996, the disputed lot was sold by the Reyeses to respondent Melba Tan Te
by virtue of the November 26, 1996 Deed of Absolute Sale. Respondent bought the lot in
question for residential purposes. Despite the sale, petitioner Dela Cruz did not give up the
lot. HSIaAT

On January 14, 1997, petitioner was sent a written demand to relinquish the premises which
she ignored, prompting respondent Tan Te to initiate conciliation proceedings at the barangay
level. While respondent attempted to settle the dispute by offering financial assistance,
petitioner countered by asking PhP 500,000.00 for her house. Respondent rejected the counter
offer which she considered unconscionable. As a result, a certificate to file action was issued
to Tan Te.
On September 8, 1997, respondent Tan Te filed an ejectment complaint with damages before
the Manila MeTC, entitled Melba Tan Te v. Lourdes Dela Cruz and docketed as Civil Case No.
156730-CV. The complaint averred that: (1) the previous owners, the Reyeses were in
possession and control of the contested lot; (2) on November 26, 1996, the lot was sold to Tan
Te; (3) prior to the sale, Dela Cruz forcibly entered the property with strategy and/or stealth; (4)
the petitioner unlawfully deprived the respondent of physical possession of the property and
continues to do so; and, (5) the respondent sent several written demands to petitioner to vacate
the premises but refused to do so.
On October 24, 1997, petitioner filed her answer and alleged that: (1) the MeTC had no
jurisdiction over the case because it falls within the jurisdiction of the RTC as more than one
year had elapsed from petitioner's forcible entry; (2) she was a rent-paying tenant protected
by PD 20; 2 (3) her lease constituted a legal encumbrance upon the property; and (4) the lot
was subject of expropriation.
The Ruling of the Manila MeTC
On April 3, 1998, the MeTC decided as follows:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff as follows:
1. Ordering the defendant and all persons claiming right under her to vacate the
premises situated at 1332 Lacson Street (formerly Gov. Forbes Street), Sampaloc,
Manila and peacefully return possession thereof to plaintiff;
THaDAE

2. Ordering the defendant to pay the plaintiff the amount of P360.00 a month from
December 1996 to November 1997; P432.00 a month from December 1997 to
November 1998, plus 20% for each subsequent year until the premises shall have been
vacated and turned over to the plaintiff;
3. Ordering the defendant to pay the plaintiff the amount of P10,000.00 as attorney's
fees; and, the costs of the suit.
SO ORDERED. 3
The Ruling of the Regional Trial Court
Unconvinced, petitioner Dela Cruz appealed the Decision of the MeTC in the Manila RTC and
the appeal was docketed as Civil Case No. 98-89174. On September 1, 1998, the RTC
rendered its judgment setting aside the April 3, 1998 Decision of the Manila MeTC and
dismissed respondent Tan Te's Complaint on the ground that it was the RTC and not the MeTC
which had jurisdiction over the subject matter of the case. The RTC believed that since Tan
Te's predecessor-in-interest learned of petitioner's intrusion into the lot as early as February
21, 1994, the ejectment suit should have been filed within the one-year prescriptive period
which expired on February 21, 1995. Since the Reyes did not file the ejectment suit and
respondent Tan Te filed the action only on September 8, 1997, then the suit had become
an accion publicianacognizable by the RTC.
The Ruling of the Court of Appeals
Disappointed at the turn of events, respondent Tan Te appealed the adverse Decision to
the Court of Appeals (CA) which was docketed as CA-G.R. SP No. 49097. This time, the CA
rendered a Decision in favor of respondent Tan Te reversing the Manila RTC September 1,
1998 Decision and reinstated the Manila MeTC April 3, 1998 Decision.
Petitioner tried to have the CA reconsider its Decision but was rebutted in its July 16, 1999
Resolution.
Unyielding to the CA Decision and the denial of her request for reconsideration,
petitioner Dela Cruz now seeks legal remedy through the instant Petition for Review on
Certiorari before the Court.
 The Issues
Petitioner Dela Cruz claims two (2) reversible errors on the part of the appellate court, to wit: EAISDH

A
THE HON. COURT OF APPEALS, WITH DUE RESPECT, WENT BEYOND THE
ISSUES OF THE CASE AND CONTRARY TO THOSE OF THE TRIAL COURT.
B
THE HON. COURT OF APPEALS, WITH DUE RESPECT, ERRED IN REVERSING
THE DECISION OF THE RTC AND IN EFFECT, REINSTATING THE
DECISION OF THE [MeTC] WHICH IS CONTRADICTED BY THE EVIDENCE ON
RECORD. 4
The Court's Ruling
Discussion on Rule 45
Before we dwell on the principal issues, a few procedural matters must first be resolved.
Petitioner Dela Cruz asks the Court to review the findings of facts of the CA, a course of action
proscribed by Section 1, Rule 45. Firm is the rule that findings of fact ofthe CA are final and
conclusive and cannot be reviewed on appeal to this Court provided they are supported by
evidence on record or substantial evidence. Fortunately for petitioner, we will be liberal with her
petition considering that the CA's factual findings contradict those of the RTC, and there was
an asseveration that the court aquo went beyond the issues of the case. Indeed, these grounds
were considered exceptions to the factual issue bar rule.
Secondly, the petition unnecessarily impleaded the CA in violation of Section 4, Rule 45. We
will let this breach pass only because there is a need to entertain the petition due to the
conflicting rulings between the lower courts; however, a repetition may result to sanctions.
The actual threshold issue is which court, the Manila RTC or the Manila MeTC, has jurisdiction
over the Tan Te ejectment suit. Once the jurisdictional issue is settled, the heart of the dispute
is whether or not respondent is entitled to the ejectment of petitioner Dela Cruz from the
premises. ECaITc

However, the petition is bereft of merit.

On the Issue of Jurisdiction
Jurisdiction is the power or capacity given by the law to a court or tribunal to entertain, hear and
determine certain controversies. 5 Jurisdiction over the subject matter is conferred by law.
Section 33 of Chapter III on Metropolitan Trial Courts, Municipal Trial Courts, and Municipal
Circuit Trial Courts of B. P. No. 129 6 provides:
Section 33. Jurisdiction of Metropolitan Trial Courts, Municipal Trial Courts and
Municipal Circuit Trial Courts in civil cases. Metropolitan Trial Courts, Municipal Trial
Courts, and Municipal Circuit Trial Courts shall exercise:
xxx xxx xxx
(2) Exclusive original jurisdiction over cases of forcible entry and unlawful detainer:
Provided, That when, in such cases, the defendant raises the question ofownership in
his pleadings and the question of possession cannot be resolved without deciding the
issue of ownership, the issue of ownership shall be resolved only to determine the
issue of possession.
Thus exclusive, original jurisdiction over ejectment proceedings (accion interdictal) is lodged
with the first level courts. This is clarified in Section 1, Rule 70 of the 1997 Rules of Civil
Procedure that embraces an action for forcible entry (detentacion), where one is
deprived of physical possession of any land or building by means of force, intimidation, threat,
strategy, or stealth. In actions for forcible entry, three (3) requisites have to be met for the
municipal trial court to acquire jurisdiction. First, the plaintiffs must allege their prior physical
possession of the property. Second, they must also assert that they were
deprived of possession either by force, intimidation, threat, strategy, or stealth. Third, the action
must be filed within one (1) year from the time the owners or legal possessors learned of their
deprivation of physical possession of the land or building. TAIESD

The other kind of ejectment proceeding is unlawful detainer (desahucio), where one unlawfully
withholds possession of the subject property after the expiration or termination of the right to
possess. Here, the issue of rightful possession is the one decisive; for in such action, the
defendant is the party in actual possession and the plaintiff's cause of action is the
termination of the defendant's right to continue in possession. 7 The essential
requisites of unlawful detainer are: (1) the fact of lease by virtue of a contract express or
implied; (2) the expiration or termination of the possessor's right to hold possession; (3)
withholding by the lessee of the possession ofthe land or building after expiration or
termination of the right to possession; (4) letter of demand upon lessee to pay the rental or
comply with the terms of the leaseand vacate the premises; and (5) the action must be filed
within one (1) year from date of last demand received by the defendant.

A person who wants to recover physical possession of his real property will prefer an ejectment
suit because it is governed by the Rule on Summary Procedure which allows immediate
execution of the judgment under Section 19, Rule 70 unless the defendant perfects an appeal
in the RTC and complies with the requirements to stay execution; all of which are nevertheless
beneficial to the interests of the lot owner or the holder of the right of possession.
On the other hand, Section 19, of Chapter II of B.P. No. 129 on Regional Trial Courts provides:
Section 19. Jurisdiction in civil cases. Regional Trial Courts shall exercise exclusive
original jurisdiction:
xxx xxx xxx
(2) In all civil actions which involve the title to, or possession of, real property, or any
interest therein, except actions for forcible entry into and unlawful detainer oflands or
buildings, original jurisdiction over which is conferred upon Metropolitan Trial Courts,
Municipal Trial Courts and Municipal Circuit Trial Courts.
Two (2) kinds of action to recover possession of real property which fall under the
jurisdiction of the RTC are: (1) the plenary action for the recovery of the real right ofpossession
(accion publiciana) when the dispossession has lasted for more than one year or when the
action was filed more than one (1) year from date of the last demand received by the lessee or
defendant; and (2) an action for the recovery of ownership (accion reivindicatoria) which
includes the recovery of possession. TCaADS

These actions are governed by the regular rules of procedure and adjudication takes a longer
period than the summary ejectment suit.
To determine whether a complaint for recovery of possession falls under the jurisdiction of the
MeTC (first level court) or the RTC (second level court), we are compelled to go over the
allegations of the complaint. The general rule is that what determines the nature of the action
and the court that has jurisdiction over the case are the allegations in the complaint. These
cannot be made to depend upon the defenses set up in the answer or pleadings filed by the
defendant. 8
This general rule however admits exceptions. In Ignacio v. CFI of Bulacan, it was held "that
while the allegations in the complaint make out a case for forcible entry, where tenancy is
averred by way of defense and is proved to be the real issue, the case should be dismissed for
lack of jurisdiction as the case should properly be filed with the then Court of Agrarian
Relations." 9
The cause of action in a complaint is not what the designation of the complaint states, but what
the allegations in the body of the complaint define and describe. The designation or caption is
not controlling, more than the allegations in the complaint themselves are, for it is not even an
indispensable part of the complaint. 10
Let us refer to the allegations of the complaint filed in the Manila MeTC in Civil Case No. 98-
89174, which we quote verbatim:
3. That plaintiff is the absolute and registered owner of a parcel of land located at No.
1332, Lacson Street, Sampaloc, Manila now being occupied by defendant;
4. That plaintiff purchased the above-said parcel of land together with its improvements
from the legal heirs of the late EMERLINDA DIMAYUGA REYES on November 26,
1996, under and by virtue of a Deed of Absolute Sale . . .; DTIaHE

5. That pursuant to the said deed of sale, the title to the land and all its improvements
was transferred in plaintiff's name as evidenced by Transfer Certificate ofTitle No.
233273 issued by the Register of Deeds of Manila on April 22, 1997 . . .;
6. That prior to said sale, the previous owners, represented by Mr. Lino Reyes,
husband of the said deceased Emerlinda D. Reyes and the administrator of her estate,
was in possession and control of the property subject of this complaint;
7. That also prior to said sale, defendant, without the knowledge and consent of Mr.
Lino Reyes, surreptitiously and by means of stealth and strategy entered, used and
occupied the said premises thus depriving the former of rightful possession thereof;
8. That on February 21, 1994, Mr. Lino Reyes, through Atty. Alejo Sedico, his lawyer,
furnished the defendants a letter formally demanding that defendant vacate the
premises . . .;
9. That, however, defendant failed and refused to vacate despite just and legal demand
by Mr. Lino Reyes;
10. That after the sale to plaintiff of said premises, plaintiff has several times
demanded of defendants to vacate the premises, the last demand having been made
on them personally and in writing on January 14, 1997 . . .;
11. That defendant failed and refused and still fails and refuses to vacate the premises
without legal cause or justifiable reason whatsoever; 11
The answer of petitioner averred:
4. The Court has no jurisdiction over the case, having been filed by plaintiff more than
the reglementary one year period to commence forcible entry case, which is reckoned
from the date of the alleged unlawful entry of defendant by the use of stealth and
strategy into the premises;
5. For more than four decades now, defendant has been and still is a rent-paying
tenant of the subject land occupied by their residential house, dating back to the original
owner-lessor, the Dimayuga family. Her lease with no definite duration, commenced
with a rent at P60.00 per month until it was gradually increased in the ensuing years.
As of November 1996, it stood at P300.00 a month; ESAHca

6. In this circumstances [sic], defendant enjoys the protective mantle of P.D. 20 and the
subsequent rental control status against dispossession. She cannot be ejected other
than for causes prescribed under B.P. Blg. 25. Further, in case of sale of the land, she
has the right of first refusal under the express provision of P.D. 1571;
7. Throughout the years of her tenancy, defendant has been updated in her rental
payment until the collector of the original owner-lessor no longer came around as she
has done theretofore;
7.1. As a result, she was compelled to file a petition for consignation of rent
before the Metropolitan Trial Court of Manila;
8. A bona fide tenant within the ambit if [sic] P.D. 20 and the subsequent rental control
status, including B.P. Blg. 25, under its terms, cannot be ousted on a
plea ofexpiration of her monthly lease;
9. Her lease constitutes a legal encumbrance upon the property of the lessor/owner and
binds the latter's successor-in-interest who is under obligation to respect it;
10. The land at bench is the subject of a pending expropriation proceedings;
 11. Plaintiff being a married woman cannot sue or be sued without being joined by her
husband; 12
Undeniably, the aforequoted allegations of the complaint are vague and iffy in revealing the
nature of the action for ejectment.
The allegations in the complaint show that prior to the sale by Lino Reyes, representing the
estate of his wife Emerlinda Reyes, he was in possession and control of the subject lot but were
deprived of said possession when petitioner, by means of stealth and strategy, entered and
occupied the same lot. These circumstances imply that he had prior physical possession of the
subject lot and can make up a forcible entry complaint. ECcTaH

On the other hand, the allegation that petitioner Dela Cruz was served several demands to
leave the premises but refused to do so would seem to indicate an action for unlawful detainer
since a written demand is not necessary in an action for forcible entry. It is a fact that the MeTC
complaint was filed on September 8, 1997 within one (1) year from the date of the last written
demand upon petitioner Dela Cruz on January 14, 1997.
As previously discussed, the settled rule is jurisdiction is based on the allegations in the
initiatory pleading and the defenses in the answer are deemed irrelevant and immaterial in its
determination. However, we relax the rule and consider the complaint at bar as an exception in
view of the special and unique circumstances present. First, as inIgnacio v.
CFI of Bulacan, 13 the defense of lack of jurisdiction was raised in the answer wherein there
was an admission that petitioner Dela Cruz was a lesseeof the former owners of the lot, the
Reyeses, prior to the sale to respondent Tan Te. The fact that petitioner was a tenant of the
predecessors-in-interest of respondent Tan Te is material to the determination of jurisdiction.
Since this is a judicial admission against the interest of petitioner, such admission can be
considered in determining jurisdiction. Second, the ejectment suit was filed with the Manila
MeTC on September 8, 1997 or more than nine (9) years ago. To dismiss the complaint would
be a serious blow to the effective dispensation of justice as the parties will start anew and incur
additional legal expenses after having litigated for a long time. Equitable justice dictates that
allegations in the answer should be considered to aid in arriving at the real nature of the action.
Lastly, Section 6, Rule 1 of the Rules ofCourt clearly empowers the Court to construe Rule 70
and other pertinent procedural issuances "in a liberal manner to promote just, speedy, and
inexpensive disposition of every action and proceeding."
Based on the complaint and the answer, it is apparent that the Tan Te ejectment complaint is
after all a complaint for unlawful detainer. It was admitted that petitionerDela Cruz was a
lessee of the Reyeses for around four (4) decades. Thus, initially petitioner as lessee is the
legal possessor of the subject lot by virtue of a contract oflease. When fire destroyed her
house, the Reyeses considered the lease terminated; but petitioner Dela Cruz persisted in
returning to the lot and occupied it by strategy and stealth without the consent of the owners.
The Reyeses however tolerated the continued occupancy of the lot by petitioner. Thus, when
the lot was sold to respondent Tan Te, the rights of the Reyeses, with respect to the lot, were
transferred to their subrogee, respondent Tan Te, who for a time also tolerated the
stay ofpetitioner until she decided to eject the latter by sending several demands, the last being
the January 14, 1997 letter of demand. Since the action was filed with the MeTC on September
8, 1997, the action was instituted well within the one (1) year period reckoned from January 14,
1997. Hence, the nature of the complaint is one ofunlawful detainer and the Manila MeTC had
jurisdiction over the complaint. IHEAcC

Thus, an ejectment complaint based on possession by tolerance of the owner, like the Tan
Te complaint, is a specie of unlawful detainer cases.
As early as 1913, case law introduced the concept of possession by tolerance in ejectment
cases as follows:
It is true that the landlord might, upon the failure of the tenant to pay the stipulated rents,
consider the contract broken and demand immediate possession of the rented property,
thus converting a legal possession into illegal possession. Upon the other hand,
however, the landlord might conclude to give the tenant credit for the payment of the
 rents and allow him to continue indefinitely in the possession of the property. In other
words, the landlord might choose to give the tenant credit from month to month or from
year to year for the payment of their rent, relying upon his honesty of his financial ability
to pay the same. During such period the tenant would not be in illegal possession of the
property and the landlord could not maintain an action of desahucio until after he had
taken steps to convert the legal possession into illegal possession. A mere failure to pay
the rent in accordance with the contract would justify the landlord, after the legal notice,
in bringing an actionof desahucio. The landlord might, however, elect to recognize the
contract as still in force and sue for the sums due under it. It would seem to be clear
that the landlord might sue for the rents due and [unpaid, without electing to terminate
the contract of tenancy;] [w]hether he can declare the contract of tenancy broken and
sue in an action desahucio for the possession of the property and in a separate actions
for the rents due and damages, etc. 14
The concept of possession by tolerance in unlawful detainer cases was further refined and
applied in pertinent cases submitted for decision by 1966. The rule was articulated as follows:
Where despite the lessee's failure to pay rent after the first demand, the lessor did not
choose to bring an action in court but suffered the lessee to continue occupying the land
for nearly two years, after which the lessor made a second demand, the one-year period
for bringing the detainer case in the justice of the peace court should be counted not
from the day the lessee refused the first demand for payment of rent but from the time
the second demand for rents and surrender of possession was not complied with. 15
In Calubayan v. Pascual, a case usually cited in subsequent decisions on ejectment, the
concept of possession by tolerance was further elucidated as follows:
In allowing several years to pass without requiring the occupant to vacate the premises
nor filing an action to eject him, plaintiffs have acquiesced to defendant's
possession and use of the premises. It has been held that a person who occupies
the land of another at the latter's tolerance or permission, without any contract
between them, is necessarily bound by an implied promise that he will vacate
upon demand, failing which a summary action for ejectment is the proper remedy
against them. The status of the defendant is analogous to that of a lessee or tenant
whose term of lease has expired but whose occupancy continued by tolerance of the
owner. In such a case, the unlawful deprivation or withholding of possession is to be
counted from the date of the demand to vacate. 16 (Emphasis supplied.) HDacIT

From the foregoing jurisprudence, it is unequivocal that petitioner's possession after she
intruded into the lot after the fire was by tolerance or leniency of the Reyeses and hence,
the action is properly an unlawful detainer case falling under the jurisdiction of the Manila
MeTC.
Even if we concede that it is the RTC and not the MeTC that has jurisdiction over the Tan Te
complaint, following the reasoning that neither respondent nor her predecessor-in-interest filed
an ejectment suit within one (1) year from February 21, 1994 when the Reyeses knew of the
unlawful entry of petitioner, and hence, the complaint is transformed into an accion publiciana,
the Court deems it fair and just to suspend its rules in order to render efficient, effective, and
expeditious justice considering the nine (9) year pendency of the ejectment suit. More
importantly, if there was uncertainty on the issue of jurisdiction that arose from the
averments of the complaint, the same cannot be attributed to respondent Tan Te but to her
counsel who could have been confused as to the actual nature of the ejectment suit. The
lawyer's apparent imprecise language used in the preparation of the complaint without any
participation on the part of Tan Te is sufficient special or compelling reason for the
grant of relief.
The case of Barnes v. Padilla 17 elucidates the rationale behind the exercise by
this Court of the power to relax, or even suspend, the application of the rules ofprocedure:
Let it be emphasized that the rules of procedure should be viewed as mere tools
designed to facilitate the attainment of justice. Their strict and rigid application, which
would result in technicalities that tend to frustrate rather than promote substantial
justice, must always be eschewed. Even the Rules of Court reflect this principle. The
 power to suspend or even disregard rules can be so pervasive and compelling as to
alter even that which this Court itself has already declared to be final . . . .
The emerging trend in the rulings of this Court is to afford every party litigant the
amplest opportunity for the proper and just determination of his cause, free from the
constraints of technicalities. Time and again, this Court has consistently held that rules
must not be applied rigidly so as not to override substantial justice. 18
Moreover, Section 8, Rule 40 authorizes the RTC in case of affirmance of an order of the
municipal trial court dismissing a case without trial on the merits and the ground of dismissal is
lack of jurisdiction over the subject matter to try the case on the merits as if the case was
originally filed with it if the RTC has jurisdiction over the case. In the same vein, this Court, in
the exercise of its rule-making power, can suspend its rules with respect to this particular
case (pro hac vice), even if initially, the MeTC did not have jurisdiction over the ejectment suit,
and decide to assume jurisdiction over it in order to promptly resolve the dispute. cEHSTC

The issue of jurisdiction settled, we now scrutinize the main issue.

At the heart of every ejectment suit is the issue of who is entitled to physical possession of the
lot or possession de facto.
We rule in favor of respondent Tan Te for the following reasons:
1. Petitioner admitted in her Answer that she was a rent-paying tenant of the Reyeses,
predecessors-in-interest of respondent Tan Te. As such, she recognized the ownership of the
lot by respondent, which includes the right of possession.
2. After the fire raged over the structures on the subject lot in late 1989 the contracts of lease
expired, as a result of which Lino Reyes demanded that all occupants, including petitioner,
vacate the lot but the latter refused to abandon the premises. During the duration of the lease,
petitioner's possession was legal but it became unlawful after the fire when the lease contracts
were deemed terminated and demands were made for the tenants to return possession of the
lot.
3. Petitioner's possession is one by the Reyeses' tolerance and generosity and later by
respondent Tan Te's.
Petitioner fully knows that her stay in the subject lot is at the leniency and magnanimity of Mr.
Lino Reyes and later of respondent Tan Te; and her acquiescence to such use of the lot carries
with it an implicit and assumed commitment that she would leave the premises the moment it
is needed by the owner. When respondent Tan Te made a last, written demand on January 14,
1997 and petitioner breached her promise to leave upon demand, she lost her right to the
physical possession of the lot. Thus, respondent Tan Te should now be allowed to occupy her
lot for residential purposes, a dream that will finally be realized after nine (9) years of litigation.
Petitioner raises the ancillary issue that on March 15, 1998, the Manila City Council passed and
approved Ordinance No. 7951: DHaECI

[a]uthorizing the Manila City Mayor to acquire either by negotiation or expropriation

certain parcels of land covered by Transfer Certificates of Title Nos. 233273, 175106
and 140471, containing an area of One Thousand Four Hundred Twenty Five (1,425)
square meters, located at Maria Clara and Governor Forbes Streets, Sta.Cruz, Manila,
for low cost housing and award to actual bonafide residents thereat and further
authorizing the City Mayor to avail for that purpose any available funds ofthe city and
other existing funding facilities from other government agencies . . . . 19
It readily appears that this issue was not presented before the Court of Appeals in CA-G.R. SP
No. 49097 despite the fact that the respondent's petition was filed on September 25, 1998, six
months after the ordinance was passed. Thus, this issue is proscribed as are all issues raised
for the first time before the Court are proscribed.
Even granting for the sake of argument that we entertain the issue, we rule that the intended
expropriation of respondent's lot (TCT No. 233273) by the city governmentof Manila will not
affect the resolution of this petition. For one thing, the issue can be raised by petitioner in the
appropriate legal proceeding. Secondly, the intended expropriation might not even be
implemented since it is clear from the ordinance that the City Mayor will still locate available
funds for project, meaning the said expense is not a regular item in the budget.
WHEREFORE, this petition is DENIED for lack of merit. The April 30, 1999
Decision of the Court of Appeals reinstating the April 3, 1998 MeTC Decision in Civil Case No.
156730-CV and the July 16, 1999 Resolution in CA-G.R. SP No. 49097 are hereby AFFIRMED
IN TOTO.

No costs.
SO ORDERED.
Quisumbing, Carpio, Carpio Morales and Tinga, JJ., concur.
||| (Dela Cruz v. Court of Appeals, G.R. No. 139442, [December 6, 2006], 539 PHIL 158-181)

(3)

FIRST DIVISION

[G.R. No. 146120. January 27, 2006.]

DEPARTMENT OF HEALTH, petitioner, vs. HTMC ENGINEERS COMPANY, r

espondent.

DECISION

CHICO-NAZARIO, J : p

Before Us is a Petition for Review on Certiorari under Rule 45 of the Rules of Civil Procedure
assailing the Court of Appeals' Decision 1 denying petitioner's petition for review of the
Decision 2 of the Construction Industry Arbitration Commission (CIAC) awarding respondent's
claim against petitioner in the total amount of P4,430,174.00 with interest, as well as the
Resolution dated 20 November 2000 denying petitioner's Motion for Reconsideration.
On various dates in May 1996, petitioner Department of Health (DOH) entered into four
Owner-Consultant Agreements with respondent HTMC Engineers Company (HTMC)
involving various infrastructure projects for East Avenue Medical Center, Rizal Medical
Center, Amang Rodriguez Medical Center, and Tondo Medical Center.
All four consultancy agreements for the above-named hospitals were similarly-worded,
indicating therein that said contracts were intended for the preparation ofarchitectural and
engineering (A & E) design plans and bid documents/requirements, and for construction
supervision (CS). Moreover, Under Article 5.1 of the consultancy contracts, the professional
fee of HTMC is 7.5% of the project fund allocation.
Sometime in July and August 1996, respondent was able to complete the A & E services for
all four hospitals and the necessary documents were submitted to petitioner in accordance
with the consultancy agreements. Thus, on 07 October 1996, DOH Undersecretary Milagros
L. Fernandez issued a Memorandum Circular to the Chiefs ofHospital of the four hospitals
advising them to facilitate the payment for the Consultancy Service Contract of the 1995
various infrastructure projects of their respective hospitals once the copy of the approved
contract has been forwarded to their office. Thereafter, Arch. Ma. Rebecca Penafiel, Director
III, Health Infrastructure Services, DOH, on 15 October 1996, wrote to the Chiefs of Hospital
advising the latter that respondent had submitted the required contract documents and were
therefore requested to facilitate the corresponding payment of 70% of the consultancy fee as
stipulated in the contracts.
On 29 November 1996, petitioner requested the following amendments to the consultancy
agreements pursuant to the guidelines issued by the National Economic Development
Authority (NEDA):
1. To divide the scope of works under the original contracts into two (2) separate
contracts:
a. Preparation of Detailed Architecture and Engineering Plans, Technical
Specifications and Detailed Estimates; and cITaCS

b. Full time construction supervision.

2. To breakdown the original professional fee of 7.5% based on the project fund
allocation into two and to change the basis of payment, thus:
a. 6% based on the project contract cost (PCC) shall be paid to the claimant for
the 1st scope of work (A & E service); and
b. 1.5% based on the project contract cost shall be paid to the claimant for the
2nd scope of work (CS services).
3. To define the project contract cost as to the cost of the winning bid price.
In response to the proposed amendments, on 24 January 1997, HTMC sent the DOH a
position paper expressing their opinion on the matter. Among the contents ofsaid position
paper are the following:
1. In order that the intent of the TOR (Terms of Reference), being the basis of the
award will not be disturbed, the 7.5% consultant's fee for the Regular A&E and
CS shall be retained, splitting this to 6% for Regular A&E and 1.5% for CS is
acceptable, on certain qualifying breakdown and schedules, to wit:
a) The 7.5% shall be based on the a [sic] Project Contract Cost which includes
any adjustments (negative or positive variations);
b) The 6% A&E Consultant's fee shall be paid in accordance with the following
payment schedule:
10% of Project Allotment Fund, upon signing of contract
30% to complete all payments to 40% of the roughly estimated
Project Construction Cost, upon 50% completion of design works
45% to complete all payments to 85% of the detailed estimated
Project Construction Cost, upon completion and submission of the
contract documents
15% to complete the payments to 100% of the Project Contact Cost,
upon periodic inspection during the construction of the project,
further broken to 10% upon 50% completion and 5% upon
owner's acceptance of substantial completion
xxx xxx xxx
e) The 1.5% for CS shall be paid in accordance with the following
terms of payment as per industry practice:
15% of the Project Contract Cost; upon signing of the contract.
Remaining balance shall be paid on an equal monthly installments [sic]
and within the original construction contract schedule
xxx xxx xxx
h) The combined 6% A&E and 1.5% CS or a total of 7.5% of the Project
Contract Cost shall be paid in accordance with the following:
 10% of the Project Allotment Fund (temporary basis), upon
signing of the contract
60% to complete all payments to 70% of the detailed estimated
Project Construction Cost, upon completion and submission of the
contract documents AHaETS

30% to complete all payments to 100% of the Project Contract Cost,

upon completion of the construction of the project, further broken
down to 10% upon 50% completion and 20% upon owner's
acceptance of substantial completion
Meanwhile, in compliance with the Memorandum Circular issued by DOH Undersecretary
Fernandez, the Amang Rodriguez Medical Center paid HTMC the amount ofP1,870,312.00
on 19 December 1996, while the Rizal Medical Center paid HTMC P498,400.00 on 26
December 1996. Thereafter, the Tondo Medical Center paid respondent the
amount of P2,119,687.00 on 10 February 1997, and the East Avenue Medical Center, the
amount of P249,131.00 on 18 June 1997.
It would seem, however, that no clear settlement had been reached by the parties in
connection with petitioner's proposed amendments to the consultancy agreements, thus, the
DOH refused to issue the necessary notices to proceed with the construction supervision in
favor of HTMC.
On 22 April 1998, respondent's counsel sent a letter to the DOH stating that:
In the stated Owner-Consultant Agreements, my client had completed the Detailed
Architectural and Engineering Plans, Technical Specifications and Detailed Estimates,
and was paid 10% and 60% of the "Construction Contract Cost" as downpayment and
for the completed documents, respectively.
The above-referred projects had already been awarded to different Contractors and
construction works are on-going, but my client is not allowed to undertake the
Construction Supervision, inspite [sic] of repeated inquiry and request for the Notice to
Proceed from the DOH Infrastructure Service Office and the DOH PEAC.
The Owner-Consultant Agreement, in its Article 5, provides that the Consultant's Fee
is based on the "project fund allocation" which should have been the basis of the
percentages of payments as partially done.
The documents (plans, specifications, estimates, etc.), which my client had
undertaken for the East Avenue Medical Center, include the complete Cold Water
Supply Rehabilitation, Standard Fire Protection, New Hot Water Supply and
Distribution, and Improvement of Storm Drainage System with a total estimated
construction cost in 1996 of P44M. The documents, which my client had undertaken
for the Rizal Medical Center, include Phase I and Phase II with a total estimated
construction cost in 1996 of P30.68M.
The project fund allocation for the above-referred projects had a
total of P91,200,000.00 with a total Consultant's Fee of P6,840,000.00 based on
Article 5 of the Owner-Consultant Agreement. However, only the gross
amount of P4,737,530.72 had been paid.
In spite of my client's various demands, you did not issue any Notice to Proceed for
the Construction Supervision of the above-referred projects, and that you insisted to
pay on the percentage basis of the 'construction contract cost' in violation of the
Owner-Consultant Agreement.
In view of all the above, it is hereby requested that the balance of the Consultant's Fee
for the above four (4) referred projects in the amount of P2,102,469.28 be paid in full
to my client.
Further, it is requested that the Consultant's Fee in the amount of P4,461,000.00 for
the other works undertaken by my client for the East Avenue and the Rizal Medical
Centers, which are awaiting project fund allocations, be likewise paid in full to my
client.
 Should you fail to settle with my client, the above-requested amounts within ten (10)
days from receipt hereof, we will be constrained to resort to Arbitration in pursuance to
Article 12 of the Owner-Consultant Agreement. 3
For petitioner's continued refusal to heed respondent's demand for payment and
issuance of notices to proceed, on 26 October 1998, HTMC filed a claim against DOH and
requested for arbitration with the CIAC.
On 30 March 1999, Arbitrator Custodio Parlade issued the assailed Decision in
favor of HTMC, the dispositive portion of which states:
AWARD
In summary, award is hereby made in favor of the claimant ordering the respondent to
pay claimant the amount of P3,543,630 due for A&E services, to reimburse claimant
for its expenses for salaries to the three engineers who were engaged by HTMC to
perform construction supervision work in the amount of P576,000.00, and to pay as
damages unrealized profit as a result of the non-performance of the this [sic] work in
the amount of P310,544.00 or the total amount of P4,430,174.00 with interest at the
rate of 6% per annum from the time of the promulgation of this decision and 12% per
annum on the amount due [principal plus accrued interest] from the date this decision
becomes final.
All other claims are hereby denied. 4
On 27 April 2000, petitioner filed a petition for review on certiorari with the Court of Appeals,
which petition was subsequently denied for lack of merit by the appellate court on 28
September 2000. According to the Court of Appeals:

The instant petition is without merit.

Anent the issue of jurisdiction, respondent arbitrator correctly assumed jurisdiction
over CIAC Case No. 33-98. The owner-consultant agreement provides in paragraphs
12.1 and 12.2:
12.1 Disputes
Any dispute concerning any question arising under this Agreement which
is not disposed of by agreement between the parties, shall be decided
by the Secretary of Health who shall furnish the CONSULTANT a written
copy of his decision. TDCAHE

12.2 Arbitration
The decision of the Secretary of Health shall be final and conclusive
unless within thirty (30) days from the date of receipt thereof, the
CONSULTANT shall deliver to OWNER a written notice addressed to
the Secretary of Health stating its desire to submit the controversy to
arbitration. In such event, the dispute shall be decided in accordance
with the provisions of the Rules of Procedure in the Construction
Industry Arbitration Law under EO 1008.
Thus, when petitioner continued not to act on HTMC's request for the
observance of the provisions of the agreement, private respondent HTMC properly
submitted the claim with the CIAC for arbitration.
Petitioner's posture that the referral of the case to the CIAC is premature deserves
scant consideration. Respondent had demanded that petitioner comply with the
agreement. The latter, through the Secretary of Health, failed to act on the request.
Later, a demand letter was sent to petitioner. Still, it did not comply. Thus, in order to
protect its right, HTMC properly submitted its claim with the CIAC, it being the
eventual forum of their agreement as mandated by E.O. No. 1008.
Petitioner's reliance and interpretation of the Supreme Court's ruling in Jesco Services
Incorporated vs. Vera is misplaced. The same was clarified in a subsequent
resolution of the Third Division of the Supreme Court dated September 30, 1996 in
G.R. No. 125706 entitled "China Chang Jiang Energy Corporation
 (Philippines) versusRosal Infrastructure Builders, represented by its General Manager,
Alberto S. Surla, Construction Industry Arbitration Commission, Prudencio F. Baranda,
and the Courtof Appeals." In effect, the owner-consultant agreement entered into by
petitioner and private respondents did not divest CIAC of jurisdiction over the case.
For even if they elected another forum, their agreement will remain to be within the
jurisdiction of CIAC. In so doing, they may not unilaterally divest CIAC of its jurisdiction
as provided for by law.
Coming now to the monetary award made by respondent arbitrator. We find the same
to be in accord with the tenor of the agreement of the parties. The agreement being
the law between them, the Court will leave it as it is. Absent any abuse in the
mathematical computation of the monetary award, the same should be respected. In
the present case, the computation is based on the provisions of the agreement
entered into by the parties.
Anent the allegation of partiality on the part of respondent arbitrator, there is nothing
on record that would show that respondent arbitrator had tilted the scales ofjustice.
The regularity in the conduct of official duties must therefore be continued to be
presumed, as no act of irregularity much less partiality has been shown. The
insinuations against respondent arbitrator [are] without basis.
In view of the foregoing, this Court finds it unnecessary to have the present case
consolidated with CA G.R. SP No. 58994, as this would unnecessarily delay the
decision in this case.IATSHE

WHEREFORE, the instant petition is hereby DENIED due course for lack of merit. 5
Petitioner's Motion for Reconsideration was also denied in a Resolution issued by the
appellate court on 20 November 2000.
Hence, the instant petition containing two issues for consideration of this Court, to wit:
I. Whether or not the Court of Appeals erred in stating that the Construction Industry
Arbitration Commission (CIAC) had jurisdiction over the claim;
II. Whether or not the Court of Appeals erred in stating that the monetary award by the
CIAC arbitrator was in accord with the tenor of the consultancy agreements.
We find no merit in the instant petition.
Contrary to the claim of the DOH, CIAC has jurisdiction over the claim of HTMC. As stated in
Section 4 of Executive Order No. 1008, also known as the "Construction Industry Arbitration
Law":
SECTION 4. Jurisdiction. The CIAC shall have original and exclusive jurisdiction
over disputes arising from, or connected with, contracts entered into by parties
involved in construction in the Philippines, whether the disputes arises before or after
the completion of the contract, or after the abandonment or breach thereof. These
disputes may involve government or private contracts. For the Board to acquire
jurisdiction, the parties to a dispute must agree to submit the same to voluntary
arbitration.
Furthermore, Article III, Section 1 of the CIAC Rules of Procedure Governing Construction
Arbitration provides:
SECTION 1. Submission to CIAC Jurisdiction. An arbitration clause in a
construction contract or a submission to arbitration of a construction dispute shall be
deemed an agreement to submit an existing or future controversy to CIAC jurisdiction,
notwithstanding the reference to a different arbitration institution or arbitral body in
such contract or submission. When a contract contains a clause for the
submission of a future controversy to arbitration, it is not necessary for the parties to
enter into a submission agreement before the claimant may invoke the
jurisdiction of CIAC.
It is undisputed that Article 12 of the four similarly-worded consultancy agreements provides
for submission to arbitration of any dispute arising from said agreements. Said Article states:
ARTICLE 12. DISPUTES, ARBITRATION, AND TERMINATION
 12.1 Disputes
Any dispute concerning any question arising under this Agreement which is not
disposed of by agreement between the parties, shall be decided by the
Secretary ofHealth who shall furnish the CONSULTANT a written copy of his decision.
12.2 Arbitration
The decision of the Secretary of Health shall be final and conclusive unless within
thirty (30) days from the date of receipt thereof, the CONSULTANT shall deliver to
OWNER a written notice addressed to the Secretary of Health stating its desire to
submit the controversy to arbitration. In such event, the dispute shall be decided in
accordance with the provisions of the Rules of Procedure in the Construction Industry
Arbitration Law under EO 1008. TSacAE

Therefore, upon the signing of said agreements in May 1996 by DOH and HTMC, both parties
have explicitly agreed that after a dispute arising from said agreements has been passed
upon by the Health Secretary, said controversy involving the consultancy agreements shall be
submitted to voluntary arbitration, jurisdiction over which is granted by law to the CIAC.
From the facts of the case, it is clear that prior to the filing of the controversy for arbitration
before the CIAC, HTMC, through counsel, had repeatedly appealed the matter before the
DOH, through the Department Secretary, but the latter failed to act upon HTMC's request. In
the letter sent to the DOH by HTMC dated 22 April 1998, it was even made clear that should
the DOH fail to address HTMC's requests, the latter shall resort to arbitration in pursuance to
the provisions of the consultancy agreements. 6 Thus, We agree in the conclusion of the
appellate court that when petitioner continued not to act on HTMC's request for the
observance of the provisionsof the agreement, respondent HTMC properly submitted the
claim with the CIAC for arbitration. As correctly stated by the Court of Appeals, petitioner's
posture that the referral of the case to the CIAC is premature deserves scant consideration.
Respondent had demanded that petitioner comply with the agreement. The latter, through the
Secretary of Health, failed to act on the request. Later, a demand letter was sent to petitioner.
Still, it did not comply. Thus, in order to protect its right, HTMCproperly submitted its claim
with the CIAC, it being the eventual forum of their agreement as mandated by E.O. No.
1008. 7
From the argument espoused by the DOH in its petition that there was no basis for the
continuation of the agreement as respondent failed to signify its intention to agree with the
amended contract, 8 it seems that petitioner is belaboring under the mistaken notion
that HTMC's refusal to accede to the former's request for amendment of the consultancy
contracts resulted in the rescission of the original agreements, and that such rescission gave
the DOH and its personnel the right to take over the construction supervision of the projects
and to refuse the payment of any amount due HTMC under the agreements.
It must be stressed at this point that HTMC's failure to accept the amendment proposed by
the DOH did not, in any way, affect the validity and the subsistence of the four consultancy
contracts which bound both parties upon its perfection as early as May 1996. A contract
properly executed between parties continue to be the law between said parties and should be
complied with in good faith. 9 There being a perfected contract, DOH cannot revoke or
renounce the same without the consent ofthe other party. Just as nobody can be forced to
enter into a contract, in the same manner, once a contract is entered into, no party can
renounce it unilaterally or without the consent of the other. 10 It is a general principle of law
that no one may be permitted to change his mind or disavow and go back upon his own acts,
or to proceed contrary thereto, to the prejudice of the other party. 11 As no revision to the
original agreement was ever arrived at, the terms of the original contract shall continue to
govern over both the HTMC and the DOH with respect to the infrastructure projects as if no
amendments were ever initiated. In the absence of a new perfected contract
between HTMC and DOH, both parties shall continue to be bound by the stipulations of the
original contract and all its natural effects. 12
Based on the preceding discussion, We have established that the perfected consultancy
agreements between DOH and HTMC are valid, and therefore, under the stipulations
contained therein, DOH is under obligation to pay HTMC the unpaid sum of its consultancy
fees which according to the findings of the CIAC, as affirmed by the appellate court, amounts
to P3,543,630.00.
Furthermore, as has been stressed earlier, from the moment of perfection, the parties are
bound not only to the fulfillment of what has been expressly stipulated, but also to all the
consequences which, according to their nature may be in keeping with good faith, usage, and
law, 13 thus, for the refusal of the DOH to issue the necessary notices to proceed, effectively
preventing HTMC from performing the construction supervision on the infrastructure projects,
DOH must be held liable for any damages or expense incurred by HTMC as a natural
result of any breach of the consultancy contract. Therefore, we agree in the findings of both
the CIAC and the appellate court in awarding damages in the form of unrealized profit as a
result of the non-performance of the construction supervision and in granting reimbursement
for the expenses for salaries of the three engineers engaged by HTMC for the supposed
construction supervision. TAIESD

Lastly, in its Memorandum, petitioner assails, for the first time, the validity of the consultancy
agreements for the alleged failure of respondent to include in the contracts a
certification of availability of funds as required under existing laws. However, at this late a
stage in the proceedings, said issue not having been raised before the CIAC nor the
Court of Appeals, fair play, justice and due process dictate that this Court cannot now, for the
first time on appeal, pass upon this question. 14 They must be raised seasonably in the
proceedings before the lower court. 15 Questions raised on appeal must be within the issues
framed by the parties; consequently, issues not raised before the trial court cannot be raised
for the first time on appeal. 16
WHEREFORE, premises considered, the petition is hereby DENIED. The Decision of the
Court of Appeals in CA-G.R. SP No. 52539 affirming the decision of the Construction Industry
Arbitration Commission in CIAC Case No. 33-98 awarding respondent HTMC its claim for
payment of A & E services in the amount ofP3,543,630.00, reimbursement for the
salaries of the three engineers engaged by HTMC to perform construction supervision in the
amount of P576,000.00, and damages in the form of unrealized profit in the
amount of P310,544.00, or the total amount of P4,430,174.00 with interest, is hereby
AFFIRMED. No Costs.
SO ORDERED.
Ynares-Santiago, Austria-Martinez and Callejo, Sr., JJ., concur.
Panganiban, C.J., took no part. Former partner of the CIAC Arbitrator.
||| (DOH v. HTMC Engineers Co., G.R. No. 146120, [January 27, 2006], 516 PHIL 94-109)

(4)

THIRD DIVISION

[G.R. No. 160324. November 15, 2005.]

INTERNATIONAL FINANCE CORPORATION, Petitioner, vs. IMPERIAL TEXT

ILE MILLS, INC., ** respondent.

DECISION
PANGANIBAN, J : p

The terms of a contract govern the rights and obligations of the contracting parties. When the
obligor undertakes to be "jointly and severally" liable, it means that the obligation is solidary. If
solidary liability was instituted to "guarantee" a principal obligation, the law deems the
contract to be one of suretyship.
The creditor in the present Petition was able to show convincingly that, although denominated
as a "Guarantee Agreement," the Contract was actually a surety. Notwithstanding the use of
the words "guarantee" and "guarantor," the subject Contract was indeed a surety, because its
terms were clear and left no doubt as to the intention of the parties.
The Case
Before us is a Petition for Review 1 under Rule 45 of the Rules of Court, assailing the
February 28, 2002 Decision 2 and September 30, 2003 Resolution 3 of the Court of Appeals
(CA) in CA-GR CV No. 58471. The challenged Decision disposed as follows:
"WHEREFORE, the appeal is PARTIALLY GRANTED. The decision of the trial court
is MODIFIED to read as follows:
"1. Philippine Polyamide Industrial Corporation is ORDERED to pay
[Petitioner] International Finance Corporation, the following amounts:
'(a) US$2,833,967.00 with accrued interests as provided in the Loan
Agreement;
'(b) Interest of 12% per annum on accrued interest, which shall be counted from
the date of filing of the instant action up to the actual payment;
'(c) P73,340.00 as attorney's fees;
'(d) Costs of suit.'
"2. The guarantor Imperial Textile Mills, Inc. together with Grandtex
is HELD secondarily liable to pay the amount herein adjudged to
[Petitioner] InternationalFinance Corporation." 4
The assailed Resolution denied both parties' respective Motions for Reconsideration. AHCTEa

The Facts
The facts are narrated by the appellate court as follows:
"On December 17, 1974, [Petitioner] International Finance Corporation (IFC) and
[Respondent] Philippine Polyamide Industrial Corporation (PPIC) entered into a loan
agreement wherein IFC extended to PPIC a loan of US$7,000,000.00, payable in
sixteen (16) semi-annual installments of US$437,500.00 each, beginning June 1, 1977
to December 1, 1984, with interest at the rate of 10% per annum on the principal
amount of the loan advanced and outstanding from time to time. The interest shall be
paid in US dollars semi-annually on June 1 and December 1 in each year and interest
for any period less than a year shall accrue and be pro-rated on the basis of a 360-day
year of twelve 30-day months.
"On December 17, 1974, a 'Guarantee Agreement' was executed with . .
. Imperial Textile Mills, Inc. (ITM), Grand Textile Manufacturing Corporation (Grandtex)
and IFC as parties thereto. ITM and Grandtex agreed to guarantee PPIC's obligations
under the loan agreement.
"PPIC paid the installments due on June 1, 1977, December 1, 1977 and June 1,
1978. The payments due on December 1, 1978, June 1, 1979 and December 1, 1979
were rescheduled as requested by PPIC. Despite the rescheduling of the installment
payments, however, PPIC defaulted. Hence, on April 1, 1985, IFC served a written
notice of default to PPIC demanding the latter to pay the outstanding principal loan
and all its accrued interests. Despite such notice, PPIC failed to pay the loan and its
interests.
"By virtue of PPIC's failure to pay, IFC, together with DBP, applied for the extrajudicial
foreclosure of mortgages on the real estate, buildings, machinery, equipment plant
 and all improvements owned by PPIC, located at Calamba, Laguna, with the regional
sheriff of Calamba, Laguna. On July 30, 1985, the deputy sheriff of Calamba, Laguna
issued a notice of extrajudicial sale. IFC and DBP were the only bidders during the
auction sale. IFC's bid was for P99,269,100.00 which was equivalent to
US$5,250,000.00 (at the prevailing exchange rate of P18.9084 = US$1.00). The
outstanding loan, however, amounted to US$8,083,967.00 thus leaving a balance of
US$2,833,967.00. PPIC failed to pay the remaining balance.
"Consequently, IFC demanded ITM and Grandtex, as guarantors of PPIC, to pay the
outstanding balance. However, despite the demand made by IFC, the outstanding
balance remained unpaid.
"Thereafter, on May 20, 1988, IFC filed a complaint with the RTC of Manila against
PPIC and ITM for the payment of the outstanding balance plus interests and attorney's
fees.
"The trial court held PPIC liable for the payment of the outstanding loan plus interests.
It also ordered PPIC to pay IFC its claimed attorney's fees. However, the trial court
relieved ITM of its obligation as guarantor. Hence, the trial court dismissed IFC's
complaint against ITM.
xxx xxx xxx
"Thus, apropos the decision dismissing the complaint against ITM, IFC appealed [to
the CA]." 5
Ruling of the Court of Appeals
The CA reversed the Decision of the trial court, insofar as the latter exonerated ITM from any
obligation to IFC. According to the appellate court, ITM bound itself under the "Guarantee
Agreement" to pay PPIC's obligation upon default. 6 ITM was not discharged from its
obligation as guarantor when PPIC mortgaged the latter's properties to IFC. 7 The CA,
however, held that ITM's liability as a guarantor would arise only if and when PPIC could not
pay. Since PPIC's inability to comply with its obligation was not sufficiently established, ITM
could not immediately be made to assume the liability. 8
The September 30, 2003 Resolution of the CA denied reconsideration. 9 Hence, this
Petition. 10
The Issues
Petitioner states the issues in this wise:
"I. Whether or not ITM and Grandtex 11 are sureties and therefore, jointly and severally
liable with PPIC, for the payment of the loan. TaIHEA

"II. Whether or not the Petition raises a question of law.

"III. Whether or not the Petition raises a theory not raised in the lower court." 12

The main issue is whether ITM is a surety, and thus solidarily liable with PPIC for the payment
of the loan.
The Court's Ruling
The Petition is meritorious.
Main Issue:
Liability of Respondent Under
the Guarantee Agreement
The present controversy arose from the following Contracts: (1) the Loan Agreement dated
December 17, 1974, between IFC and PPIC; 13 and (2) the Guarantee Agreement dated
December 17, 1974, between ITM and Grandtex, on the one hand, and IFC on the other. 14
IFC claims that, under the Guarantee Agreement, ITM bound itself as a surety to PPIC's
obligations proceeding from the Loan Agreement. 15 For its part, ITM asserts that, by the
terms of the Guarantee Agreement, it was merely a guarantor 16 and not a surety. Moreover,
any ambiguity in the Agreement should be construed against IFC the party that drafted
it. 17
Language of the
Contract
The premise of the Guarantee Agreement is found in its preambular clause, which reads:
"Whereas,
"(A) By an Agreement of even date herewith between IFC and PHILIPPINE
POLYAMIDE INDUSTRIAL CORPORATION (herein called the Company),
which agreement is herein called the Loan Agreement, IFC agrees to extend to
the Company a loan (herein called the Loan) of seven million dollars
($7,000,000) on the terms therein set forth, including a provision that all or part
of the Loan may be disbursed in a currency other than dollars, but only on
condition that the Guarantors agree to guarantee the obligations of the
Company in respect of the Loan as hereinafter provided.
"(B) The Guarantors, in order to induce IFC to enter into the Loan Agreement, and in
consideration of IFC entering into said Agreement, have agreed so to
guarantee such obligations of the Company." 18
The obligations of the guarantors are meticulously expressed in the following provision:
"Section 2.01. The Guarantors jointly and severally, irrevocably, absolutely and
unconditionally guarantee, as primary obligors and not as sureties merely, the due and
punctual payment of the principal of, and interest and commitment charge on, the
Loan, and the principal of, and interest on, the Notes, whether at stated maturity or
upon prematuring, all as set forth in the Loan Agreement and in the Notes." 19
The Agreement uses "guarantee" and "guarantors," prompting ITM to base its argument on
those words. 20 This Court is not convinced that the use of the two words limits the Contract to
a mere guaranty. The specific stipulations in the Contract show otherwise.
Solidary Liability
Agreed to by ITM
While referring to ITM as a guarantor, the Agreement specifically stated that
the corporation was "jointly and severally" liable. To put emphasis on the nature of that
liability, the Contract further stated that ITM was a primary obligor, not a mere surety. Those
stipulations meant only one thing: that at bottom, and to all legal intents and purposes, it was
a surety.
Indubitably therefore, ITM bound itself to be solidarily 21 liable with PPIC for the latter's
obligations under the Loan Agreement with IFC. ITM thereby brought itself to the level of
PPIC and could not be deemed merely secondarily liable. SDAaTC

Initially, ITM was a stranger to the Loan Agreement between PPIC and IFC. ITM's liability
commenced only when it guaranteed PPIC's obligation. It became a surety when it bound
itself solidarily with the principal obligor. Thus, the applicable law is as follows:
"Article 2047. By guaranty, a person, called the guarantor binds himself to the creditor
to fulfill the obligation of the principal in case the latter should fail to do so.
"If a person binds himself solidarily with the principal debtor, the provisions of Section
4, Chapter 3, Title I of this Book shall be observed. In such case the contract shall be
called suretyship." 22

The aforementioned provisions refer to Articles 1207 to 1222 of the Civil Code on "Joint and
Solidary Obligations." Relevant to this case is Article 1216, which states:
"The creditor may proceed against any one of the solidary debtors or some or all of
them simultaneously. The demand made against one of them shall not be an obstacle
to those which may subsequently be directed against the others, so long as the debt
has not been fully collected."
Pursuant to this provision, petitioner (as creditor) was justified in taking action directly against
respondent.
No Ambiguity in the
Undertaking
The Court does not find any ambiguity in the provisions of the Guarantee Agreement. When
qualified by the term "jointly and severally," the use of the word "guarantor" to refer to a
"surety" does not violate the law. 23 As Article 2047 provides, a suretyship is created when a
guarantor binds itself solidarily with the principal obligor. Likewise, the phrase in the
Agreement "as primary obligor and not merely as surety" stresses that ITM is being
placed on the same level as PPIC. Those words emphasize the nature of their liability, which
the law characterizes as a suretyship.
The use of the word "guarantee" does not ipso facto make the contract one of
guaranty. 24 This Court has recognized that the word is frequently employed in business
transactions to describe the intention to be bound by a primary or an independent
obligation. 25 The very terms of a contract govern the obligations of the parties or the extent of
the obligor's liability. Thus, this Court has ruled in favor of suretyship, even though contracts
were denominated as a "Guarantor's Undertaking" 26 or a "Continuing Guaranty." 27
Contracts have the force of law between the parties, 28 who are free to stipulate any matter
not contrary to law, morals, good customs, public order or public policy. 29None of these
circumstances are present, much less alleged by respondent. Hence, this Court cannot give a
different meaning to the plain language of the Guarantee Agreement.
Indeed, the finding of solidary liability is in line with the premise provided in the "Whereas"
clause of the Guarantee Agreement. The execution of the Agreement was a condition
precedent for the approval of PPIC's loan from IFC. Consistent with the position of IFC as
creditor was its requirement of a higher degree of liability from ITM in case PPIC committed a
breach. ITM agreed with the stipulation in Section 2.01 and is now estopped from feigning
ignorance of its solidary liability. The literal meaning of the stipulations control when the terms
of the contract are clear and there is no doubt as to the intention of the parties. 30
We note that the CA denied solidary liability, on the theory that the parties would not have
executed a Guarantee Agreement if they had intended to name ITM as a primary
obligor. 31 The appellate court opined that ITM's undertaking was collateral to and distinct
from the Loan Agreement. On this point, the Court stresses that a suretyship is merely an
accessory or a collateral to a principal obligation. 32 Although a surety contract is secondary to
the principal obligation, the liability of the surety is direct, primary and absolute; or equivalent
to that of a regular party to the undertaking. 33 A surety becomes liable to the debt and duty of
the principal obligor even without possessing a direct or personal interest in the obligations
constituted by the latter. 34
ITM's Liability as Surety
With the present finding that ITM is a surety, it is clear that the CA erred in declaring the
former secondarily liable. 35 A surety is considered in law to be on the same footing as the
principal debtor in relation to whatever is adjudged against the latter. 36 Evidently, the
dispositive portion of the assailed Decision should be modified to require ITM to pay the
amount adjudged in favor of IFC. AaDSEC

Peripheral Issues
In addition to the main issue, ITM raised procedural infirmities allegedly justifying the denial of
the present Petition. Before the trial court and the CA, IFC had allegedly instituted different
arguments that effectively changed the corporation's theory on appeal, in violation of this
Court's previous pronouncements. 37 ITM further claims that the main issue in the present
case is a question of fact that is not cognizable by this Court. 38
These contentions deserve little consideration.
Alleged Change of
Theory on Appeal
Petitioner's arguments before the trial court (that ITM was a "primary obligor") and before the
CA (that ITM was a "surety") were related and intertwined in the action to enforce the solidary
liability of ITM under the Guarantee Agreement. We emphasize that the terms "primary
obligor" and "surety" were premised on the same stipulations in Section 2.01 of the
Agreement. Besides, both terms had the same legal consequences. There was therefore
effectively no change of theory on appeal. At any rate, ITM failed to show to this Court a
disparity between IFC's allegations in the trial court and those in the CA. Bare allegations
without proof deserve no credence.
Review of Factual
Findings Necessary
As to the issue that only questions of law may be raised in a Petition for Review, 39 the Court
has recognized exceptions, 40 one of which applies to the present case. The assailed
Decision was based on a misapprehension of facts, 41 which particularly related to certain
stipulations in the Guarantee Agreement stipulations that had not been disputed by the
parties. This circumstance compelled the Court to review the Contract firsthand and to make
its own findings and conclusions accordingly.
WHEREFORE, the Petition is hereby GRANTED, and the assailed Decision and Resolution
MODIFIED in the sense that Imperial Textile Mills, Inc. is declared a surety to Philippine
Polyamide Industrial Corporation. ITM is ORDERED to
pay International Finance Corporation the same amounts adjudged against PPIC in the
assailed Decision. No costs.
SO ORDERED.
Corona, Carpio Morales and Garcia, JJ., concur.
Sandoval-Gutierrez, J., is on official leave.
(International Finance Corp. v. Imperial Textile Mills Inc., G.R. No. 160324, [November 15,
|||

2005], 511 PHIL 591-605)

(5)

THIRD DIVISION

[G.R. No. 173227. January 20, 2009.]

SEBASTIAN SIGA-AN, petitioner, vs. ALICIA VILLANUEVA, respondent.

DECISION

CHICO-NAZARIO, J : p

Before Us is a Petition 1 for Review on Certiorari under Rule 45 of the Rules of Court
seeking to set aside the Decision, 2 dated 16 December 2005, and Resolution, 3 dated 19
June 2006 of the Court of Appeals in CA-G.R. CV No. 71814, which affirmed in toto the
Decision, 4 dated 26 January 2001, of the Las Pias City Regional Trial Court, Branch 255,
in Civil Case No. LP-98-0068.
The facts gathered from the records are as follows:
On 30 March 1998, respondent Alicia Villanueva filed a complaint 5 for sum of money
against petitioner Sebastian Siga-an before the Las Pias City Regional Trial Court (RTC),
Branch 255, docketed as Civil Case No. LP-98-0068. Respondent alleged that she was a
businesswoman engaged in supplying office materials and equipments to the Philippine
Navy Office (PNO) located at Fort Bonifacio, Taguig City, while petitioner was a military
officer and comptroller of the PNO from 1991 to 1996.
Respondent claimed that sometime in 1992, petitioner approached her inside the
PNO and offered to loan her the amount of P540,000.00. Since she needed capital for her
business transactions with the PNO, she accepted petitioner's proposal. The loan
agreement was not reduced in writing. Also, there was no stipulation as to the payment of
interest for the loan. 6
IaDTES

On 31 August 1993, respondent issued a check worth P500,000.00 to petitioner as

partial payment of the loan. On 31 October 1993, she issued another check in the amount
of P200,000.00 to petitioner as payment of the remaining balance of the loan. Petitioner told
her that since she paid a total amount of P700,000.00 for the P540,000.00 worth of loan,
the excess amount of P160,000.00 would be applied as interest for the loan. Not satisfied
with the amount applied as interest, petitioner pestered her to pay additional interest.
Petitioner threatened to block or disapprove her transactions with the PNO if she would not
comply with his demand. As all her transactions with the PNO were subject to the approval
of petitioner as comptroller of the PNO, and fearing that petitioner might block or unduly
influence the payment of her vouchers in the PNO, she conceded. Thus, she paid additional
amounts in cash and checks as interests for the loan. She asked petitioner for receipt for
the payments but petitioner told her that it was not necessary as there was mutual trust and
confidence between them. According to her computation, the total amount she paid to
petitioner for the loan and interest accumulated to P1,200,000.00. 7
Thereafter, respondent consulted a lawyer regarding the propriety of paying interest
on the loan despite absence of agreement to that effect. Her lawyer told her that petitioner
could not validly collect interest on the loan because there was no agreement between her
and petitioner regarding payment of interest. Since she paid petitioner a total amount of
P1,200,000.00 for the P540,000.00 worth of loan, and upon being advised by her lawyer
that she made overpayment to petitioner, she sent a demand letter to petitioner asking for
the return of the excess amount of P660,000.00. Petitioner, despite receipt of the demand
letter, ignored her claim for reimbursement. 8
Respondent prayed that the RTC render judgment ordering petitioner to pay
respondent (1) P660,000.00 plus legal interest from the time of demand; (2) P300,000.00
as moral damages; (3) P50,000.00 as exemplary damages; and (4) an amount equivalent
to 25% of P660,000.00 as attorney's fees. 9
In his answer 10 to the complaint, petitioner denied that he offered a loan to
respondent. He averred that in 1992, respondent approached and asked him if he could
grant her a loan, as she needed money to finance her business venture with the PNO. At
first, he was reluctant to deal with respondent, because the latter had a spotty record as a
supplier of the PNO. However, since respondent was an acquaintance of his officemate, he
agreed to grant her a loan. Respondent paid the loan in full. 11jur2005

Subsequently, respondent again asked him to give her a loan. As respondent had
been able to pay the previous loan in full, he agreed to grant her another loan. Later,
respondent requested him to restructure the payment of the loan because she could not
give full payment on the due date. He acceded to her request. Thereafter, respondent
pleaded for another restructuring of the payment of the loan. This time he rejected her plea.
Thus, respondent proposed to execute a promissory note wherein she would acknowledge
her obligation to him, inclusive of interest, and that she would issue several postdated
checks to guarantee the payment of her obligation. Upon his approval of respondent's
request for restructuring of the loan, respondent executed a promissory note dated 12
September 1994 wherein she admitted having borrowed an amount of P1,240,000.00,
inclusive of interest, from petitioner and that she would pay said amount in March 1995.
Respondent also issued to him six postdated checks amounting to P1,240,000.00 as
guarantee of compliance with her obligation. Subsequently, he presented the six checks for
encashment but only one check was honored. He demanded that respondent settle her
obligation, but the latter failed to do so. Hence, he filed criminal cases for Violation of
the Bouncing Checks Law (Batas Pambansa Blg. 22) against respondent. The cases were
assigned to the Metropolitan Trial Court of Makati City, Branch 65 (MeTC). 12
Petitioner insisted that there was no overpayment because respondent admitted in
the latter's promissory note that her monetary obligation as of 12 September 1994 amounted
to P1,240,000.00 inclusive of interests. He argued that respondent was already estopped
from complaining that she should not have paid any interest, because she was given several
times to settle her obligation but failed to do so. He maintained that to rule in favor of
respondent is tantamount to concluding that the loan was given interest-free. Based on the
foregoing averments, he asked the RTC to dismiss respondent's complaint.
After trial, the RTC rendered a Decision on 26 January 2001 holding that respondent
made an overpayment of her loan obligation to petitioner and that the latter should refund
the excess amount to the former. It ratiocinated that respondent's obligation was only to pay
the loaned amount of P540,000.00, and that the alleged interests due should not be included
in the computation of respondent's total monetary debt because there was no agreement
between them regarding payment of interest. It concluded that since respondent
made an excess payment to petitioner in the amount of P660,000.00 through mistake,
petitioner should return the said amount to respondent pursuant to the principle of solutio
indebiti. 13
HEIcDT

The RTC also ruled that petitioner should pay moral damages for the sleepless nights
and wounded feelings experienced by respondent. Further, petitioner should pay exemplary
damages by way of example or correction for the public good, plus attorney's fees and costs
of suit.
The dispositive portion of the RTC Decision reads:
WHEREFORE, in view of the foregoing evidence and in the light of the provisions of law
and jurisprudence on the matter, judgment is hereby rendered in favor of the plaintiff
and against the defendant as follows:
(1) Ordering defendant to pay plaintiff the amount of P660,000.00 plus legal interest of
12% per annum computed from 3 March 1998 until the amount is paid in full;
(2) Ordering defendant to pay plaintiff the amount of P300,000.00 as moral damages;
(3) Ordering defendant to pay plaintiff the amount of P50,000.00 as exemplary
damages; CcAESI

(4) Ordering defendant to pay plaintiff the amount equivalent to 25% of P660,000.00 as
attorney's fees; and
(5) Ordering defendant to pay the costs of suit. 14

Petitioner appealed to the Court of Appeals. On 16 December 2005, the appellate

court promulgated its Decision affirming in toto the RTC Decision, thus:
WHEREFORE, the foregoing considered, the instant appeal is hereby DENIED and the
assailed decision [is] AFFIRMED in toto. 15
Petitioner filed a motion for reconsideration of the appellate court's decision but this
was denied. 16 Hence, petitioner lodged the instant petition before us assigning the following
errors:
I.
THE RTC AND THE COURT OF APPEALS ERRED IN RULING THAT NO
INTEREST WAS DUE TO PETITIONER; aHcDEC

II.
THE RTC AND THE COURT OF APPEALS ERRED IN APPLYING THE PRINCIPLE
OF SOLUTIO INDEBITI. 17
Interest is a compensation fixed by the parties for the use or forbearance of money.
This is referred to as monetary interest. Interest may also be imposed by law or by courts
as penalty or indemnity for damages. This is called compensatory interest. 18 The right to
interest arises only by virtue of a contract or by virtue of damages for delay or failure to pay
the principal loan on which interest is demanded. 19
Article 1956 of the Civil Code, which refers to monetary interest, 20 specifically
mandates that no interest shall be due unless it has been expressly stipulated in writing. As
can be gleaned from the foregoing provision, payment of monetary interest is allowed only
if: (1) there was an express stipulation for the payment of interest; and (2) the agreement for
the payment of interest was reduced in writing. The concurrence of the two conditions is
required for the payment of monetary interest. Thus, we have held that collection of interest
without any stipulation therefor in writing is prohibited by law. 21
It appears that petitioner and respondent did not agree on the payment of interest for
the loan. Neither was there convincing proof of written agreement between the two regarding
the payment of interest. Respondent testified that although she accepted petitioner's offer
of loan amounting to P540,000.00, there was, nonetheless, no verbal or written agreement
for her to pay interest on the loan. 22
Petitioner presented a handwritten promissory note dated 12 September
1994 23 wherein respondent purportedly admitted owing petitioner "capital and interest".
Respondent, however, explained that it was petitioner who made a promissory note and she
was told to copy it in her own handwriting; that all her transactions with the PNO were subject
to the approval of petitioner as comptroller of the PNO; that petitioner threatened to
disapprove her transactions with the PNO if she would not pay interest; that being unaware
of the law on interest and fearing that petitioner would make good of his threats if she would
not obey his instruction to copy the promissory note, she copied the promissory note in her
own handwriting; and that such was the same promissory note presented by petitioner as
alleged proof of their written agreement on interest. 24 Petitioner did not rebut the foregoing
testimony. It is evident that respondent did not really consent to the payment of interest for
the loan and that she was merely tricked and coerced by petitioner to pay interest. Hence,
it cannot be gainfully said that such promissory note pertains to an express stipulation of
interest or written agreement of interest on the loan between petitioner and respondent. cCTAIE

Petitioner, nevertheless, claims that both the RTC and the Court of Appeals found
that he and respondent agreed on the payment of 7% rate of interest on the loan; that the
agreed 7% rate of interest was duly admitted by respondent in her testimony in the Batas
Pambansa Blg. 22 cases he filed against respondent; that despite such judicial admission
by respondent, the RTC and the Court of Appeals, citing Article 1956 of the Civil Code, still
held that no interest was due him since the agreement on interest was not reduced in writing;
that the application of Article 1956 of the Civil Code should not be absolute,
and an exception to the application of such provision should be made when the borrower
admits that a specific rate of interest was agreed upon as in the present case; and that it
would be unfair to allow respondent to pay only the loan when the latter very well knew and
even admitted in the Batas Pambansa Blg. 22 cases that there was an agreed 7% rate of
interest on the loan. 25
We have carefully examined the RTC Decision and found that the RTC did not make
a ruling therein that petitioner and respondent agreed on the payment of interest at the rate
of 7% for the loan. The RTC clearly stated that although petitioner and respondent entered
into a valid oral contract of loan amounting to P540,000.00, they, nonetheless, never
intended the payment of interest thereon. 26 While the Court of Appeals mentioned in its
Decision that it concurred in the RTC's ruling that petitioner and respondent agreed on a
certain rate of interest as regards the loan, we consider this as merely an inadvertence
because, as earlier elucidated, both the RTC and the Court of Appeals ruled that petitioner
is not entitled to the payment of interest on the loan. The rule is that factual findings of the
trial court deserve great weight and respect especially when affirmed by the appellate
court. 27 We found no compelling reason to disturb the ruling of both courts.
Petitioner's reliance on respondent's alleged admission in the Batas Pambansa Blg.
22 cases that they had agreed on the payment of interest at the rate of 7% deserves scant
consideration. In the said case, respondent merely testified that after paying the total amount
of loan, petitioner ordered her to pay interest. 28Respondent did not categorically declare in
the same case that she and respondent made an express stipulation in writing as regards
payment of interest at the rate of 7%. As earlier discussed, monetary interest is due only if
there was an express stipulation in writing for the payment of interest. cSTCDA

There are instances in which an interest may be imposed even in the absence of
express stipulation, verbal or written, regarding payment of interest. Article 2209 of the Civil
Code states that if the obligation consists in the payment of a sum of money, and the debtor
incurs delay, a legal interest of 12% per annum may be imposed as indemnity for damages
if no stipulation on the payment of interest was agreed upon. Likewise, Article 2212 of the
Civil Code provides that interest due shall earn legal interest from the time it is judicially
demanded, although the obligation may be silent on this point.
All the same, the interest under these two instances may be imposed only as a penalty
or damages for breach of contractual obligations. It cannot be charged as a compensation
for the use or forbearance of money. In other words, the two instances apply only to
compensatory interest and not to monetary interest. 29 The case at bar involves petitioner's
claim for monetary interest.
Further, said compensatory interest is not chargeable in the instant case because it
was not duly proven that respondent defaulted in paying the loan. Also, as earlier found, no
interest was due on the loan because there was no written agreement as regards payment
of interest.
Apropos the second assigned error, petitioner argues that the principle of solutio
indebiti does not apply to the instant case. Thus, he cannot be compelled to return the
alleged excess amount paid by respondent as interest. 30
Under Article 1960 of the Civil Code, if the borrower of loan pays interest when there
has been no stipulation therefor, the provisions of the Civil Code concerning solutio
indebiti shall be applied. Article 2154 of the Civil Code explains the principle of solutio
indebiti. Said provision provides that if something is received when there is no right to
demand it, and it was unduly delivered through mistake, the obligation to return it arises. In
such a case, a creditor-debtor relationship is created under a quasi-contract whereby the
payor becomes the creditor who then has the right to demand the return of payment made
by mistake, and the person who has no right to receive such payment becomes obligated to
return the same. The quasi-contract of solutio indebiti harks back to the ancient principle
that no one shall enrich himself unjustly at the expense of another. 31 The principle of solutio
indebiti applies where (1) a payment is made when there exists no binding relation between
the payor, who has no duty to pay, and the person who received the payment; and (2) the
payment is made through mistake, and not through liberality or some other cause. 32 We
have held that the principle of solutio indebiti applies in case of erroneous payment of undue
interest. 33
IcCATD

It was duly established that respondent paid interest to petitioner. Respondent was
under no duty to make such payment because there was no express stipulation in writing to
that effect. There was no binding relation between petitioner and respondent as regards the
payment of interest. The payment was clearly a mistake. Since petitioner received
something when there was no right to demand it, he has an obligation to return it.
We shall now determine the propriety of the monetary award and damages imposed
by the RTC and the Court of Appeals.
Records show that respondent received a loan amounting to P540,000.00 from
petitioner. 34 Respondent issued two checks with a total worth of P700,000.00 in favor of
petitioner as payment of the loan. 35 These checks were subsequently encashed by
petitioner. 36 Obviously, there was an excess of P160,000.00 in the payment for the loan.
Petitioner claims that the excess of P160,000.00 serves as interest on the loan to which he
was entitled. Aside from issuing the said two checks, respondent also paid cash in the total
amount of P175,000.00 to petitioner as interest. 37 Although no receipts reflecting the same
were presented because petitioner refused to issue such to respondent, petitioner,
nonetheless, admitted in his Reply-Affidavit 38 in the Batas Pambansa Blg. 22 cases that
respondent paid him a total amount of P175,000.00 cash in addition to the two checks.
Section 26, Rule 130 of the Rules of Evidence provides that the declaration of a party as to
a relevant fact may be given in evidence against him. Aside from the amounts of
P160,000.00 and P175,000.00 paid as interest, no other proof of additional payment as
interest was presented by respondent. Since we have previously found that petitioner is not
entitled to payment of interest and that the principle of solutio indebiti applies to the instant
case, petitioner should return to respondent the excess amount of P160,000.00 and
P175,000.00 or the total amount of P335,000.00. Accordingly, the reimbursable amount to
respondent fixed by the RTC and the Court of Appeals should be reduced from P660,000.00
to P335,000.00.
As earlier stated, petitioner filed five (5) criminal cases for violation of Batas
Pambansa Blg. 22 against respondent. In the said cases, the MeTC found respondent guilty
of violating Batas Pambansa Blg. 22 for issuing five dishonored checks to petitioner.
Nonetheless, respondent's conviction therein does not affect our ruling in the instant case.
The two checks, subject matter of this case, totaling P700,000.00 which respondent claimed
as payment of the P540,000.00 worth of loan, were not among the five checks found to be
dishonored or bounced in the five criminal cases. Further, the MeTC found that respondent
made an overpayment of the loan by reason of the interest which the latter paid to
petitioner. 39
Article 2217 of the Civil Code provides that moral damages may be recovered if the
party underwent physical suffering, mental anguish, fright, serious anxiety, besmirched
reputation, wounded feelings, moral shock, social humiliation and similar injury. Respondent
testified that she experienced sleepless nights and wounded feelings when petitioner
refused to return the amount paid as interest despite her repeated demands. Hence, the
award of moral damages is justified. However, its corresponding amount of P300,000.00,
as fixed by the RTC and the Court of Appeals, is exorbitant and should be equitably reduced.
Article 2216 of the Civil Code instructs that assessment of damages is left to the discretion
of the court according to the circumstances of each case. This discretion is limited by the
principle that the amount awarded should not be palpably excessive as to indicate that it
was the result of prejudice or corruption on the part of the trial court. 40 To our mind, the
amount of P150,000.00 as moral damages is fair, reasonable, and proportionate to the injury
suffered by respondent. SACHcD

Article 2232 of the Civil Code states that in a quasi-contract, such as solutio
indebiti, exemplary damages may be imposed if the defendant acted in anoppressive
manner. Petitioner acted oppressively when he pestered respondent to pay interest and
threatened to block her transactions with the PNO if she would not pay interest. This forced
respondent to pay interest despite lack of agreement thereto. Thus, the award of exemplary
damages is appropriate. The amount of P50,000.00 imposed as exemplary damages by the
RTC and the Court is fitting so as to deter petitioner and other lenders from committing
similar and other serious wrongdoings. 41
Jurisprudence instructs that in awarding attorney's fees, the trial court must state the
factual, legal or equitable justification for awarding the same. 42 In the case under
consideration, the RTC stated in its Decision that the award of attorney's fees equivalent to
25% of the amount paid as interest by respondent to petitioner is reasonable and moderate
considering the extent of work rendered by respondent's lawyer in the instant case and the
fact that it dragged on for several years. 43 Further, respondent testified that she agreed to
compensate her lawyer handling the instant case such amount. 44 The award, therefore, of
attorney's fees and its amount equivalent to 25% of the amount paid as interest by
respondent to petitioner is proper.
Finally, the RTC and the Court of Appeals imposed a 12% rate of legal interest on the
amount refundable to respondent computed from 3 March 1998 until its full payment. This
is erroneous.
We held in Eastern Shipping Lines, Inc. v. Court of Appeals, 45 that
when an obligation, not constituting a loan or forbearance of money is breached, an interest
on the amount of damages awarded may be imposed at the rate of 6% per annum. We
 further declared that when the judgment of the court awarding a sum of money becomes
final and executory, the rate of legal interest, whether it is a loan/forbearance of money or
not, shall be 12% per annum from such finality until its satisfaction, this interim period being
deemed equivalent to a forbearance of credit. aCTcDS

In the present case, petitioner's obligation arose from a quasi-contract of solutio

indebiti and not from a loan or forbearance of money. Thus, an interest of 6% per annum
should be imposed on the amount to be refunded as well as on the damages awarded and
on the attorney's fees, to be computed from the time of the extra-judicial demand on 3 March
1998, 46 up to the finality of this Decision. In addition, the interest shall become 12% per
annum from the finality of this Decision up to its satisfaction.
WHEREFORE, the Decision of the Court of Appeals in CA-G.R. CV No. 71814, dated
16 December 2005, is hereby AFFIRMED with the following MODIFICATIONS: (1) the
amount of P660,000.00 as refundable amount of interest is reduced to THREE HUNDRED
THIRTY FIVE THOUSAND PESOS (P335,000.00); (2) the amount of P300,000.00 imposed
as moral damages is reduced to ONE HUNDRED FIFTY THOUSAND PESOS
(P150,000.00); (3) an interest of 6% per annum is imposed on the P335,000.00, on the
damages awarded and on the attorney's fees to be computed from the time of the extra-
judicial demand on 3 March 1998 up to the finality of this Decision; and (4) an interest of
12% per annum is also imposed from the finality of this Decision up to its satisfaction. Costs
against petitioner.
SO ORDERED.
Ynares-Santiago, Austria-Martinez, Nachura and Leonardo-de Castro, * JJ., concur.
||| (Siga-an v. Villanueva, G.R. No. 173227, [January 20, 2009], 596 PHIL 760-777)

(6)

THIRD DIVISION

[G.R. No. 138814. April 16, 2009.]

MAKATI STOCK EXCHANGE, INC., MA. VIVIAN YUCHENGCO, ADOLFO M.

DUARTE, MYRON C. PAPA, NORBERTO C. NAZARENO, GEORGE UY-
TIOCO, ANTONIO A. LOPA, RAMON B. ARNAIZ, LUIS J.L. VIRATA, and
ANTONIO GARCIA, JR. petitioners, vs. MIGUEL V. CAMPOS, substituted by
JULIA ORTIGAS VDA. DE CAMPOS, 1 respondent.

DECISION

CHICO-NAZARIO, J : p

This is a Petition for Review on Certiorari under Rule 45 seeking the reversal of the
Decision 2 dated 11 February 1997 and Resolution dated 18 May 1999 of the Court of
Appeals in CA-G.R. SP No. 38455. ADCIca

The facts of the case are as follows:

SEC Case No. 02-94-4678 was instituted on 10 February 1994 by
respondent Miguel V. Campos, who filed with the Securities, Investigation and Clearing
Department (SICD) of the Securities and Exchange Commission (SEC), a Petition against
herein petitioners Makati Stock Exchange, Inc. (MKSE) and MKSE directors, Ma. Vivian
Yuchengco, Adolfo M. Duarte, Myron C. Papa, Norberto C. Nazareno, George Uy-Tioco,
Antonio A, Lopa, Ramon B. Arnaiz, Luis J.L. Virata, and Antonio Garcia, Jr. Respondent, in
said Petition, sought: (1) the nullification of the Resolution dated 3 June 1993 of the MKSE
Board of Directors, which allegedly deprived him of his right to participate equally in the
allocation of Initial Public Offerings (IPO) of corporations registered with MKSE; (2) the
delivery of the IPO shares he was allegedly deprived of, for which he would pay IPO prices;
and (3) the payment of P2 million as moral damages, P1 million as exemplary damages,
and P500,000.00 as attorney's fees and litigation expenses.
On 14 February 1994, the SICD issued an Order granting respondent's prayer for the
issuance of a Temporary Restraining Order to enjoin petitioners from implementing or
enforcing the 3 June 1993 Resolution of the MKSE Board of Directors.
The SICD subsequently issued another Order on 10 March 1994 granting
respondent's application for a Writ of Preliminary Injunction, to continuously enjoin, during
the pendency of SEC Case No. 02-94-4678, the implementation or enforcement of the
MKSE Board Resolution in question. Petitioners assailed this SICD Order dated 10 March
1994 in a Petition for Certiorari filed with the SEC en banc, docketed as SEC-EB No. 393.
On 11 March 1994, petitioners filed a Motion to Dismiss respondent's Petition in SEC
Case No. 02-94-4678, based on the following grounds: (1) the Petition became moot due to
the cancellation of the license of MKSE; (2) the SICD had no jurisdiction over the Petition;
and (3) the Petition failed to state a cause of action.
The SICD denied petitioner's Motion to Dismiss in an Order dated 4 May 1994.
Petitioners again challenged the 4 May 1994 Order of SICD before the SEC en banc through
another Petition for Certiorari, docketed as SEC-EB No. 403.
In an Order dated 31 May 1995 in SEC-EB No. 393, the SEC en banc nullified the 10
March 1994 Order of SICD in SEC Case No. 02-94-4678 granting a Writ of Preliminary
Injunction in favor of respondent. Likewise, in an Order dated 14 August 1995 in SEC-EB
No. 403, the SEC en banc annulled the 4 May 1994 Order of SICD in SEC Case No. 02-94-
4678 denying petitioners' Motion to Dismiss, and accordingly ordered the dismissal of
respondent's Petition before the SICD. aDcEIH

Respondent filed a Petition for Certiorari with the Court of Appeals assailing the
Orders of the SEC en banc dated 31 May 1995 and 14 August 1995 in SEC-EB No. 393
and SEC-EB No. 403, respectively. Respondent's Petition before the appellate court was
docketed as CA-G.R. SP No. 38455.
On 11 February 1997, the Court of Appeals promulgated its Decision in CA-G.R. SP
No. 38455, granting respondent's Petition for Certiorari, thus:
WHEREFORE, the petition in so far as it prays for annulment of the Orders dated May
31, 1995 and August 14, 1995 in SEC-EB Case Nos. 393 and 403 is GRANTED. The
said orders are hereby rendered null and void and set aside.
Petitioners filed a Motion for Reconsideration of the foregoing Decision but it was
denied by the Court of Appeals in a Resolution dated 18 May 1999.
Hence, the present Petition for Review raising the following arguments:
I.
THE SEC EN BANC DID NOT COMMIT GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN IT DISMISSED THE
PETITION FILED BY RESPONDENT BECAUSE ON ITS FACE, IT FAILED TO STATE
A CAUSE OF ACTION.
II.
THE GRANT OF THE IPO ALLOCATIONS IN FAVOR OF RESPONDENT WAS A
MERE ACCOMMODATION GIVEN TO HIM BY THE BOARD OF [DIRECTORS] OF
THE MAKATISTOCK EXCHANGE, INC.
III.
 THE COURT OF APPEALS ERRED IN HOLDING THAT THE SEC EN BANC
COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS
OF JURISDICTION WHEN IT MADE AN EXTENDED INQUIRY AND PROCEEDED TO
MAKE A DETERMINATION AS TO THE TRUTH OF RESPONDENT'S ALLEGATIONS
IN HIS PETITION AND USED AS BASIS THE EVIDENCE ADDUCED DURING THE
HEARING ON THE APPLICATION FOR THE WRIT OF PRELIMINARY INJUNCTION
TO DETERMINE THE EXISTENCE OR VALIDITY OF A STATED CAUSE OF
ACTION. DaIACS

IV.
IPO ALLOCATIONS GRANTED TO BROKERS ARE NOT TO BE BOUGHT BY THE
BROKERS FOR THEMSELVES BUT ARE TO BE DISTRIBUTED TO THE INVESTING
PUBLIC. HENCE, RESPONDENT'S CLAIM FOR DAMAGES IS ILLUSORY AND HIS
PETITION A NUISANCE SUIT. 3
On 18 September 2001, counsel for respondent manifested to this Court that his client
died on 7 May 2001. In a Resolution dated 24 October 2001, the Court directed the
substitution of respondent by his surviving spouse, Julia Ortigas vda. de Campos.
Petitioners want this Court to affirm the dismissal by the SEC en banc of respondent's
Petition in SEC Case No. 02-94-4678 for failure to state a cause of action. On the other
hand, respondent insists on the sufficiency of his Petition and seeks the continuation of the
proceedings before the SICD.
A cause of action is the act or omission by which a party violates a right of another. 4 A
complaint states a cause of action where it contains three essential elements of a cause of
action, namely: (1) the legal right of the plaintiff, (2) the correlative obligation of the
defendant, and (3) the act or omission of the defendant in violation of said legal right. If these
elements are absent, the complaint becomes vulnerable to dismissal on the ground of failure
to state a cause of action.
If a defendant moves to dismiss the complaint on the ground of lack of cause of action,
he is regarded as having hypothetically admitted all the averments thereof. The test of
sufficiency of the facts found in a complaint as constituting a cause of action is whether or
not admitting the facts alleged, the court can render a valid judgment upon the same in
accordance with the prayer thereof. The hypothetical admission extends to the relevant and
material facts well pleaded in the complaint and inferences fairly deducible therefrom.
Hence, if the allegations in the complaint furnish sufficient basis by which the complaint can
be maintained, the same should not be dismissed regardless of the defense that may be
assessed by the defendant. 5
Given the foregoing, the issue of whether respondent's Petition in SEC Case No. 02-
94-4678 sufficiently states a cause of action may be alternatively stated as whether,
hypothetically admitting to be true the allegations in respondent's Petition in SEC Case No.
02-94-4678, the SICD may render a valid judgment in accordance with the prayer of said
Petition.
A reading of the exact text of respondent's Petition in SEC Case No. 02-94-4678 is,
therefore, unavoidable. Pertinent portions of the said Petition reads: aEIADT

7. In recognition of petitioner's invaluable services, the general membership of

respondent corporation [MKSE] passed a resolution sometime in 1989 amending its
Articles of Incorporation, to include the following provision therein:
"ELEVENTH WHEREAS, Mr. Miguel Campos is the only surviving incorporator
of the Makati Stock Exchange, Inc. who has maintained his membership;
"WHEREAS, he has unselfishly served the Exchange in various capacities, as
governor from 1977 to the present and as President from 1972 to 1976 and again
as President from 1988 to the present;
"WHEREAS, such dedicated service and leadership which has contributed to the
advancement and well being not only of the Exchange and its members but also
to the Securities industry, needs to be recognized and appreciated;
 "WHEREAS, as such, the Board of Governors in its meeting held on February
09, 1989 has correspondingly adopted a resolution recognizing his valuable
service to the Exchange, reward the same, and preserve for posterity such
recognition by proposing a resolution to the membership body which would make
him as Chairman Emeritus for life and install in the Exchange premises a
commemorative bronze plaque in his honor;
"NOW, THEREFORE, for and in consideration of the above premises, the
position of the "Chairman Emeritus" to be occupied by
Mr. Miguel Campos during his lifetime and irregardless of his continued
membership in the Exchange with the Privilege to attend all membership
meetings as well as the meetings of the Board of Governors of the Exchange, is
hereby created."
8. Hence, to this day, petitioner is not only an active member of the respondent
corporation, but its Chairman Emeritus as well.
9. Correspondingly, at all times material to this petition, as an active member and
Chairman Emeritus of respondent corporation, petitioner has always enjoyed the right
given to all the other members to participate equally in the Initial Public Offerings (IPOs
for brevity) of corporations.
10. IPOs are shares of corporations offered for sale to the public, prior to the listing in
the trading floor of the country's two stock exchanges. Normally, Twenty Five Percent
(25%) of these shares are divided equally between the two stock exchanges which in
turn divide these equally among their members, who pay therefor at the offering
price.TcIaHC

11. However, on June 3, 1993, during a meeting of the Board of Directors of respondent-
corporation, individual respondents passed a resolution to stop giving petitioner the
IPOs he is entitled to, based on the ground that these shares were allegedly benefiting
Gerardo O. Lanuza, Jr., who these individual respondents wanted to get even with, for
having filed cases before the Securities and Exchange * (SEC) for their disqualification
as member of the Board of Directors of respondent corporation.
12. Hence, from June 3, 1993 up to the present time, petitioner has been deprived of
his right to subscribe to the IPOs of corporations listing in the stock market at their
offering prices.
13. The collective act of the individual respondents in depriving petitioner of his right to
a share in the IPOs for the aforementioned reason, is unjust, dishonest and done in bad
faith, causing petitioner substantial financial damage. 6
There is no question that the Petition in SEC Case No. 02-94-4678 asserts a right in
favor of respondent, particularly, respondent's alleged right to subscribe to the IPOs of
corporations listed in the stock market at their offering prices; and stipulates the
correlative obligation of petitioners to respect respondent's right, specifically, by continuing
to allow respondent to subscribe to the IPOs of corporations listed in the stock market at
their offering prices.
However, the terms right and obligation in respondent's Petition are not magic words
that would automatically lead to the conclusion that such Petition sufficiently states a cause
of action. Right and obligation are legal terms with specific legal meaning. A right is a claim
or title to an interest in anything whatsoever that is enforceable by law. 7 An obligation is
defined in the Civil Code as a juridical necessity to give, to do or not to do. 8 For every right
enjoyed by any person, there is a corresponding obligation on the part of another person to
respect such right. Thus, Justice J.B.L. Reyes offers 9 the definition given by Arias Ramos
as a more complete definition:
An obligation is a juridical relation whereby a person (called the creditor) may demand
from another (called the debtor) the observance of a determinative conduct (the giving,
doing or not doing), and in case of breach, may demand satisfaction from the assets of
the latter.
The Civil Code enumerates the sources of obligations:
Art. 1157. Obligations arise from:
 (1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Quasi-delicts. cTAaDC

Therefore, an obligation imposed on a person, and the corresponding right granted to

another, must be rooted in at least one of these five sources. The mere assertion of a right
and claim of an obligation in an initiatory pleading, whether a Complaint or Petition, without
identifying the basis or source thereof, is merely aconclusion of fact and law. A pleading
should state the ultimate facts essential to the rights of action or defense asserted, as
distinguished from mere conclusions of fact or conclusions of law. 10 Thus, a Complaint or
Petition filed by a person claiming a right to the Office of the President of this Republic, but
without stating the source of his purported right, cannot be said to have sufficiently stated a
cause of action. Also, a person claiming to be the owner of a parcel of land cannot merely
state that he has a right to the ownership thereof, but must likewise assert in the Complaint
either a mode of acquisition of ownership or at least a certificate of title in his name.
In the case at bar, although the Petition in SEC Case No. 02-94-4678 does allege
respondent's right to subscribe to the IPOs of corporations listed in the stockmarket at their
offering prices, and petitioners' obligation to continue respecting and observing such right,
the Petition utterly failed to lay down the source or basis of respondent's right and/or
petitioners' obligation.
Respondent merely quoted in his Petition the MKSE Board Resolution, passed
sometime in 1989, granting him the position of Chairman Emeritus of MKSE for life.
However, there is nothing in the said Petition from which the Court can deduce that
respondent, by virtue of his position as Chairman Emeritus of MKSE, was granted by law,
contract, or any other legal source, the right to subscribe to the IPOs of corporations listed
in the stock market at their offering prices.
A meticulous review of the Petition reveals that the allocation of IPO shares was
merely alleged to have been done in accord with a practice normally observed by the
members of the stock exchange, to wit:
IPOs are shares of corporations offered for sale to the public, prior to their listing in the
trading floor of the country's two stock exchanges. Normally, Twenty-Five Percent
(25%) of these shares are divided equally between the two stock exchanges
which in turn divide these equally among their members, who pay therefor at the
offering price. 11 (Emphasis supplied)
A practice or custom is, as a general rule, not a source of a legally demandable or
enforceable right. 12 Indeed, in labor cases, benefits which were voluntarily given by the
employer, and which have ripened into company practice, are considered as rights that
cannot be diminished by the employer. 13 Nevertheless, even in such cases, the source of
the employees' right is not custom, but ultimately, the law, since Article 100 of the Labor
Code explicitly prohibits elimination or diminution of benefits. SEIcAD

There is no such law in this case that converts the practice of allocating IPO shares
to MKSE members, for subscription at their offering prices, into an enforceable or
demandable right. Thus, even if it is hypothetically admitted that normally, twenty five
percent (25%) of the IPOs are divided equally between the twostock exchanges which,
in turn, divide their respective allocation equally among their members, including the
Chairman Emeritus, who pay for IPO shares at the offering price the Court cannot grant
respondent's prayer for damages which allegedly resulted from the MKSE Board Resolution
dated 3 June 1993 deviating from said practice by no longer allocating any shares to
respondent.
Accordingly, the instant Petition should be granted. The Petition in SEC Case No. 02-
94-4678 should be dismissed for failure to state a cause of action. It does not matter that
the SEC en banc, in its Order dated 14 August 1995 in SEC-EB No. 403, overstepped its
 bounds by not limiting itself to the issue of whether respondent's Petition before the SICD
sufficiently stated a cause of action. The SEC en banc may have been mistaken in
considering extraneous evidence in granting petitioners' Motion to Dismiss, but its
discussion thereof are merely superfluous and obiter dictum. In the main, the SEC en
banc did correctly dismiss the Petition in SEC Case No. 02-94-4678 for its failure to state
the basis for respondent's alleged right, to wit:
Private respondent Campos has failed to establish the basis or authority for his alleged
right to participate equally in the IPO allocations of the Exchange. He cited paragraph
11 of the amended articles of incorporation of the Exchange in support of his position
but a careful reading of the said provision shows nothing therein that would bear out his
claim. The provision merely created the position of chairman emeritus of
the Exchange but it mentioned nothing about conferring upon the occupant thereof the
right to receive IPO allocations. 14
With the dismissal of respondent's Petition in SEC Case No. 02-94-4678, there is no
more need for this Court to resolve the propriety of the issuance by SCID of a writ of
preliminary injunction in said case.
WHEREFORE, the Petition is GRANTED. The Decision of the Court of Appeals dated
11 February 1997 and its Resolution dated 18 May 1999 in CA-G.R. SP No. 38455 are
REVERSED and SET ASIDE. The Orders dated 31 May 1995 and 14 August 1995 of the
Securities and Exchange Commission en banc in SEC-EB Case No. 393 and No. 403,
respectively, are hereby reinstated. No pronouncement as to costs.
SO ORDERED.
Ynares-Santiago, Austria-Martinez, Nachura and Peralta, JJ., concur.
(Makati Stock Exchange, Inc. v. Campos, G.R. No. 138814, [April 16, 2009], 603 PHIL 121-
|||

134)

(7)

SECOND DIVISION

[G.R. No. 163271. January 15, 2010.]

SPOUSES PATRICIO and MYRNA BERNALES, petitioners, vs. HEIRS OF

JULIAN SAMBAAN, namely: EMMA S. FELICILDA, ANITA S. SAMBAAN,
VIOLETA S. DADSANAN, ABSALON S. SAMBAAN, AGUSTINE
S. SAMBAAN, EDITHA S. MANGUIRAN, GRACE S. NITCHA, CLODUALDO
S. SAMBAAN, GINA S.SAMBAAN and FE S. YAP, respondents.

DECISION

DEL CASTILLO, J : p

A legal tussle among children is a nightmare for their parents. Sometimes, this
happens when pecuniary interests takes precedence over family relationship. In the instant
case, we are at the forefront of a family squabble over a disputed land situated in Cagayan
de Oro City which was purportedly conveyed to the eldest child through a Deed of Absolute
Sale. 1jurcda

Branch 18 of the Regional Trial Court (RTC) of Misamis Oriental 2 rendered judgment
in favor of the herein respondents, which was affirmed in toto by the Court of Appeals 3 (CA).
Alleging that the CA Decision 4 is not in accordance with law and jurisprudence, as well as
the evidence on record, petitioners now come to us via the instant Petition for Review
on Certiorari. 5
Factual Antecedents
Julian Sambaan (Julian), married to Guillerma Saarenas-Sambaan (Guillerma), was
the registered owner of a property located at Bulua, Cagayan de Oro City. The lot was
covered by Transfer Certificate of Title (TCT) No. T-14202 6 issued on March 8, 1972, and
more particularly described as follows:
A parcel of land (Lot No. 5947-A of the Subdivision Plan (LRC) Psd-138019, being a
portion of Lot No. 5947, Cagayan Cadastre, LRC Cad. Rec. No. 1572) situated in the
Barrio of Bulua, City of Cagayan de Oro, Island of Mindanao . . . containing an area of
THREE THOUSAND SIX HUNDRED FORTY THREE (3,643) SQUARE METERS,
more or less.
The respondents herein and the petitioner Myrna Bernales (Myrna) are the children
of Julian and Guillerma. Myrna, who is the eldest of the siblings, is the present owner and
possessor of the property in question.
Sometime in 1975, Julian was ambushed at Merayon, Talakad, Bukidnon, and was
hospitalized due to a gunshot wound. On April 11, 1975, Julian allegedly requested his
children to gather so that he could make his last two wishes. Julian's first wish was for the
children to redeem the subject property which was mortgaged to Myrna and her husband
Patricio Bernales (Patricio), while his second wish was for his remains not to be brought to
the house of Myrna at Nazareth, Cagayan de Oro City. Thus, in 1982, respondent
Absalon Sambaan (Absalon), one of Julian's children, offered to redeem the property but
the petitioners refused because they were allegedly using the property as tethering place
for their cattle.
In January 1991, respondents received information that the property covered by TCT
No. T-14202 was already transferred to petitioners' name. Whereupon, they secured a copy
of the Deed of Absolute Sale dated December 7, 1970 which bore the signatures of their
parents and had it examined by the National Bureau of Investigation (NBI). The result of the
examination revealed that the signatures of their parents, Julian and Guillerma, were forged.
Proceedings before the Regional Trial Court
Thus, on April 13, 1993, the respondents, together with their mother Guillerma, filed
a Complaint for Annulment of Deed of Absolute Sale and Cancellation of Transfer Certificate
of Title No. T-14204 with Damages and Writ of Preliminary Injunction 7 against herein
petitioners. They alleged that in spite of the forged signature of their parents, the petitioners
were able to register the Deed of Absolute Sale with the Registry of Deeds of Cagayan de
Oro City and secure TCT No. T-14204 8 on March 8, 1972. They prayed for an injunctive
relief in order to prevent the petitioners from selling, disposing, or mortgaging said property.
They further prayed that (i) the Deed of Absolute Sale and TCT No. T-14204 be annulled;
(ii) they be declared the absolute owners of the property; (iii) all documents executed, made
and entered into relative to the said title be declared void; and, (iv) the petitioners be ordered
to pay them P300,000.00 as moral and exemplary damages, and P50,000.00 as attorney's
fees plus P1,000.00 as appearance fee.
On May 6, 1992, petitioners filed their Answer, 9 alleging that the subject property (Lot
No. 5947-A) used to be a portion of Lot No. 5947, which was originally owned by
Clodualdo Sambaan (Clodualdo) and Gliceria Dacer (Gliceria). Lot No. 5947 is more
particularly described as follows:
A parcel of land (Lot No. 5947 of the Cadastral Survey of Cagayan) situated at Bulua,
Cagayan de Oro City. Bounded on the NE., by Lot No. 5984 and 5948; E., by Lot Nos.
5948 and 5946, SW., by Lot No. 5946; and on the NW., by Lot No. 5984, containing an
area of 7,286 square meters, more or less, under Tax Declaration No. 21421 and
covered by Original Certificate of Title No. 7921 issued on September 23, 1940.
After the death of Clodualdo and Gliceria in 1949, their heirs, namely, Alicia Lago, wife of
Pedro Gacusan; Bernardo Lago (single); Gloria Lago, wife of Jimmy Angco; Dionesia Lago,
married to Paulino Unat; Prysbetero Sambaan, married to Rosario Zaragosa;
Juanito Sambaan, married to Renerio Galos; Leo Sambaan, married to Adeloisa Tambulian;
Renato Sambaan, married to Adelina Ablon; Aida Sambaan (single); Julian Sambaan,
married to Guillerma Saarenas; Paz Sambaan, wife of Rufinito Lago; and, Bernie Sambaan,
married to Alicia Sabuero, executed an Extra Judicial Settlement and Sale 10 dated April 10,
1970 involving the abovementioned land covered by Original Certificate of Title (OCT) No.
7921.
It appears, however, that Juanito, Aida and Renato sold their share to a certain
Domingo Ebarrat (Ebarrat). Hence, a portion of the property belonged to Julian while another
portion belonged to Ebarrat. In view of the co-ownership between Ebarrat and Julian, the
former and the latter executed a Deed of Partition 11 dated September 8, 1970 whereby Lot
No. 5947 was divided. The eastern half with an area of 3,643 square meters was assigned
to Julian, while the western half with the same area went to Ebarrat. CcAIDa

Petitioners claimed that Julian subsequently sold his share to them by virtue of a Deed
of Absolute Sale 12 dated December 7, 1970. The said property is described as follows:
A Parcel of land (Lot No. 5947-A, being a portion of Lot No. 5947, Cadastral Survey of
Cagayan) situated at Bulua, Cagayan de Oro City. Bounded on the North by Lot Nos.
5947-B and 5948, Cad. 237; South by Lot Nos. 5946, Cad-237; East by Lot Nos. 5948
and 5946, Cad. 237; and West by Lot No. 5947-B, containing an area of 3643 square
meters, more or less, covered by OCT No. 7921 (now TCT No. T-14202) of the Registry
of Deeds of Cagayan de Oro City.
Thereafter, on December 10, 1970, Ebarrat and Patricio executed an
Agreement 13 wherein Ebarrat acknowledged that petitioners are the owners of the 18
coconut trees planted in Ebarrat's property and even made Julian as a witness to the said
Agreement.
In addition, petitioners alleged that the imputation of falsification of the signatures of
Julian and Guillerma is a product of respondents' inflamed imagination because the latter
envy them for they have been successful in managing their properties. Petitioners thus
prayed that judgment be rendered dismissing the complaint; affirming their title over the
controverted property and ordering respondents to pay them P500,000.00 as moral
damages; P300,000.00 as exemplary damages; P50,000.00 as attorney's fees and costs of
litigation.
On July 27, 1992, petitioners filed a Motion for Production and Inspection of
Document 14 to compel respondents to produce and permit them to inspect and to copy or
photograph the Deed of Absolute Sale subject matter of said examination. Thereafter, the
trial court issued an Order 15 dated August 14, 1992 granting the motion and directing the
Regional Office of the NBI to bring the document to court so that the same may be properly
examined.
On August 11, 1992, Guillerma died in Cagayan de Oro City and was accordingly
dropped as co-plaintiff.
After trial on the merits, the trial court rendered its Decision 16 dated August 2, 2001
ruling in favor of the respondents, the dispositive portion of which reads:
WHEREFORE, in view of the foregoing, the plaintiffs were able to establish a strong
preponderance of evidence in their favor. Accordingly, Transfer Certificate of Title No.
T-14204 is hereby declared NULL AND VOID, and is hereby CANCELLED. Let another
title be issued in the name of the late Julian Sambaan. The defendants are jointly and
severally directed to pay the plaintiffs the sum of P20,000.00 as moral damages,
P20,000.00 as attorney's fees and P1,671.00 representing actual expenses. 17
Proceedings before the Court of Appeals
Petitioners, alleging among others that the trial court erred in finding that the signature
of Julian on the assailed document was a forgery, went to the CA by way of ordinary appeal.
On August 20, 2003, the CA rendered a Decision affirming the findings of the trial court, the
dispositive portion of which reads:
WHEREFORE, premises considered, the appealed Decision dated August 2, 2001 of
the Regional Trial Court of Cagayan de Oro City, Branch 18, in Civil Case no. 92-179 is
hereby AFFIRMED in toto. Costs against appellants. 18
Petitioners filed a Motion for Reconsideration 19 which was denied by the CA in its
Resolution 20 dated March 17, 2004.
Issues
In this Petition for Review on Certiorari, petitioners assail the Decision of the CA on
the following grounds:
A. THE COURT OF APPEALS ERRED WHEN IT RULED THAT PRESCRIPTION DID
NOT BAR RESPONDENTS' ACTION TO RECOVER OWNERSHIP OF THE SUBJECT
PROPERTY.
B. THE COURT OF APPEALS ERRED WHEN IT DISREGARDED SETTLED
PRINCIPLES ON THE ADMISSIBILITY AND APPRECIATION OF OPINIONS OF
EXPERT WITNESSES IN ITS BLANKET ACCEPTANCE OF THE INADEQUATE
TESTIMONY OF THE DOCUMENT EXAMINER WHO WAS COMMISSIONED BY
RESPONDENTS PRIOR TO THE COMMENCEMENT OF CIVIL CASE NO. 92-179.
C. THE COURT OF APPEALS ERRED WHEN IT DISREGARDED THE RULES OF
EVIDENCE IN ARRIVING AT THE CONCLUSION THAT THE DEED OF ABSOLUTE
SALE WAS A FORGED DOCUMENT ON THE BASIS OF SPECIMEN SIGNATURES
THE GENUINENESS OF WHICH WERE NEVER ESTABLISHED.
D. THE COURT OF APPEALS ERRED WHEN IT DISREGARDED LEGAL
PRINCIPLES ON HANDWRITING COMPARISON IN USING SPECIMEN
SIGNATURES OF GUILLERMASAMBAAN THAT WERE MADE AT THE TIME AND
FOR THE SPECIFIC PURPOSE OF THE HANDWRITING ANALYSIS OF THE DEED
OF ABSOLUTE SALE. IEHScT

E. THE COURT OF APPEALS ERRED WHEN IT DISREGARDED JURISPRUDENCE

ON THE PROOF REQUIRED TO ESTABLISH FORGERY IN ARRIVING AT THE
CONCLUSION THAT THE SIGNATURE OF JULIAN SAMBAAN ON THE DEED OF
ABSOLUTE SALE WAS FORGED BECAUSE IT BELIEVED THAT
GUILLERMA SAMBAAN'S SIGNATURE WAS ALSO FORGED.
F. THE COURT OF APPEALS CONTRAVENED THE LEGAL RULES GOVERNING
THE APPRECIATION OF DOCUMENTS IN RULING AGAINST THE VALIDITY OF
JULIANSAMBAAN'S SALE OF THE SUBJECT PROPERTY TO PETITIONERS
DESPITE THE EXISTENCE OF THE AGREEMENT DATED 10 DECEMBER 1970
CONFIRMING THE SALE.
G. THE COURT OF APPEALS ERRED IN AFFIRMING THE TRIAL COURT'S AWARD
OF DAMAGES IN FAVOR OF RESPONDENTS AND IN DISMISSING PETITIONERS'
COUNTERCLAIMS FOR DAMAGES.
Our Ruling
The core issue to be resolved in the present controversy is the authenticity of the
Deed of Absolute Sale which is a question of fact rather than of law. In Manila Bay Club
Corporation v. Court of Appeals, 21 we held that for a question to be one of law, it must
involve no examination of the probative value of the evidence presented by the litigants or
any of them. There is a question of law when the doubt or difference arises as to what the
law is pertaining to a certain state of facts. On the other hand, there is a question of fact
when the doubt arises as to the truth or the falsity of alleged facts. 22
In the case at bench, the issues raised by the petitioners are essentially factual
matters, the determination of which are best left to the courts below. Well-settled is the rule
that the Supreme Court is not a trier of facts. Factual findings of the lower courts are entitled
to great weight and respect on appeal, and in fact accorded finality when supported by
substantial evidence on the record. 23 Substantial evidence is more than a mere scintilla of
evidence. It is that amount of relevant evidence that a reasonable mind might accept as
adequate to support a conclusion, 24 even if other minds, equally reasonable, might
conceivably opine otherwise. 25 But to erase any doubt on the correctness of the assailed
ruling, we have carefully perused the records and, nonetheless, arrived at the same
conclusion. We find that there is substantial evidence on record to support the Court of
Appeals and trial court's conclusion that the signatures of Julian and Guillerma in the Deed
of Absolute Sale were forged.
The examination conducted by the
NBI disclosed that Julian and
Guillerma's signatures were forged.
We find that both the trial court and the Court of Appeals correctly gave probative
value to the testimony of the NBI Senior Document Examiner Caroline Moldez Pitoy, who
categorically testified that the signatures of Julian and Guillerma in the Deed of Absolute
Sale were forged, viz.: 26
Atty. Dalisay:
As Senior Document Examiner of the National Bureau of Investigation, do [sic] you
have [the] occasion of examining [sic] the signatures of Julian Sambaan and
Guillerma Saarenas by virtue of the case of the Regional Director, Regional
Office of the National Bureau of Investigation, Cagayan de Oro City?
A: Yes sir.
xxx xxx xxx
Q: What was the result of the findings on the signatures of Julian Sambaan and
Guillerma Saarenas Sambaan appearing on the Deed of Sale dated December
12, 1990.
A: After [conducting] comparative examinations . . . on the standard specimen
signatures of Julian Sambaan [and Guillerma Sambaan] as well as the . . .
questioned . . . signatures . . . we found out that [they were] not written by one
and the same person. 27
xxx xxx xxx
Q: What was the procedure which you have taken x x x in examining the authenticity of
the signatures of Guillerma Saarenas Sambaan?
A: Per Standard Operating Procedures, the first thing we did upon receipt of the
documents submitted to us is to check . . . the documents attached to the basic
letter-request and then the questioned and standard documents were classified
as to the sufficiency and appropriateness of the standards, and then these were
evaluated, after which, they were marked accordingly, then we go to examining
all the standard/specimens first, to determine whether the handwriting is done by
one and the same person before comparing with the questioned and standard
signatures. . . . After they were found to be written by one and the same person,
before comparing with the questioned documents, the handwriting
characteristics were properly observed in these two (2) sheets of photographs,
then, the final evaluation is made, after which, a written report is made as a result
of the examination, then the same is forwarded to the Document Examiner for
re-examination and this Examiner affixes his signature and submits the same to
the Chief of the Division for approval and the said report passes to the office of
the Regional Director for final approval. CETIDH

Petitioners failed to present any

evidence to rebut the findings of the
NBI handwriting expert.
Moreover, the findings of the NBI document examiner were corroborated by the trial
court's own observation, as affirmed by the CA, that "even a cursory examination of
Guillerma's questioned signature from her specimen signatures in the enlarged photographs
(Exhibits 'F' and 'F-1') would show that it needs no expert witness to notice the wide
difference in stroke, as well as the writing style in capital 'G'." 28 What is more, Emma S.
Felicilda, the daughter of then deceased Guillerma, likewise testified that "in fact my mother
was the one who filed the complaint in this instant case because according to her, she did
not sign the said document". 29
The fact that the examination was
commissioned by the respondents
did not make said examination null and void.
It is of no moment that the examination of the Deed of Absolute Sale was
commissioned by the respondents. In the end, it is the court which has the discretion and
authority on whether to give probative value to the results of the examination. As held
in Sali v. Abubakar, 30 the fact that the NBI conducted the examination of certain contested
documents upon the request of a private litigant does not necessarily nullify the examination
thus made:
. . . Its purpose is, presumably, to assist the court having jurisdiction over said litigations,
in the performance of its duty to settle correctly the issue relative to said documents.
Even a non-expert private individual may examine the same, if there are facts within his
knowledge which may help the courts in the determination of said issue. Such
examination, which may properly be undertaken by a non-expert private individual, does
not, certainly, become null and void when the examiner is an expert and/or an officer of
the NBI.
Indeed, any person, expert or not, either in his private or in his official capacity, may
testify in court on matters, within his personal knowledge, which are relevant to a suit,
subject to the judicial authority to determine the credibility of said testimony and the
weight thereof. [On] the other hand, the question whether a public official may or shall
be ordered or permitted by his superior to examine documents and testify thereon in a
given case, is one mainly administrative in character, which is within the competence of
said superior officer, or the Bureau Director or Head of the Office, or the corresponding
department head to decide, and is independent of the validity of the examination thus
made or of the credence and weight to be given by the Court to the conclusions reached,
in consequence of said examination, by the official who made it.
The procedures taken by the NBI
document examiner did not violate
Section 22, Rule 132 of the Rules of Court.
We are not swayed by petitioners' allegation that the comparisons made by the
document examiner, the CA and the trial court, of Guillerma's signature in the Deed of
Absolute Sale and her specimen signatures, violated Section 22, Rule 132 31 of the Rules
of Court on the authentication of private documents. It should be borne in mind that in this
case respondents were not presenting evidence to authenticate a private document. On the
contrary, they are challenging the signatures appearing in the Deed of Absolute Sale.
The confluence of the following
circumstances prove by
preponderance of evidence that the
Deed of Absolute Sale was forged.
Records show that Julian was unaware of any absolute conveyance of his rights over
the subject property in favor of petitioners. As found by the trial court and affirmed by the
CA, Julian even requested his children to redeem subject property from the petitioners. In
furtherance of his father's request, Absalon offered to redeem the subject property from the
petitioners in 1982, however, the latter refused because they were allegedly using the same
as tethering place for their cattle.32
The caretaker of the subject property, Eufronio Abrea, also testified on cross-
examination that there were times when the brothers and sisters of Myrna went to the land
and asked for coconuts. 33 Petitioners take this to imply that the respondents "never owned
the subject property because they had to ask for coconuts from petitioners, who were the
real owners of the property." 34 We disagree with this interpretation. Harvesting of coconuts
requires specialized skills; an ordinary person who does not know how to climb necessarily
has to ask the caretaker to get the coconuts for him or her.
 In addition, Myrna admitted that she was not present when her parents signed the
assailed Deed of Absolute Sale. 35 Neither was she cognizant of who the witnesses were to
the said deed. 36 Interestingly, Guillerma, one of the alleged signatories, would have been
privy to the transaction that involved her husband. Yet, she joined herein respondents in
filing an action for the Annulment of the Deed of Absolute Sale on the ground of forgery. HIAESC

Lastly, the trial court and the CA were one in proclaiming that considering that the
subject property belongs to Julian's capital, the execution of the assailed Deed of Absolute
Sale could be validly made by Julian even without his wife's signature. 37 As a matter of fact,
the wife's name was not typed in the assailed deed and her purported signature merely
appears next to the supposed signature of Julian. This only confirms that the person who
prepared the deed knew that her signature was unnecessary for the assailed document.
The trial court and the CA further concluded:
. . . If such was the case, we are in a query why the signature of GUILLERMA must
have to be forged when her consent, as spouse of JULIAN, is not necessary to the
execution of the Deed of Absolute Sale? The answer to this is simple: JULIAN never
executed the assailed Deed of Absolute Sale in favor of MYRNA and such deed
conveys no ownership in favor of the appellants. 38
Conclusions and findings of fact by the trial court are entitled to great weight on appeal
and should not be disturbed unless for strong and cogent reasons because the trial court is
in a better position to examine real evidence, as well as to observe the demeanor of the
witnesses while testifying in the case. 39 The fact that the CA adopted the findings of fact of
the trial court makes the same binding upon this court. 40 In Philippine Airlines, Inc. v. Court
of Appeals, 41 we held that factual findings of the CA which are supported by substantial
evidence are binding, final and conclusive upon the Supreme Court. A departure from this
rule may be warranted where the findings of fact of the CA are contrary to the findings and
conclusions of the trial court, 42 or when the same is unsupported by the evidence on
record. 43 There is no ground to apply the exception in the instant case, however, because
the findings and conclusions of the CA are in full accord with those of the trial court.
The forged Deed of Absolute Sale is
null and conveys no title.
Having affirmed the findings of fact of both the CA and the trial court that the
signatures of Julian and Guillerma are forgeries, we now come to the question of the validity
of the transfer of title to the petitioners.
In Sps. Solivel v. Judge Francisco, 44 we held that:
. . . in order that the holder of a certificate for value issued by virtue of the registration
of a voluntary instrument may be considered a holder in good faith for value, the
instrument registered should not be forged. When the instrument presented is forged,
even if accompanied by the owner's duplicate certificate of title, the registered owner
does not thereby lose his title, and neither does the assignee in the forged deed acquire
any right or title to the property.
. . . The innocent purchaser for value protected by law is one who purchases a titled
land by virtue of a deed executed by the registered owner himself, not by a forged deed,
as the law expressly states. . . .
In Instrade, Inc. v. Court of Appeals, 45 we reiterated the said ruling maintaining that
"[A]s early as Joaquin v. Madrid, . . ., we said that in order that the holder of a certificate for
value issued by virtue of the registration of a voluntary instrument may be considered a
holder in good faith and for value, the instrument registered should not be forged".
Indubitably, therefore, the questioned Deed of Absolute Sale did not convey any title to
herein petitioners. Consequently, they cannot take refuge in the protection accorded by the
Torrens system on titled lands.
Thus, we hold that with the presentation of the forged deed, even if accompanied by
the owner's duplicate certificate of title, the registered owner did not thereby lose his title,
and neither does the assignee in the forged deed acquire any right or title to the said
property. The CA has aptly arrived at the same conclusion in its August 20, 2003 Decision
affirming in toto the August 2, 2001 Decision of the RTC of Cagayan de Oro City
ratiocinating that:
It is significant to stress that the main thrust in the case at bench is the regularity and
validity of the assailed Deed of Absolute Sale dated December 7, 1970 (Record p. 374,
Exhibit "3") allegedly executed by JULIAN in favor of the appellants. As such, we must
not confuse the issue at hand by averring that other documents should be considered
in determining the validity of the deed of absolute sale. The reason is simple: the valid
execution of the Deed of Absolute Sale will convey and transfer ownership in favor of
appellants title based on the rule that by the contract of sale one of the contracting
parties obligates himself to transfer ownership of and to deliver a determinate thing, and
the other to pay therefor a sum certain in money or its equivalent (Coronel vs. Court of
Appeals, 263 SCRA 15). The fact that the assailed Deed was not signed by JULIAN
and the signatures of JULIAN and GUILLERMA were forged per findings of the NBI
Senior Document Examiner, it can therefore be inferred that the subsequent issuance
of Transfer Certificate of Title No. T-14204 has no basis at all since ownership was not
conveyed to appellants by reason of the forged Deed. SEHaDI

In addition, as to the issue that the Agreement dated December 10, 1970 (Record p.
375, Exhibit "4") executed between DOMINGO and PATRICIO were excluded, we
believe there is no need to delve on the said Agreement since the same will not in any
way give justification to the forgery committed in the Deed of Absolute Sale. As
explained by the court a quo, to which we concur, appellees should not be faulted
because they are not lawyers, and as such they may not be able to appreciate the legal
logic between Exhibits "3" and "4". 46
Prescription did not bar
respondents' action to recover
ownership of the subject property.
Citing Article 1454 47 of the Civil Code, petitioners assert that since the respondents
admit that there was a mortgage transaction between Julian and herein petitioners involving
the subject property there is no dispute that an implied trust was created by operation of law.
In which case, respondents' right to reconveyance had already prescribed when they filed
the annulment case on April 3, 1992, or more than 10 years after petitioners repudiated such
implied trust.
On the other hand, respondents assert that the element of consent is totally wanting
in the assailed Deed of Absolute Sale because the signatures of Julian and Guillerma, which
is equivalent to their consent, were forged by the petitioners. 48 They maintain that the
absence of consent made the said document null and void.49 Hence, this case falls under
the purview of Article 1410 of the Civil Code which provides that an action to declare the
inexistence of void contracts does not prescribe. 50
We agree with the respondents. The supposed vendor's signature having been
proved to be a forgery, the instrument is totally void or inexistent as "absolutely simulated or
fictitious" under Article 1409 of the Civil Code. 51 According to Article 1410, "the action or
defense for the declaration of the inexistence of a contract does not prescribe". The
inexistence of a contract is permanent and incurable which cannot be cured either by
ratification or by prescription. 52
The award of moral damages and
attorney's fees is proper.
On this aspect, we must consider the blood relations among the parties. One of the
respondents, Emma S. Felicilda, testified on cross examination that they had high regard
for Myrna, their eldest sister. 53 The same was echoed by respondent Anita Sambaan on
cross examination. 54 They could not believe that Myrna would keep and appropriate the
land for herself and transfer the title exclusively to her name. 55 On direct examination,
respondent Emma S. Felicilda likewise testified that the forgery caused them anger and bad
emotions. 56
Moreover, it was Julian's dying wish for the property to be redeemed from the
petitioners. 57 Hence, it is not unexpected that the sentimental significance of the property
 and the anger and emotions caused by the unlawful transfer of the same have moved the
respondents to recover the same through the instant action. We therefore hold that the
award of P20,000.00 as moral damages is proper.
In addition, in view of the complexity of the instant case and the multiple levels of
appeal that this case had gone through, we also affirm the award of attorney's fees of
P20,000.00 as well as the actual damages of P1,671.00 incurred by the prevailing party
which was substantiated during trial.
On a final note, it bears stressing that the arguments raised by the petitioners are
essentially the same issues they put forward before the CA which have been duly passed
upon and considered by the appellate court in affirming the RTC Decision in toto. EDATSI

WHEREFORE, the petition is DENIED.

SO ORDERED.
Carpio, Brion, Abad and Perez, JJ., concur.
(Spouses Bernales v. Heirs of Sambaan, G.R. No. 163271, [January 15, 2010], 624 PHIL
|||

88-108)

(8)

SECOND DIVISION

[G.R. No. 181560. November 15, 2010.]

VITARICH CORPORATION, petitioner, vs. CHONA LOSIN, respondent.

DECISION

MENDOZA, J : p

This is a petition for review under Rule 45 of the Rules of Court seeking to reverse
and set aside the November 26, 2007 Decision 1 of the Court of Appeals, Cagayan de
Oro (CA-CDO), in CA G.R. CV No. 73726, 2 which reversed the August 9, 2001 Decision of
the Regional Trial Court, Branch 23, General Santos City (RTC), in Civil Case No. 6287, in
favor of petitioner Vitarich Corporation (Vitarich).
THE FACTS:
Respondent Chona Losin (Losin) was in the fastfood and catering services business
named Glamours Chicken House, with address at Parang Road, Cotabato City. Since
1993, Vitarich, particularly its Davao Branch, had been her supplier of poultry meat. 3 In
1995, however, her account was transferred to the newly openedVitarich branch in General
Santos City.
In the months of July to November 1996, Losin's orders of dressed chicken and other
meat products allegedly amounted to P921,083.10. During this said period, Losin's poultry
meat needs for her business were being serviced by Rodrigo Directo (Directo) and Allan
Rosa (Rosa), both salesmen and authorized collectors of Vitarich, and Arnold
Baybay (Baybay), a supervisor of said corporation. Unfortunately, it was also during the
same period that her account started to experience problems because of the fact that Directo
delivered stocks to her even without prior booking which is the customary process of doing
business with her. 4
 On August 24, 1996, Directo's services were terminated by Vitarich without Losin's
knowledge. He left without turning over some supporting invoices covering the orders
of Losin. Rosa and Baybay, on the other hand, resigned on November 30, 1996 and
December 30, 1996, respectively. Just like Directo, they did not also turn over pertinent
invoices covering Losin's account. 5
On February 12, 1997, demand letters were sent to Losin covering her alleged unpaid
account amounting to P921,083.10. Because of said demands, she checked her records
and discovered that she had an overpayment to Vitarich in the amount of P500,000.00. She
relayed this fact to Vitarich and further informed the latter that checks were issued and the
same were collected by Directo. 6
It appears that Losin had issued three (3) checks amounting to P288,463.30 which
were dishonored either for reasons Drawn Against Insufficient Funds (DAIF) or Stop
Payment. 7 TcHDIA

On March 2, 1998, Vitarich filed a complaint for Sum of Money against Losin, Directo,
Rosa, and Baybay before the RTC.
On August 9, 2001, the RTC rendered its Decision 8 in favor of Vitarich, the dispositive
portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of plaintiff, ordering
defendant Chona Losin to pay plaintiff the following:
1. P297,462.50 representing the three checks which had been stopped payment
with interest at 12% per annum from the date of this Decision until the
whole amount is fully paid;
2. P101,450.20 representing the unpaid sales (Exhibits 'L' and 'M') with interest
at 12% from date of this Decision until the whole amount is fully paid;
3. P20,000.00 in concept of attorney's fees; and
4. The cost of suit.
As to the complaint against defendant Allan Rosa and Arnold Baybay, the same is
dismissed. The complaint against Rodrigo Directo still remains and is hereby ordered
archived until he could be served with summons.
SO ORDERED. 9
Not satisfied with the RTC decision, Losin appealed to the CA presenting the
following:
ASSIGNMENT OF ERRORS:
I. THE LOWER COURT ERRED IN NOT APPRECIATING THE OVERPAYMENT
MADE BY DEFENDANT-APPELLANT TO VITARICH CORPORATION;
II. THE LOWER COURT ERRED IN ORDERING THE PAYMENT OF THE THREE (3)
CHECKS WITH STOP PAYMENT ORDERS AND WITHOUT ANY
ANTECEDENT DOCUMENTARY EVIDENCES FOR THE TWO (2) CHECKS,
NAMELY: RCBC CHECK NO. CX 046324 AND RCBC CHECK NO. CX 046327;
AND
III. THE LOWER COURT ERRED IN NOT
FINDING VITARICH CORPORATION NEGLIGENT IN THE SELECTION OF
ITS EMPLOYEES AND NEITHER FINDING THECORPORATION LIABLE FOR
DAMAGES A CLEAR VIOLATION OF ARTICLE 2180 OF THE CIVIL CODE. 10
On November 26, 2007, the CA rendered the assailed decision in favor of Losin.
Pertinently, the said decision reads:
It is axiomatic that we should not interfere with the judgment of the trial court in
determining the credibility of witnesses, unless there appears in the record some fact or
circumstances of weight and influence which has been overlooked or the significance
of which has been misinterpreted. The reason is that the trial court is in a better position
to determine questions involving credibility having heard the witnesses and having
observed their deportment and manner of testifying during the trial unless there is
showing that the findings of the lower court are totally devoid of support or glaringly
erroneous as to constitute palpable error or grave abuse of discretion. This is such an
instance. caIACE

By the contract of agency, a person binds himself to render some service or to do

something in representation or on behalf of another, with the consent or authority of the
latter. Thus, the elements of agency are (i) consent, express or implied, of the parties
to establish the relationship; (ii) the object is the execution of a juridical act in relation to
a third person; (iii) the agent acts as a representative and not for himself; and (iv) the
agent acts within the scope of his authority.
The Civil Code defines a contract of agency as follows:
"Art. 1868. By the contract of agency, a person binds himself to render some
service or to do something in representation or on behalf of another, with the
consent or authority of the latter."
As far as Losin is concerned, Directo was a duly authorized agent
of Vitarich Corporation. As such, it fell upon Directo to place her orders of dressed
chicken and other related products to their General Santos City branch. All such orders
were taken from the Vitarich bodega by Directo as testified by Alona Calinawan, then
bookkeeper of Vitarich from March 1995 to September 1998, who was responsible for
all the customers' accounts, receivables and withdrawals of dressed chicken from their
bodega.
A perusal of the records would show that Vitarich included in their list of collectibles
from Losin several amounts that were not supported by their Charge Sales Invoices
such as P44,987.70, P3,300.00; P28,855.40; P98,166.20; P73,806.00; and P93,888.80
and which form part of their total claim of P912,083.10. Furthermore, Vitarich also
submitted Charge Sales Invoices showing the amount of P70,000.00, P41,792.40,
P104,137.40 and P158,522.80 as part of their exhibits but which amounts are not
included in its summary statement of collectibles against Losin.
It is noted that the dressed chicken and other related products as manifested by the
Charge Sales Invoices, were taken out of the bodega and received by Directo, who is
now 'at large.' There was no evidence presented by Vitarich to prove that aforesaid
stocks were delivered to Losin. Contrary to what Vitarich claimed that Directo resigned
on August 24, 1996, exhibit 'X' shows that he was 'terminated.' The fact can not be put
aside that Directo was the salesman and authorized collector and by law, the agent
of Vitarich. Criminal acts committed by Directo by his non-remittance of the proceeds of
the checks given by Losin, is his separate accountability withVitarich and should not be
imputed to their client, Losin. In fact, defendant Directo absconded when plaintiff-
appellee started to question his 'collectibles.' The totality of Directo's acts clearly
indicated a deliberate attempt to escape liability.
The Civil Code provides:
"Art. 1921. If the agency has been entrusted for the purpose of contracting with
specified persons, its revocation shall not prejudice the latter if they were not
given notice thereof."
"Art. 1922. If the agent had general powers, revocation of the agency does not
prejudice third persons who acted in good faith and without knowledge of the
revocation. Notice of the revocation in a newspaper of general circulation is a
sufficient warning to third persons." (Emphasis Ours)
The reason for the law is obvious. Since the third persons have been made to believe
by the principal that the agent is authorized to deal with them, they have the right to
presume that the representation continues to exist in the absence of notification by the
principal.TcDIaA

Nowhere in the records can it be found that Losin was notified of the fact that Directo
was no longer representing the interest of Vitarich and that the latter has terminated
Directo's services. There is also an absence of any proof to show that Directo's
termination has been published in a newspaper of general circulation.
It is well settled that a question of fact is to be determined by the evidence offered to
support the particular contention. In defendant-appellant's 'Statement of Payments
Made to Vitarich,' prepared and signed by Losin's bookkeeper, Imelda S. Cinco, all the
checks enumerated therein coincides with the bank statements submitted by RCBC,
thus corroborating Losin's claim that she has paid Vitarich. Vitarich's contention that
'defendant Baybay tried very hard to hide his accountabilities to the plaintiff . . . but failed
to explain why the account remained unpaid,' confirms its belief that their own agents
as such, are accountable for transactions made with third persons. "As a Sales
Supervisor, he is principally liable for the behavior of his subordinates (Directo & Rosa)
and for the enforcement of company rules" which may have gone beyond their authority
to do such acts.
Anent the third assigned error that the lower court erred in not finding Vitarich negligent
in the selection of its employees thereby making the former liable for damages under
Article 2180 of the Civil Code, We find the same to be without basis as said article
explicitly holds that:
"ART. 2180. The obligation imposed by Article 2176 is demandable not only for
one's own acts or omissions, but also for those of persons for whom one is
responsible.
xxx xxx xxx
Employers shall be liable for the damages caused by their employees and
household helpers acting within the scope of their assigned tasks, even
though the former are not engaged in any business or industry.
xxx xxx xxx."
Pursuant to Article 2180 of the Civil Code, that vicarious liability attaches only to an
employer when the tortuous conduct of the employee relates to, or is in the course of,
his employment. The question to ask should be whether at the time of the damage or
injury, the employee is engaged in the affairs or concerns of the employer or,
independently, in that of his own? Vitarich incurred no liability when Directo's conduct,
act or omission went beyond the range of his employment.
Section 1, Rule 133 of the Rules of Court provides:
"SECTION 1. Preponderance of evidence, how determined. In civil cases, the
party having the burden of proof must establish his case by a preponderance of
evidence. In determining where the preponderance or superior weight of
evidence on the issues involved lies, the court may consider all the facts and
circumstances of the case, the witnesses' manner of testifying, their intelligence,
their means and opportunity of knowing the facts to which they are testifying, the
nature of the facts to which they testify, the probability or improbability of their
testimony, their interest or want of interest, and also their personal credibility so
far as the same may legitimately appear upon the trial. The court may also
consider the number of witnesses, though the preponderance is not necessarily
with the greater number." HaTAEc

"Preponderance of evidence' is the weight, credit, and value of the aggregate evidence
on either side and is usually considered to be synonymous with the term 'greater weight
of the evidence' or greater weight of the credible evidence." It is evidence which is more
convincing to the court as worthy of belief than that which is offered in opposition
thereto.
xxx xxx xxx
We reviewed the factual and legal issues of this case in light of the general rules of
evidence and the burden of proof in civil cases, as explained by the Supreme Court
in Jison v. Court of Appeals:
". . . Simply put, he who alleges the affirmative of the issue has the burden of
proof, and upon the plaintiff in a civil case, the burden of proof never parts.
However, in the course of trial in a civil case, once plaintiff makes out a prima
facie case in his favour, the duty or the burden of evidence shifts to defendant to
controvert plaintiff's prima facie case, otherwise, a verdict must be returned in
favour of plaintiff. Moreover, in civil cases, the party having the burden of proof
 must produce a preponderance of evidence thereon, with plaintiff having to rely
on the strength of his own evidence and not upon the weakness of the
defendants. The concept of 'preponderance of evidence' refers to evidence
which is of greater weight, or more convincing, that which is offered in opposition
to it; at bottom, it means probability of truth."
Hence, Vitarich who has the burden of proof must produce such quantum of evidence,
with the former having to rely on the strength of its own evidence and not on the
weakness of the defendant-appellant Losin's.
In this light, we have meticulously perused the records of this case and [found] that the
court a quo had erred in appreciating the evidence presented.
In deciding this appeal, the Court relies on the rule that a party who has the burden of
proof in a civil case must establish his cause of action by a preponderance of evidence.
When the evidence of the parties is in equipoise, or when there is a doubt as to where
the preponderance of evidence lies, the party with the burden of proof fails and the
petition/complaint must thus be denied. We find that plaintiff-appellee Vitarich failed to
prove that the goods were ever delivered and received by Losin, said charge sales
invoices being undated and unsigned by Losin being the consignee of the goods.
On the other hand, Losin could not also prove that she has overpaid Vitarich. Hence,
her contention that she has overpaid Vitarich and her prayer for refund of the alleged
overpaid amount, must necessarily fail.
ACCORDINGLY, the instant appeal is hereby GRANTED and the appealed judgment
is hereby SET ASIDE and VACATED. No pronouncement as to cost.
SO ORDERED. 11
Hence, this petition for review alleging that
AS THE FINDINGS OF FACTS OF THE COURT OF APPEALS SQUARELY
CONTRADICTS THAT OF THE TRIAL COURT, PETITIONER HUMBLY REQUESTS
THE SUPREME COURT TO INQUIRE INTO THE ERRONEOUS CONCLUSIONS OF
FACTS MADE BY THE COURT OF APPEALS. 12
As a general rule, a petition for review under Rule 45 of the Rules of Court covers
questions of law only. Questions of fact are not reviewable and passed upon by this Court
in its exercise of judicial review. The distinction between questions of law and questions of
fact has been well defined. A question of law exists when the doubt or difference centers
on what the law is on a certain state of facts. A question of fact, on the other hand, exists
if the doubt centers on the truth or falsity of the alleged facts. 13 HSaIDc

The rule, however, admits of exceptions, namely: (1) when the findings are grounded
entirely on speculations, surmises, or conjectures; (2) when the inference made is manifestly
mistaken, absurd, or impossible; (3) when there is a grave abuse of discretion; (4) when the
judgment is based on misappreciation of facts; (5) when the findings of fact are conflicting;
(6) when in making its findings, the same are contrary to the admissions of both appellant
and appellee; (7) when the findings are contrary to those of 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; and (10) when the findings of fact are premised on the
supposed absence of evidence and contradicted by the evidence on record. 14
The aforementioned exceptions, particularly the seventh exception, finds relevance in
the case at bench since the findings of the CA are clearly in conflict with that of the trial
court. For this reason, the Court is constrained to reevaluate the evidence adduced by both
parties to resolve the issues which boil down to whether or not Losin is liable to Vitarich and,
if so, to what extent.
The Court resolves the issues partly in favor of Vitarich.
Initially, Vitarich claims a total of P921,083.10 from respondent Losin, Directo, Rosa
and Baybay (defendants in Civil Case No. 6287 for Sum of Money). According to Vitarich,
"[t]he successive and sudden resignations of defendants Directo, Baybay and Rosa and the
sudden change of mind of defendant Losin after previously acknowledging her accounts are
part of an elaborate and sinister scheme of defendants, acting singly or collectively, in
conspiracy or not, in defrauding plaintiff corporation . . . ." 15
The RTC ruled in favor of Vitarich, ordering Losin to pay the
following: (1) P297,462.50 representing the three (3) checks, the payment for which was
stopped, with corresponding interest at 12% per annum from the date of the RTC decision
until fully paid; (2) P101,450.20 for the unpaid sales also with interest at 12% per annum
from the date of the RTC decision until fully paid; (3) P20,000.00 for attorney's fees;
and (4) cost of suit. 16 It appears that Vitarich did not challenge this part of the RTC decision
anymore. 17
After Losin obtained a favorable RTC decision, Vitarich now seeks relief from this
Court through this petition for review.
After an assessment of the evidentiary records, the Court opines and so holds that
the CA erred in reversing the RTC decision. Losin is clearly liable to Vitarich.
Records bear out that Losin transacted with Vitarich's representative
Directo. 18 Vitarich presented several charge sales invoices 19 and statement of account 20to
support Losin's accountability for the products delivered to her. A total of P921,083.10 was
initially charged to her. Losin, on the other hand, presented a copy of the list of checks
allegedly issued to Vitarich through its agent Directo, 21 and a Statement of Payments Made
to Vitarich 22 to support her allegation of payment.
It is worth noting that both Vitarich and Losin failed to make a proper recording and
documentation of their transactions making it difficult to reconcile the evidence presented
by the parties to establish their respective claims. TIEHDC

As a general rule, one who pleads payment has the burden of proving it. In Jimenez v.
NLRC, 23 the Court ruled that the burden rests on the debtor to prove payment, rather than
on the creditor to prove non-payment. The debtor has the burden of showing with legal
certainty that the obligation has been discharged by payment.
True, the law requires in civil cases that the party who alleges a fact has the burden
of proving it. Section 1, Rule 131 of the Rules of Court 24 provides that the burden of proof
is the duty of a party to prove the truth of his claim or defense, or any fact in issue by the
amount of evidence required by law. In this case, however, the burden of proof is
on Losin because she alleges an affirmative defense, namely, payment. Losin failed to
discharge that burden.
After examination of the evidence presented, this Court is of the opinion
that Losin failed to present a single official receipt to prove payment. 25 This is contrary to
the well-settled rule that a receipt, which is a written and signed acknowledgment that money
and goods have been delivered, is the best evidence of the fact of payment although not
exclusive. 26 All she presented were copies of the list of checks allegedly issued
to Vitarich through its agent Directo, 27 a Statement of Payments Made to Vitarich, 28 and
apparently copies of the pertinent history of her checking account with Rizal Commercial
Banking Corporation (RCBC). At best, these may only serve as documentary records of her
business dealings with Vitarich to keep track of the payments made but these are not
enough to prove payment.
Article 1249, paragraph 2 of the Civil Code provides:
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.
[Emphasis supplied]
In the case at bar, no cash payment was proved. It was neither confirmed that the
checks issued by Losin were actually encashed by Vitarich. Thus, the Court cannot consider
that payment, much less overpayment, made by Losin.
Now, the Court ascertains the extent of Losin's liability. A perusal of the records shows
that Vitarich included in its list of collectibles, 29 several amounts that were not properly
supported by Charge Sales Invoice, to
wit, (1) P44,987.70; (2) P3,300.00; (3) P28,855.40; (4) P98,166.20; (5) P73,806.00;
and (6) P93,888.80. 30 It bears noting that the Charge Sales Invoices presented for the
amounts listed as collectibles were undated and unsigned by Losin, the supposed
consignee of the goods (except Exh. L). Of the six amounts, the Court particularly
considered the P93,888.80 as it was the amount of one of the checks issued by Losin.
Indeed, the Court cannot disregard the fact that Losin issued a corresponding check for the
following amounts: (1) P93,888.96 (dated August 27, 1996); 31 (2) P50,265.00 (dated
August 30, 1996); 32 and (3) P144,309.50 (dated August 31, 1996). 33 The Court believes
that Losin would not have issued those checks had she not received the goods so delivered
to her. The first two (2) checks were apparently received by the Vitarich but were not
encashed because of Losin's instruction to RCBC. Thus, Losin is liable to Vitarich but not
for the total amount of the three (3) mentioned checks but only for the amount of P93,888.96
and P50,265.00 corresponding to the first two (2) checks. Losin cannot be held liable for the
amount of the third check P144,309.50 because Vitarich did not claim for this amount. The
amount of P144,309.50 for some reason, was not among those listed in the list of collectibles
of Vitarich. 34
HSaEAD

Aside from the earlier mentioned liabilities, the Court also holds Losin liable for the
amount of P78,281.00 which was also among those listed as collectible byVitarich. Although
the Charge Sales Invoice 35 bearing this amount was undated, it nevertheless, appears that
the goods corresponding to this amount were actually received by Losin's mother. This was
even testified to by Rosa 36 and confirmed by Losin herself. 37 With the exception of the
amounts corresponding to the two (2) checks discussed above and the amount of
P18,281.00 as appearing in Exh. L, the other amounts appearing on the rest of the Charge
Sales Invoice and on the Statement of Account presented by Vitarich cannot be charged
on Losin for failure of Vitarich to prove that these amounts are chargeable to
her. Vitarich even failed to prove that the rest of the goods as appearing on the other Charge
Sales Invoices were actually delivered and received by her or her representative since these
Charge Sales Invoices were undated and unsigned. Thus, Losin is liable to pay Vitarich the
amounts of P93,888.96, P50,265.00 and P78,281.00 or a total ofP222,434.96 only.
Inasmuch as the case at bar involves an obligation not arising from a loan or
forbearance of money, but consists in the payment of a sum of money, the legal rate of
interest is 6% per annum of the amount demanded. 38 Interest shall continue to run from
February 12, 1997, the date when Vitarich demanded payment of the sum amounting to
P921,083.10 from Losin (and not from the time of the filing of the Complaint) until finality of
the Decision (not until fully paid). The rate of interest shall increase to 12% per annum only
from such finality until its satisfaction, the interim period being deemed to be equivalent to a
forbearance of credit. 39
Regarding the grant of attorney's fees, the Court agrees with the RTC that said award
is justified. Losin refused to pay Vitarich despite the latter's repeated demands. It was left
with no recourse but to litigate and protect its interest. We, however, opt to reduce the same
to P10,000.00 from P20,000.00.
The claims against Rosa and Baybay who allegedly did not fully account for their sales
transactions have not been substantially proven by evidence. In fact, it appears that Rosa
and Baybay resigned. Resignation would not have been possible unless accountabilities
with Vitarich had been settled first. It was only the services of Directo that was apparently
terminated by Vitarich. 40 Summons, however, was not served on him, so he could not be
made to account for the shortages of collection.
WHEREFORE, the November 26, 2007 Decision of the Court of Appeals
is REVERSED and SET ASIDE. The August 9, 2001 Decision of the Regional Trial Court of
General Santos City, Branch 23, is REINSTATED subject to MODIFICATIONS. Thus, the
dispositive portion should read as follows:
WHEREFORE, judgment is hereby rendered ordering Chona Losin to
pay Vitarich Corporation the following:
 (1) P222,434.96 representing the two checks, with Check Nos. CX 046324 dated
August 27, 1996 and CX 046325 dated August 30, 1996 which had been
stopped payment and the amount as appearing in Charge Sales Invoice
marked as Exhibit 'L' subject to an interest rate of 6% per annum from
February 12, 1997, the date when Vitarich demanded payment of the sum
amounting to P921,083.10 from Losin until finality of the Decision. The
rate of interest shall increase to 12% per annum only from such finality
until its satisfaction, the interim period being deemed to be equivalent to
a forbearance of credit;
(2) P10,000.00 representing attorney's fees; and
(3) Cost of suit.
The complaint against Allan Rosa and Arnold Baybay is dismissed. The complaint
against Rodrigo Directo is ordered archived until he could be served with summons.
SO ORDERED. DTAESI

Carpio, Nachura, Peralta and Abad, JJ., concur.

||| (Vitarich Corporation v. Losin, G.R. No. 181560, [November 15, 2010], 649 PHIL 164-181)

(9)

FIRST DIVISION

[G.R. Nos. 193383-84. January 14, 2015.]

CBK POWER COMPANY LIMITED, petitioner, vs. COMMISSIONER OF INTE

RNAL REVENUE, respondent.

[G.R. Nos. 193407-08. January 14, 2015.]

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. CBK POWER CO

MPANY LIMITED, respondent.

DECISION

PERLAS-BERNABE, J : p

Assailed in these consolidated petitions for review on certiorari 1 are the Decision 2 dated
March 29, 2010 and the Resolution 3 dated August 16, 2010 of the Court of Tax Appeals
(CTA) En Banc in C.T.A. E.B. Nos. 469 and 494, which affirmed the Decision 4 dated August
28, 2008, the Amended Decision 5 dated February 12, 2009, and the Resolution 6 dated May
7, 2009 of the CTA First Division in CTA Case Nos. 6699, 6884, and
7166 granting CBK Power Company Limited (CBK Power) a refund of its excess final
withholding tax for the taxable years 2001 to 2003.
The Facts
CBK Power is a limited partnership duly organized and existing under the laws of the
Philippines, and primarily engaged in the development and operation of the Caliraya, Botocan,
and Kalayaan hydroelectric power generating plants in Laguna (CBK Project). It is registered
with the Board of Investments (BOI) as engaged in a preferred pioneer area of investment
under the Omnibus Investment Code of 1987. 7
To finance the CBK Project, CBK Power obtained in August 2000 a syndicated loan from
several foreign banks, 8 i.e., BNP Paribas, Dai-ichi Kangyo Bank, Limited, Industrial
Bank of Japan, Limited, and Societe General (original lenders), acting through an Inter-Creditor
Agent, Dai-ichi Kangyo Bank, a Japanese bank that subsequently merged with the Industrial
Bank of Japan, Limited (Industrial Bank of Japan) and the Fuji Bank, Limited (Fuji Bank), with
the merged entity being named as Mizuho Corporate Bank (Mizuho Bank). One of the merged
banks, Fuji Bank, had a branch in the Philippines, which became a branch of Mizuho Bank as
a result of the merger. The Industrial Bank of Japan and Mizuho Bank are residents of Japan
for purposes of income taxation, and recognized as such under the relevant provisions ofthe
income tax treaties between the Philippines and Japan. 9
Certain portions of the loan were subsequently assigned by the original lenders to various other
banks, including Fortis Bank (Nederland) N.V. (Fortis-Netherlands) and Raiffesen Zentral Bank
Osterreich AG (Raiffesen Bank). Fortis-Netherlands, in turn, assigned its portion of the loan to
Fortis Bank S.A./N.V. (Fords-Belgium), a resident ofBelgium. Fortis-Netherlands and Raiffesen
Bank, on the other hand, are residents of Netherlands and Austria, respectively. 10
In February 2001, CBK Power borrowed money from Industrial Bank of Japan, Fortis-
Netherlands, Raiffesen Bank, Fortis-Belgium, and Mizuho Bank for which it remitted interest
payments from May 2001 to May 2003. 11 It allegedly withheld final taxes from said payments
based on the following rates, and paid the same to the RevenueDistrict Office No. 55 of the
Bureau of Internal Revenue (BIR): (a) fifteen percent (15%) for Fortis-Belgium, Fortis-
Netherlands, and Raiffesen Bank; and (b) twenty percent (20%) for Industrial Bank of Japan
and Mizuho Bank. 12 aIcETS

However, according to CBK Power, under the relevant tax treaties between the Philippines
and the respective countries in which each of the banks is a resident, the interest income
derived by the aforementioned banks are subject only to a preferential tax rate of 10%, viz.: 13
BANK COUNTRY OF PREFERENTIAL RATE
RESIDENCE UNDER THE RELEVANT
TAX TREATY

Fortis Bank S.A./N.V. Belgium 10% (Article 11 [1],

RP-Belgium Tax Treaty)

Industrial Bank of Japan 10% (Article 11 [3],

Japan RP-Japan Tax Treaty)

Raiffesen Zentral Bank Austria 10% (Article 11 [3],

Osterreich AG RP-Austria Tax Treaty)

Mizuho Corporate Bank Japan 10% (Article 11 [3],

RP-Japan Tax Treaty)

Accordingly, on April 14, 2003, CBK Power filed a claim for refund of its excess final
withholding taxes allegedly erroneously withheld and collected for the years 2001 and 2002
with the BIR Revenue Region No. 9. The claim for refund of excess final withholding taxes in
2003 was subsequently filed on March 4, 2005. 14
The Commissioner of Internal Revenue's (Commissioner) inaction on said claims
prompted CBK Power to file petitions for review before the CTA, viz.: 15
(1) CTA Case No. 6699 was filed by CBK Power on June 6, 2003 seeking the
refund of excess final withholding tax in the total amount PhP6,393,267.20 covering the
year 2001 with respect to interest income derived by [Fortis-Belgium], Industrial
Bank of Japan, and [Raiffesen Bank]. An Answer was filed by the Commissioner on July
25, 2003.
 (2) CTA Case No. 6884 was filed by CBK Power on March 5, 2004 seeking for the
refund of the amount of PhP8,136,174.31 covering [the] year 2002 with respect to
interest income derived by [Fortis-Belgium], Industrial Bank of Japan, [Mizuho Bank],
and [Raiffesen Bank]. The Commissioner filed his Answer on May 7, 2004.
xxx xxx xxx
(3) CTA Case No. 7166 was filed by CBK [Power] on March 9, 2005 seeking for the
refund of [the amount of] PhP1,143,517.21 covering [the] year 2003 with respect to
interest income derived by [Fortis-Belgium], and [Raiffesen Bank].
The Commissioner filed his Answer on May 9, 2005. (Emphases supplied)
CTA Case Nos. 6699 and 6884 were consolidated first on June 18, 2004. Subsequently,
however, all three cases CTA Case Nos. 6699, 6884, and 7166 were consolidated in a
Resolution dated August 3, 2005. 16
The CTA First Division Rulings
In a Decision 17 dated August 28, 2008, the CTA First Division granted the petitions and
ordered the refund of the amount of PhP15,672,958.42 upon a finding that the relevant tax
treaties were applicable to the case. 18 It cited DA-ITAD Ruling No. 099-03 19 dated July 16,
2003, issued by the BIR, confirming CBK Power's claim that the interest payments it made to
Industrial Bank of Japan and Raiffesen Bank were subject to a final withholding tax rate of only
10% of the gross amount of interest, pursuant to Article 11 of the Republic of the Philippines
(RP)-Austria and RP-Japan tax treaties. However, in DA-ITAD Ruling No. 126-03 20 dated
August 18, 2003, also issued by the BIR, interest payments to Fortis-Belgium were likewise
subjected to the same rate pursuant to the Protocol Amending the RP-Belgium Tax Treaty, the
provisions of which apply on income derived or which accrued beginning January 1, 2000. With
respect to interest payments made to Fortis-Netherlands before it assigned its portion of the
loan to Fortis-Belgium, the CTA First Division likewise granted the preferential rate. 21 CAcDTI

The CTA First Division categorically declared in the August 28, 2008 Decision that the required
International Tax Affairs Division (ITAD) ruling was not a condition sine qua non for the
entitlement of the tax relief sought by CBK Power, 22 however, upon motion for
reconsideration 23 filed by the Commissioner, the CTA First Divisionamended its earlier
decision by reducing the amount of the refund from PhP15,672,958.42
to PhP14,835,720.39 on the ground that CBK Power failed to obtain an ITAD ruling with
respect to its transactions with Fortis-Netherlands. 24 In its Amended
Decision 25 dated February 12, 2009, the CTA First Division adopted 26 the ruling in the
case of Mirant (Philippines) Operations Corporation (formerly: Southern Energy Asia-Pacific
Operations [Phils.], Inc.) v. Commissioner of Internal Revenue (Mirant), 27cited by
the Commissioner in his motion for reconsideration, where the Court categorically pronounced
in its Resolution dated February 18, 2008 that an ITAD ruling must be obtained prior to availing
a preferential tax rate.
CBK Power moved for the reconsideration 28 of the Amended Decision dated February 12,
2009, arguing in the main that the Mirant case, which was resolved in a minute resolution, did
not establish a legal precedent. The motion was denied, however, in a Resolution 29 dated May
7, 2009 for lack of merit.
Undaunted, CBK Power elevated the matter to the CTA En Banc on petition for
review, 30 docketed as C.T.A E.B. No. 494. The Commissioner likewise filed his own petition
for review, 31 which was docketed as C.T.A. E.B. No. 469. Said petitions were subsequently
consolidated. 32
CBK Power raised the lone issue of whether or not an ITAD ruling is required before it can
avail of the preferential tax rate. On the other hand, the Commissionerclaimed
that CBK Power failed to exhaust administrative remedies when it filed its petitions before the
CTA First Division, and that said petitions were not filed within the two-year prescriptive period
for initiating judicial claims for refund. 33
The CTA En Banc Ruling
In a Decision 34 dated March 29, 2010, the CTA En Banc affirmed the ruling of the CTA First
Division that a prior application with the ITAD is indeed required by RevenueMemorandum
Order (RMO) 1-2000, 35 which administrative issuance has the force and effect of law and is
just as binding as a tax treaty. The CTA En Banc declared theMirant case as without any
binding effect on CBK Power, having been resolved by this Court merely through minute
resolutions, and relied instead on the mandatory wording of RMO 1-2000, as follows: 36
III. Policies:
xxx xxx xxx
2. Any availment of the tax treaty relief shall be preceded by an application by
filing BIR Form No. 0901 (Application for Relief from Double Taxation) with
ITAD at least 15 days before the transaction i.e., payment of dividends,
royalties, etc., accompanied by supporting documents justifying the relief.
....
The CTA En Banc further held that CBK Power's petitions for review were filed within the two-
year prescriptive period provided under Section
229 37 of the NationalInternal Revenue Code of 1997 38 (NIRC),and that it was proper
for CBK Power to have filed said petitions without awaiting the final resolution of its
administrative claims for refund before the BIR; otherwise, it would have completely lost its right
to seek judicial recourse if the two-year prescriptive period lapsed with no judicial claim filed.
CBK Power's motion for partial reconsideration and the Commissioner's motion for
reconsideration of the foregoing Decision were both denied in a Resolution 39 dated August
16, 2010 for lack of merit; hence, the present consolidated petitions.
The Issues Before the Court
In G.R. Nos. 193383-84, CBK Power submits the sole legal issue of whether the BIR may add
a requirement prior application for an ITAD ruling that is not found in the income tax
treaties signed by the Philippines before a taxpayer can avail of preferential tax rates under
said treaties. 40
On the other hand, in G.R. Nos. 193407-08, the Commissioner maintains that CBK Power is
not entitled to a refund in the amount of PhP1,143,517.21 for the period covering taxable year
2003 as it allegedly failed to exhaust administrative remedies before seeking judicial redress. 41
The Court's Ruling
The Court resolves the foregoing in seriatim.
A. G.R. Nos. 193383-84
The Philippine Constitution provides for adherence to the general principles of international law
as part of the law of the land. The time-honored international principleof pacta sunt
servanda demands the performance in good faith of treaty obligations on the part of the states
that enter into the agreement. In this jurisdiction, treaties have the force and effect of law. 42 SAHaTc

The issue of whether the failure to strictly comply with RMO No. 1-2000 will deprive persons or
corporations of the benefit of a tax treaty was squarely addressed in the recent
case of Deutsche Bank AG Manila Branch v. Commissioner of Internal Revenue 43 (Deutsche
Bank), where the Court emphasized that the obligation to comply with a tax treaty must
take precedence over the objective of RMO No. 1-2000, viz.:
We recognize the clear intention of the BIR in implementing RMO No. 1-2000, but the
CTA's outright denial of a tax treaty relief for failure to strictly comply with the
prescribed period is not in harmony with the objectives of the contracting state to
ensure that the benefits granted under tax treaties are enjoyed by duly entitled
persons or corporations.
Bearing in mind the rationale of tax treaties, the period of application for the
availment of tax treaty relief as required by RMO No. 1-2000 should not operate to
divest entitlement to the relief as it would constitute a violation of the duty required
by good faith in complying with a tax treaty. The denial of the availment of tax relief for
the failure of a taxpayer to apply within the prescribed period under the administrative
 issuance would impair the value of the tax treaty. At most, the application for a tax
treaty relief from the BIR should merely operate to confirm the entitlement of the
taxpayer to the relief.
The obligation to comply with a tax treaty must take precedence over the
objective of RMO No. 1-2000. Logically, noncompliance with tax treaties has negative
implications on international relations, and unduly discourages foreign investors. While
the consequences sought to be prevented by RMO No. 1-2000 involve an
administrative procedure, these may be remedied through other system management
processes, e.g., the imposition of a fine or penalty. But we cannot totally deprive
those who are entitled to the benefit of a treaty for failure to strictly comply with
an administrative issuance requiring prior application for tax treaty
relief. 44 (Emphases and underscoring supplied)
The objective of RMO No. 1-2000 in requiring the application for treaty relief with the ITAD
before a party's availment of the preferential rate under a tax treaty is to avert the
consequences of any erroneous interpretation and/or application of treaty provisions, such as
claims for refund/credit for overpayment of taxes, or deficiency tax liabilities for
underpayment. 45 However, as pointed out in Deutsche Bank, the underlying principle of prior
application with the BIR becomes moot in refund cases as in the present case where
the very basis of the claim is erroneous or there is excessive payment arising from the non-
availment of a tax treaty relief at the first instance. Just as Deutsche Bank was not faulted by
the Court for not complying with RMO No. 1-2000 prior to the transaction, 46 so
should CBK Power. In parallel,CBK Power could not have applied for a tax treaty relief 15 days
prior to its payment of the final withholding tax on the interest paid to its lenders precisely
because it erroneously paid said tax on the basis of the regular rate as prescribed by
the NIRC,and not on the preferential tax rate provided under the different treaties. As stressed
by the Court, the prior application requirement under RMO No. 1-2000 then
becomes illogical. 47
Not only is the requirement illogical, but it is also an imposition that is not found at all in the
applicable tax treaties. In Deutsche Bank, the Court categorically held that the BIR should not
impose additional requirements that would negate the availment of the reliefs provided for
under international agreements, especially since said tax treaties do not provide for any
prerequisite at all for the availment of the benefits under said agreements. 48
It bears reiterating that the application for a tax treaty relief from the BIR should merely operate
to confirm the entitlement of the taxpayer to the relief. 49 Since CBKPower had requested for
confirmation from the ITAD on June 8, 2001 and October 28, 2002 50 before it filed on April 14,
2003 its administrative claim for refund of its excess final withholding taxes, the same should
be deemed substantial compliance with RMO No. 1-2000, as in Deutsche Bank. To rule
otherwise would defeat the purpose of Section 229 of the NIRC in providing the taxpayer a
remedy for erroneously paid tax solely on the ground of failure to make prior application for tax
treaty relief. 51 As the Court exhorted in Republic v. GST Philippines, Inc., 52 while the taxpayer
has an obligation to honestly pay the right taxes, the government has a corollary duty to
implement tax laws in good faith; to discharge its duty to collect what is due to it; and to justly
return what has been erroneously and excessively given to it. 53 AHaETS

In view of the foregoing, the Court holds that the CTA En Banc committed reversible error in
affirming the reduction of the amount of refund to CBK Power from PhP15,672,958.42 to
PhP14,835,720.39 to exclude its transactions with Fortis-Netherlands for which no ITAD ruling
was obtained. 54 CBK Power's petition in G.R. Nos. 193383-84 is therefore granted.
The opposite conclusion is, however, reached with respect to the Commissioner's petition in
G.R. Nos. 193407-08.
B. G.R. Nos. 193407-08
The Commissioner laments 55 that he was deprived of the opportunity to act on the
administrative claim for refund of excess final withholding taxes covering taxable year 2003
which CBK Power filed on March 4, 2005, a Friday, then the following Wednesday, March 9,
2005, the latter hastily elevated the case on petition for review before the CTA. He
 argues 56 that the failure on the part of CBK Power to give him a reasonable time to act on
said claim is violative of the doctrines of exhaustion ofadministrative remedies and of primary
jurisdiction.
For its part, CBK Power maintains 57 that it would be prejudicial to wait for the Commissioner's
ruling before it files its judicial claim since it only has 2 years from the payment of the tax within
which to file both its administrative and judicial claims.
The Court rules for CBK Power.
Sections 204 and 229 of the NIRC pertain to the refund of erroneously or illegally collected
taxes. Section 204 applies to administrative claims for refund, while Section 229 to judicial
claims for refund. In both instances, the taxpayer's claim must be filed within two (2) years from
the date of payment of the tax or penalty. However, Section 229 of the NIRC further states the
condition that a judicial claim for refund may not be maintained until a claim for refund or credit
has been duly filed with theCommissioner. These provisions respectively read:
SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund or
Credit Taxes. The Commissioner may
xxx xxx xxx
(C) Credit or refund taxes erroneously or illegally received or penalties imposed
without authority, refund the value of internal revenue stamps when they are returned
in good condition by the purchaser, and, in his discretion, redeem or change unused
stamps that have been rendered unfit for use and refund their value upon
proof of destruction. No credit or refund of taxes or penalties shall be allowed
unless the taxpayer files in writing with the Commissioner a claim for credit or
refund within two (2) years after the payment of the tax or penalty: Provided,
however, That a return filed showing an overpayment shall be considered as a written
claim for credit or refund.
xxx xxx xxx
SEC. 229. Recovery of Tax Erroneously or Illegally Collected. No suit or
proceeding shall be maintained in any court for the recovery of any
nationalinternal revenue tax hereafter alleged to have been erroneously or illegally
assessed or collected, or of any penalty claimed to have been collected without
authority,of any sum alleged to have been excessively or in any manner wrongfully
collected without authority, or of any sum alleged to have been excessively or in any
manner wrongfully collected, until a claim for refund or credit has been duly filed
with the Commissioner; but such suit or proceeding may be maintained,
whether or not such tax, penalty, or sum has been paid under protest or duress.
In any case, no such suit or proceeding shall be filed after the expiration of two
(2) years from the date of payment of the tax or penalty regardless of any
supervening cause that may arise after payment: . . . . (Emphases and underscoring
supplied)
Indubitably, CBK Power's administrative and judicial claims for refund of its excess final
withholding taxes covering taxable year 2003 were filed within the two-year prescriptive
period, as shown by the table below: 58
WHEN FINAL WHEN LAST DAY OF WHEN WHEN PETITION
INCOME REMITTANCE THE 2-YEAR ADMINISTRATIVE FOR REVIEW
TAXES WERE RETURN PRESCRIPTIVE CLAIM WAS FILED WAS FILED
WITHHELD FILED PERIOD

February 2003 03/10/03 03/10/05 March 4, 2005 03/09/05

May 2003 06/10/03 06/10/05 March 4, 2005 03/09/05

With respect to the remittance filed on March 10, 2003, the Court agrees with the
ratiocination of the CTA En Banc in debunking the alleged failure to exhaust administrative
remedies. Had CBK Power awaited the action of the Commissioner on its claim for refund prior
to taking court action knowing fully well that the prescriptive period was about to end, it would
have lost not only its right to seek judicial recourse but its right to recover the final withholding
taxes it erroneously paid to the government thereby suffering irreparable damage. 59 SEHDIC

Also, while it may be argued that, for the remittance filed on June 10, 2003 that was to prescribe
on June 10, 2005, CBK Power could have waited for, at the most, three (3) months from the
filing of the administrative claim on March 4, 2005 until the last day of the two-year prescriptive
period ending June 10, 2005, that is, if only to give the BIR at the administrative level an
opportunity to act on said claim, the Court cannot, on that basis alone, deny a legitimate claim
that was, for all intents and purposes, timely filed in accordance with Section 229 of the NIRC.
There was no violation of Section 229 since the law, as worded, only requires that an
administrative claim be priorly filed.
In the foregoing instances, attention must be drawn to the Court's ruling in P.J. Kiener Co.,
Ltd. v. David 60 (Kiener), wherein it was held that in no wise does the law, i.e., Section
306 of the old Tax Code (now, Section 229 of the NIRC), imply that the
Collector of Internal Revenue first act upon the taxpayer's claim, and that the taxpayer shall not
go to court before he is notified of the Collector's action. In Kiener, the Court went on to say
that the claim with the Collector of Internal Revenue was intended primarily as a
notice of warning that unless the tax or penalty alleged to have been collected erroneously or
illegally is refunded, court action will follow, viz.:
The controversy centers on the construction of the aforementioned section of the Tax
Code which reads:
SEC. 306. Recovery of tax erroneously or illegally collected. No suit or
proceeding shall be maintained in any court for the recovery of any
national internalrevenue tax hereafter alleged to have been erroneously or
illegally assessed or collected, or of any penalty claimed to have been collected
without authority, orof any sum alleged to have been excessive or in any manner
wrongfully collected, until a claim for refund or credit has been duly filed with the
Collector ofInternal Revenue; but such suit or proceeding may be maintained,
whether or not such tax, penalty, or sum has been paid under protest or duress.
In any case, no such suit or proceeding shall be begun after the expiration of two
years from the date of payment of the tax or penalty.
The preceding provisions seem at first blush conflicting. It will be noticed that, whereas
the first sentence requires a claim to be filed with the
Collector of InternalRevenue before any suit is commenced, the last makes imperative
the bringing of such suit within two years from the date of collection. But the conflict is
only apparent and the two provisions easily yield to reconciliation, which it is the
office of statutory construction to effectuate, where possible, to give effect to the entire
enactment.
To this end, and bearing in mind that the Legislature is presumed to have understood
the language it used and to have acted with full idea of what it wanted to accomplish, it
is fair and reasonable to say without doing violence to the context or either of the two
provisions, that by the first is meant simply that the Collector ofInternal Revenue shall
be given an opportunity to consider his mistake, if mistake has been committed, before
he is sued, but not, as the appellant contends that pending consideration of the claim,
the period of two years provided in the last clause shall be deemed
interrupted. Nowhere and in no wise does the law imply that the
Collector of Internal Revenue must act upon the claim, or that the taxpayer shall
not go to court before he is notified of the Collector's action. . . . . We understand
the filing of the claim with the Collector of Internal Revenue to be intended
primarily as a notice of warning that unless the tax or penalty alleged to have
been collected erroneously or illegally is refunded, court action will follow. . . .
. 61 (Emphases supplied)
That being said, the foregoing refund claims of CBK Power should all be granted, and, the
petition of the Commissioner in G.R. Nos. 193407-08 be denied for lack ofmerit.
WHEREFORE, the petition in G.R. Nos. 193383-84 is GRANTED. The Decision dated March
29, 2010 and the Resolution dated August 16, 2010 of the Court of Tax Appeals (CTA) En
Banc in C.T.A. E.B. Nos. 469 and 494 are hereby REVERSED and SET ASIDE and a new one
entered REINSTATING the Decision of the CTA First Division dated August 28, 2008 ordering
the refund in favor of CBK Power Company Limited the amount of P15,672,958.42
representing its excess final withholding taxes for the taxable years 2001 to 2003. On the other
hand, the petition in G.R. Nos. 193407-08 is DENIED for lack of merit. CAIHaE

SO ORDERED.
Sereno, C.J., Leonardo-de Castro, Bersamin and Perez, JJ., concur.
(CBK Power Company Ltd. v. Commissioner of Internal Revenue, G.R. Nos. 193383-84 &
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193407-08, [January 14, 2015])

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Nature and Effect of Obligations

(10)

Different Kinds of Obligations

Pure and Conditional Obligations