Civil cases February 2015

FIRST DIVISION
G.R. No. 187930

February 23, 2015

NEW WORLD DEVELOPERS AND MANAGEMENT, INC., Petitioner,

vs.
AMA COMPUTER LEARNING CENTER, INC., Respondent.
x-----------------------x
G.R. No. 188250
AMA COMPUTER LEARNING CENTER, INC., Petitioner.
vs.
NEW WORLD DEVELOPERS AND MANAGEMENT, INC., Respondent,
DECISION
SERENO, CJ:
Before us are consolidated Petitions for Review on Certiorari under Rule 45 of the Rules of
Court assailing the Court of Appeals (CA) Decision1 dated 22 January 2009 and Resolution2
dated 18 May 2009 in CA-G.R. CV No. 89483.
The CA Decision ordered AMA Computer Learning Center, Inc. (AMA) to pay New World
Developers and Management, Inc. (New World) unpaid rentals for 2 months, as well asliquidated
damages equivalent to 4 months rent. The CA Resolution denied the separate motions for
reconsideration filed by the parties.
FACTS
New World is the owner of a commercial building located at No. 1104-1118 Espaa corner
Paredes Streets, Sampaloc, Manila.3 In 1998, AMA agreed to lease the entire second floor of the
building for its computer learning center, and the parties entered into a Contract of Lease4
covering the eight-year period from 15 June 1998 to 14 March 2006.
The monthly rental for the first year was set at P181,500, with an annual escalation rate
equivalent to 15% for the succeeding years.5 It was also provided that AMA may preterminate
the contract by sending notice in writing to New World at least six months before the intended
date.6 In case of pretermination, AMA shall be liable for liquidated damages in an amount
equivalent to six months of the prevailing rent.

In compliance with the contract, AMA paid New World the amount of P450,000 as advance
rental and another P450,000 as security deposit.7
For the first three years, AMA paid the monthly rent as stipulated in the contract, with the
required adjustment in accordance with the escalation rate for the second and the third years.8
In a letter dated 18 March 2002, AMA requested the deferment of the annual increase in the
monthly rent by citing financial constraints brought about by a decrease in its enrollment. New
World agreed to reduce the escalation rate by 50% for the next six months. The following year,
AMA again requested the adjustment of the monthly rent and New World obliged by granting a
45% reduction of the monthly rent and a 5% reduction of the escalation rate for the remaining
term of the lease. For this purpose, the parties entered into an Addendum to the Contract of
Lease.9
On the evening of 6 July 2004, AMA removed all its office equipment and furniture from the
leased premises. The following day, New World received a letter from AMA dated 6 July 200410
stating that the former had decided to preterminate the contract effective immediately on the
ground of business losses due to a drastic decline in enrollment. AMA also demanded the refund
of its advance rental and security deposit.
New World replied in a letter dated 12 July 2004,11 to which was attached a Statement of
Account12 indicating the following amounts to be paid by AMA: 1) unpaid two months rent in
the amount of P466,620; 2) 3% monthly interest for the unpaid rent in the amount of P67,426.59;
3) liquidated damages equivalent to six months of the prevailing rent in the amount of
P1,399,860; and 4) damage to the leased premises amounting to P15,580. The deduction of the
advance rental and security deposit paid by AMA still left an unpaid balance in the amount of
P1,049,486.59.
Despite the meetings between the parties, they failed to arrive at a settlement regarding the
payment of the foregoing amounts.13
On 27 October 2004, New World filed a complaint for a sum of money and damages against
AMA before the Regional Trial Court of Marikina City, Branch 156 (RTC).14
RULING OF THE RTC
In a Decision15 dated 31 January 2007, the RTC ordered AMA to pay New World P466,620 as
unpaid rentals plus 3% monthly penalty interest until payment; P1,399,860 as liquidated
damages equivalent to six months rent, with the advance rental and security deposit paid by
AMA to be deducted therefrom; P15,580 for the damage to the leased premises; P100,000 as
attorneys fees; and costs of the suit.
According to the RTC, AMA never denied that it had arrearages equivalent to two months rent.
Other than its allegation that it did not participate in the preparation of the Statement of Account,
AMA did not proffer any evidence disputing the unpaid rent. For its part, New World clearly
explained the existence of the arrears.

While sympathizing with AMA in view of its business losses, the RTC ruled that AMA could not
shirk from its contractual obligations, which provided that it had to pay liquidated damages
equivalent to six months rent in case of a pretermination of the lease.
The RTC provided no bases for awarding P15,580 for the damage to the leased premises and
P100,000 for attorneys fees, while denying the prayer for exemplary and moral damages.
Upon the denial of its motion for reconsideration, AMA filed an appeal before the CA.16
RULING OF THE CA
In the assailed Decision dated 22 January 2009, the CA ordered AMA to pay New World
P466,620 for unpaid rentals and P933,240 for liquidated damages equivalent to four months
rent, with the advance rental and security deposit paid by AMA to be deducted therefrom.17
The appellate court ruled that the RTC erred in imposing a 3% monthly penalty interest on the
unpaid rent, because there was no stipulation either in the Contract of Lease or in the Addendum
to the Contract of Lease concerning the imposition of interest in the event of a delay in the
payment of the rent.18 Thus, the CA ruled that the rent in arrears should earn interest at the rate
of 6% per annum only, reckoned from the date of the extrajudicial demand on 12 July 2004 until
the finality of the Decision. Thereafter, interest at the rate of12% per annum shall be imposed
until full payment.
The CA also ruled that the RTCs imposition of liquidated damages equivalent to six months
rent was iniquitous.19 While conceding that AMA was liable for liquidated damages for
preterminating the lease, the CA also recognized that stipulated penalties may be equitably
reduced by the courts based on its sound discretion. Considering that the unexpired portion of the
term of lease was already less than two years, and that AMA had suffered business losses
rendering it incapable of paying for its expenses, the CA deemed that liquidated damages
equivalent to four months rent was reasonable.20
The appellate court deleted the award for the damage to the leased premises, because no proof
other than the Statement of Account was presented by New World.21 Furthermore, noting that
the latter was already entitled to liquidated damages, and that the trial court did not give any
justification for attorneys fees, the CA disallowed the award thereof.22
Both parties filed their respective motions for reconsideration, which were denied in the assailed
Resolution dated 10 May 2009.
Hence, the present petitions for review on certiorari. On 3 August 2009, the Court resolved to
consolidate the petitions, considering that they involve the same parties and assail the same CA
Decision and Resolution.23
PARTIES POSITIONS

According to New World, when parties freely stipulate on the manner by which one may
preterminate the lease, that stipulation has the force of law between them and should be complied
with in good faith.24 Since AMA preterminated the lease, it became liable to liquidated damages
equivalent to six months rent. Furthermore, its failure to give notice to New World six months
prior to the intended pretermination of the contract and its leaving the leased premises in the
middle of the night, with all its office equipment and furniture, smacked of gross bad faith that
renders it undeserving of sympathy from the courts.25 Thus, the CA erred in reducing the
liquidated damages from an amount equivalent to six months rent to only four months.
New World also challenges the CA Decision and Resolution for disallowing the imposition of the
3% monthly interest on the unpaid rentals. It is argued that AMA never disputed the imposition
of the 3% monthly interest; rather, it only requested that the interest rate be reduced.26
On the other hand, AMA assails the CA ruling for not recognizing the fact that compensation
took place between the unpaid rentals and the advance rental paid by AMA.27 Considering that
the obligation of AMA as to the arrears has been extinguished by operation of law, there would
be no occasion for the imposition of interest.28
AMA also prays for the further reduction of the liquidated damages to an amount equivalent to
one months rent up to one and a half months, arguing that four months worth of rent is still
iniquitous on account of the severe financial losses it suffered.29
ISSUES
1. Whether AMA is liable to pay six months worth of rent as liquidated damages.
2. Whether AMA remained liable for the rental arrears.
OUR RULING
I.
AMA is liable for six months worth of rent as liquidated damages.
Item No. 14 of the Contract of Lease states:
That [AMA] may pre-terminate this Contract of Lease by notice in writing to [New World] at
least six (6) months before the intended date of pretermination, provided, however, that in such
case, [AMA] shall be liable to [New World] for an amount equivalent to six (6) months current
rental as liquidated damages;30
Quite notable is the fact that AMA never denied its liability for the payment of liquidated
damages in view of its pretermination of the lease contract with New World. What it claims,
however, is that it is entitled to the reduction of the amount due to the serious business losses it
suffered as a result of a drastic decrease in its enrollment.

This Court is, first and foremost, one of law. While we are also a court of equity, we do not
employ equitable principles when well-established doctrines and positive provisions of the law
clearly apply.31
The law does not relieve a party from the consequences of a contract it entered into with all the
required formalities.32 Courts have no power to ease the burden of obligations voluntarily
assumed by parties, just because things did not turn out as expected at the inception of the
contract.33 It must also be emphasized that AMA is an entity that has had significant business
experience, and is not a mere babe in the woods.
Articles 1159 and 1306 of the Civil Code state:
Art. 1159. Obligations arising from contracts have the force of law between the contracting
parties and should be complied with in good faith.
xxxx
Art. 1306. The contracting parties may establish such stipulations, clauses, terms and conditions
as they may deem convenient, provided they are not contrary to law, morals, good customs,
public order, or public policy.
The fundamental rule is that a contract is the law between the parties. Unless it has been shown
that its provisions are wholly or in part contrary to law, morals, good customs, public order, or
public policy, the contract will be strictly enforced by the courts.34
In rebuttal, AMA invokes Article 2227 of the Civil Code, to wit:
Art. 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably
reduced if they are iniquitous or unconscionable.
In Ligutan v. CA, we held that the resolution of the question of whether a penalty is reasonable,
or iniquitous or unconscionable would depend on factors including but not limited to the type,
extent and purpose of the penalty; the nature of the obligation; the mode of the breach and its
consequences; the supervening realities; and the standing and relationship of the parties.35 The
appreciation of these factors is essentially addressed to the sound discretion of the court.36
It is quite easy to understand the reason why a lessor would impose liquidated damages in the
event of the pretermination of a lease contract. Pretermination is effectively the breach of a
contract, that was originally intended to cover an agreed upon period of time. A definite period
assures the lessor a steady income for the duration. A pretermination would suddenly cut short
what would otherwise have been a longer profitable relationship. Along the way, the lessor is
bound to incur losses until it is able to find a new lessee, and it is this loss of income that is
sought to be compensated by the payment of liquidated damages.
There might have been other ways to work around its difficult financial situation and lessen the
impact of the pretermination to both parties. However, AMA opted to do the following:

1. It preterminated the lease without notifying New World at least six months before the
intended date.
2. It removed all its office equipment and left the premises in the middle of the night.
3. Only after it had cleared the premises did it send New World a notice of pretermination
effective immediately.
4. It had the gall to demand a full refund of the advance rental and security deposit, albeit
without prejudice to their removal of the improvements introduced in the premises.
We cannot understand the inability of AMA to be forthright with New World, considering that
the former had been transparent about its business losses in its previous requests for the
reduction of the monthly rental. The drastic decrease in AMAs enrollment had been unfolding
since 2002. Thus, it cannot be said that the business losses had taken it by surprise. It is also
highly unlikely that the decision to preterminate the lease contract was made at the last minute.
The cancellation of classes, the transfer of students, and administrative preparations for the
closure of the computer learning center and the removal of office equipment therefrom should
take at least weeks, if not months, of logistic planning. Had AMA come clean about the
impending pretermination, measures beneficial to both parties could have been arrived at, and
the instant cases would not have reached this Court. Instead, AMA forced New World to share in
the formers losses, causing the latter to scramble for new lessees while the premises remained
untenanted and unproductive.
In the sphere of personal and contractual relations governed by laws, rules and regulations
created to promote justice and fairness, equity is deserved, not demanded. The application of
equity necessitates a balancing of the equities involved in a case,37 for "[h]e who seeks equity
must do equity, and he who comes into equity must come with clean hands."38 Persons in dire
straits are never justified in trampling on other persons rights. Litigants shall be denied relief if
their conduct has been inequitable, unfair and dishonest as to the controversy in issue.39 The
actions of AMA smack of bad faith.
We cannot abide by the prayer for the further reduction of the liquidated damages. We find that,
in view of the surrounding circumstances, the CA even erred in reducing the liquidated damages
to four months worth of rent. Under the terms of the contract, and in light of the failure of AMA
to show that it is deserving of this Courts indulgence, the payment of liquidated damages in an
amount equivalent to six months rent is proper.
Also proper is an award of exemplary damages. Article 2234 of the Civil Code provides:
Art. 2234. While the amount of the exemplary damages need not be proved, the plaintiff must
show that he is entitled to moral, temperate or compensatory damages before the court may
consider the question of whether or not exemplary damages should be awarded. In case
liquidated damages have been agreed upon, although no proof of loss is necessary in order that
such liquidated damages may be recovered, nevertheless, before the court may consider the
question of granting exemplary in addition to the liquidated damages, the plaintiff must show

that he would be entitled to moral, temperate or compensatory damages were it not for the
stipulation for liquidated damages. (Emphasis supplied)
In this case, it is quite clear that New World sustained losses as a result of the unwarranted acts
of AMA. Further, were it not for the stipulation in the contract regarding the payment of
liquidated damages, we would be awarding compensatory damages to New World.
"Exemplary damages are designed by our civil law to permit the courts to reshape behaviour that
is socially deleterious in its consequence by creating negative incentives or deterrents against
such behaviour."40 As such, they may be awarded even when not pleaded or prayed for.41 In
order to prevent the commission of a similar act in the future, AMA shall pay New World
exemplary damages in the amount of P100,000.
II.
AMAs liability for the rental arrears has already been extinguished.
AMA assails the CA ruling mainly for the imposition of legal interest on the rent in arrears.
AMA argues that the advance rental has extinguished its obligation as to the arrears. Thus, it
says, there is no more basis for the imposition of interest at the rate of 6% per annum from the
date of extrajudicial demand on 12 July 2004 until the finality of the Decision, plus interest at the
rate of 12% per annum from finality until full payment.
At this juncture, it is necessary to look into the contract to determine the purpose of the advance
rental and security deposit.
Item Nos. 2, 3 and 4 of the Contract of Lease provide:
xxxx
2. That [AMA] shall pay to [New World] in advance within the first 5 days of each
calendar month a monthly rental in accordance with the following schedule for the entire
term of this Contract of Lease;
PERIOD

MONTHLY RENTAL RATES

Year 1 June 15, 1998 Mar 14, 1999

181,500.00

Year 2 Mar 15, 1999 Mar 14, 2000

P208,725.00

Year 3 Mar 15, 2000 Mar 14, 2001

P240,033.75

Year 4 Mar 15, 2001 Mar 14, 2002

P276,038.81

Year 5 Mar 15, 2002 Mar 14, 2003

P317,444.63

Year 6 Mar 15, 2003 Mar 14, 2004

P365,061.33

Year 7 Mar 15, 2004 Mar 14, 2005

P419,820.53

Year 8 Mar 15, 2005 Mar 14, 2006

P482,793.61
(P482,793.61 37,500 =
P445,293.61)

The monthly rentals referred to above were computed at an escalation rate of Fifteen
Percent (15%) every year for the entire duration of this lease contract.
3. Upon signing of this Contract, [AMA] shall pay advance rental in the amount of
FOUR HUNDRED FIFTY THOUSAND PESOS (P450,000.00); Said advance rental
shall be applied as part of the rental for the last year of the Contract with a remaining
balance of Four Hundred Forty Five Thousand Two Hundred Ninety Three and 61/100
Pesos (P445,293.61) as monthly rental for the tenth [sic] and last year of the lease term;
4. Upon signing of the Contract, [AMA] shall pay [New World] a Security Deposit in the
amount of FOUR HUNDRED FIFTY THOUSAND PESOS (P450,000.00) which shall
be applied for any unpaid rental balance and damages on the leased premises, and the
balance of which shall be refunded by [New World] to [AMA] within sixty (60) days
after the termination of the Contract, it being understood that such balance is being held
by [New World] in trust for [AMA].42
Based on Item No. 4, the security deposit was paid precisely to answer for unpaid rentals that
may be incurred by AMA while the contract was in force. The security deposit was held in trust
by New World, and whatever may have been left of it after the termination of the lease shall be
refunded to AMA.
Based on Item No. 3 in relation to Item No. 2, the parties divided the advance rental of P450,000
by 12 months. They came up with P37,500, which they intended to deduct from the monthly
rental to be paid by AMA for the last year of the lease term. Thus, unlike the security deposit, no
part of the advance rental was ever meant to be refunded to AMA. Instead, the parties intended to
apply the advance rental, on a staggered basis, to a portion of the monthly rental in the last year
of the lease term.
Considering the pretermination of the lease contract in the present case, this intent of the parties
as regards the advance rental failed to take effect. The advance rental, however, retains its
purpose of answering for the outstanding amounts that AMA may owe New World.
We now delve into the actual application of the security deposit and the advance rental.
At the time of the pretermination of the contract of lease, the monthly rent stood at P233,310,
inclusive of taxes;43 hence, the two-month rental arrears in the amount of P466,620.
Applying the security deposit of P450,000 to the arrears will leave a balance of P16,620 in New
Worlds favor.1wphi1 Given that we have found AMA liable for liquidated damages equivalent
to six months rent in the amount of P1,399,860 (monthly rent of P233,310 multiplied by 6
months), its total liability to New World is P1,416,480.

We then apply the advance rental of P450,000 to this amount to arrive at a total extinguishment
of the liability for the unpaid rentals and a partial extinguishment of the liability for liquidated
damages. This shall leave AMA still liable to New World in the amount of P966,480 (P1,416,480
total liability less P450,000 advance rental).
Not constituting a forbearance of money,44 this amount shall earn interest pursuant to Item
II(2)45 of our pronouncement in Eastern Shipping Lines v. CA.46 This item remained unchanged
by the modification made in Nacar v. Gallery Frames.47 Interest at the rate of 6% per annum is
hereby imposed on the amount of 966,480 from the time of extrajudicial demand on 12 July
2004 until the finality of this Decision.
Thereafter this time pursuant to the modification in Nacar the amount due shall earn interest
at the rate of 6% per annum until satisfaction, this interim period being deemed to be by then
equivalent to a forbearance of credit.48
Considering the foregoing, there was no occasion for the unpaid two months rental to earn
interest. Besides, we cannot sanction the imposition of 3% monthly penalty interest thereon. We
quote with approval the ruling of the CA on this issue:
If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the
indemnity for damages, there being no stipulation to the contrary, shall be the payment of the
interest agreed upon and in the absence of stipulation, the legal interest, which is six per cent per
annum.
In the instant case, the Contract of Lease and the Addendum to the Contract of Lease do not
specify any interest in the event of delay of payment of rentals. Accordingly, there being no
stipulation concerning interest, the trial court erred in imposing 3% interest per month on the
two-month unpaid rentals.
[New World] argues that the said3% interest per month on the unpaid rentals was agreed upon by
the parties as allegedly shown in Exhibits "A-4", "A-5", "A-6", "B-4", and "B-5".
We are not persuaded.
[New Worlds] letter dated 12 July 2004 to [AMA], Statement of Account dated 07 July 2004;
and another Statement of Account dated 27 October 2004 were all prepared by [New World],
with no participation or any indication of agreement on [AMAs] part. The alleged proposal of
[AMA] as contained in the Schedule of Receivable/Payable is just a computer print-out and does
not contain any signature showing [AMAs] conformity to the same.49
Having relied on the Contract of Lease for its demand for payment of liquidated damages, New
World should have also referred to the contract to determine the proper application of the
advance rental and security deposit. Had it done so in the first instance, it would have known that
there is no occasion for the imposition of interest, 3% or otherwise, on the unpaid rentals.
WHEREFORE, the Court of Appeals Decision dated 22 January 2009 and Resolution dated 10
May 2009 in CA-G.R. CV No. 89483 is AFFIRMED with MODIFICATION.

AMA Computer Learning Center, Inc. is ordered to pay New World Developers and
Management, Inc. the amount of P966,480, with interest at the rate of 6% per annum from 12
July 2004 until full payment.
In addition, AMA shall pay New World exemplary damages in the amount of P100,000, which
shall earn interest at the rate of 6% per annum from the finality of this Decision until full
payment.
SO ORDERED.
MARIA LOURDES P.A. SERENO
Chief Justice, Chairperson
WE CONCUR:
TERESITA J. LEONARDO-DE CASTRO
Associate Justice
LUCAS P. BERSAMIN
Associate Justice

JOSE PORTUGAL PEREZ

Associate Justice

ESTELA M. PERLAS-BERNABE
Associate Justice
C E R T I F I C AT I O N
Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above
Decision had been reached in consultation before the case was assigned to the writer of the
opinion of the Court's Division.
MARIA LOURDES P.A. SERENO
Chief Justice

Footnotes
1 Rollo (G.R. No. 187930), pp. 32-49. The Decision issued by the Court of Appeals
Twelfth Division was penned by Associate Justice Celia C. Librea-Leagogo, with
Associate Justices Mariano C. de! Castillo (now a Member of this Court) and Apolinario
D. Bruselas, Jr. concurring.
2 Id. at 51-53.
3 Id. at 33.

4 Id. at 54-58.
5 Id. at 55.
6 Id. at 56.
7 Id. at 36, 55.
8 Id. at 34.
9 Id. at 59-60.
10 Id. at 62.
11 Id. at 64.
12 Id. at 63.
13 Id. at 34.
14 Id. at 33.
15 Id. at 65-68.
16 Id. at 38.
17 Id. at 45-46.
18 Id. at 40.
19 Id. at 43.
20 Id. at 43-44.
21 Id. at 44.
22 Id. at 45.
23 Id. at 108.
24 Id. at 17.
25 Id. at 18-21.
26 Id. at 26.

27 Rollo (G.R. No. 188250), pp. 12-13.

28 Id. at 13-14.
29 Id. at 11-17.
30 Rollo (G.R. No. 187930), p. 56.
31 Aguila v. CFI of Batangas, Br. I, 243 Phil. 505, 512 (1988), in which the Court stated:
For all its conceded merits, equity is available only in the absence of law and not
as its replacement. Equity is described as justice outside legality, which simply
means that it cannot supplant although it may, as often happens, supplement the
law. We said in an earlier case, and we repeat it now, that all abstract arguments
based only on equity should yield to positive rules, which pre-empt and prevail
over such persuasions. Emotional appeals for justice, while they may wring the
heart of the Court, cannot justify disregard of the mandate of the law as long as it
remains in force. The applicable maxim, which goes back to the ancient days of
the Roman jurists and is now still reverently observed is "aequetas
nunquam contravenit legis."
32 Sanchez v. CA, 345 Phil. 155 (1997).
33 Id.
34 NAPOCOR v. Premier Shipping Lines, Inc., 616 Phil. 141 (2009); Metropolitan Bank
& Trust Co. v. Wong, 412 Phil. 207 (2001); Tambunting v. Rehabilitation Finance Corp.,
257 Phil. 503 (1989).
35 427 Phil. 42 (2002).
36 Id.
37 Reyes v. Lim, 456 Phil. 1 (2003).
38 Muller v. Muller, 531 Phil. 460, 468 (2006).
39 Id.
40 Mecenas v. CA, 259 Phil. 556, 574 (1989).
41 Marchan v. Mendoza, 136 Phil. 126 (1969); Singson v. Aragon, 92 Phil. 514 (1953).
42 Rollo (G.R. No. 187930), p. 55.
43 Id. at 63.

44 In Estores v. Supangan(G.R. No. 175139, 18 April 2012, 670 SCRA 95, 105-106), this
Court enunciated that "[f]orbearance of money, goods or credits x x x refer to
arrangements other than loan agreements, where a person acquiesces to the temporary use
of his money, goods or credits pending happening of certain events or fulfillment of
certain conditions."
45 Item II(2) of our pronouncement in Eastern Shipping Lines v. CA(G.R. No. 97412, 12
July 1994, 234 SCRA 78, 95-97) provides:
II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is
imposed, as follows:
xxxx
2. When an obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damages awarded may be imposed at the
discretion of the court at the rate of 6% per annum. No interest, however, shall be
adjudged on unliquidated claims or damages except when or until the demand can
be established with reasonable certainty. Accordingly, where the demand is
established with reasonable certainty, the interest shall begin to run from the time
the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when
such certainty cannot be so reasonably established at the time the demand is
made, the interest shall begin to run only from the date of the judgment of the
court is made (at which time the quantification of damages may be deemed to
have been reasonably ascertained). The actual base for the computation of legal
interest shall, in any case, be on the amount finally adjudged.
46 Supra.
47 G.R. No. 189871, 13 August 2013, 703 SCRA 439.
48 In Nacar, the Court ruled thus:
To recapitulate and for future guidance, the guidelines laid down in the case of
Eastern Shipping Linesare accordingly modified to embody BSP-MB Circular
No. 799, as follows:
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts,
delicts or quasi-delicts is breached, the contravenor can be held liable for
damages. The provisions under Title XVIII on "Damages" of the Civil Code
govern in determining the measure of recoverable damages.
II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is
imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum

of money, i.e., a loan or forbearance of money, the interest due should be
that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it
is judicially demanded. In the absence of stipulation, the rate of interest
shall be 6% per annum to be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions of Article 1169 of
the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damages awarded may be imposed
at the discretion of the court at the rate of 6% per annum. No interest,
however, shall be adjudged on unliquidated claims or damages, except
when or until the demand can be established with reasonable certainty.
Accordingly, where the demand is established with reasonable certainty,
the interest shall begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code), but when such certainty cannot be
so reasonably established at the time the demand is made, the interest shall
begin to run only from the date the judgment of the court is made (at
which time the quantification of damages may be deemed to have been
reasonably ascertained). The actual base for the computation of legal
interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes
final and executory, the rate of legal interest, whether the case falls under
paragraph 1 or paragraph 2, above, shall be 6% per annum from such
finality until its satisfaction, this interim period being deemed to be by
then an equivalent to a forbearance of credit. (Id. at 457-458)
49 Rollo (G.R. No. 187930), pp. 40-41.

PRESCRIPTION OF ACTION
THIRD DIVISION
G.R. No. 198223

February 18, 2015

HEIRS OF TIMBANG DAROMIMBANG DIMAAMPAO, namely: CABIB D. ALAWI,

ACMAD D. ALAWI, KALIKO D. ALA WI, ABU ALI D. ALAWI, MOKHAYMA D. ABAB,
and MARIAM ABAB, represented by CABIB D. ALAWI, Petitioners,
vs.
ATTY. ABDULLAH ALUG, HADJI BOGABONG BALT and HEIRS OF HADJI ALI
PETE PANGARUNGAN, namely: HADJA SITTIE SALIMA PANGARUNGAN, AMINA
P. ALANGADI, JAMELA P. SANI, ANSARY S. PANGARUNGAN, RAMLA P. PANGCAT,
JACKLYN P. BANTO, ACMAD T. PANGARUNGAN, ACMELA P. MAMAROBA,
AMERA P. LALANTO, ACLI T. PANGARUNGAN, ASMIA P. BANOCAG, AB DARI T.
PANGARUNGAN, ASLIA T. PANGARUNGAN, HANIPA T. PANGARUNGAN, CALILI
T. PANGARUNGAN, and ANSANTO T. PANGARUNGAN, represented by HADJA
SITTIE SALIMA PANGARUNGAN, Respondents.
DECISION
PERALTA, J.:
Assailed in this petition for review on certiorari are the Decision1 dated July 2, 2010 of the Court
of Appeals in CA-G.R. SP No. 02376-MIN and the Resolution2 dated July 27, 2011 denying
reconsideration thereof.
On February 15, 2005, petitioners Heirs of Timbang Daromimbang Dimaampao represented by
Cabib D. Alawi, filed with the Regional Trial Court (RTC)of Lanao del Sur, Marawi City, a
Complaint3 for declaration of deed of sale as a nullity, quieting of title and damages against
respondents Abdullah Alug, Hadji Bogabong Balt and Heirs of Hadji Ali Pete Pangarungan,
represented by Hadja Sittie Salima Pangarungan. Petitioners alleged that they are the owners pro
indiviso and lawful possessors of a parcel of land located at Madaya, Marawi City with an area
of 157,738 square meters covered by OCT No. RP-355 (subject lot), Homestead Patent No.
47201; that they acquired ownership and possession of the subject land and the improvements
thereon by way of inheritance from their deceased grandmother, Timbang Daromimbang
Dimaampao (Timbang), who was the true and exclusive owner and lawful possessor of the
subject lot; that Cota Dimaampao (Cota) and Timbang got married in accordance with the
Muslim rites and the subject lot was among the dowries given by the former to the latter; that
during the existence of their marriage, the spouses applied for registration and titling of the land
and their homestead application was approved and was issued OCT No. RP-355 in their names;
that sometime after the issuance of the said title, Cota and Timbang were divorced from each
other, hence, Timbang and their two daughters continued possession and ownership of the
subject land, while Cota contracted another marriage; that when Timbang died, her daughters

succeeded her on the ownership and possession of the land until their deaths and were survived
by herein petitioners.
Petitioners claimed that sometime on April 10, 1978, without their knowledge and that of their
predecessors, Cota executed a deed of sale in favor of respondents involving the subject land;
that respondents were in bad faith since at the time of purchase, petitioners by themselves were
in actual possession of the land in the concept of owners; that the deed of sale was invalid
because Cota had no right to sell any portion of the subject land as he was not the owner thereof;
that the deed of sale cast a cloud of doubt on petitioners' title; that despite such deed of sale,
respondents have never occupied any portion of the subject land. Petitioners stated that the
subject land was allegedly sold by Cota to deceased Sheik Pangandaman Daromimbang
(Timbang's brother) who then donated the same to his daughter and son-in-law which deeds of
sale and donation, however, were annulled by the RTC Lanao del Sur, Branch 9, in Civil Case
No. 2410; that they were not impleaded as parties in that case even if they were in possession of
the land; that the RTC decision was affirmed by the CA and became final which cast a cloud of
doubt on their title and ownership of the land. Petitioners prayed that the Deed of Sale dated
April 10, 1978 between Cota and respondents be declared null and void, and for them to be
declared as the rightful owners and lawful possessors of the subject land.
Respondents filed their Answer4 denying petitioners' claim of ownership and possession of the
subject land as they owned and possessed the same since 1978; that the validity of the Deed of
Sale dated April 10, 1978 involving the subject land was already upheld by the RTC Lanao del
Sur, Branch 9, in Civil Case No. 2410, entitled "Cota Dimaampao, et al.v. Sheik Pangandaman
Daromimbang, et al.," a case that had already attained finality. In their Special and Affirmative
Defenses, respondents claimed that petitioners have no cause of action against them because the
latter's claim of dowry or donation by reason of marriage was belied by the issuance of OCT No.
RP-335 in Cota's name; that their claim of dowry or donation was not supported by any written
memorandum or agreement and now barred under the Statute of frauds; that the action is barred
by prescription or estoppel or laches; and, that the complaint violates the rule on judicial stability
or rule on non-interference.
On March 6, 2006, the RTC issued its Order5 with the following dispositive portion, to wit: The
allegations contained in the Special and Affirmative Defenses are matters of evidence that can be
properly ventilated in the trial of the case. The same is therefore denied for lack of merit. The
parties are directed to submit their pre-trial brief at least 3 days before the scheduled pre-trial
conference on April 6, 2006.
WHEREFORE, set the Pre-trial conference to April 6, at 9:00 o'clock in the morning.
SO ORDERED.6
On May 2, 2006, respondents filed a Manifestation7 stating that they just received the RTC
Order on April 17, 2006 and moved for time to file a motion for reconsideration and to defer the
submission of pre-trial brief and the scheduled pre-trial conference. A motion for
reconsideration8 was filed on May 17, 2006. The motion for reconsideration was denied by the
RTC in its Order9 dated February 29, 2008.

On June 6, 2008, respondents filed with the CA Cagayan de Oro City, a petition for certiorari
with prayer for issuance of a preliminary injunction. Petitioners filed their Comment and
respondents their Reply thereto.
On July 2, 2010, the CA rendered its decision, the dispositive portion of which reads:
FOR THESE REASONS, the writ of certiorari is GRANTED. The challenged Orders of the
respondent court, dated March 6, 2006 and February 29, 2008, respectively, are SET ASIDE, and
another Resolution/Order will be entered in Civil Case No. 2046-05 dismissing the Complaint.10
In so ruling, the CA found that the RTC had unduly disregarded the decision in Civil Case No.
2410 which had already attained finality; that it was already determined that the subject land was
the very same land in Civil Case No. 2410 which was declared to be owned and lawfully
possessed by Cota and to grant petitioners' demand would result to an unending litigation of the
case. The CA found that res judicata applied in this case. The CA also found that the action had
already prescribed as it took petitioners more than 26 years to institute the instant case.
Hence this petition wherein petitioners raise the following issues:
1. WHETHER OR NOT THE ASSAILED DECISION AND RESOLUTION OF THE
COURT OF APPEALS, TWENTY SECOND DIVISION IS CONTRARY TO LAW
AND JURISPRUDENCE;
2. WHETHER OR NOT A MOTION FOR EXTENSION OF TIME TO FILE A
MOTION FOR RECONSIDERATION IS ALLOWED OR A PROHIBITED
PLEADING;
3. WHETHER OR NOT THE SPECIAL AND AFFIRMATIVE DEFENSES OF THE
RESPONDENTS EMBODIED IN THEIR ANSWER IN CIVIL CASE NO. 2046-05
ARE MATTERS OF EVIDENCE TO BE RESOLVED AFTER THE TRIAL OF THE
CASE ON THE MERITS.11 Petitioners claim that respondents' counsel received the
RTC Order dated March 6, 2006 denying their special and affirmative defenses on April
17, 2006, thus, they had until May 2, 2006 to file a motion for reconsideration.
Respondents, however, filed a Manifestation with motion for extension of time to file a
motion for reconsideration which is not allowed under the Rules of Court. Hence, the
RTC Order dated March 6, 2006 had already become final and executory and could no
longer be the subject of a petition for certiorari with the CA. Consequently, the CA erred
in granting the petition and reversing the RTC Orders.
We find no merit in the arguments.
Section 1, Rule 41 of the Rules of Court provides:
Section 1. Subject of appeal. - An appeal may be taken from a judgment or final order that
completely disposes of the case, or of a particular matter therein when declared by these Rules to
be appealable.

No appeal may be taken from:

(a) An order denying a motion for new trial or reconsideration;
(b) An order denying a petition for relief or any similar motion seeking relief from
judgment;
(c) An interlocutory order;
(d) An order disallowing or dismissing an appeal;
(e) An order denying a motion to set aside a judgment by consent, confession or
compromise on the ground of fraud, mistake or duress, or any other ground vitiating
consent;
(f) An order of execution;
(g) A judgment or final order for or against one or more of several parties or in separate
claims, counterclaims, cross-claims and third-party complaints, while the main case is
pending, unless the court allows an appeal therefrom; and
(h) An order dismissing an action without prejudice.
In all the above instances where the judgment or final order is not appealable, the aggrieved
party may file an appropriate special civil action under Rule 65.
In Denso (Phils.), Inc. v. Intermediate Appellate Court,12 we expounded on the differences
between a "final judgment" and an "interlocutory order," to wit:
x x x A final judgment or order is one that finally disposes of a case, leaving nothing more to be
done by the Court in respect thereto, e.g., an adjudication on the merits which, on the basis of the
evidence presented at the trial, declares categorically what the rights and obligations of the
parties are and which party is in the right; or a judgment or order that dismisses an action on the
ground, for instance, of res judicata or prescription. Once rendered, the task of the Court is
ended, as far as deciding the controversy or determining the rights and liabilities of the litigants
is concerned. Nothing more remains to be done by the Court except to await the parties' next
move x x x and ultimately, of course, to cause the execution of the judgment once it becomes
"final" or, to use the established and more distinctive term, "final and executory."
xxxx
Conversely, an order that does not finally dispose of the case, and does not end the Court's task
of adjudicating the parties' contentions and determining their rights and liabilities as regards each
other, but obviously indicates that other things remain to be done by the Court, is "interlocutory,"
e.g., an order denying a motion to dismiss under Rule 16 of the Rules x x x Unlike a "final"
judgment or order, which is appealable, as above pointed out, an "interlocutory" order may not

be questioned on appeal except only as part of an appeal that may eventually be taken from the
final judgment rendered in the case.13
Given the differences between a final judgment and an interlocutory order, the RTC Order dated
March 6,2006 denying respondents' special and affirmative defenses contained in their answer is
no doubt interlocutory since it did not finally dispose of the case but will proceed for the
reception of the parties' respective evidence to determine the rights and obligations of each other.
As such, the RTC Order dated March 6, 2006 may not be questioned on appeal except only as
part of an appeal that may eventually be taken from the final judgment rendered in the case.14
An interlocutory order is always under the control of the court and may be modified or rescinded
upon sufficient grounds shown at any time before final judgment.15 This prescinds from a
courts inherent power to control its process and orders so as to make them conformable to law
and justice,16 and a motion for reconsideration thereof was not subject to the limiting fifteen-day
period of appeal prescribed for final judgments or orders.17 We, therefore, find no merit to
petitioners claim that the Order dated March 6, 2006 had already become final and could not be
the subject of a petition for certiorari with the Court of Appeals.
The petition for certiorari was timely filed with the CA. The RTC Order dated February 29, 2008
denying respondents' motion for reconsideration was received by the latter on April 9, 2008.
They had 60 days from receipt thereof to file the petition for certiorari with the CA. The last day
to file the petition fell on June 8, 2008, a Sunday, while June 9 was declared a holiday, hence, the
filing of the petition on the next working day which was June 10, 2008 was still on time. Going
now on the merits, petitioners claim that they did not violate the rule on judicial stability as the
parties in the instant case and the earlier decided Civil Case No. 2410 of the RTC Lanao del Sur,
Branch 9, are entirely different and petitioners were not parties in the latter case. There is no
absolute identity of causes of action and the issues involved are not similar. The main issue in
Civil Case No. 2410 was which of the two deeds of sale appeared to have been executed by Cota
Dimaampao, i.e., one in favor of Sheik Pangandaman Daromimbang (Timbangs brother) and the
other one in favor of Alug, Balt and Pangarungan, now herein respondents, was really signed and
executed by him. Onthe other hand, the main issue in the instant case is whether or not the
subject land was given by Cota as a dowry to his ex-wife Timbang, if so, the land exclusively
belongs to petitioners as compulsory heirs of Timbang and the sale made by Cota to respondents
was void. In the alternative, even assuming that the subject land was not given as a dowry but
acquired by the spouses Cota and Timbang during their marriage, petitioners contend that the
subject land is a conjugal property to which Timbang is entitled to a share thereof which Cota
had no right to sell. Petitioners insist that respondents are buyers in bad faith as they were aware
of the former's possession of the subject land at the time it was sold to them by Cota. These
issues, as petitioners claim, are factual which can only be determined after a full blown trial.
We are not persuaded.
We find no error committed by the CA in ruling that the RTC committed a grave abuse of
discretion in not dismissing petitioners' complaint on the ground that the issue of ownership and
possession of the subject land had already been previously decided in Civil Case No. 2410 which
had attained finality. We agree with the CA that res judicata is applicable in the instant case.

Under the rule of res judicata, a final judgment or order on the merits, rendered by a court having
jurisdiction of the subject matter and of the parties, is conclusive in a subsequent case between
the same parties and their successors-in-interest by title subsequent to the commencement of the
action or special proceeding litigating for the same thing and under the same title and in the same
capacity.18 To state simply, a final judgment or decree on the merits by a court of competent
jurisdiction is conclusive of the rights of the parties or their privies in all later suits on all points
and matters determined in the former suit.19
The requisite essential of res judicata are: (1) the judgment sought to bar the new action must be
final; (2) the decision must have been rendered by a court having jurisdiction over the subject
matter and the parties; (3) the disposition of the case must be a judgment on the merits; and (4)
there must be as between the first and second action, identity of parties, subject matter, and
causes of action. Should identity of parties, subject matter, and causes of action be shown in the
two cases, then res judicata in its aspect as a "bar by prior judgment" would apply. If as between
the two cases, only identity of parties can be shown, but not identical causes of action, then res
judicata as "conclusiveness of judgment" applies.20
It is not disputed that the RTC Lanao del Sur, Branch 9, had jurisdiction over the subject matter
and parties in Civil Case No. 2410 and its Decision dated November 21, 2000 was a judgment on
the merits, i.e., one rendered after the presentation of the parties' evidence during the trial of the
case; and that such decision had already become final and executory and an entry of judgment
had been made.21
Petitioners, however, claim that there is no identity of parties as they were not parties in Civil
Case No. 2410. Petitioners are grandchildren of both Cota and Timbang Dimaampao, and as
heirs, they are deemed in privity with their grandparents as to the property they would acquire by
inheritance. Notably, Cota and Timbang's two daughters had never intervened during their
lifetime to claim that the subject land was given as a dowry to their mother Timbang and that
Cota had no right to sell the same and it was only now that petitioners as grandchildren who are
claiming such. Since the decision in Civil Case No. 2410 had already ruled that Cota was the
owner of the subject land and could validly convey the same to herein respondents, petitioners'
claim of Timbang's ownership of the subject lot is already barred.
Petitioners further allege that there is no identity of causes of action between Civil Case No.
2410 and the instant case.1wphi1 One test of identity of causes of action is whether or not the
judgment sought in a subsequent case will be inconsistent with the prior judgment. If no
inconsistency will result, the prior judgment cannot be held to be a bar.22
Petitioners, in the instant case, raise the issue of Cota's ownership and possession of the subject
land and the invalidity of respondents' deed of sale dated April 10, 1978. Notably, these issues
were already resolved by RTC Lanao del Sur, Branch 9, in Civil Case No. 2410 where it declared
that plaintiffs, Cota and herein respondents, are the true and lawful owners of the subject land.
Such decision was affirmed by the CA on July 8, 200323 which made the following disquisition,
among others, to wit:

Since (Cota) Dimaampao is still the owner of the subject land, he could validly convey the same
to his co-plaintiffs below (herein respondents).Dimaampao's ownership of the land in question
coupled with his right to alienate the same necessarily renders moot and academic the issue of
whether plaintiffs-appellees Alug, Pangarungan and Balt (herein respondents) are buyers in bad
faith.
In any event, the purported bad faith of Alug, Pangarungan and Balt (herein respondents) is
negated by the diligence they exercised in ascertaining Dimaampao's ownership of the disputed
land at the time it was offered to them for sale. As testified to by Alug, he verified OCT No. RP355 with the Register of Deeds and found out that the subject land is registered in the name of
Dimaampao but encumbered by way of mortgage in favor of Luna. No other encumbrance or
transfer is annotated on OCT No. RP-355. When Alug inspected the subject parcel of land, it was
being cultivated by Soliman Bilao, the tenant of Dimaampao. Thus, he and Pangarungan and Balt
concluded the sale with Dimaampao. x x x
Finally contrary to the contention of defendants-appellants, plaintiffs-appellees (herein
respondents) are under no obligation to check the status of the subject property with (Sheik)
Daromimbang, it being sufficient that they verified the title thereof with the Register of Deeds of
Marawi City and conducted an ocular inspection thereon. The investigation they had diligently
pursued to confirm the validity of Dimaampao's title effectively negates any bad faith in their
purchase of the property.24 (Emphasis supplied )
The CA decision became final with our denial of the petition for review on certiorari in G.R. No.
161438 on February 23, 2004 and an Entry of Judgment was made on April 22, 2004.25
Consequently, the issue of Cota's ownership and possession of the subject land as well as the
validity of the 1978 deed of sale between Cota and herein respondents are already settled issues
which could not be relitigated anew. When a right or fact has been judicially tried and
determined by a court of competent jurisdiction, so long as it remains unreversed, it should be
conclusive upon the parties and those in privity with them in law or estate.26
The validity of the 1978 deed of sale in respondents' favor had already been declared with
finality, and if affirmative relief is granted to petitioners in the instant case, i.e., by the annulment
of the deed of sale, then the decision will necessarily be inconsistent with the prior judgment,
substantial identity of causes of action is present.
We also agree with the CA's finding that petitioners' action had already prescribed. The subject
land was bought by respondents from Cota as evidenced by a Deed of Sale dated April 10, 1978.
Cota executed an Affidavit27 of adverse claim attaching thereto the deed of sale and such
affidavit was registered and annotated in OCT No. RP-335 on April 11, 1978. Article 1144 (1) of
the Civil Code provides that an action upon a written contract must be brought within ten years
from the time the right of action accrues. Here, the period of prescription should be counted from
the time of the registration of sale which was a notice to all the world. The affidavit of adverse
claim was annotated on OCT No. RP-335 on April 11, 1978,28 thus petitioners' complaint filed
only in 2005 is indeed beyond the prescriptive period to do so.

WHEREFORE, the petition for review is DENIED. The Decision dated July 2, 2010 and the
Resolution dated July 27, 2011 issued by the Court of Appeals in CA-G.R. SP No. 02376-MIN
are hereby AFFIRMED.
SO ORDERED.
DIOSDADO M. PERALTA
Associate Justice
WE CONCUR:
PRESBITERO J. VELASCO, JR.
Associate Justice
Chairperson
MARIANO C. DEL CASTILLO*
Associate Justice

MARTIN S. VILLARAMA, JR.

Associate Justice

BIENVENIDO L. REYES
Associate Justice
AT T E S T AT I O N
I attest that the conclusions in the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Court's Division.
PRESBITERO J. VELASCO, JR.
Associate Justice
Chairperson, Third Division
C E R T I F I C AT I O N
Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's
Attestation, I certify that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Court's Division.
MARIA LOURDES P.A. SERENO
Chief Justice

Footnotes
* Designated Acting Member, in lieu of Associate Justice Francis H. Jardeleza, per
Special Order No. 1934 dated February 11, 2015.

1 Penned by Associate Justice Edgardo A. Camello, with Associate Justices Leoncia R.

Dimagiba and Nina G. Antonio-Valenzuela, concurring; rollo, pp. 47-54.
2 Penned by Associate Justice Edgardo A. Camello, with Associate Justices Abraham B.
Borreta and Melchor Quirino C. Sadang, concurring; id. at 55-56.
3 Id. at 57-65; Docketed as Civil Case No. 2046-05 and was raffled off to Branch 8.
4 Id. at 75-82.
5 Id. at 114; Per Judge Santos B. Adiong.
6 Id.
7 Id. at 115-116 .
8 Id. at 117-122.
9 Id. at 135-136; Per Judge Jacob T. Malik.
10 Id. at 53. (Emphasis in the original)
11 Id. at 33.
12 232 Phil. 256 (1987).
13 Denso (Phils.), Inc. v. IAC, supra, at 263-264. (Citations omitted).
14 Investment, Inc. v. Court of Appeals, 231 Phil. 302, 308 (1987).
15 Ley Construction and Development Corporation v. Union Bank of the Philippines, 389
Phil. 788, 795 (2000).
16 Id.
17 Denso Philippines, Inc. v. IAC, 232 Phil. 256, 265 (1987).
18 Firestone Ceramics, Inc. v. Court of Appeals, G.R. No. 127022, September 2, 1999,
313 SCRA 522, 536.
19 Antonio v. Sayman Vda. de Monje, G.R. No. 149624, September 29, 2010, 631 SCRA
471, 479-480, citing Agustin v. Delos Santos, 596 Phil. 630, 641 (2009).
20 Id.
21 Rollo, pp. 110-111.

22 Swan v. Court of Appeals, G.R. No. 97319, August 4, 1992, 212 SCRA 114.
23 Penned by Associate Justice Rebecca de Guia-Salvador, with Associate Justices
Marina L. Buzon and Rosmari D. Carandang, concurring; rollo, pp. 100-108.
24 Id. at 107.
25 Id. at 110-111.
26 Church Assistance Program. Inc. v. Judge Sibulo, 253 Phil. 404, 409 ( 1989).
27 Rollo, p. 405.
28 Id. at 68.

TORTS
THIRD DIVISION
G.R. No. 174161

February 18, 2015

R TRANSPORT CORPORATION, Petitioner,

vs.
LUISITO G. YU, Respondent.
DECISION
PERALTA, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court
seeking to reverse and set aside the Decision1 and Resolution,2 dated September 9, 2005 and
August 8, 2006, respectively, of the Court of Appeals (CA) in CA-G.R. CV No. 84175.
The antecedent facts are as follows:
At around 8:45 in the morning of December 12, 1993, Loreta J. Yu, after having alighted from a
passenger bus in front of Robinson's Galleria along the north-bound lane of Epifanio de los
Santos Avenue (EDSA), was hit and run over by a bus driven by Antonio P. Gimena, who was
then employed by petitioner R Transport Corporation. Loreta was immediately rushed to Medical
City Hospital where she was pronounced dead on arrival.3
On February 3, 1994, the husband of the deceased, respondent Luisito G. Yu, filed a Complaint
for damages before the Regional Trial Court (RTC) of Makati City against petitioner R
Transport, Antonio Gimena, and Metro Manila Transport Corporation (MMTC) for the death of
his wife. MMTC denied its liability reasoning that it is merely the registered owner of the bus
involved in the incident, the actual owner, being petitioner R Transport.4 It explained that under
the Bus Installment Purchase Program of the government, MMTC merely purchased the subject
bus, among several others, for resale to petitioner R Transport, which will in turn operate the
same within Metro Manila. Since it was not actually operating the bus which killed respondents
wife, nor was it the employer of the driver thereof, MMTC alleged that the complaint against it
should be dismissed.5 For its part, petitioner R Transport alleged that respondent had no cause of
action against it for it had exercised due diligence in the selection and supervision of its
employees and drivers and that its buses are in good condition. Meanwhile, the driver Antonio
Gimena was declared in default for his failure to file an answer to the complaint.
After trial on the merits, wherein the parties presented their respective witnesses and
documentary evidence, the trial court rendered judgment in favor of respondent Yu ruling that
petitioner R Transport failed to prove that it exercised the diligence required of a good father of a
family in the selection and supervision of its driver, who, by its negligence, ran over the deceased
resulting in her death. It also held that MMTC should be held solidarily liable with petitioner R

Transport because it would unduly prejudice a third person who is a victim of a tort to look
beyond the certificate of registration and prove who the actual owner is in order to enforce a
right of action. Thus, the trial court ordered the payment of damages in its Decision6 dated June
3, 2004, the dispositive portion of which reads:
WHEREFORE, foregoing premises considered, judgment is hereby rendered ordering
defendants Rizal Transport and Metro Manila Transport Corporation to be primarily and
solidarily liable and defendant Antonio Parraba Gimena subsidiarily liable to plaintiff Luisito Yu
as follows: 1. Actual damages in the amount of Php78,357.00 subject to interest at the legal rate
from the filing of the complaint until fully paid;
2. Loss of income in the amount of Php500,000.00;
3. Moral damages in the amount of P150,000.00;
4. Exemplary damages in the amount of P20,000.00;
5. Attorneys fees in the amount of P10,000.00; and
6. Costs of suit.7
On September 9, 2005, the CA affirmed the Decision of the RTC with modification that
defendant Antonio Gimena is made solidarily liable for the damages caused to respondent.
According to the appellate court, considering that the negligence of Antonio Gimena was
sufficiently proven by the records of the case, and that no evidence of whatever nature was
presented by petitioner to support its defense of due diligence in the selection and supervision of
its employees, petitioner, as the employer of Gimena, may be held liable for the damage caused.
The CA noted that the fact that petitioner is not the registered owner of the bus which caused the
death of the victim does not exculpate it from liability.8 Thereafter, petitioners Motion for
Reconsideration was further denied by the CA in its Resolution9 dated August 8, 2006.
Hence, the present petition.
Petitioner essentially invokes the following ground to support its petition:
I.
THE COURT OF APPEALS ERRED IN AFFIRMING THE RULING OF THE REGIONAL
TRIAL COURT FINDING PETITIONER LIABLE FOR THE DAMAGES CAUSED BY THE
NEGLIGENCE OF ITS EMPLOYEE, WHICH WAS NOT SUPPORTED BY THE EVIDENCE
ON RECORD.
Petitioner insists that the CA and the RTC were incorrect in ruling that its driver was negligent
for aside from the mere speculations and uncorroborated testimonies of the police officers on
duty at the time of the accident, no other evidence had been adduced to prove that its driver was
driving in a reckless and imprudent manner. It asserts that contrary to the findings of the courts

below, the bus from which the victim alighted is actually the proximate cause of the victims
death for having unloaded its passengers on the lane where the subject bus was traversing.
Moreover, petitioner reiterates its argument that since it is not the registered owner of the bus
which bumped the victim, it cannot be held liable for the damage caused by the same.
We disagree.
Time and again, it has been ruled that whether a person is negligent or not is a question of fact
which this Court cannot pass upon in a petition for review on certiorari, as its jurisdiction is
limited to reviewing errors of law.10 This Court is not bound to weigh all over again the
evidence adduced by the parties, particularly where the findings of both the trial and the
appellate courts on the matter of petitioners negligence coincide. As a general rule, therefore, the
resolution off actual issues is a function of the trial court, whose findings on these matters are
binding on this Court, more so where these have been affirmed by the Court of Appeals,11 save
for the following exceptional and meritorious circumstances: (1) when the factual findings of the
appellate court and the trial court are contradictory; (2) when the findings of the trial court are
grounded entirely on speculation, surmises or conjectures; (3) when the lower courts inference
from its factual findings is manifestly mistaken, absurd or impossible; (4) when there is grave
abuse of discretion in the appreciation of facts; (5) when the findings of the appellate court go
beyond the issues of the case, or fail to notice certain relevant facts which, if properly
considered, will justify a different conclusion; (6) when there is a misappreciation of facts; (7)
when the findings of fact are themselves conflicting; and (8) when the findings of fact are
conclusions without mention of the specific evidence on which they are based, are premised on
the absence of evidence, or are contradicted by evidence on record.12
After a review of the records of the case, we find no cogent reason to reverse the rulings of the
courts below for none of the aforementioned exceptions are present herein. Both the trial and
appellate courts found driver Gimena negligent in hitting and running over the victim and ruled
that his negligence was the proximate cause of her death. Negligence has been defined as "the
failure to observe for the protection of the interests of another person that degree of care,
precaution, and vigilance which the circumstances justly demand, whereby such other person
suffers injury."13 Verily, foreseeability is the fundamental test of negligence.14 It is the omission
to do something which a reasonable man, guided by those considerations which ordinarily
regulate the conduct of human affairs, would do, or the doing of something which a prudent and
reasonable man would not do.15
In this case, the records show that driver Gimena was clearly running at a reckless speed. As
testified by the police officer on duty at the time of the incident16 and indicated in the Autopsy
Report,17 not only were the deceaseds clothes ripped off from her body, her brain even spewed
out from her skull and spilled over the road. Indeed, this Court is not prepared to believe
petitioners contention that its bus was travelling at a "normal speed" in preparation for a full
stop in view of the fatal injuries sustained by the deceased. Moreover, the location wherein the
deceased was hit and run over further indicates Gimenas negligence. As borne by the records,
the bus driven by Gimena bumped the deceased in a loading and unloading area of a commercial
center. The fact that he was approaching such a busy part of EDSA should have already
cautioned the driver of the bus. In fact, upon seeing that a bus has stopped beside his lane should

have signalled him to step on his brakes to slow down for the possibility that said bus was
unloading its passengers in the area. Unfortunately, he did not take the necessary precaution and
instead, drove on and bumped the deceased despite being aware that he was traversing a
commercial center where pedestrians were crossing the street. Ultimately, Gimena should have
observed due diligence of a reasonably prudent man by slackening his speed and proceeding
cautiously while passing the area.
Under Article 218018 of the New Civil Code, employers are liable for the damages caused by
their employees acting within the scope of their assigned tasks. Once negligence on the part of
the employee is established, a presumption instantly arises that the employer was remiss in the
selection and/or supervision of the negligent employee. To avoid liability for the quasi-delict
committed by its employee, it is incumbent upon the employer to rebut this presumption by
presenting adequate and convincing proof that it exercised the care and diligence of a good father
of a family in the selection and supervision of its employees.19
Unfortunately, however, the records of this case are bereft of any proof showing the exercise by
petitioner of the required diligence. As aptly observed by the CA, no evidence of whatever nature
was ever presented depicting petitioners due diligence in the selection and supervision of its
driver, Gimena, despite several opportunities to do so. In fact, in its petition, apart from denying
the negligence of its employee and imputing the same to the bus from which the victim alighted,
petitioner merely reiterates its argument that since it is not the registered owner of the bus which
bumped the victim, it cannot be held liable for the damage caused by the same. Nowhere was it
even remotely alleged that petitioner had exercised the required diligence in the selection and
supervision of its employee. Because of this failure, petitioner cannot now avoid liability for the
quasi-delict committed by its negligent employee.
At this point, it must be noted that petitioner, in its relentless attempt to evade liability, cites our
rulings in Vargas v. Langcay20 and Tamayo v. Aquino21 insisting that it should not be held
solidarily liable with MMTC for it is not the registered owner of the bus which killed the
deceased. However, this Court, in Jereos v. Court of Appeals, et al.,22 rejected such contention in
the following wise:
Finally, the petitioner, citing the case of Vargas vs. Langcay, contends that it is the registered
owner of the vehicle, rather than the actual owner, who must be jointly and severally liable with
the driver of the passenger vehicle for damages incurred by third persons as a consequence of
injuries or death sustained in the operation of said vehicle.
The contention is devoid of merit. While the Court therein ruled that the registered owner or
operator of a passenger vehicle is jointly and severally liable with the driver of the said vehicle
for damages incurred by passengers or third persons as a consequence of injuries or death
sustained in the operation of the said vehicle, the Court did so to correct the erroneous findings
of the Court of Appeals that the liability of the registered owner or operator of a passenger
vehicle is merely subsidiary, as contemplated in Art. 103 of the Revised Penal Code. In no case
did the Court exempt the actual owner of the passenger vehicle from liability. On the contrary, it
adhered to the rule followed in the cases of Erezo vs. Jepte, Tamayo vs. Aquino, and De Peralta
vs. Mangusang, among others, that the registered owner or operator has the right to be

indemnified by the real or actual owner of the amount that he may be required to pay as damage
for the injury caused.
The right to be indemnified being recognized, recovery by the registered owner or operator may
be made in any form-either by a cross-claim, third-party complaint, or an independent action.
The result is the same.23
Moreover, while We held in Tamayo that the responsibility of the registered owner and actual
operator of a truck which caused the death of its passenger is not solidary, We noted therein that
the same is due to the fact that the action instituted was one for breach of contract, to wit:
The decision of the Court of Appeals is also attacked insofar as it holds that inasmuch as the
third-party defendant had used the truck on a route not covered by the registered owner's
franchise, both the registered owner and the actual owner and operator should be considered as
joint tortfeasors and should be made liable in accordance with Article 2194 of the Civil Code.
This Article is as follows:
Art. 2194. The responsibility of two or more persons who are liable for a quasi-delict is
solidary.1wphi1 But the action instituted in the case at bar is one for breach of contract, for
failure of the defendant to carry safely the deceased for her destination. The liability for which he
is made responsible, i.e., for the death of the passenger, may not be considered as arising from a
quasi-delict. As the registered owner Tamayo and his transferee Rayos may not be held guilty of
tort or a quasi-delict; their responsibility is not solidary as held by the Court of Appeals.
The question that poses, therefore, is how should the holder of the certificate of public
convenience, Tamayo, participate with his transferee, operator Rayos, in the damages
recoverable by the heirs of the deceased passenger, if their liability is not that of Joint tortfeasors
in accordance with Article 2194 of the Civil Code. The following considerations must be borne
in mind in determining this question. As Tamayo is the registered owner of the truck, his
responsibility to the public orto any passenger riding in the vehicle or truck must be direct, for
the reasons given in our decision in the case of Erezo vs. Jepte, supra, as quoted above. But as
the transferee, who operated the vehicle when the passenger died, is the one directly responsible
for the accident and death he should in turn be made responsible to the registered owner for what
the latter may have been adjudged to pay. In operating the truck without transfer thereof having
been approved by the Public Service Commission, the transferee acted merely as agent of the
registered owner and should be responsible to him (the registered owner), for any damages that
he may cause the latter by his negligence.24
However, it must be noted that the case at hand does not involve a breach of contract of carriage,
as in Tamayo, but a tort or quasi-delict under Article 2176,25 in relation to Article 218026 of the
New Civil Code. As such, the liability for which petitioner is being made responsible actually
arises not from a pre-existing contractual relation between petitioner and the deceased, but from
a damage caused by the negligence of its employee. Petitioner cannot, therefore, rely on our
ruling in Tamayo and escape its solidary liability for the liability of the employer for the
negligent conduct of its subordinate is direct and primary, subject only to the defense of due
diligence in the selection and supervision of the employee.27

Indeed, this Court has consistently been of the view that it is for the better protection of the
public for both the owner of record and the actual operator to be adjudged jointly and severally
liable with the driver.28 As aptly stated by the appellate court, "the principle of holding the
registered owner liable for damages notwithstanding that ownership of the offending vehicle has
already been transferred to another is designed to protect the public and not as a shield on the
part of unscrupulous transferees of the vehicle to take refuge in, in order to free itself from
liability arising from its own negligent act. "29
Hence, considering that the negligence of driver Gimena was sufficiently proven by the records
of the case, and that no evidence of whatever nature was presented by petitioner to support its
defense of due diligence in the selection and supervision of its employees, petitioner, as the
employer of Gimena, may be held liable for damages arising from the death of respondent Yu's
wife.
WHEREFORE, premises considered, the instant petition is DENIED. The Decision and
Resolution, dated September 9, 2005 and August 8, 2006, respectively, of the Court of Appeals in
CA-G.R. CV No. 84175 are hereby AFFIRMED.
SO ORDERED.
DIOSDADO M. PERALTA
Associate Justice
WE CONCUR:
PRESBITERO J. VELASCO, JR.
Associate Justice
Chairperson
MARIANO C. DEL CASTILLO*
Associate Justice

MARTIN S. VILLARAMA, JR.

Associate Justice

BIENVENIDO L. REYES
Associate Justice
AT T E S T AT I O N
I attest that the conclusions in the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Court's Division.
PRESBITERO J. VELASCO, JR.
Associate Justice
Chairperson, Third Division
C E R T I F I C AT I O N

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's
Attestation, I certify that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Court's Division.
MARIA LOURDES P.A. SERENO
Chief Justice

Footnotes
* Designated Acting Member in lieu of Associate Justice Francis H. Jardeleza, per
Special Order No. 1934 dated February 11, 2015.
1 Penned by Associate Justice Rodrigo V. Cosico, with Associate Justices Rebecca De
Guia-Salvador and Arcangelita Romilla-Lontok concurring; rollo, pp. 23-30.
2 Id. at 32-33.
3 Id. at 136.
4 Id. at 24.
5 Id. at 137.
6 Penned by Presiding Judge Rebecca R. Mariano, id. at 136-140.
7 Id. at 140.
8 BA Finance Corp. v. Court of Appeals, G.R. No. 98275, November 13, 1992, 215
SCRA 715, 720.
9 Rollo, pp. 32-33.
10 Filipinas Synthetic Fiber Corporation v. De los Santos, et. al., G.R. No. 152033,
March 16, 2011, 645 SCRA 463, 468, citing Estacion v. Bernardo,518 Phil. 388, 398
(2006), citing Yambao v. Zuiga, 463 Phil. 650, 657 (2003).
11 Lampesa v. De Vera, 569 Phil. 14, 20 (2008), citing Yambao v. Zuiga, supra, at 657658.
12 Philippine Health-Care Providers, Inc. (Maxicare) v. Estrada, 566 Phil. 603, 610
(2008), citing Ilao-Quianay v. Mapile, 510 Phil. 736, 744-745 (2005); Fuentes v. Court of
Appeals, 335 Phil. 1163, 1168-1169 (1997).

13 Philippine National Railways v. Court of Appeals, et. al.,562 Phil. 141, 148 (2007),
citing Corliss v. The Manila Railroad Company, 137 Phil. 101, 107 (1969).
14 Philippine Hawk Corporation v. Vivian Tan Lee, 626 Phil. 483, 494 (2010), citing
Achevara v. Ramos, 617 Phil. 72, 85 (2009).
15 Perea v. Zarate, G.R. No. 157917, August 29, 2012, 679 SCRA 209, 230, citing
Layugan v. Intermediate Appellate Court, 249 Phil. 363, 373 (1988), citing Black Law
Dictionary, Fifth Edition, p. 930.
16 Rollo, p. 8.
17 Id. at 103.
18 Article 2180 of the New Civil Code provides: 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.
x x x x 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.
19 Lampesa v. De Vera, et. al., supra note 11, at 20-21, citing Syki v. Begasa, 460 Phil.
381, 386 (2003).
20 116 Phil. 478 (1962).
21 105 Phil. 949 (1959).
22 202 Phil. 715 (1982).
23 Jereos v. Court of Appeals, et al., supra, at 720-721.(Emphasis ours; citations omitted)
24 Tamayo v. Aquino, supra note 21, at 953. (Emphasis ours)
25 Article 2176 of the New Civil Code provides: Art. 2176. Whoever by act or omission
causes damage to another, there being fault or negligence, is obliged to pay for the
damage done. Such fault or negligence, if there is no pre-existing contractual relation
between the parties, is called a quasi-delict and is governed by the provisions of this
Chapter. (1902a)
26 Supra note 17.
27 Rafael Reyes Trucking Corporation v. People of the Philippines, 386 Phil. 41, 57
(2000).

28 Zamboanga Transportation Company, Inc. v. Court of Appeals, 141 Phil. 406, 413
(1969), citing the Decision of Court of Appeals Justice Fred Ruiz Castro, citing Dizon v.
Octavio, et al., 51 O.G. No. 8, 4059-4061; Castanares v. Pages, CA-G.R. 21809-R, March
8, 1962; Redado v .. Bautista, CA-G.R. 19295-R, Sept. 19, 1961; Bering v. Noeth, CAG.R. 28483-R, April 29 1965.
29 Rollo, p. 29.

Right to repurchase the mortgaged property

FIRST DIVISION
G.R. No. 204672

February 18, 2015

SPOUSES RODOLFO and MARCELINA GUEVARRA, Petitioners,

vs.
THE COMMONER LENDING CORPORATION, INC., Respondent.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1 are the Decision2 dated October 3, 2011 and
the Resolution3 dated October 17, 2012 of the Court of Appeals (CA) in CA-G.R. CV No.
02895, which affirmed with modification the Order4 dated October 20, 2008 of the Regional
Trial Court of Guimbal, Iloilo, Branch 67 (RTC) in Cadastral Case Nos. 118 and 122, allowing
petitioners-spouses Rodolfo and Marcelina Guevarra (Sps. Guevarra) to exercise their right to
repurchase the mortgaged property subject of this case, conditioned upon the payment of the
purchase price fixed by respondent The Commoner Lending Corporation, Inc. (TCLC).
The Facts
On December 16, 1996,5 Sps. Guevarra obtained a 320,000.00 loan from TCLC, which was
secured by a real estate mortgage6 over a 5,532- square meter parcel of land situated in Guimbal,
Iloilo, covered by Original Certificate of Title (OCT) No. F-319007 (subject property),
emanating from a free patent granted to Sps. Guevarra on February 25, 1986.8
Sps. Guevarra, however, defaulted in the payment of their loan, prompting TCLC to extrajudicially foreclose the mortgage on the subject property9 in accordance with Act No. 3135,10 as
amended. In the process, TCLC emerged as the highest bidder at the public auction sale held on
June 15, 2000 for the bid amount of 150,000.00,11 and on August 25, 2000, the certificate of sale
was registered with the Registry of Deeds of Iloilo.12
Eventually, Sps. Guevarra failed to redeem the subject property within the one-year reglementary
period, which led to the cancellation of OCT No. F-31900 and the issuance of Transfer
Certificate of Title No. T-1618713 in the name of TCLC. Thereafter, TCLC demanded that Sps.
Guevarra vacate the property, but to no avail.14
The RTC Proceedings
On June 10, 2005, TCLC applied for a writ of possession15 before the RTC, docketed as
Cadastral Case No. 118. Sps. Guevarra opposed16 the same by challenging the validity of the
foreclosure proceedings due to the purported failure of TCLC to comply with the notice, posting

and publication requirements, and lack of authority, as a corporation, to acquire the subject
property. Sps. Guevarra also assailed the issuance by the Sheriff of Iloilo of a Final Deed of
Sale17 to be premature, as they were still entitled to redeem the subject property within five (5)
years from the expiration of the one-year period to repurchase.18
Subsequently, or on September 8, 2005, Sps. Guevarra filed before the RTC a petition for
redemption,19 docketed as Cadastral Case No. 122, maintaining that the redemption period did
not expire on August 25, 2001, or one (1) year from the registration of the certificate of sale, but
will still expire five (5) years therefrom, or on August 25, 2006.20 They further averred that they
pleaded to be allowed to redeem the subject property but TCLC unjustifiably refused the same,
constraining them to file said petition, offering to redeem the subject property at P150,000.00,
plus one percent (1%) interest per month for five (5) years from August 25, 2000, or in the
amount of P240,000.00,21 which they consigned22 to the RTC.
Cadastral Case Nos. 118 and 122 were later consolidated.23
In an Order24 dated July 12, 2006, the RTC granted TCLC's petition in Cadastral Case No. 118,
resulting in the issuance of the corresponding Writ of Possession25 and Notice to Vacate26
which were duly served upon Sps. Guevarra.27 Accordingly, the latter filed a motion for
reconsideration28 and Motion to Hold in Abeyance the Implementation of the Writ of
Possession.29
In an Order30 dated October 20, 2008, the RTC denied the motion for reconsideration in
Cadastral Case No. 118, but granted Sps. Guevarra's petition in Cadastral Case No. 122. In so
doing, the RTC recognized Sps. Guevarra's right to repurchase the subject property, pointing out
that they were able to file their petition within the five-year period provided under Section 119 of
Commonwealth Act No. 141,31 otherwise known as the Public Land Act (Public Land Act).32
As a consequence, the RTC directed TCLC to reconvey the subject property to Sps. Guevarra
and execute the corresponding deed of reconveyance upon payment of the purchase price of
P150,000.00, plus one percent (1%) interest per month from the date of the auction sale on June
15, 2000 up to August 8, 2006, as well as the corresponding tax assessments and foreclosure
expenses.33
Dissatisfied, TCLC filed a motion for reconsideration34 which was, however, denied in an
Order35 dated January 6, 2009; thus, it filed an appeal36 before the CA.
The CA Proceedings
In a Decision37 dated October 3, 2011, the CA affirmed the RTC's October 20, 2008 Order,
upholding Sps. Guevarra's right to repurchase the subject property pursuant to Section 119 of the
Public Land Act, with modification that the same be conditioned upon the payment of the
purchase price fixed by TCLC. It ruled that after the expiration of the redemption period, the
present owner, i.e., TCLC, has the discretion to set a higher price.38
Aggrieved, Sps. Guevarra filed a motion for reconsideration39 which was, however, denied in a
Resolution40 dated October 17, 2012, hence, this petition.

The Issue Before the Court

The essential issue in this case is whether or not the CA committed a reversible error in ruling
that the repurchase price for the subject property should be fixed by TCLC.
The Court's Ruling
In an extra-judicial foreclosure of registered land acquired under a free patent, the mortgagor
may redeem the property within two (2) years from the date of foreclosure if the land is
mortgaged to a rural bank under Republic Act No. (RA) 720,41 as amended, otherwise known as
the Rural Banks Act, or within one (1) year from the registration of the certificate of sale if the
land is mortgaged to parties other than rural banks pursuant to Act No. 3135.42 If the mortgagor
fails to exercise such right, he or his heirs may still repurchase the property within five (5) years
from the expiration of the aforementioned redemption period43 pursuant to Section 119 of the
Public Land Act, which states:
SEC. 119. Every conveyance of land acquired under the free patent or homestead provisions,
when proper, shall be subject to repurchase by the applicant, his widow, or legal heirs, within a
period of five years from the date of the conveyance.
In this case, the subject property was mortgaged to and foreclosed by TCLC, which is a lending
or credit institution, and not a rural bank; hence, the redemption period is one (1) year from the
registration of the certificate of sale on August 25, 2000, or until August 25, 2001. Given that
Sps. Guevarra failed to redeem the subject property within the aforestated redemption period,
TCLC was entitled, as a matter of right, to consolidate its ownership and to possess the same.44
Nonetheless, such right should not negate Sps. Guevarra's right to repurchase said property
within five (5) years from the expiration of the redemption period on August 25, 2001, or until
August 25, 2006, in view of Section 119 of the Public Land Act as above-cited.
In this relation, it is apt to clarify that contrary to TCLC's claim,45 the tender of the repurchase
price is not necessary for the preservation of the right of repurchase, because the filing of a
judicial action for such purpose within the five-year period under Section 119 of the Public Land
Act is already equivalent to a formal offer to redeem. On this premise, consignation of the
redemption price is equally unnecessary.46
Thus, the RTC and CA both correctly ruled that Sps. Guevarra's right to repurchase the subject
property had not yet expired when Cadastral Case No. 122 was filed on September 8, 2005.That
being said, the Court now proceeds to determine the proper amount of the repurchase price. Sps.
Guevarra insist that the repurchase price should be the purchase price at the auction sale plus
interest of one percent (1%) per month and other assessment fees,47 citing the rulings in the
cases of Belisario v. Intermediate Appellate Court48 (Belisario) and Salenillas v. CA49
(Salenillas). On the other hand, TCLC maintains that it is entitled to its total claims under the
promissory note and the mortgage contract50 in accordance with Section 4751 of the General
Banking Law of 2000.52
TCLC's argument is partly correct.

To resolve the matter, it must first be pointed out that case law has equated a right of repurchase
of foreclosed properties under Section 119 of the Public Land Act as a "right of redemption"53
and the repurchase price as a "redemption price."54 Thus, in Salenillas, the Court applied then
Section 30, now Section 28, Rule 39 of the Rules of Court (Rules) in the redemption of the
foreclosed property covered by a free patent:
Now, as regards the redemption price, applying Sec. 30 of Rule 39 of the [Rules], the petitioners
should reimburse the private respondent the amount of the purchase price at the public auction
plus interest at the rate of one per centum per month up to November 17, 1983, together with the
amounts of assessments and taxes on the property that the private respondent might have paid
after purchase and interest on the last named amount at the same rate as that on the purchase
price. (Emphases supplied)55
The Court has, however, ruled56 that redemptions from lending or credit institutions, like TCLC,
are governed by Section 7857 of the General Banking Act (now Section 47 of the General
Banking Law of 2000), which amended Section 6 of Act No. 3135 in relation to the proper
redemption price when the mortgagee is a bank, or a banking or credit institution.58
Nonetheless, the Court cannot subscribe to TCLC's contention that it is entitled to its total claims
under the promissory note and the mortgage contract59 in view of the settled rule that an action
to foreclose must be limited to the amount mentioned in the mortgage.60 Hence, amounts not
stated therein must be excluded, like the penalty charges of three percent (3%) per month
included in TCLC's claim.61 A penalty charge is likened to a compensation for damages in case
of breach of the obligation. Being penal in nature, it must be specific and fixed by the contracting
parties.62
Moreover, the Court notes that the stipulated three percent (3%) monthly interest is excessive
and unconscionable. In a plethora of cases, the Court has affirmed that stipulated interest rates of
three percent (3%) per month and higher are excessive, iniquitous, unconscionable, and
exorbitant,63 hence, illegal64 and void for being contrary to morals.65 In Agner v. BPI Family
Savings Bank, Inc.,66 the Court had the occasion to rule:
Settled is the principle which this Court has affirmed in a number of cases that stipulated interest
rates of three percent (3%) per month and higher are excessive, iniquitous, unconscionable, and
exorbitant. While Central Bank Circular No. 905-82, which took effect on January 1, 1983,
effectively removed the ceiling on interest rates for both secured and unsecured loans, regardless
of maturity, nothing in the said circular could possibly be read as granting carte blanche authority
to lenders to raise interest rates to levels which would either enslave their borrowers or lead to a
hemorrhaging of their assets. Since the stipulation on the interest rate is void for being contrary
to morals, if not against the law, it is as if there was no express contract on said interest rate;
thus, the interest rate may be reduced as reason and equity demand. (Emphases supplied)67
As such, the stipulated three percent (3%) monthly interest should be equitably reduced to one
percent (1%)per month or twelve percent (12%) per annum reckoned from the execution of the
real estate mortgage on December 12, 1996,68 until the filing of the petition in Cadastral Case
No. 122 on September 8, 2005.

In addition to the principal and interest, the repurchase price should also include all the expenses
of foreclosure, i.e., Judicial Commission, Publication Fee, and Sheriff's Fee, in accordance with
Section 4769 of the General Banking Law of 2000. Considering further that Sps. Guevarra failed
to redeem the subject property within the one-year reglementary period, they are liable to
reimburse TCLC for the corresponding Documentary Stamp Tax (DST) and Capital Gains Tax
(CGT) it paid pursuant to Bureau of Internal Revenue (BIR) Revenue Regulations No. 4-99,70
which requires the payment of DST on extra-judicial foreclosure sales of capital assets initiated
by banks, finance and insurance companies, as well as CGT in cases of non-redemption. CGT
and DST are expenses incident to TCLC's custody of the subject property, hence, likewise due,
under the above provision of law.
Accordingly, the repurchase price is hereby computed as follows:
Principal

P320,000.00

Add: Interest from 12/12/1996 to 09/05/2005

from 12/12/1996 to 12/12/2004: (P320,000.00 x 12% x 8 years)

P307,200.00

from 12/13/2004 to 09/08/2005: (P320,000.00 x 12% x 270/365) 28,405.48

335,605.48

Total Amount due under the mortgage

P655,605.48

Add: Capital Gains Tax

18,203.17

Documentary Stamp Tax

4,501.46

Judicial Commission

4,150.00

Publication Fee

4,000.00

Sheriff's Fee

3,000.00

Repurchase Price

P689,460.11
==========

From this repurchase price shall be deducted the amount consigned to the RTC, or P240,000.00.
Sps. Guevarra may repurchase the subject property within thirty (30)days from finality of this
Decision upon payment of the net amount of P449,460.11.
WHEREFORE, the petition is DENIED. The Decision dated October 3, 2011 and the Resolution
dated October 17, 2012 of the Court of Appeals in CA-G.R. CV No. 02895 are hereby
AFFIRMED with MODIFICATION allowing petitioners-spouses Rodolfo and Marcelina
Guevarra to repurchase the subject property from respondent The Commoner Lending
Corporation, Inc. (TCLC) within thirty (30) days from the finality of this Decision for the price
of P689,460.11, less the amount of P240,000.00 previously consigned to the court a quo, or the
net amount P449,460.l l, for which the corresponding deed of absolute conveyance shall be
executed by TCLC.

SO ORDERED.
ESTELA M. PERLAS-BERNABE
Associate Justice
WE CONCUR:
MARIA LOURDES P.A. SERENO
Chief Justice
Chairperson
TERESITA J. LEONARDO-DE
CASTRO
Associate Justice

LUCAS P. BERSAMIN
Associate Justice

JOSE PORTUGAL PEREZ

Associate Justice
C E R T I F I C AT I O N
Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above
Decision had been reached in consultation before the case was assigned to the writer of the
opinion of the Court's Division.
MARIA LOURDES P.A. SERENO
Chief Justice

Footnotes
1 Rollo, pp. 9-22.
2 Id. at 27-36. Penned by Associate Justice Eduardo B. Peralta, Jr. with Acting Executive
Justice Pampio A. Abarintos and Associate Justice Gabriel T. Ingles concurring.
3 Id. at 38-39. Penned by Acting Executive Justice Pampio A. Abarintos with Associate
Justices Gabriel T. Ingles and Carmelita Salandanan Manahan concurring.
4 Records (Cadastral Case No. 118), pp. 100-102. Penned by Judge Domingo D.
Diamante.
5 See Promissory Note No. 5721 dated December 16, 1996 for 377,600.00 inclusive of
interest; records (Cadastral Case No. 122), p. 15. The same was stated as December 12,
1996 in the CA Decision; rollo, p. 27.

6 Dated December 12, 1996. Records (Cadastral Case No. 118), pp. 12-14.
7 Rollo, pp. 55-57 (including dorsal portions).
8 Id. at 27-28.
9 Id. at 28.
10 Entitled "AN ACT TO REGULATE THE SALE OF PROPERTY UNDER SPECIAL
POWERS INSERTED IN OR ANNEXED TO REAL-ESTATE MORTGAGES" (March
6, 1924).
11 See Certificate of Sale at Public Auction; rollo, pp. 49-50.
12 Id. at 28.
13 Id. at 58.
14 Id. at 28.
15 See Petition for Issuance of Writ of Possession; records (Cadastral Case No. 118), pp.
5-8.
16 See Opposition (to Petition for Issuance of Writ of Possession) filed on July 28, 2005;
id. at 21-25.
17 Id. at 17-18. Issued by Ex-Officio Provincial Sheriff and Clerk of Court VII
Magdalena L. Lometillo on September 6, 2001.
18 Id. at 22.
19 Records (Cadastral Case No. 122), pp. 5-11.
20 Id. at 6-7.
21 Id. at 8-9.
22 See Official Receipt No. 19205006; id. at 4.
23 See Order dated March 8, 2006; records (Cadastral Case No. 118), p. 44. Penned by
Judge Teodulo A. Colada.
24 Id. at 54-55.
25 Dated July 31, 2006 issued by Clerk of Court VI Atty. Marlo C. Brasales. Id. at 56-57.

26 Dated August 1, 2006 signed by Sheriff IV Cresencio Gomez, Jr. Id. at 59.
27 See signature of petitioner Marcelina Guevarra; id. at 57 and 59.
28 Dated August 8, 2006. Id. at 68-79.
29 Dated August 8, 2006. Id. at 80-84.
30 Id. at 100-102.
31 Entitled "AN ACT TO AMEND AND COMPILE THE LAWS RELATIVE TO
LANDS OF THE PUBLIC DOMAIN" (December 1, 1936).
32 Records (Cadastral Case No. 118), p. 101.
33 Records (Cadastral Case No. 118), pp. 101-102.
34 Filed on December 2, 2008. Records (Cadastral Case No. 122), pp. 54-57.
35 Id. at 61.
36 See Notice of Appeal filed on January 30, 2009; id. at 63.
37 Rollo, pp. 27-36.
38 Id. at 34-35.
39 Dated November 8, 2011. Id. at 40-46.
40 Id. at 38-39.
41 Entitled "AN ACT PROVIDING FOR THE CREATION, ORGANIZATION AND
OPERATION OF RURAL BANKS, AND FOR OTHER PURPOSES" (June 6, 1952).
(See Section 3 of Batas Pambansa Blg. 65, further amending Section 5 of RA 720).
42 See Section 6 of Act No. 3135.
43 See Spouses Hilaga v. Rural Bank of Isulan, 631 Phil. 526, 534 (2010), citing Sta.
Ignacia Rural Bank, Inc. v. CA, G.R. No. 97872, March 1, 1994, 230 SCRA 513, 525.
44 See Development Bank of the Phils. v. CA, 375 Phil. 114, 128 (1999).
45 See Comment filed on September 18, 2013; rollo, pp. 122-123.
46 Vda. de Panaligan v. CA, 328 Phil. 1232, 1238-1239 (1996).

47 Rollo, p. 20.
48 247-A Phil. 184 (1988).
49 251 Phil. 764 (1989).
50 Rollo, p. 122. Total repurchase price incorrectly computed as 3,216,660.63 by TCLC
in its Appellant's Brief before the CA; see CA rollo, p. 31. Total repurchase should be
3,216,560.63, computed as follows:
Principal Amount of 377,600 plus interest at 18% per 180 days from
July 16, 1997 and Penalty at 3% per month from February 16, 1997

P3,182,706.00

Capital Gains Tax

18,203.17

Documentary Stamp Tax

4,501.46

Judicial Commission

4,150.00

Publication Fee

4,000.00

Sheriff's Fee

3,000.00

Total Claim

P3,216,560.63
============

51 Then Section 78 of RA 337 entitled "AN ACT REGULATING BANKS AND

BANKING INSTITUTIONS AND FOR OTHER PURPOSES" (July 24, 1948), as
amended by Presidential Decree No. (PD) 1828 entitled "AMENDING FURTHER
REPUBLIC ACT NO. 337, AS AMENDED, OTHERWISE KNOWN AS THE
'GENERAL BANKING ACT'" (January 16, 1981).
52 RA 8791 entitled "AN ACT PROVIDING FOR THE REGULATION OF THE
ORGANIZATION AND OPERATIONS OF BANKS, QUASI-BANKS, TRUST
ENTITIES AND FOR OTHER PURPOSES" (May 23, 2000). Incorrectly referred to as
the "New Banko Sentral ng Filipinas Act" in TCLC's Comment; see rollo, p. 122.
53 See Heirs of Canque v. CA, 341 Phil. 738, 748 (1997); Belisario v. Intermediate
Appellate Court, supra note 48, at 194; Spouses Hilaga v. Rural Bank of Isulan, supra
note 43, at 530-531.
54 Salenillas v. CA, supra note 49, at 771.
55 Id.
56 See Tolentino v. CA, 546 Phil. 557, 567 (2007), Sy v. CA, 254 Phil. 120, 127-129
(1989), and Ponce de Leon v. Rehabilitation Finance Corp., 146 Phil. 862, 878 (1970).

57 Section 78 of RA 337, as amended by PD 1828, provides:

SEC. 78. Loans against real estate security shall not exceed seventy percent (70%)
of the appraised value of the respective real estate security, plus seventy percent
(70%) of the appraised value of the insured improvements, and such loans shall
not be made unless title to the real estate shall be in the mortgagor. In the event of
foreclosure, whether judicially or extra[-]judicially, of any mortgage on real
[estate] which is security for any loan granted before the passage of this Act or
under the provisions of this Act, the mortgagor or debtor whose real property
[had] been sold at public auction, judicially or extra[-]judicially, for the full or
partial payment of an obligation to any bank, banking or credit institution, within
the purview of this Act shall have the right, within one year after the sale of the
real estate as a result of the foreclosure of the respective mortgage, to redeem the
property by paying the amount fixed by the court in the order of execution, or the
amount due under the mortgage deed, as the case may be, with interest thereon at
the rate specified in the mortgage, and all the costs, and judicial and other
expenses incurred by the bank or institution concerned by reason of the execution
and sale and as a result of the custody of said property less the income received
from the property. However, the purchaser at the auction sale concerned in a
judicial foreclosure shall have the right to enter upon and take possession of such
property immediately after the date of the confirmation of the auction sale by the
court and administer the same in accordance with law.
x x x x (Emphases and underscoring supplied)
58 Tolentino v. CA, supra note 56.
59 Rollo, p. 122.
60 Spouses Viola v. Equitable PCI Bank, Inc., 592 Phil. 611, 619 (2008).
61 See CA rollo, p. 31.
62 Spouses Viola v. Equitable PCI Bank, Inc., supra note 60, at 620.
63 Agner v. BPI Family Savings Bank, Inc., G.R. No. 182963, June 3, 2013, 697 SCRA
89, 102.
64 RGM Industries, Inc. v. United Pacific Capital Corporation, G.R. No. 194781, June
27, 2012, 675 SCRA 400, 405.
65 Chua,v. Timan, 584 Phil. 144, 148 (2008).
66 Supra note 63; citations omitted.
67 Id. at 102.

68 Records (Cadastral Case No. 118), pp. 12-13.

69 Section 47 of RA 8791 provides:
SEC. 47. Foreclosure of Real Estate Mortgage.- In the event of foreclosure,
whether judicially or extra-judicially, of any [mortgage] on real estate which is
security for any loan or other credit accommodation granted, the mortgagor or
debtor whose real property [had] been sold for the full or partial payment of his
obligation shall have the right within one year after the sale of the real estate, to
redeem the property by paying the amount due under the mortgage deed, with
interest thereon at the rate specified in the mortgage, and all the costs and
expenses incurred by the bank or institution from the sale and custody of said
property less the income derived therefrom. However, the purchaser at the auction
sale concerned whether in a judicial or extrajudicial foreclosure shall have the
right to enter upon and take possession of such property immediately after the
date of the confirmation of the auction sale and administer the same in accordance
with law. Any petition in court to enjoin or restrain the conduct of foreclosure
proceedings instituted pursuant to this provision shall be given due course only
upon the filing by the petitioner of a bond in an amount fixed by the court
conditioned that he will pay all the damages which the bank may suffer by the
enjoining or the restraint of the foreclosure proceeding.
Notwithstanding Act [No.] 3135, juridical persons whose property is being sold
pursuant to an extra[-]judicial foreclosure, shall have the right to redeem the
property in accordance with this provision until, but not after, the registration of
the certificate of foreclosure sale with the applicable Register of Deeds which in
no case shall be more than three (3) months after foreclosure, whichever is earlier.
Owners of property that [had] been sold in a foreclosure sale prior to the
effectivity of this Act shall retain their redemption rights until their expiration.
(Emphasis and underscoring supplied)
70 Entitled "FURTHER AMENDING REVENUE MEMORANDUM ORDER NO. 2986 DATED SEPTEMBER 3, 1986, AS AMENDED BY REVENUE MEMORANDUM
ORDER NO. 16-88 DATED APRIL 18, 1988,AS FURTHER AMENDED BY
REVENUE MEMORANDUM ORDER NO. 27-89 DATED APRIL 18, 1989,AND AS
LAST AMENDED BY REVENUE MEMORANDUM ORDER NO. 6-92 DATED
JANUARY 15, 1992 RELATIVE TO THE PAYMENT OF CAPITAL GAINS TAX AND
DOCUMENTARY STAMP TAX ON EXTRA-JUDICIAL FORECLOSURE SALE OF
CAPITAL ASSETS INITIATED BY BANKS, FINANCE AND INSURANCE
COMPANIES" (March 16, 1999), pertinent portions of which provide:
SEC. 3. CAPITAL GAINS TAX. (1) In case the mortgagor exercises his right of redemption within one year from
the issuance of the certificate of sale, no capital gains tax shall be imposed

because no capital gains [have] been derived by the mortgagor and no sale or
transfer of real property was realized. x x x.
(2) In case of non-redemption, the capital gains tax on the foreclosure sale
imposed under Secs. 24 (D) (1) and 27 (D) (5) of the Tax Code [entitled "AN
ACT AMENDING THE NATIONAL INTERNAL REVENUE CODE, AS
AMENDED,AND FOR OTHER PURPOSES" (January 1, 1998)]shall become
due based on the bid price of the highest bidder but only upon the expiration of
the one-year period of redemption provided for under Sec. 6 of Act No. 3135, as
amended by Act No. 4118 [entitled "AN ACT TO AMEND ACT NUMBERED
THIRTY-ONE HUNDRED AND THIRTY-FIVE, ENTITLED 'AN ACT TO
REGULATE THE SALE OF PROPERTY UNDER SPECIAL POWERS
INSERTED IN OR ANNEXED TO REAL-ESTATE MORTGAGES'" (December
7, 1933)], and shall be paid within thirty (30) days from the expiration of the said
one-year redemption period.
SEC. 4. DOCUMENTARY STAMP TAX. - (1) In case the mortgagor exercises
his right of redemption, the transaction shall only be subject to the 15.00
documentary stamp tax imposed under Sec. 188 of the Tax Code of 1997 because
no land or realty was sold or transferred for a consideration.
(2) In case of non-redemption, the corresponding documentary stamp tax shall be
levied, collected and paid by the person making, signing, issuing, accepting, or
transferring the real property wherever the document is made, signed, issued,
accepted or transferred where the property is situated in the Philippines. x x x.
(Underscoring supplied)

PAYMENT BY CESSION
THIRD DIVISION
G.R. No. 203133

February 18, 2015

YULIM INTERNATIONAL COMPANY LTD., JAMES YU, JONATHAN YU, and

ALMERICK TIENG LIM, Petitioners,
vs.
INTERNATIONAL EXCHANGE BANK (now Union Bank of the Philippines), Respondent.
DECISION
REYES, J.:
In the assailed Decision1 dated February 1, 2012 in CA-G.R. CV No. 95522, the Court of
Appeals (CA) modified the Decision2 dated December 21, 2009 of the Regional Trial Court
(RTC) of Makati City, Branch 145, in Civil Case No. 02-749, holding that James Yu (James),
Jonathan Yu (Jonathan) and Almerick Tieng Lim (Almerick), who were capitalist partners in
Yulim International Company Ltd. (Yulim), collectively called as the petitioners, were jointly
and severally liable with Yulim for its loan obligations with respondent International Exchange
Bank (iBank).
The Facts
On June 2, 2000, iBank, a commercial bank, granted Yulim, a domestic partnership, a credit
facility in the form of an Omnibus Loan Line for P5,000,000.00, as evidenced by a Credit
Agreement3 which was secured by a Chattel Mortgage4 over Yulims inventories in its
merchandise warehouse at 106 4th Street, 9th Avenue, Caloocan City. As further guarantee, the
partners, namely, James, Jonathan and Almerick, executed a Continuing Surety Agreement5 in
favor of iBank.
Yulim availed of its aforesaid credit facility with iBank, as follows:
Promissory Note No.

Face Value

PN Date

Date of Maturity

2110005852

P1,298,926.00

10/26/2000

01/29/2001

2110006026

1,152,963.00

11/18/2000

02/05/2001

2110006344

499,890.00

12/04/2000

03/12/2001

2110006557

798,010.00

12/18/2000

04/23/2001

2110100189

496,521.00

01/11/2001

05/07/20016

The above promissory notes (PN) were later consolidated under a single promissory note, PN
No. SADDK001014188, for P4,246,310.00, to mature on February 28, 2002.7 Yulim defaulted
on the said note. On April 5, 2002, iBank sent demand letters to Yulim, through its President,
James, and through Almerick,8 but without success. iBank then filed a Complaint for Sum of
Money with Replevin9 against Yulim and its sureties. On August 8, 2002, the Court granted the
application for a writ of replevin. Pursuant to the Sheriffs Certificate of Sale dated November 7,
2002,10 the items seized from Yulims warehouse were worth only P140,000.00, not
P500,000.00 as the petitioners have insisted.11
On October 2, 2002, the petitioners moved to dismiss the complaint insisting that their loan had
been fully paid after they assigned to iBank their Condominium Unit No. 141, with parking
space, at 20 Landsbergh Place in Tomas Morato Avenue, Quezon City.12 They claimed that
while the pre-selling value of the condominium unit was P3.3 Million, its market value has since
risen to 5.5 Million.13 The RTC, however, did not entertain the motion to dismiss for noncompliance with Rule 15 of the Rules of Court.
On May 16, 2006, the petitioners filed their Answer reiterating that they have paid their loan by
way of assignment of a condominium unit to iBank, as well as insisting that iBanks penalties
and charges were exorbitant, oppressive and unconscionable.14
Ruling of the RTC
After trial on the merits, the RTC rendered judgment on December 21, 2009, the dispositive
portion of which reads, as follows:
WHEREFORE, in view of the foregoing considerations, the Court finds the individual
defendants James Yu, Jonathan Yu and Almerick Tieng Lim, not liable to the plaintiff, iBank,
hence the complaint against them is hereby DISMISSED for insufficiency of evidence, without
pronouncement as to cost.
This court, however, finds defendant corporation Yulim International Company Ltd. liable; and it
hereby orders defendant corporation to pay plaintiff the sum of P4,246,310.00 with interest at
16.50% per annum from February 28, 2002 until fully paid plus cost of suit.
The counterclaims of defendants against plaintiff iBank are hereby DISMISSED for
insufficiency of evidence.
SO ORDERED.15
Thus, the RTC ordered Yulim alone to pay iBank the amount of P4,246,310.00, plus interest at
16.50% per annum from February 28, 2002 until fully paid, plus costs of suit, and dismissed the
complaint against petitioners James, Jonathan and Almerick, stating that there was no iota of
evidence that the loan proceeds benefited their families.16

The petitioners moved for reconsideration on January 12, 2010;17 iBank on January 19, 2010
likewise filed a motion for partial reconsideration.18 In its Joint Order19 dated March 8, 2010,
the RTC denied both motions.
Ruling of the CA
On March 23, 2010, Yulim filed a Notice of Partial Appeal, followed on March 30, 2010 by
iBank with a Notice of Appeal.
Yulim interposed the following as errors of the court a quo:
I. THE LOWER COURT ERRED IN ORDERING [YULIM] TO PAY [iBANK] THE
AMOUNT OF P4,246,310.00 WITH INTEREST AT 16.5% PER ANNUMFROM
FEBRUARY 28, 2002 UNTIL FULLY PAID.
II. THE LOWER COURT ERRED IN NOT ORDERING [iBANK] TO PAY
ATTORNEYS FEES, MORAL DAMAGES AND EXEMPLARY DAMAGES.20
For its part, iBank raised the following as errors of the RTC:
I. THE TRIAL COURT ERRED IN NOT HOLDING INDIVIDUAL [PETITIONERS
JAMES, JONATHAN AND ALMERICK] SOLIDARILY LIABLE WITH [YULIM] ON
THE BASIS OF THE CONTINUING SURETYSHIP AGREEMENT EXECUTED BY
THEM.
II. THE TRIAL COURT ERRED IN NOT HOLDING ALL THE [PETITIONERS]
LIABLE FOR PENALTY CHARGES UNDER THE CREDIT AGREEMENT AND
PROMISSORY NOTES SUED UPON.
III. THE TRIAL COURT ERRED IN NOT HOLDING [THE PETITIONERS] LIABLE
TO [iBANK] FOR ATTORNEYS FEES AND INDIVIDUAL [PETITIONERS]
JOINTLY AND SEVERALLY LIABLE WITH [YULIM] FOR COSTS OF SUIT
INCURRED BY [iBANK] IN ORDER TO PROTECT ITS RIGHTS.21
Chiefly, the factual issue on appeal to the CA, raised by petitioners James, Jonathan and
Almerick, was whether Yulims loans have in fact been extinguished with the execution of a
Deed of Assignment of their condominium unit in favor of iBank, while the corollary legal issue,
raised by iBank, was whether they should be held solidarily liable with Yulim for its loans and
other obligations to iBank.
The CA ruled that the petitioners failed to prove that they have already paid Yulims consolidated
loan obligations totaling 4,246,310.00, for which it issued to iBank PN No. SADDK001014188
for the said amount. It held that the existence of a debt having been established, the burden to
prove with legal certainty that it has been extinguished by payment devolves upon the debtors
who have offered such defense. The CA found the records bereft of any evidence to show that
Yulim had fully settled its obligation to iBank, further stating that the so-called assignment by

Yulim of its condominium unit to iBank was nothing but a mere temporary arrangement to
provide security for its loan pending the subsequent execution of a real estate mortgage.
Specifically, the CA found nothing in the Deed of Assignment which could signify that iBank
had accepted the said property as full payment of the petitioners loan. The CA cited Manila
Banking Corporation v. Teodoro, Jr.22 which held that an assignment to guarantee an obligation
is in effect a mortgage and not an absolute conveyance of title which confers ownership on the
assignee.
Concerning the solidary liability of petitioners James, Jonathan and Almerick, the CA disagreed
with the trial courts ruling that it must first be shown that the proceeds of the loan redounded to
the benefit of the family of the individual petitioners before they can be held liable. Article 161
of the Civil Code and Article 121 of the Family Code cited by the RTC apply only where the
liability is sought to be enforced against the conjugal partnership itself. In this case, regardless of
whether the loan benefited the family of the individual petitioners, they signed as sureties, and
iBank sought to enforce the loan obligation against them as sureties of Yulim.
Thus, the appellate court granted the appeal of iBank, and denied that of the petitioners, as
follows:
WHEREFORE, the foregoing considered, [iBanks] appeal is PARTLY GRANTED while [the
petitioners] appeal is DENIED. Accordingly, the appealed decision is hereby MODIFIED in that
[petitioners] James Yu, Jonathan Yu and A[l]merick Tieng Lim are hereby held jointly and
severally liable with defendant-appellant Yulim for the payment of the monetary awards. The rest
of the assailed decision is AFFIRMED.
SO ORDERED.23
Petition for Review to the Supreme Court
In the instant petition, the following assigned errors are before this Court:
1. The CA erred in ordering petitioners James, Jonathan and Almerick jointly and
severally liable with petitioner Yulim to pay iBank the amount of P4,246,310.00 with
interest at 16.5% per annum from February 28, 2002 until fully paid.
2. The CA erred in not ordering iBank to pay the petitioners moral damages, exemplary
damages, and attorneys fees.24
The petitioners insist that they have paid their loan to iBank. They maintain that the letter of
iBank to them dated May 4, 2001, which "expressly stipulated that the petitioners shall execute a
Deed of Assignment over one condominium unit No. 141, 3rd Floor and a parking slot located at
20 Landsbergh Place, Tomas Morato Avenue, Quezon City," was with the understanding that the
Deed of Assignment, which they in fact executed, delivering also to iBank all the pertinent
supporting documents, would serve to totally extinguish their loan obligation to iBank. In
particular, the petitioners state that it was their understanding that upon approval by iBank of
their Deed of Assignment, the same "shall be considered as full and final payment of the

petitioners obligation." They further assert that iBanks May 4, 2001 letter expressly carried the
said approval.
The petitioner invoked Article1255 of the Civil Code, on payment by cession, which provides:
Art. 1255. The debtor may cede or assign his property to his creditors in payment of his debts.
This cession, unless there is stipulation to the contrary, shall only release the debtor from
responsibility for the net proceeds of the thing assigned. The agreements which, on the effect of
the cession, are made between the debtor and his creditors shall be governed by special laws.
Ruling of the Court
The petition is bereft of merit.
Firstly, the individual petitioners do not deny that they executed the Continuing Surety
Agreement, wherein they "jointly and severally with the PRINCIPAL [Yulim], hereby
unconditionally and irrevocably guarantee full and complete payment when due, whether at
stated maturity, by acceleration, or otherwise, of any and all credit accommodations that have
been granted" to Yulim by iBank, including interest, fees, penalty and other charges.25 Under
Article 2047 of the Civil Code, these words are said to describe a contract of suretyship. It states:
Art. 2047. By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the
obligation of the principal debtor 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 is called a suretyship.
In a contract of suretyship, one lends his credit by joining in the principal debtors obligation so
as to render himself directly and primarily responsible with him without reference to the
solvency of the principal.26 According to the above Article, if a person binds himself solidarily
with the principal debtor, the provisions of Articles 1207 to 1222, or Section 4, Chapter 3, Title I,
Book IV of the Civil Code on joint and solidary obligations, shall be observed. Thus, where there
is a concurrence of two or more creditors or of two or more debtors in one and the same
obligation, Article 1207 provides that among them, "[t]here is a solidary liability only when the
obligation expressly so states, or when the law or the nature of the obligation requires solidarity."
"A surety is considered in law as being the same party as the debtor in relation to whatever is
adjudged touching the obligation of the latter, and their liabilities are interwoven as to be
inseparable."27 And it is well settled that when the obligor or obligors undertake to be "jointly
and severally" liable, it means that the obligation is solidary,28 as in this case. There can be no
mistaking the same import of Article I of the Continuing Surety Agreement executed by the
individual petitioners:
ARTICLE I
LIABILITIES OF SURETIES
SECTION 1.01. The SURETIES, jointly and severally with the PRINCIPAL, hereby
unconditionally and irrevocably guarantee full and complete payment when due, whether

at stated maturity, by acceleration, or otherwise, of any and all credit accommodations

that have been granted or may be granted, renewed and/or extended by the BANK to the
PRINCIPAL. The liability of the SURETIES shall not be limited to the maximum
principal amount of FIVE MILLION PESOS (P5,000,000.00) but shall include interest,
fees, penalty and other charges due thereon.
SECTION 1.02. This INSTRUMENT is a guarantee of payment and not merely of
collection and is intended to be a perfect and continuing indemnity in favor of the BANK
for the amounts and to the extent stated above.
The liability of the SURETIES shall be direct, immediate and not contingent upon the pursuit of
the BANK of whatever remedies it may have against the PRINCIPAL of the other securities for
the Accommodation.29
Thereunder, in addition to binding themselves "jointly and severally" with Yulim to
"unconditionally and irrevocably guarantee full and complete payment" of any and all credit
accommodations that have been granted to Yulim, the petitioners further warrant that their
liability as sureties "shall be direct, immediate and not contingent upon the pursuit [by] the
BANK of whatever remedies it may have against the PRINCIPAL of other securities." There can
thus be no doubt that the individual petitioners have bound themselves to be solidarily liable with
Yulim for the payment of its loan with iBank.
As regards the petitioners contention that iBank in its letter dated May 4, 2001 had
"accepted/approved" the assignment of its condominium unit in Tomas Morato Avenue as full
and final payment of their various loan obligations, the Court is far from persuaded. On the
contrary, what the letter accepted was only the collaterals provided for the loans, as well as the
consolidation of the petitioners various PNs under one PN for their aggregate amount of
P4,246,310.00. The letter goes on to spell out the terms of the new PN, such as, that its expiry
would be February 28, 2002 or a term of 360 days, that interest would be due every 90 days, and
that the rate would be based on the 91-day Treasury Bill rate or other market reference.
Nowhere can it be remotely construed that the letter even intimates an understanding by iBank
that the Deed of Assignment would serve to extinguish the petitioners loan. Otherwise, there
would have been no need for iBank to mention therein the three "collaterals" or "supports"
provided by the petitioners, namely, the Deed of Assignment, the Chattel Mortgage and the
Continuing Surety Agreement executed by the individual petitioners. In fact, Section 2.01 of the
Deed of Assignment expressly acknowledges that it is a mere "interim security for the repayment
of any loan granted and those that may be granted in the future by the BANK to the ASSIGNOR
and/or the BORROWER, for compliance with the terms and conditions of the relevant credit
and/or loan documents thereof."30 The condominium unit, then, is a mere temporary security,
not a payment to settle their promissory notes.31
Even more unmistakably, Section 2.02 of the Deed of Assignment provides that as soon as title to
the condominium unit is issued in its name, Yulim shall "immediately execute the necessary
Deed of Real Estate Mortgage in favor of the BANK to secure the loan obligations of the
ASSIGNOR and/or the BORROWER."32 This is a plain and direct acknowledgement that the

parties really intended to merely constitute a real estate mortgage over the property.1wphi1 In
fact, the Deed of Assignment expressly states, by way of a resolutory condition concerning the
purpose or use of the Deed of Assignment, that after the petitioners have delivered or caused the
delivery of their title to iBank, the Deed of Assignment shall then become null and void. Shorn
of its legal efficacy as an interim security, the Deed of Assignment would then become functus
officio once title to the condominium unit has been delivered to iBank. This is so because the
petitioners would then execute a Deed of Real Estate Mortgage over the property in favor of
iBank as security for their loan obligations.
Respondent iBank certainly does not share the petitioners interpretation of its May 4,2001 letter.
Joy Valerie Gatdula, Senior Bank Officer of iBank and the Vice President of iBanks Commercial
Banking Group, declared in her testimony that the purpose of the Deed of Assignment was
merely to serve as collateral for their loan:
Q: And during the time that the defendant[,] James Yu[,] was negotiating with your bank, [is it]
not a fact that the defendant offered to you a [condominium] unit so that that will constitute full
payment of his obligation?
A: No maam. It was not offered that way. It was offered as security or collateral to pay the
outstanding loans. But the premise is, that he will pay x x x in cash. So, that property was offered
as a security or collateral.
Q: That was your position?
A: That was the agreement and that was how the document was signed. It was worded out[.]
xxxx
Q: Do you remember if a real estate mortgage was executed over this property that was being
assigned to the plaintiff?
A: To my recollection, none at all.
Q: Madam Witness, this Deed of Assignment was considered as full payment by the plaintiff
bank, what document was executed by the plaintiff bank?
A: It should have been a Dacion en Pago.
Q: Was there such document executed in this account?
A: None.33
To stress, the assignment being in its essence a mortgage, it was but a security and not a
satisfaction of the petitioners indebtedness.34 Article 125535 of the Civil Code invoked by the
petitioners contemplates the existence of two or more creditors and involves the assignment of
the entire debtors property, not a dacion en pago.36 Under Article 1245 of the Civil Code,

"[d]ationin payment, whereby property is alienated to the creditor in satisfaction of a debt in

money, shall be governed by the law on sales." Nowhere in the Deed of Assignment can it be
remotely said that a sale of the condominium unit was contemplated by the parties, the
consideration for which would consist of the amount of outstanding loan due to iBank from the
petitioners.
WHEREFORE, premises considered, the petition is DENIED.
SO ORDERED.
BIENVENIDO L. REYES
Associate Justice
WE CONCUR:
PRESBITERO J. VELASCO, JR.
Associate Justice
Chairperson
DIOSDADO M. PERALTA
Associate Justice

MARIANO C. DEL CASTILLO*

Associate Justice

MARTIN S. VILLARAMA, JR.

Associate Justice
AT T E S T AT I O N
I attest that the conclusions in the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Court's Division.
PRESBITERO J. VELASCO, JR.
Chairperson, Third Division
C E R T I F I C AT I O N
Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's
Attestation, I certify that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Court's Division.
MARIA LOURDES P.A. SERENO
Chief Justice

Footnotes

* Acting Member per Special Order No. 1934 dated February 11, 2015 vice Associate
Justice Francis H. Jardeleza.
1 Penned by Associate Justice Josefina Guevara-Salonga, with Associate Justices Ramon
M. Bato, Jr. and Priscilla J. Baltazar-Padilla concurring; rollo pp. 420-431.
2 Issued by Acting Presiding Judge Cesar 0. Untalan; id. at 367-372.
3 Id. at 84.
4 Id. at 92-98.
5 Id. at 90-91.
6 Id. at 195-204.
7 Id. at 177-178.
8 Id. at 205-208.
9 Id. at 66-83.
10 Id. at 192.
11 Id. at 245.
12 Id. at 120-123.
13 Id. at 58.
14 Id. at 137-145.
15 Id. at 372.
16 Id. at 370.
17 Id. at 277-282.
18 Id. at 283-294.
19 Id. at 311-312.
20 Id. at 399.
21 Id. at 335-336.

22 G.R. No. 53955, January 13, 1989, 169 SCRA 95.

23 Rollo, pp. 430-431.
24 Id. at 55.
25 Id. at 90.
26 See Palmares v. CA, 351 Phil. 664 (1998).
27 Philippine National Bank v. Hon. Pineda, etc., et al., 274 Phil. 274, 282 (1991).
28 Crystal v. Bank of the Philippine Islands, G.R. No. 172428, November 28, 2008, 572
SCRA 697, 703. See also Escano v. Ortigas, Jr., 553 Phil. 24 (2007).
29 Rollo, p. 90.
30 Section 2.01. This ASSIGNMENT is executed as an interim security for the
repayment of any loan granted and those that may be granted in the future by the BANK
to the ASSIGNOR and/or the BORROWER, for compliance with the terms and
conditions of the relevant credit and/or loan documents thereof x x x.
31 Rollo, pp. 427-428.
32 Section 2.02. The ASSIGNOR hereby warrants and undertakes that as soon as title to
the Assigned Property is issued in its name, it shall immediately execute the necessary
Deed of Real Estate Mortgage in favor of the BANK to secure the loan obligations of the
ASSIGNOR and/or the BORROWER. Likewise, it undertakes to deliver or cause the
delivery of the covering title to the Assigned Property in favor of the BANK. In such
event, this Deed of Assignment shall become null and void." (Underlining ours)
33 Rollo, p. 427.
34 Philippine Bank of Commerce v. De Vera, 116 Phil. 1326, 1329 (1962).
35 Art. 1255. The debtor may cede or assign his property to his creditors in payment of
his debts. This cession, unless there is stipulation to the contrary, shall only release the
debtor from responsibility for the net proceeds of the thing assigned. The agreements
which, on the effect of the cession, are made between the debtor and his creditors shall be
governed by special laws.
36 DBP v. CA, 348 Phil. 15, 29-30 (1998).

Payment made in "good faith "to a person in "possession of credit" per Article 1242 of the Civil
Code that, just the same, extinguishes its obligation to pay for the rental fees and expropriation
indemnity due for the subject land. Article 1242 of the Civil Code

FIRST DIVISION
G.R. No. 175863

February 18, 2015

NATIONAL POWER CORPORATION, Petitioner,

vs.
LUCMAN M. IBRAHIM, ATTY. OMAR G. MARUHOM, ELIAS G. MARUHOM,
BUCAY G. MARUHOM, MAMOD G. MARUHOM, FAROUK G. MARUHOM,
HIDJARA G. MARUHOM, ROCANIA G. MARUHOM, POTRISAM G. MARUHOM,
LUMBA G. MAR UH OM, SIN AB G. MARUHOM, ACMAD G. MARUHOM,
SOLAYMAN G. MARUHOM, MOHAMAD M. IBRAHIM, CAIRONESA M. IBRAHIM
and MACAPANTON K. MANGONDATO Respondents.
DECISION
PEREZ, J.:
At bench is a petition for review on certiorari1 assailing the Decision2 dated 24 June 2005 and
Resolution3 dated 5 December 2006 of the Court of Appeals in CA-G.R. CV No. 68061. The
facts:
The Subject Land
In 1978, petitioner took possession of a 21,995 square meter parcel of land in Marawi City
(subject land) for the purpose of building thereon a hydroelectric power plant pursuant to its
Agus 1 project. The subject land, while in truth a portion of a private estate registered under
Transfer Certificate of Title (TCT) No. 378-A4 in the name of herein respondent Macapanton K.
Mangondato (Mangondato),5 was occupied by petitioner under the mistaken belief that such land
is part of the vast tract of public land reserved for its use by the government under Proclamation
No. 1354, s. 1974.6
Mangondato first discovered petitioners occupation of the subject land in 1979the year that
petitioner started its construction of the Agus 1plant. Shortly after such discovery, Mangondato
began demanding compensation for the subject land from petitioner.
In support of his demand for compensation, Mangondato sent to petitioner a letter7 dated 28
September 1981 wherein the former detailed the origins of his ownership over the lands covered
by TCT No. 378-A, including the subject land. The relevant portions of the letter read:
Now let me trace the basis of the title to the land adverted to for particularity. The land titled in
my name was originally consisting of seven (7) hectares. This piece of land was particularly set
aside by the Patriarch Maruhom, a fact recognized by all royal datus of Guimba, to belong to his

eldest son, Datu Magayo-ong Maruhom. This is the very foundation of the right and ownership
over the land in question which was titled in my name because as the son-in-law of Hadji Ali
Maruhom the eldest son of, and only lawyer among the descendants of Datu Magayo-ong
Maruhom, the authority and right to apply for the title to the land was given to me by said heirs
after mutual agreement among themselves besides the fact that I have already bought a
substantial portion of the original seven (7) hectares.
The original title of this seven (7) hectares has been subdivided into several TCTs for the other
children of Datu Magayo-ong Maruhom with whom I have executed a quit claim. Presently, only
three (3) hectares is left to me out of the original seven (7) hectares representing those portion
[sic] belonging to my wife and those I have bought previously from other heirs. This is now the
subject of this case.8
Petitioner, at first, rejected Mangondatos claim of ownership over the subject land; the former
then adamant in its belief that the said land is public land covered by Proclamation No. 1354, s.
1974. But, after more than a decade, petitioner finally acquiesced to the fact that the subject land
is private land covered by TCT No. 378-A and consequently acknowledged Mangondatos right,
as registered owner, to receive compensation therefor.
Thus, during the early 1990s, petitioner and Mangondato partook in a series of communications
aimed at settling the amount of compensation that the former ought to pay the latter in exchange
for the subject land. Ultimately, however, the communications failed to yield a genuine
consensus between petitioner and Mangondato as to the fair market value of the subject land.
Civil Case No. 605-92 and Civil Case No. 610-92
With an agreement basically out of reach, Mangondato filed a complaint for reconveyance
against petitioner before the Regional Trial Court (RTC) of Marawi City in July 1992. In his
complaint, Mangondato asked for, among others, the recovery of the subject land and the
payment by petitioner of a monthly rental from 1978 until the return of such land. Mangondatos
complaint was docketed as Civil Case No. 605-92.
For its part, petitioner filed an expropriation complaint9 before the RTC on 27 July 1992.
Petitioners complaint was docketed as Civil Case No. 610-92.
Later, Civil Case No. 605-92 and Civil Case No. 610-92 were consolidated before Branch 8 of
the Marawi City RTC.
On 21 August 1992, Branch 8 of the Marawi City RTC rendered a Decision10 in Civil Case No.
605-92 and Civil Case No. 610-92. The decision upheld petitioners right to expropriate the
subject land: it denied Mangondatos claim for reconveyance and decreed the subject land
condemned in favor of the petitioner, effective July of 1992, subject to payment by the latter of
just compensation in the amount of P21,995,000.00. Anent petitioners occupation of the subject
land from 1978to July of 1992, on the other hand, the decision required the former to pay rentals
therefor at the rate of P15,000.00 per month with12% interest per annum. The decisions fallo
reads:

WHEREFORE, the prayer in the recovery case for [petitioners] surrender of the property is
denied but[petitioner] is ordered to pay monthly rentals in the amount of P15,000.00 from 1978
up to July 1992 with 12% interest per annum xxx and the property is condemned in favor of
[petitioner] effective July 1992 upon payment of the fair market value of the property at One
Thousand (P1,000.00) Pesos per square meter or a total of Twenty-One Million Nine Hundred
Ninety-Five Thousand (P21,995,000.00) [P]esos.11
Disagreeing with the amount of just compensation that it was adjudged to pay under the said
decision, petitioner filed an appeal with the Court of Appeals. This appeal was docketed in the
Court of Appeals as CA-G.R. CV No. 39353.
Respondents Ibrahims and Maruhoms and Civil Case No. 967-93
During the pendency of CA-G.R. CV No. 39353, or on 29 March 1993, herein respondents the
Ibrahims and Maruhoms12 filed before the RTC of Marawi City a complaint13 against
Mangondato and petitioner. This complaint was docketed as Civil Case No. 967-93and was
raffled to Branch 10of the Marawi City RTC.
In their complaint, the Ibrahims and Maruhoms disputed Mangondatos ownership of the lands
covered by TCT No. 378-A, including the subject land. The Ibrahims and Maruhoms asseverate
that they are the real owners of the lands covered by TCT No. 378-A; they being the lawful heirs
of the late Datu Magayo-ong Maruhom, who was the original proprietor of the said lands.14
They also claimed that Mangondato actually holds no claim or right over the lands covered by
TCT No. 378-A except that of a trustee who merely holds the said lands in trust for them.15 The
Ibrahims and Maruhoms submit that since they are the real owners of the lands covered by TCT
No. 378-A, they should be the ones entitled to any rental fees or expropriation indemnity that
may be found due for the subject land.
Hence, the Ibrahims and Maruhoms prayed for the following reliefs in their complaint:16
1. That Mangondato be ordered to execute a Deed of Conveyance transferring to them the
ownership of the lands covered by TCT No. 378-A;
2. That petitioner be ordered to pay to them whatever indemnity for the subject land it is
later on adjudged to pay in Civil Case No. 605-92 and Civil Case No. 610-92;
3. That Mangondato be ordered to pay to them any amount that the former may have
received from the petitioner by way of indemnity for the subject land;
4. That petitioner and Mangondatobe ordered jointly and severally liable to pay attorneys
fees in the sum of P200,000.00.
In the same complaint, the Ibrahims and Maruhoms also prayed for the issuance of a temporary
restraining order (TRO) and a writ of preliminary injunction to enjoin petitioner, during the
pendency of the suit, from making any payments to Mangondato concerning expropriation
indemnity for the subject land.17

On 30 March 1993, Branch 10 of the Marawi City RTC granted the prayer of the Ibrahims and
Maruhoms for the issuance of a TRO.18 On 29 May 1993, after conducting an appropriate
hearing for the purpose, the same court likewise granted the prayer for the issuance of a writ of
preliminary injunction.19
In due course, trial then ensued in Civil Case No. 967-93.
The Decision of the Court of Appeals in CA-G.R. CV No. 39353 and the Decision of this Court
in G.R. No. 113194
On 21 December 1993, the Court of Appeals rendered a Decision in CA-G.R. CV No. 39353
denying the appeal of petitioner and affirming in toto the 21 August 1992 Decision in Civil Case
No. 605-92 and Civil Case No. 610-92. Undeterred, petitioner next filed a petition for review on
certiorari with this Court that was docketed herein as G.R. No. 113194.20
On 11 March 1996, we rendered our Decision in G.R. No. 113194 wherein we upheld the Court
of Appeals denial of petitioners appeal.21 In the same decision, we likewise sustained the
appellate courts affirmance of the decision in Civil Case No. 605-92 and Civil Case No. 610-92
subject only to a reduction of the rate of interest on the monthly rental fees from 12% to 6% per
annum.22
Our decision in G.R. No. 113194 eventually became final and executory on 13 May 1996.23
Execution of the 21 August 1992 Decision in Civil Case No. 605-92 and Civil Case No. 610-92,
as Modified
In view of the finality of this Courts decision in G.R. No. 113194, Mangondato filed a motion
for execution of the decision in Civil Case No. 605-92 and Civil Case No. 610-92.24 Against this
motion, however, petitioner filed an opposition.25
In its opposition, petitioner adverted to the existence of the writ of preliminary injunction earlier
issued in Civil Case No. 967-93 that enjoins it from making any payment of expropriation
indemnity over the subject land in favor of Mangondato.26 Petitioner, in sum, posits that such
writ of preliminary injunction constitutes a legal impediment that effectively bars any
meaningful execution of the decision in Civil Case No. 605-92 and Civil Case No. 610-92.
Finding no merit in petitioners opposition, however, Branch 8 of the Marawi City RTC rendered
a Resolution27 dated 4 June 1996 ordering the issuance of a writ of execution in favor of
Mangondato in Civil Case No. 605-92 and Civil Case No. 610-92. Likewise, in the same
resolution, the trial court ordered the issuance of a notice of garnishment against several of
petitioners bank accounts28 for the amount of P21,801,951.00the figure representing the total
amount of judgment debt due from petitioner in Civil Case No. 605-92 and Civil Case No. 61092 less the amount then already settled by the latter. The dispositive portion of the resolution
reads:

WHEREFORE, let a Writ of Execution and the corresponding order or notice of garnishment be
immediately issued against [petitioner] and in favor of [Mangondato] for the amount of Twenty
One Million Eight Hundred One Thousand and Nine Hundred Fifty One (P21,801,951.00) Pesos.
x x x.29
Pursuant to the above resolution, a notice of garnishment30 dated 5 June 1996 for the amount of
P21,801,951.00 was promptly served upon the Philippine National Bank (PNB)the authorized
depositary of petitioner. Consequently, the amount thereby garnished was paid to Mangondato in
full satisfaction of petitioners judgment debt in Civil Case No. 605-92 and Civil Case No. 61092.
Decision in Civil Case No. 967-93
Upon the other hand, on 16 April 1998, Branch 10 of the Marawi City RTC decided Civil Case
No. 967-93.31 In its decision, Branch 10 of the Marawi City RTC made the following relevant
findings:32
1. The Ibrahims and Maruhomsnot Mangondatoare the true owners of the lands
covered by TCT No. 378-A, which includes the subject land.
2. The subject land, however, could no longer be reconveyed to the Ibrahims and
Maruhoms since the same was already expropriated and paid for by the petitioner under
Civil Case No. 605-92 and Civil Case No. 610-92.
3. Be that as it may, the Ibrahims and Maruhoms, as true owners of the subject land, are
the rightful recipients of whatever rental fees and indemnity that may be due for the
subject land as a result of its expropriation.
Consistent with the foregoing findings, Branch 10 of the Marawi City RTC thus required
payment of all the rental fees and expropriation indemnity due for the subject land, as previously
adjudged in Civil Case No. 605-92 and Civil Case No. 610-92, to the Ibrahims and Maruhoms.
Notable in the trial courts decision, however, was that it held both Mangondato and the
petitioner solidarily liable to the Ibrahims and Maruhoms for the rental fees and expropriation
indemnity adjudged in Civil Case No. 605-92 and Civil Case No. 610-92.33
In addition, Mangondato and petitioner were also decreed solidarily liable to the Ibrahims and
Maruhoms for attorneys fees in the amount of P200,000.00.34
The pertinent dispositions in the decision read:
WHEREFORE, premises considered, judgment is hereby rendered in favor of [the Ibrahims and
Maruhoms] and against [Mangondato and petitioner] as follows:
1. x x x

2. Ordering [Mangondato and petitioner] to pay jointly and severally [the Ibrahims and
Maruhoms] all forms of expropriation indemnity as adjudged for [the subject land]
consisting of 21,995 square meters in the amount of P21,801,051.00 plus other forms of
indemnity such as rentals and interests;
3. Ordering [Mangondato and petitioner] to pay [the Ibrahims and Maruhoms] jointly and
severally the sum of P200,000.00 as attorneys fees;
4. x x x
5. x x x
6. x x x
SO ORDERED.35
Petitioners Appeal to the Court of Appeals and the Execution
Pending Appeal of the Decision in Civil Case No. 967-93
Petitioner appealed the decision in Civil Case No. 967-93 with the Court of Appeals: contesting
mainly the holding in the said decision that it ought to be solidarily liable with Mangondato to
pay to the Ibrahims and Maruhoms the rental fees and expropriation indemnity adjudged due for
the subject land. This appeal was docketed as CA-G.R. CV No. 68061.
While the foregoing appeal was still pending decision by the Court of Appeals, however, the
Ibrahims and Maruhoms were able to secure with the court a quo a writ of execution pending
appeal36 of the decision in Civil Case No. 967-93. The enforcement of such writ led to the
garnishment of Mangondatos moneys in the possession of the Social Security System (SSS) in
the amount of P2,700,000.00 on 18 September 1998.37 Eventually, the amount thereby
garnished was paid to the Ibrahims and Mangondato in partial satisfaction of the decision in
Civil Case No. 967-93.
On 24 June 2005, the Court of Appeals rendered its Decision38 in CA-G.R. CV No. 68061
denying petitioners appeal. The appellate court denied petitioners appeal and affirmed the
decision in Civil Case No. 967-93, subject to the right of petitioner to deduct the amount of
P2,700,000.00 from its liability as a consequence of the partial execution of the decision in Civil
Case No. 967-93.39
Hence, the present appeal by petitioner.
The Present Appeal
The present appeal poses the question of whether it is correct, in view of the facts and
circumstances in this case, to hold petitioner liable in favor of the Ibrahims and Maruhoms for
the rental fees and expropriation indemnity adjudged due for the subject land.

In their respective decisions, both Branch 10 of the Marawi City RTC and the Court of Appeals
had answered the foregoing question in the affirmative. The two tribunals postulated that,
notwithstanding petitioners previous payment to Mangondato of the rental fees and
expropriation indemnity as a consequence of the execution of the decision in Civil Case No. 60592 and 610-92, petitioner may still be held liable to the Ibrahims and Maruhoms for such fees
and indemnity because its previous payment to Mangondato was tainted with "bad faith."40 As
proof of such bad faith, both courts cite the following considerations:41
1. Petitioner "allowed" payment to Mangondato despite its prior knowledge, which dates
back as early as 28 September 1981, by virtue of Mangondatos letter of even date, that
the subject land was owned by a certain Datu Magayo-ong Maruhom and not by
Mangondato; and
2. Petitioner "allowed" such payment despite the issuance of a TRO and a writ of
preliminary injunction in Civil Case No. 967-93 that precisely enjoins it from doing so.
For the two tribunals, the bad faith on the part of petitioner rendered its previous payment to
Mangondato invalid insofar as the Ibrahims and Maruhoms are concerned. Hence, both courts
concluded that petitioner may still be held liable to the Ibrahims and Maruhoms for the rental
fees and expropriation indemnity previously paid to Mangondato.42
Petitioner, however, argues otherwise. It submits that a finding of bad faith against it would have
no basis in fact and law, given that it merely complied with the final and executory decision in
Civil Case No. 605-92 and Civil Case No. 610-92 when it paid the rental fees and expropriation
indemnity due the subject to Mangondato.43 Petitioner thus insists that it should be absolved
from any liability to pay the rental fees and expropriation indemnity to the Ibrahims and
Maruhoms and prays for the dismissal of Civil Case No. 967-93 against it.
OUR RULING
We grant the appeal.
No Bad Faith On The Part of Petitioner
Petitioner is correct. No "bad faith" may be taken against it in paying Mangondato the rental fees
and expropriation indemnity due the subject land.
Our case law is not new to the concept of bad faith. Decisions of this Court, both old and new,
had been teeming with various pronouncements that illuminate the concept amidst differing legal
contexts. In any attempt to understand the basics of bad faith, it is mandatory to take a look at
some of these pronouncements:
In Lopez, et al. v. Pan American World Airways,44 a 1966 landmark tort case, we defined the
concept of bad faith as:
"a breach of a known duty through some motive of interest or ill will."45

Just months after the promulgation of Lopez, however, came the case of Air France v.
Carrascoso, et al.,46 In Air France, we expounded on Lopezs definition by describing bad faith
as:
"xxx a state of mind affirmatively operating with furtive design or with some motive of selfinterest or will or for ulterior purpose."47
Air Frances articulation of the meaning of bad faith was, in turn, echoed in a number subsequent
cases,48 one of which, is the 2009 case of Balbuena, et al. v. Sabay, et al.49
In the 1967 case of Board of Liquidators v. Heirs of M. Kalaw,50 on the other hand, we
enunciated one of the more oft-repeated formulations of bad faith in our case law:
"xxx bad faith does not simply connote bad judgment or negligence; it imports a dishonest
purpose or some moral obliquity and conscious doing of wrong. It means breach of a known duty
thru some motive or interest of ill will; it partakes of the nature of fraud."51
As a testament to its enduring quality, the foregoing pronouncement in Board of Liquidators had
been reiterated in a slew of later cases,52 more recently, in the 2009 case of Nazareno, et al. v.
City of Dumaguete53 and the 2012 case of Aliling v. Feliciano.54
Still, in 1995, the case of Far East Bank and Trust Company v. Court of Appeals55 contributed
the following description of bad faith in our jurisprudence:
"Malice or bad faith implies a conscious and intentional design to do a wrongful act for a
dishonest purpose or moral obliquity;xxx."56
The description of bad faith in Far East Bank and Trust Companythen went on to be repeated in
subsequent cases such as 1995s Ortega v. Court of Appeals,57 1997s Laureano Investment and
Development Corporation v. Court of Appeals,58 2010s Lambert Pawnbrokers v. Binamira59
and 2013s California Clothing, Inc., v. Quiones,60 to name a few.
Verily, the clear denominator in all of the foregoing judicial pronouncements is that the essence
of bad faith consists in the deliberate commission of a wrong. Indeed, the concept has often been
equated with malicious or fraudulent motives, yet distinguished from the mere unintentional
wrongs resulting from mere simple negligence or oversight.61
A finding of bad faith, thus, usually assumes the presence of two (2) elements: first, that the actor
knew or should have known that a particular course of action is wrong or illegal, and second, that
despite such actual or imputable knowledge, the actor, voluntarily, consciously and out of his
own free will, proceeds with such course of action. Only with the concurrence of these two
elements can we begin to consider that the wrong committed had been done deliberately and,
thus, in bad faith.
In this case, both Branch 10 of the Marawi City RTC and the Court of Appeals held that
petitioner was in bad faith when it paid to Mangondato the rental fees and expropriation

indemnity due the subject land. The two tribunals, in substance, fault petitioner when it
"allowed" such payment to take place despite the latters alleged knowledge of the existing claim
of the Ibrahims and Maruhoms upon the subject land and the issuance ofa TRO in Civil Case No.
967-93. Hence, the two tribunals claim that petitioners payment to Mangondato is ineffective as
to the Ibrahims and Maruhoms, whom they found to be the real owners of the subject land.
We do not agree.
Branch 10 of the Marawi City RTC and the Court of Appeals erred in their finding of bad faith
because they have overlooked the utter significance of one important fact: that petitioners
payment to Mangondato of the rental fees and expropriation indemnity adjudged due for the
subject land in Civil Case No. 605-92 and Civil Case No. 610-92, was required by the final and
executory decision in the said two cases and was compelled thru a writ of garnishment issued by
the court that rendered such decision. In other words, the payment to Mangondato was not a
product of a deliberate choice on the part of the petitioner but was made only in compliance to
the lawful orders of a court with jurisdiction.
Contrary then to the view of Branch 10 of the Marawi City RTC and of the Court of Appeals, it
was not the petitioner that "allowed" the payment of the rental fees and expropriation indemnity
to Mangondato. Indeed, given the circumstances, the more accurate rumination would be that it
was the trial court in Civil Case No. 605-92 and Civil Case No. 610-92 that ordered or allowed
the payment to Mangondato and that petitioner merely complied with the order or allowance by
the trial court. Since petitioner was only acting under the lawful orders of a court in paying
Mangondato, we find that no bad faith can be taken against it, even assuming that petitioner may
have had prior knowledge about the claims of the Ibrahims and Maruhoms upon the subject land
and the TRO issued in Civil Case No. 967-93.
Sans Bad Faith, Petitioner
Cannot Be Held Liable to the
Ibrahims and Maruhoms
Without the existence of bad faith, the ruling of the RTC and of the Court of Appeals apropos
petitioners remaining liability to the Ibrahims and Maruhoms becomes devoid of legal basis. In
fact, petitioners previous payment to Mangondato of the rental fees and expropriation indemnity
due the subject land pursuant to the final judgment in Civil Case No. 605-92 and Civil Case No.
610-92 may be considered to have extinguished the formers obligation regardless of who
between Mangondato, on one hand, and the Ibrahims and Maruhoms, on the other, turns out to
be the real owner of the subject land.62 Either way, petitioner cannot be made liable to the
Ibrahims and Maruhoms:
First. If Mangondato is the real owner of the subject land, then the obligation by petitioner to pay
for the rental fees and expropriation indemnity due the subject land is already deemed
extinguished by the latters previous payment under the final judgment in Civil Case No. 605-92
and Civil Case No. 610-92. This would be a simple case of an obligation being extinguished
through payment by the debtor to its creditor.63 Under this scenario, the Ibrahims and Maruhoms

would not even be entitled to receive anything from anyone for the subject land. Hence,
petitioner cannot be held liable to the Ibrahims and Maruhoms.
Second. We, however, can reach the same conclusion even if the Ibrahims and Maruhoms turn
out to be the real owners of the subject land.
Should the Ibrahims and Maruhoms turn out to be the real owners of the subject land, petitioners
previous payment to Mangondato pursuant to Civil Case No. 605-92 and Civil Case No. 610-92
given the absence of bad faith on petitioners part as previously discussedmay nonetheless
be considered as akin to a payment made in "good faith "to a person in "possession of credit" per
Article 1242 of the Civil Code that, just the same, extinguishes its obligation to pay for the rental
fees and expropriation indemnity due for the subject land. Article 1242 of the Civil Code reads:
"Payment made in good faith to any person in possession of the credit shall release the debtor."
Article 1242 of the Civil Code is an exception to the rule that a valid payment of an obligation
can only be made to the person to whom such obligation is rightfully owed.64 It contemplates a
situation where a debtor pays a "possessor of credit" i.e., someone who is not the real creditor but
appears, under the circumstances, to be the real creditor.65 In such scenario, the law considers
the payment to the "possessor of credit" as valid even as against the real creditor taking into
account the good faith of the debtor.
Borrowing the principles behind Article 1242 of the Civil Code, we find that Mangondato
being the judgment creditor in Civil Case No. 605-92 and Civil Case No. 610-92 as well as the
registered owner of the subject land at the time66 may be considered as a "possessor of credit"
with respect to the rental fees and expropriation indemnity adjudged due for the subject land in
the two cases, if the Ibrahims and Maruhoms turn out to be the real owners of the subject land.
Hence, petitioners payment to Mangondato of the fees and indemnity due for the subject land as
a consequence of the execution of Civil Case No. 605-92 and Civil Case No. 610-92 could still
validly extinguish its obligation to pay for the same even as against the Ibrahims and Maruhoms.
Effect of Extinguishment of
Petitioners Obligation
The extinguishment of petitioners obligation to pay for the rental fees and expropriation
indemnity due the subject land carries with it certain legal effects:
First. If Mangondato turns out to be the real owner of the subject land, the Ibrahims and
Maruhoms would not be entitled to recover anything from anyone for the subject land.1wphi1
Consequently, the partial execution of the decision in Civil Case No. 967-93 that had led to the
garnishment of Mangondatos moneys in the possession of the Social Security System (SSS) in
the amount of P2,700,000.00 in favor of the Ibrahims and Maruhoms, becomes improper and
unjustified. In this event, therefore, the Ibrahims and Maruhoms may be ordered to return the
amount so garnished to Mangondato.
Otherwise, i.e. if the Ibrahims and Maruhoms really are the true owners of the subject land, they
may only recover the rental fees and expropriation indemnity due the subject land against

Mangondato but only up to whatever payments the latter had previously received from petitioner
pursuant to Civil Case No. 605-92 and Civil Case No. 610-92.
Second. At any rate, the extinguishment of petitioners obligation to pay for the rental fees and
expropriation indemnity due the subject land negates whatever cause of action the Ibrahims and
Maruhoms might have had against the former in Civil Case No. 967-93. Hence, regardless of
who between Mangondato, on one hand, and the Ibrahims and Maruhoms, on the other, turns out
to be the real owner of the subject land, the dismissal of Civil Case No. 967-93 insofar as
petitioner isconcerned is called for.
Re: Attorneys Fees
The dismissal of Civil Case No. 967-93 as against petitioner necessarily absolves the latter from
paying attorneys fees to the Ibrahims and Maruhoms arising from that case.
WHEREFORE, premises considered, the instant petition is GRANTED. The Decision dated 24
June2005 and Resolution dated 5 December 2006 of the Court of Appeals in CA-G.R. CV No.
68061 is hereby SET ASIDE. The Decision dated 16 April 1998 of the Regional Trial Court in
Civil Case No. 967-93 is MODIFIED in that petitioner is absolved from any liability in that case
in favor of the respondents Lucman M. Ibrahim, Atty. Omar G. Maruhom, Elias G. Maruhom,
Bucay G. Maruhom, Mamod G. Maruhom, Farouk G. Maruhom, Hidjara G. Maruhom, Rocania
G. Maruhom, Potrisam G. Maruhom, Lumba G. Maruhom, Sinab G. Maruhom, Acmad G.
Maruhom, Solayman G. Maruhom, Mohamad M. Ibrahim and Caironesa M. Ibrahim. Civil Case
No. 967-93 is DISMISSED as against petitioner.
No costs.
SO ORDERED.
JOSE PORTUGAL PEREZ
Associate Justice
WE CONCUR:
MARIA LOURDES P.A. SERENO
Chief Justice
Chairperson
TERESITA J. LEONADRO-DE
CASTRO
Associate Justice

LUCAS P. BERSAMIN
Associate Justice

ESTELA M. PERLAS-BERNABE
Associate Justice
C E R T I F I C AT I O N

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions
in the above Decision had been reached in consultation before the case was assigned to the writer
of the opinion of the Court.
MARIA LOURDES P.A. SERENO
Chief Justice

It is basic in law that a compromise agreement, as a contract, is binding only upon the parties to
the compromise, and not upon non-parties. This is the doctrine of relativity of contracts.32 The
rule is based on Article 1311 (1) of the Civil Code which provides that "contracts take effect only
between the parties, their assigns and heirs
THIRD DIVISION
G.R. No. 201931

February 11, 2015

DOA ADELA1 EXPORT INTERNATIONAL, INC., Petitioner,

vs.
TRADE AND INVESTMENT DEVELOPMENT CORPORATION (TIDCORP), AND
THE BANK OF THE PHILIPPINE ISLANDS (BPI), Respondents.
DECISION
VILLARAMA, JR., J.:
Before us is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil
Procedure, as amended, assailing the Decision2 dated November 15, 2011 and the Order3 dated
May 14, 2012 of the Regional Trial Court (RTC) of Mandaluyong City, Branch 211 in SEC Case
No. MC06-103 for Voluntary Insolvency. The RTC approved the Joint Motion to Approve
Agreement filed by respondents Trade and Investment Development Corporation of the
Philippines (TIDCORP) and the Bank of the Philippine Islands (BPI). Respondents stipulated in
their agreement that petitioner shall waive its rights to confidentiality under the provisions of the
Law on Secrecy of Bank Deposits and the General Banking Law of 2000.
The facts follow:
On August 23, 2006, petitioner Doa Adela Export International, Inc., (petitioner, for brevity)
filed a Petition for Voluntary Insolvency.4 The case was docketed as SEC Case No. MC06-103
and raffled off to the RTC of Mandaluyong City, Branch 211.
On August 28, 2006, the RTC, after finding the petition sufficient in form and substance, issued
an order declaring petitioner as insolvent and staying all civil proceedings against petitioner. In
the same order, the RTC set the initial hearing on October 19, 2006.5
Thereafter, Atty. Arlene Gonzales was appointed as receiver. After taking her oath, Atty.
Gonzales proceeded to make the necessary report, engaged appraisers and required the creditors
to submit proof of their respective claims.

On October 22, 2010, Atty. Gonzales filed a Motion for Parties to Enter Into Compromise
Agreement6 incorporating therein her proposed terms of compromise, the pertinent portion of
which reads:
1. The remaining assets of the Petitioner Dona Adela Export Intl., Inc., (Dona Adela)
consists of the following:
Asset

Appraised Value

Remarks

1.1 Land

P5,616,000

w/ REM to TRC

1.2 Building

6,480,000

w/ REM to TRC

1.3 Sewing machines

942,000

w/o chattel mortgage to TRC (sic)

1.4 Sewing machines

755,000

w/chattel mortgage

1.5 Furnitures and Fixtures

w/o appraised value

The detailed list of the abovementioned assets and the corresponding appraised value is
attached hereto as Annex A;
2. The claims of the creditors of Petitioner previously submitted with their respective
proofs of claim are shown below:
NAME OF CREDITOR

AMOUNT

Technology Resource Center

29,546,342.45

BPI

11,069,575.82

*TIDCORP
City of Mandaluyong as of 3/25/09

1,061,370.12

*TIDCORP has not yet submitted its peso amount of claim

xxxx
WHEREFORE, undersigned receiver respectfully proposed for the concerned parties of this (sic)
proceedings to enter into a compromise Agreement under the following terms and conditions:

a. That the remaining assets of the Petitioner mentioned under 1 above be assigned and
applied to their respective claims in the following manner:
a.1. The real estate property mentioned under 1.1 and 1.2 above with real estate
mortgage (REM) to Technology Resource Center (TRC) be assigned and applied
to its credit. All costs and expenses for the transfer of the registration of the said
property, including its unpaid real estate taxes due to the City of Mandaluyong,
and cost for cancellation of real estate mortgage shall be borne by TRC.
a.2. For TRC to assign and waive its rights over the sewing machines and
equipments under chattel mortgage to it mentioned under 1.3 above as its share
for the administrative costs of this proceedings.
a.3. To assign to BPI and TIDCORP the sewing machines and equipments
mentioned under 1.3 and 1.4 above in proportion with their credits.
a.4. All other remaining assets of Petitioner under 1.5 above be assigned to the
Court-appointed receiver, Atty. Arlene T. Gonzales for payment of receivers fees.
a.5. All other administrative expenses, if any, shall be for the account of TRC, BPI
and TIDCORP, in proportion to their respective credits.
b. That for the abovementioned purpose mentioned under 3.a. above, the appraisal value
of the property (as appraised by Royal Asia Appraisers which was previously submitted
to the Honorable Court) be made as the basis in determining the value of the properties;
and the amount of the claims that will be approved by this Honorable Court be made as
the basis in the determination of the amount of credits due to the respective creditors.
c. Furthermore, that the Compromise Agreement being proposed herein shall be without
prejudice to rights of the creditors to enforce actions against other debtors who are jointly
and solidarily liable with the petitioner.
d. Finally, that the petitioner, Dona Adela Intl., Inc., be discharged from its debts to the
party-creditors by virtue of the Compromise Agreement as being proposed herein.7
On May 26, 2011, petitioner, through its President Epifanio C. Ramos, Jr., and Technology
Resource Center (TRC) entered into a Dacion En Pagoby Compromise Agreement8 wherein
petitioner agreed to transfer a 351-square meter parcel of land covered by TCT No. 10027 with
existing improvements situated in the Barrio of Jolo, Mandaluyong City, in favor of TRC in full
payment of petitioners obligation. The agreement bears the conformity of Atty. Gonzales as
receiver. TRC filed on May 26, 2011 a Compliance, Manifestation and Motion to Approve
Dacion En Pago by Compromise Agreement.9

On August 11, 2011, creditors TIDCORP and BPI also filed a Joint Motion to Approve
Agreement10 which contained the following terms:
1. OBLIGATION OF PETITIONER. The parties agree that the outstanding principal
obligation of petitioner to TIDCORP shall be in the amount of NINE MILLION FORTYFOUR THOUSAND SEVEN HUNDRED EIGHT & 15/100 PESOS (P9,044,708.15),
while to BPI in the amount of ELEVEN MILLION SIXTY NINE THOUSAND FIVE
HUNDREDSEVENTY FIVE & 82/100 PESOS (P11,069,575.82).
2. SETTLEMENT. TIDCORP and BPI both hereby agree to accept all the machineries
in petitioners inventory set aside pursuant to the Motion for Parties to Enter Into
Compromise Agreement dated 18 October 2010 filed by the Receiver, Atty. Arlene T.
Gonzales. The said machineries valued at THREE HUNDRED FIFTY THOUSAND
PESOS (P350,000.00)shall be divided equally between TIDCORP and BPI.
3. SETTLEMENT OF CLAIMS. TIDCORP and BPI hereby agree that acceptance of
the abovementioned settlement shall constitute payment of petitioners aforesaid
obligation pursuant to Act No. 1956 (Insolvency Act). However, the benefit of payment
under the said Insolvency Act shall only be in favor of petitioner and shall not in any
manner affect the claims of TIDCORP and BPI as against its sureties and/or guarantors.
4. EXPENSES AND TAXES. All necessary expenses, including but not limited to, fees
of the Receiver, documentation and notarization, as well as all fees incurred or to be
incurred in connection to the full implementation of this Agreement shall be for the
account of Mr. Epifanio C. Ramos, Jr.
All taxes and fees incurred or to be incurred including but not limited to gross receipts tax
shall be for the account of the petitioner.
5. WAIVER OF CONFIDENTIALITY. The petitioner and the members of its Board of
Directors shall waive all rights to confidentiality provided under the provisions of
Republic Act No. 1405, as amended, otherwise known as the Law on Secrecy of Bank
Deposits, and Republic Act No. 8791, otherwise known as The General Banking Law of
2000. Accordingly, the petitioner and the members of its Board of Directors by these
presents grant TIDCORP and BPI access to any deposit or other accounts maintained by
them with any bank.
For this purpose, the petitioner and the members of its Board of Directors shall authorize
TIDCORP and BPI to make, sign, execute and deliver any document of whatever kind or nature
which may be necessary or proper to allow them access to such deposits or other accounts.

TIDCORP and BPI shall be further authorized to delegate to any person, who may exercise in
their stead, any or all of the powers and authority herein granted to them or substitute any person
in their place to do and perform said powers and authority.
18. HOLD FREE AND HARMLESS. The petitioner shall indemnify and hold TIDCORP and
BPI, their respective Board of Directors, and officers free and harmless against any liability or
claim of whatever kind or nature which may arise from, or in connection with, or in relation to
this Agreement.11 (Underscoring supplied)
Epifanio Ramos, Jr. filed a Manifestation and Motion to the Proposed Compromise Agreement12
of TIDCORP and BPI wherein he stated that petitioner has a personality separate and distinct
from its stockholders and officers. He argued that he cannot be held liable for the expenses and
taxes as a consequence of the auction or distribution/payment of said machineries to the
creditors; hence, his name should be deleted as a party to the Compromise Agreement.
Likewise, Atty. Gonzales filed a Manifestation and Comment (On Dacion En Pago by
Compromise Agreement with TRC and Joint Motion to Approve Agreement of BPI and
TIDCORP) with Motion for Payment of Administrative Expenses and Receivers Fees.13 Atty.
Gonzales manifested that she is entitled to payment of administrative expenses and receivers
fees in the total amount of P740,200.00. She further stated that it is just and fair for her to ask her
due for services rendered as officer of the Court from TRC who benefitted the most from the
insolvency proceedings; and, that she is waiving the administrative expenses and receivers fees
due from TIDCORP and BPI.
In its Comment,14 TRC requested that the receivers fee be reduced to P106,000.00. In her
Reply,15 Atty. Gonzales said that she will accept the amount of P106,000.00 being offered by
TRC.
On November 15, 2011, the RTC rendered the assailed Decision approving the Dacion En
Pagoby Compromise Agreement and the Joint Motion to Approve Agreement, to wit:
WHEREFORE, premises considered, judgment is hereby rendered based on the foregoing
exchange of pleadings, as follows:
1. Finding the aforequoted Dacion En Pago by Compromise Agreement dated May 26,
2011 executed by and between Dona Adela Export International, Inc., represented by its
president Epifanio C. Ramos, Jr., and Technology Resource Center, represented by its
Director General Dennis L. Cunanan, to be in order and not contrary to law, morals, good
customs, public order or public policy, and the fact that the Court-Appointed Receiver in
her Reply filed on October 24, 2011 intimated her conformity to the Dacion En Pago by
Compromise Agreement, the same is hereby APPROVED and is made the basis of this
judgment;

2. As regards the Joint Motion to Approve Agreement dated July 29, 2011, filed by
creditors Trade and Investment Development Corporation of the Philippines and the Bank
of the Philippine Islands, with the exception of paragraph 4 thereof pertaining to
Expenses and Taxes, the same is likewise APPROVED, for the same is not contrary to
law, morals, good customs, public order or public policy, and the fact that the CourtAppointed Receiver in her Reply filed on October 24, 2011 intimated her conformity to
said Joint Motion to Approve Agreement;
3. Pursuant to its Comment filed on October 19, 2011, Technology Resource Center is
hereby ordered to pay the Court-Appointed Receiver, Atty. Arlene T. Gonzales the sum of
P106,000.00, representing its proportionate share of the administrative expenses incurred
by the receiver with legal interest from date of termination of this insolvency
proceedings.
Let a copy of this Decision be furnished to the Securities and Exchange Commission who is
directed to cause the removal of petitioner Dona Adela Export International, Inc., from the list of
registered legal entities and to make a report to this Court of its Compliance within fifteen (15)
days from said elimination so that the Court could terminate the instant insolvency proceedings
and release the Court-Appointed receiver from her duties and responsibilities.
SO ORDERED.16
Petitioner filed a motion for partial reconsideration17 and claimed that TIDCORP and BPIs
agreement imposes on it several obligations such as payment of expenses and taxes and waiver
of confidentiality of its bank deposits but it is not a party and signatory to the said agreement.
In its Order18 dated May 14, 2012, the RTC denied the motion and held that petitioners silence
and acquiescence to the joint motion to approve compromise agreement while it was set for
hearing by creditors BPI and TIDCORP is tantamount to admission and acquiescence thereto.
There was no objection filed by petitioner to the joint motion to approve compromise agreement
prior to its approval, said the RTC. The RTC also noted that petitioners President attended every
hearing of the case but did not interpose any objection to the said motion when its conditions
were being discussed and formulated by the parties and Atty. Gonzales.19
Hence, this petition.
Petitioner asserts that express and written waiver from the depositor concerned is required by law
before any third person or entity is allowed to examine bank deposits or bank records. According
to petitioner, it is not a party to the compromise agreement between BPI and TIDCORP and its
silence or acquiescence is not tantamount to an admission that binds it to the compromise
agreement of the creditors especially the waiver of confidentiality of bank deposits. Petitioner

cites the rule on relativity of contracts which states that contracts can only bind the parties who
entered into it, and it cannot favor or prejudice a third person, even if he is aware of such
contract and has knowledge thereof. Petitioner also maintains that waivers are not presumed, but
must be clearly and convincingly shown, either by express stipulation or acts admitting no other
reasonable explanation.
Respondent BPI counters that petitioner is estopped from questioning the BPI-TIDCORP
compromise agreement because petitioner and its counsel participated in all the proceedings
involving the subject compromise agreement and did not object when the compromise agreement
was considered by the RTC.
Respondent TIDCORP contends that the waiver of confidentiality under Republic Act (R.A.)
Nos. 1405 and 8791 does not require the express or written consent of the depositor. It is
TIDCORPs position that upon declaration of insolvency, the insolvency court obtains complete
jurisdiction over the insolvents property which includes the authority to issue orders to look into
the insolvents bank deposits. Since bank deposits are considered debts owed by the banks to the
petitioner, the receiver is empowered to recover them even without petitioners express or written
consent, said TIDCORP.
TIDCORP further avers that the BPI-TIDCORP compromise agreement approved by the RTC is
binding on petitioner and its Board of Directors by reason of estoppel. The compromise
agreement is not an ordinary contract. Since it was approved by the insolvency court, the
compromise agreement has the force and effect of judgment; it is immediately executory and not
appealable, except for vices of consent or forgery, TIDCORP concluded.
The main issue for our consideration is whether the petitioner is bound by the provision in the
BPI-TIDCORP Joint Motion to Approve Agreement that petitioner shall waive its rights to
confidentiality of its bank deposits under R.A. No. 1405, as amended, otherwise known as the
Law on Secrecy of Bank Deposits and R.A. No. 8791, otherwise known as The General Banking
Law of 2000.
The petition is meritorious.
A judgment rendered on the basis of a compromise agreement between the parties in a civil case
is final, unappealable, and immediately executory.20
However, if one of the parties claims that his consent was obtained through fraud, mistake, or
duress, he must file a motion with the trial court that approved the compromise agreement to
reconsider the judgment and nullify or set aside said contract on any of the said grounds for
annulment of contract within 15 days from notice of judgment. Under Rule 37, said party can
either file a motion for new trial or reconsideration. A party can file a motion for new trial based

on fraud, accident or mistake, excusable negligence, or newly discovered evidence. On the other
hand, a party may decide to seek the recall or modification of the judgment by means of a motion
for reconsideration on the ground that "the decision or final order is contrary to law" if the
consent was procured through fraud, mistake, or duress. Thus, the motion for a new trial or
motion for reconsideration is the readily available remedy for a party to challenge a judgment if
the 15-day period from receipt of judgment for taking an appeal has not yet expired.21
In this case, petitioner sought partial reconsideration of the decision based on compromise
agreement assailing the waiver of confidentiality provision in the Agreement between its two
creditors, TIDCORP and BPI, in which petitioner was not a party. After the trial court denied the
motion on the ground of estoppel, petitioner sought a direct recourse to this Court.
We stress that a direct recourse to this Court from the decisions, final resolutions and orders of
the RTC may be taken where only questions of law are raised or involved. There is a question of
law when the doubt or difference arises as to what the law is on a certain state of facts, which
does not call for an examination of the probative value of the evidence presented by the partieslitigants. On the other hand, there is a question of fact when the doubt or controversy arises as to
the truth or falsity of the alleged facts. Simply put, when there is no dispute as to fact, the
question of whether the conclusion drawn therefrom is correct or not, is a question of law.22
Petitioner submits the lone question of law on whether the waiver of confidentiality provision in
the Agreement between TIDCORP and BPI is valid despite petitioner not being a party and
signatory to the same. According to petitioner, R.A. No. 1405requires the express and written
consent of the depositor to make the waiver effective.
Section 2 of R.A. No. 1405, the Law on Secrecy of Bank Deposits enacted in 1955, was first
amended by Presidential Decree No. 1792 in 1981 and further amended by R.A. No. 7653 in
1993. It now reads:
SEC. 2. All deposits of whatever nature with banks or banking institutions in the Philippines
including investments in bonds issued by the Government of the Philippines, its political
subdivisions and its instrumentalities, are hereby considered as of an absolutely confidential
nature and may not be examined, inquired or looked into by any person, government official,
bureau or office, except when the examination is made in the course of a special or general
examination of a bank and is specifically authorized by the Monetary Board after being satisfied
that there is reasonable ground to believe that a bank fraud or serious irregularity has been or is
being committed and that it is necessary to look into the deposit to establish such fraud or
irregularity, or when the examination is made by an independent auditor hired by the bank to
conduct its regular audit provided that the examination is for audit purposes only and the results
thereof shall be for the exclusive use of the bank, or upon written permission of the depositor, or
in cases of impeachment, or upon order of a competent court in cases of bribery or dereliction of

duty of public officials, or in cases where the money deposited or invested is the subject matter
of the litigation.
R.A. No. 1405 provides for exceptions when records of deposits may be disclosed. These are
under any of the following instances: (a) upon written permission of the depositor, (b) in cases of
impeachment, (c) upon order of a competent court in the case of bribery or dereliction of duty of
public officials or, (d) when the money deposited or invested is the subject matter of the
litigation, and (e) in cases of violation of the Anti-Money Laundering Act, the Anti-Money
Laundering Council may inquire into a bank account upon order of any competent court.23
In this case, the Joint Motion to Approve Agreement was executed by BPI and TIDCORP only.
There was no written consent given by petitioner or its representative, Epifanio Ramos, Jr., that
petitioner is waiving the confidentiality of its bank deposits. The provision on the waiver of the
confidentiality of petitioners bank deposits was merely inserted in the agreement. It is clear
therefore that petitioner is not bound by the said provision since it was without the express
consent of petitioner who was not a party and signatory to the said agreement.
Neither can petitioner be deemed to have given its permission by failure to interpose its objection
during the proceedings.1wphi1 It is an elementary rule that the existence of a waiver must be
positively demonstrated since a waiver by implication is not normally countenanced. The norm is
that a waiver must not only be voluntary, but must have been made knowingly, intelligently, and
with sufficient awareness of the relevant circumstances and likely consequences. There must be
persuasive evidence to show an actual intention to relinquish the right. Mere silence on the part
of the holder of the right should not be construed as a surrender thereof; the courts must indulge
every reasonable presumption against the existence and validity of such waiver.24
In addition, considering that petitioner was already declared insolvent by the RTC, all its
property, assets and belongings were ordered delivered to the appointed receiver or assignee.
Thus, in the order of the RTC appointing Atty. Gonzales as receiver, petitioner was directed to
assign and convey to Atty. Gonzales all its real and personal property, monies, estate and effects
with all the deeds, books and papers relating thereto,25 pursuant to Section 3226 of the
Insolvency Law.27 Such assignment shall operate to vest in the assignee all of the estate of the
insolvent debtor not exempt by law from execution.28 Corollarily, the stipulation in the Joint
Motion to Approve Compromise Agreement that petitioner waives its right to confidentiality of
its bank deposits requires the approval and conformity of Atty. Gonzales as receiver since all the
property, money, estate and effects of petitioner have been assigned and conveyed to her29 and
she has the right to recover all the estate, assets, debts and claims belonging to or due to the
insolvent debtor.30
While it was Atty. Gonzales who filed the Motion for Parties to Enter Into Compromise
Agreement, she did not sign or approve the Joint Motion to Approve Agreement submitted by

TIDCORP and BPI. In her Manifestation and Comment (on Dacion En Pago by Compromise
Agreement with TRC and Joint Motion to Approve Agreement of BPI and TIDCORP) there is no
showing that Atty. Gonzales signified her conformity to the waiver of confidentiality of
petitioners bank deposits. Atty. Gonzales stated thus:
13. COMPROMISE AGREEMENT OF TIDCORP AND BPI
The undersigned receiver is in conformity with the compromise agreement of TIDCORP and
BPI, attached hereto as Annex C, which they submitted to this Honorable Court under the
abovementioned Joint Motion in so far as the sharing scheme of the sewing machine inventories
of Dona Adela is concerned. However, the undersigned receiver has the following comments on
the other provisions of the said compromise agreement:
xxxx
13.2. The undersigned receiver reiterates that Dona Adela has no cash or other assets to source
payment for expenses and taxes provided under no. 4 of the Joint Motion to Approve Agreement.
In fact, except for the amount of P5,000.00 she initially asked for administrative expenses and
the appraisal fees for the assets of Dona Adela advanced by MR. EPIFANIO RAMOS, she has
been shouldering all the administrative expenses of this insolvency proceedings.
xxxx
21. As also mentioned under 13.2. above, Dona Adela has no cash to source payment for the
abovementioned administrative expenses and receivers fees, and its assets, which should have
been the source for payment for administrative expenses and receivers fees before the
distribution to the creditors, have already been assigned to the creditors by compromise
agreement.
22. After considering its savings from foreclosure expenses, sheriffs fees and other related
expenses had it pursued foreclosure proceedings, it is just fair for the undersigned receiver to ask
her due for services rendered as officer of this Honorable Court from TRC who benefitted the
most from the insolvency proceedings.31 (Emphasis ours)
Clearly, the waiver of confidentiality of petitioners bank deposits in the BPI-TIDCORP Joint
Motion to Approve Agreement lacks the required written consent of petitioner and conformity of
the receiver. We, thus, hold that petitioner is not bound by the said provision.
It is basic in law that a compromise agreement, as a contract, is binding only upon the parties to
the compromise, and not upon non-parties. This is the doctrine of relativity of contracts.32 The
rule is based on Article 1311 (1) of the Civil Code which provides that "contracts take effect only
between the parties, their assigns and heirs x x x."33 The sound reason for the exclusion of non-

parties to an agreement is the absence of a vinculum or juridical tie which is the efficient cause
for the establishment of an obligation.34 Consistent with this principle, a judgment based
entirely on a compromise agreement is binding only on the parties to the compromise the court
approved, and not upon the parties who did not take part in the compromise agreement and in the
proceedings leading to its submission and approval by the court. Otherwise stated, a court
judgment made solely on the basis of a compromise agreement binds only the parties to the
compromise, and cannot bind a party litigant who did not take part in the compromise
agreement.35
WHEREFORE, premises considered, the petition is hereby GRANTED. The second paragraph
of the November 15, 2011 Decision of the Regional Trial Court of Mandaluyong City, Branch
211, in SEC Case No. MC06-103 is hereby MODIFIED to read as follows:
2. As regards the Joint Motion to Approve Agreement dated July 29, 2011, filed by creditors
Trade and Investment Development Corporation of the Philippines and the Bank of the
Philippine Islands, with the exception of paragraph 4 and paragraph 5 thereof pertaining to
Expenses and Taxes and Waiver of Confidentiality, the same is likewise APPROVED, for the
same is not contrary to law, morals, good customs, public order or public policy, and the fact that
the Court-Appointed Receiver in her Reply filed on October 24, 2011 intimated her conformity
to said Joint Motion to Approve Agreement.
No costs.
SO ORDERED.
MARTIN S. VILLARAMA, JR.
Associate Justice
WE CONCUR:
PRESBITERO J. VELASCO, JR.
Associate Justice
Chairperson
DIOSDADO M. PERALTA
Associate Justice

BIENVENIDO L. REYES
Associate Justice

FRANCIS H. JARDELEZA
Associate Justice

Foremost among the questions of law that this petition raises is what rule governs
the prescriptive period for a buyer in execution sale to demand or compel the
Sheriff to execute and deliver to him the final deed of conveyance in order that it
may consolidate its title. Should it be Article 1141 which provides for thirty (30)
years within which to bring real actions (as the court a quo has concluded), or
should it be either Article 1149 (five years in cases where the Code or the law is
silent); or Article 1144 (ten years in obligations created by law), as suggested by the
petitioners.

FIRST DIVISION
G.R. No. 154262

February 11, 2015

HERMINIO M. DE GUZMAN, FOR HIMSELF AND AS ATTORNEY-IN-FACT OF:

NILO M. DE GUZMAN, ANGELINO DE GUZMAN, JOSEFINO M. DE GUZMAN,
ESTRELLA M. DE GUZMAN, TERESITA DE GUZMAN, ELSA MARGARITA M. DE
GUZMAN, EVELYN M. DE GUZMAN, MA. NIMIA M. DE GUZMAN, ANTOLIN M. DE
GUZMAN, and FERDINAND M. DEGUZMAN, Petitioners,
vs.
TABANGAO REALTY INCORPORATED, Respondent.
DECISION
LEONARDO-DE CASTRO, J.:
This is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure
filed by petitioners Herminio M. de Guzman (Herminio), Nilo M. de Guzman, Angelino de
Guzman, Josefino M. de Guzman, Estrella M. de Guzman, Teresita de Guzman, Elsa Margarita
M. de Guzman, Evelyn M. de Guzman, Ma. Nimia M. de Guzman, Antolin M. de Guzman, and
Ferdinand M. de Guzman, challenging, based on pure questions of law, the (a) Order1 dated
March 4, 2002 of the Regional Trial Court (RTC), Branch 23, of Trece Martires City, in Civil
Case No. TM-1118, which granted the Motion to Dismiss filed by respondent Tabangao Realty,
Inc.; and (b) Order2 dated May 21, 2002 of the same court in said case, which denied petitioners
Motion for Reconsideration of the earlier Order.
The instant Petition arose from the following facts:
Sometime in 1980, Serafin de Guzman (Serafin) and Josefino de Guzman3 (Josefino) applied
for, and were granted, authority to distribute oil and lubricating products manufactured and
marketed by Filipinas Shell Petroleum Corporation (FSPC). In the course of their business,
Serafin and Josefino purchased on credit oil and lubricating products from FSPC, but they
eventually failed to pay for their credit purchases from FSPC. Thus, FSPC filed before the RTC
of Manila a complaint for sum of money against Serafin and Josefino, docketed as Civil Case
No. 120680. After trial, RTC Manila rendered judgment ordering Serafin and Josefino to pay
their outstanding obligations to FSPC. Since Serafin and Josefino no longer appealed, the
judgment of RTC-Manila in Civil Case No. 120680 became final and executory. RTC-Manila

granted the motion of FSPC and ordered the issuance of a writ of execution on May 3, 1983. On
June 30, 1983, FSPC levied upon a parcel of land, with an area of 74,415 square meters, situated
in Sta. Cruz de Malabon, Trece Martires City, Cavite Province (subject property), covered by
Transfer Certificate of Title (TCT) No. 3531 in the name of spouses Serafin and Amelia de
Guzman (spouses De Guzman). According to the Sheriffs Certificate of Sale dated February 4,
1988, the subject property was sold, after due publication and notice, at a public auction, in favor
of respondent, which gave the highest bid of P70,000.00. The Sheriffs Certificate of Sale was
annotated on TCT No. 3531 on April 13, 1988. The spouses De Guzman did not redeem the
subject property within one year from registration of the Sherifffs Certificate of Sale on TCT
No. 3531.
On October 19, 2001, petitioners filed a Complaint for quieting of title against respondent before
RTC-Trece Martires, docketed as Civil Case No. TM-1118. Petitioners alleged in their Complaint
that:
1. They are of legal age, Filipinos and represented herein by their attorney-in-fact, [copetitioner] HERMINIO M. DE GUZMAN x x x.
xxxx
3. [Petitioners] are the children and only heirs of the spouses Serafin and Amelia de
Guzman who died both intestate on April 23, 2001 and January 01, 1997.
4. The spouses were the owners of a parcel of land situated at Sta. Cruz de Malabon,
Trece Martires City, Cavite Province, with area of 74,415 square meters covered by
Transfer Certificate of Title No. T-3531 (T-95734), a copy is attached as Annex "A."
5. [Petitioners] inherited the property by intestate succession upon the death of their
parents. They are now therefore its owners and are the ones in possession of the property.
6. Annotated on [petitioners] TCT No. 3531 (T-95734) in the name of their deceased
parents are the following entries of encumbrances, to wit:
a. Entry No. 8616-23 (sic) Execution - Covering the parcel of land described in
the title, as per Execution: entitled FILIPINAS SHELL PETROLEUM [CORP.],
Plaintiff vs. SERAFIN & JOSEFINO DE GUZMAN, ET AL., Defendants, issued
by the Regional Trial Court of Manila, National Capital Judicial Region, on file in
this Registry. Date of Inscription (sic) - May 3, 1983; Date of Inscription - July
01, 1983.
b. Entry No. 8619-23 - Notice of Levy - Covering the parcel of land described in
this title, as per Notice of Levy: entitled FILIPINAS SHELL PETROLEUM
CORP. vs. SERAFIN & JOSEFINO DE GUZMAN, ET AL., Defendants, under
Civil Case No. 120680 of the Regional Trial Court of Manila, Br. XX, copy on
file in this Registry. Date of instrument - June 30, 1983. Date of Inscription - July
01, 1983.

c. Entry No. 1487 - Certificate of Sale - In favor of TABANGAO REALTY

INCORPORATED - Covering the parcel of land described in this title, by virtue
of the sheriffs certificate of sale exec. by Jose R. Bawalan, Clerk of Court & ExOfficio Sheriff of Cavite and approved by PROCESO P. SILANGCRUZ, acting
etc. Judge of Branch 23, TMC. Date of instrument - Feb. 4, 1988. Date of
Inscription - April 13, 1988.
d. Entry No. 1488 - BIR certification - In favor of TABANGAO REALTY
INCORPORATED - That SERAFIN DE GUZMAN as per certification issued by
the BIR. Date of instrument - April 13, 1988. Date of Inscription - April 13, 1988.
7. The foregoing entries/encumbrances are apparently valid and subsisting but in fact and
in law, they are void and ineffective or otherwise had been terminated and extinguished
or barred by prescription, estoppel and laches.
8. Specifically, the Certificate of Sale, annotated on TCT No. 3531 (T-95734) as Entry
No. 1487, which supposedly emanated from the Execution (Entry No. 8616-23 [sic]) and
Notice of Levy (Entry No. 8619-23) is void for the following reasons:
a. The Sheriffs Certificate of Sale dated February 4, 1988 (copy is attached as
Annex "B") recites that "on June 30, 1983 LEVY was made upon the right, titles,
interests and participation of defendants SERAFIN and JOSEFINO DE
GUZMAN and sold at public auction sale in front of the Capitol Building of
Cavite situated at Trece Martires City, after due publication of the Sheriffs Sale
in the Record Newsweekly, and after the Notice of Sheriffs Sale was posted in
three (3) conspicuous places and later sold in favor of Tabangao Realty
Incorporated, x x x as the highest bidder for the amount of SEVENTY
THOUSAND PESOS (P70,000) Philippine Currency, x x x
xxxx
The truth is there was no such Sheriffs Sale conducted on June 30, 1983 and it
was legally impossible to do the levy and execution sale on the same date.
b. Assuming an execution sale was indeed conducted on any other date the same
was void for lack of the required notice and publication.
c. Assuming an execution sale was indeed conducted with due notice and
publication, still [respondents] acquisition was void because [respondent] was not
and up to now is not capacitated to own and acquire agricultural land and its
aggregate area of landholding exceeds the retention limit fixed by law. Being
legally incapacitated to own this agricultural land the execution of the Certificate
of Sale in its favor was void and did not create any legal effect.
9. Assuming there was a valid execution sale conducted, the Sheriffs Certificate of
Sale has lost its effectivity as it had been terminated and extinguished by

prescription, laches and estoppel, more than 13 years having elapsed from its
registration on 13 April 1988 without the buyer, [respondent] herein, taking any step
to consolidate its ownership and/or take possession of the property. In the meantime
[petitioners] and their predecessors have introduced on the land improvements of
considerable value and are the ones paying the real property taxes and performing
all the tasks and paying all the expenses of preserving the land and protecting it
from intruders.
10. Assuming there was a valid execution sale executed, [respondent] is guilty of fraud
and bad faith in suspending indefinitely the consolidation of title in its name. Its motive is
to conceal its acquisition of the land from the public and the government, particularly the
Department of Agrarian Reform, and project in the public records the [petitioners] title,
who are otherwise qualified under the law to retain it, and thereby evade its obligation to
strip itself of this landholding within the period required by law and thus indefinitely
keep the land away from the coverage of agrarian reform laws. Being guilty of fraud and
bad faith [respondent] cannot under the principle of "in pari delicto" recover the land
from the [petitioners], especially after the lapse of an unreasonably long period of time.
Or at the very least, because of its guilt, [respondent] should not be allowed to deny the
[petitioners] the right to redeem the land by paying the amount of P70,000.00 and the
legal interest from its purchase.
11. No valid execution sale having been conducted within the ten[-]year period from the
finality of the judgment against Serafin and Josefino de Guzman in the case mentioned
being executed, the writ of execution (Entry No. 8618-23) and Notice of Levy (Entry No.
8619-23) are now ineffective, having been terminated and extinguished by [the] lapse of
more than eighteen (18) years from the date they were taken or annotated on July 1, 1983.
The judgment itself sought to be executed had prescribed.
12. The existence of the Sheriffs Certificate of Sale and the continued annotation of the
above-cited encumbrances on TCT No. T-3531 (T-95734) cast a cloud on and are
prejudicial to [petitioners] title and are one of those which the law allows to be removed
in order to quiet [petitioners] title.4
At the end of their Complaint, petitioners prayed for judgment:
a. Declaring the Sheriffs Certificate of Sale (Annex "B"), its entry as well as the entries
of execution and notice of levy and BIR Certification on TCT No. T-3531 (T-95734) and
all the claims of the [respondent] against the land by virtueof these documents void or as
already ineffective or terminated and extinguished by prescription, laches and estoppel;
b. Ordering the Register of Deeds of Trece Martires City to cancel the annotations of
Entries Nos. 8618-28, 8619-23, 1487, and 1488 on TCT No. T-3531 (T-95734).
c. Or otherwise allowing the [petitioners] to exercise their right of redemption within a
certain period and compelling the [respondent] to accept from the [petitioners] the
amount of P70,000.00 and its legal interest since April 1988 as redemption price.

d. Granting the [petitioners] other just and equitable reliefs.5

Respondent filed a Motion for Extension of Time to File Answer, which the RTC granted in an
Order dated January 4, 2002. However, instead of filing an answer, respondent filed a Motion to
Dismiss based on two grounds: (a) the Complaint failed to comply with the requirements on
certification against forum shopping; and (b) the Complaint failed to state a cause of action.
Respondent averred that the Certification against Forum Shopping attached to the Complaint did
not comply with the mandatory requirements set forth in Rule 7, Section 5 of the 1997 Rules of
Court. Assuming that all petitioners are indeed the children and only heirs of the spouses De
Guzman who inherited the subject property by intestate succession, as alleged in the Complaint,
then all 11 petitioners should have executed the Certification against Forum Shopping, but only
Herminio signed said Certification. Since it was not indicated in the Certification that Herminio
was authorized by his co-petitioners to execute the same on their behalf, then the said
Certification was Herminios sole act.
Respondent also argued that the Complaint did not state any cause of action. Petitioners did not
have any existing right or interest over the subject property as to entitle them to the relief prayed
for in the Complaint. The subject property had long been levied upon and sold to respondent at
an execution sale. The only remaining right of petitioners predecessors-in-interest over the
subject property was the right to redeem the same within a period of one year from the date of
registration of the Sheriffs Certificate of Sale with the Registry of Deeds on April 13, 1988.
When petitioners predecessors-in-interest failed to redeem the subject property within the oneyear period, they were divested of their rights, title, and interest over the subject property, which
were then acquired by respondent. Respondent further asserted that its acquisition of the subject
property at the execution sale conducted on June 30,1983 was valid and legal; a civil action to
consolidate ownership was not necessary before title to the subject property completely vested in
respondent; the real right of respondent over the subject property would prescribe only after
thirty years; there were no legal and/or factual bases for petitioners contention that respondent
was incapacitated to acquire and own the subject property; and the RTC had no jurisdiction over
issues involving land reform.
In their Opposition (To Motion To Dismiss), petitioners countered that there was no more need
for all of them to execute and sign the Certification against Forum Shopping. The first paragraph
of the Complaint already stated that petitioners were represented by their attorney-in-fact.
Petitioners also attached a Special Power of Attorney in which the other petitioners gave their copetitioner Herminio the authority to sue and be sued for the recovery of and/or protection of their
title, rights, and interests over all the properties left by their deceased parents, the spouses De
Guzman. The delegation by the other petitioners to their co-petitioner Herminio of the authority
to sue and be sued necessarily included the authority to sign the Certification against Forum
Shopping integrated in the Complaint. In addition, petitioners contended that instead of taking
off from a hypothetical admission of the basic allegations in their Complaint, the Motion to
Dismiss of respondent proceeded from a refutation of those allegations. Respondents arguments
had no place in a motion to dismiss predicated on the supposed failure of the complaint tostate a
cause of action, if only for the simple reason that they controvert rather than admit the basic
allegations of the Complaint and offer new allegations the truth of which could be determined

only after the parties have presented their respective evidence. Lastly, the issue raised in the
Complaint was not the right of retention of respondent, but the validity of the Sheriffs
Certificate of Sale. There was no tenancy relationship or agrarian dispute between the parties
over which the Department of Agrarian Reform Arbitration Board had jurisdiction.
On March 4, 2002, RTC-Trece Martires issued an Order, ruling in this wise:
It appearing from the Sheriffs Certificate of Sale (Annex "B" of the Complaint) dated February
4,1988 that proper steps had been undertaken thereto prior to issuance of such document (Annex
"B" of the Complaint), i.e., on June 30, 1983 a levy (Entry No. 8619-23-Notice of Levy, dorsal
portion, Annex "A" of the Complaint) was conducted as a preliminary step prior to satisfaction of
judgment rendered in favor of Filipinas Shell Petroleum Corp. in a civil case the latter filed
against [petitioners] predecessors-in-interest; that due publication of the Sheriffs Sale was
executed in the Record Newsweekly together with the posting of the Notice of Sheriffs Sale in 3
conspicuous places. After substantial compliance with the notice and publication requirements as
provided for by law, particularly Rule 39, Sec. 15, of the Revised Rules of Court, an execution
sale was conducted on the subject property in favor of [respondent] herein Tabangao Realty
Incorporated, thenceforth the questioned Sheriffs Certificate of Sale (Entry No. 1487, Certificate
of Sale, Annex "A," of the Complaint) dated February 4, 1988 is valid, and its subsequent
registration with the Registry of Deeds on April 13, 1988 and the failure of the [petitioners]
predecessors-in-interest to redeem the property within the one year period from the date of
registration of the Sheriffs Certificate of Sale, pursuant to Rule 39, Section 33 of the Revised
Rules of Court, purchaser-[respondent] herein, Tabangao Realty shall be substituted to and
acquires all the rights, title, interest and claim over the subject property, regardless of the fact
that [respondent] had not taken any steps to consolidate its ownership and/or take possession of
the property hereof, subject of this litigation, against [petitioners] in this case. Considering all
matters in their respective pleadings, both the Motion to Dismiss as well as the Opposition thus
filed, the Court is of the opinion and so holds that the Certificate of Sale remains valid and that
Tabangao Realtys right has not yet prescribed as provided for in Art. 1141 of the New Civil
Code, thus, the Opposition (To Motion to Dismiss) is hereby denied.
Accordingly, finding merit in the Motion to Dismiss filed by [respondent] Tabangao Realty, Inc.,
herein, this case is hereby dismissed. No costs.6
Petitioners filed a Motion for Reconsideration of the foregoing Order, but RTC-Trece Martires
denied the Motion in an Order dated May 21, 2002.
Hence, petitioners directly seek recourse from this Court through the Petition at bar, assailing the
Orders dated March 4, 2002and May 21, 2002 of RTC-Trece Martires in Civil Case No. TM1118 on pure questions of law, viz:
4.3. Foremost among the questions of law that this petition raises is what rule governs the
prescriptive period for a buyer in execution sale to demand or compel the Sheriff to execute and
deliver to him the final deed of conveyance in order that it may consolidate its title. Should it be
Article 1141 which provides for thirty (30) years within which to bring real actions (as the court
a quo has concluded), or should it be either Article 1149 (five years in cases where the Code or

the law is silent); or Article 1144 (ten years in obligations created by law), as suggested by the
petitioners.
4.4. Another question to be raise[d]is whether Sec. 33 (par. 2), Rule 39 of the 1997 Rules of Civil
Procedure can be given retroactive effect in this case. As can be seen, the rights of the respondent
over the property as buyer in execution sale should not be governed by Sec. 33 (2nd paragraph),
Rule 39 of the 1997 Rules of Civil Procedure but by the old Sec. 35, Rule 39 of the Rules of
Court which was the law in force at the time of the execution sale and expiration of the period of
redemption. This issue is very pivotal in determining the conflicting claims of the parties.
Because whereas in the 1997 Rules the buyer in execution sale acquires all the rights of
judgment debtor in the property automatically upon the lapse of the period of redemption under
old Rules of Court, the buyer in execution sale acquires the right of the owner only upon the
execution and delivery of the final deed of conveyance. Hence, if this is the rule applicable as
petitioners will show then respondent has up to now not acquired right on the property and
could not now assert any right based on the Certificate of Sale by reason of prescription.
4.5. In effect this petition will also raise the constitutionality of the amendment introduced [b]y
the 1997 Rules of Civil Procedure to 2nd paragraph of Sec. 35 of Rule 39 of the Old Rules of
Court. To petitioners mind the subject of the amendment deals with substantive rights.
4.6. Finally, this petition shall raise the very basic question of whether or not the allegations of
the petitioners complaint in the court below are sufficient to constitute a cause of action.7
Ultimately, at the crux of the present Petition is the question of whether or not RTC-Trece
Martires committed reversible error in dismissing petitioners Complaint for Quieting of Title on
the ground of failure to state a cause of action.
The Court rules in the negative.
In Baricuatro, Jr. v. Court of Appeals,8 the Court described the nature of an action for quieting of
title, thus:
Regarding the nature of the action filed before the trial court, quieting of title is a common law
remedy for the removal of any cloud upon or doubt or uncertainty with respect to title to real
property. Originating in equity jurisprudence, its purpose is to secure "x x x an adjudication that a
claim of title to or an interest in property, adverse to that of the complainant, is invalid, so that
the complainant and those claiming under him may be forever afterward free from any danger of
hostile claim." In an action for quieting of title, the competent court is tasked to determine the
respective rights of the complainant and other claimants, "x x x not only to place things in their
proper place, to make the one who has no rights to said immovable respect and not disturb the
other, but also for the benefit of both, so that he who has the right would see every cloud of
doubt over the property dissipated, and he could afterwards without fear introduce the
improvement she may desire, to use, and even to abuse the property as he deems best x x x."
(Citation omitted.)"
Under the Civil Code, the remedy may be availed of under the following circumstances:

Art. 476. Whenever there is a cloud on title to real property or any interest therein, by reason of
any instrument, record, claim, encumbrance or proceeding which is apparently valid or effective
but is in truth and in fact invalid, ineffective, voidable, or unenforceable, and may be prejudicial
to said title, an action may be brought to remove such cloud or to quiet the title.
An action may also be brought to prevent a cloud from being cast upon title to real property or
any interest therein.
Art. 478. There may also be an action to quiet title or remove a cloud therefrom when the
contract, instrument or other obligation has been extinguished or has terminated, or has been
barred by extinctive prescription.
Article 477 of the Civil Code further provides that the plaintiff in an action to quiet title must
have legal or equitable title to or interest in the real property, which is the subject matter of the
action, but need not be in possession of said property.
For an action to quiet title to prosper, two indispensable requisites must concur: (1) the plaintiff
or complainant has a legal or equitable title or interest in the real property subject of the action;
and (2) the deed, claim, encumbrance, or proceeding claimed to be casting a cloud on his title
must be shown to be in fact invalid or inoperative despite its prima facie appearance of validity
or legal efficacy.9
Petitioners Complaint in Civil Case No. TM-1118 failed to allege these two requisites for an
action to quiet title.
Petitioners alleged in their Complaint that they were the children and only heirs of the deceased
spouses De Guzman and that the subject property was still registered in spouses De Guzmans
names under TCT No. 3531. However, these allegations are insufficient to establish petitioners
title to the subject property.
It is worthy to note that petitioners also alleged in their Complaint that TCT No. 3531 bears the
following annotations: (1) the writ of execution dated May 3, 1983 issued by RTC-Manila in
Civil Case No. 120680, inscribed on said certificate of title on July 1, 1983; (2) Notice of Levy
dated June 30, 1983 issued in the same case, inscribed on July 1, 1983; (3) Sheriffs Certificate
of Sale dated February 4, 1988 in favor of respondent covering the subject property, inscribed on
April 13, 1988; and (4) BIR Certification dated April 13, 1988 stating that respondent paid taxes
on the sale, inscribed on April 13, 1988. Petitioners attached to the Complaint copies of TCT No.
3531 with the aforementioned annotations; and the Sheriffs Certificate of Sale dated February 4,
1988 which stated that the subject property was levied upon and sold in an execution sale to
respondent for P70,000.00.
Equally notable is the absence of any allegation in the Complaint that Serafin and/or Josefino, as
the judgment obligors in Civil Case No. 120680, or their successors-in-interest, redeemed the
subject property from respondent within the one-year redemption period, which, reckoned from
the date of registration of the Sheriffs Certificate of Sale on TCT No. 3531 on April 13, 1988,
expired on April 13, 1989.

It must be remembered that the period of redemption is not a prescriptive period but a condition
precedent provided by law to restrict the right of the person exercising redemption.10 If no
redemption is made in the manner and within the period prescribed, Rule 39, Section 33 of the
1997 Rules of Court, as amended, provides:
SEC. 33. Deed and possession to be given at expiration of redemption period; by whom executed
or given. If no redemption be made within one (1) year from the date of the registration of the
certificate of sale, the purchaser is entitled to a conveyance and possession of the property; or, if
so redeemed whenever sixty (60) days have elapsed and no other redemption has expired, the last
redemptioner is entitled to the conveyance and possession; but in all cases the judgment obligor
shall have the entire period of one (1) year from the date of the registration of the sale to redeem
the property. The deed shall be executed by the officer making the sale or by his successor in
office, and in the latter case shall have the same validity as though the officer making the sale
had continued in office and executed it.
Upon the expiration of the right of redemption, the purchaser or redemptioner shall be
substituted to and acquire all the rights, title, interest and claim of the judgment obligor to the
property as of the time of the levy. The possession of the property shall be given to the purchaser
or last redemptioner by the same officer unless a third party is actually holding the property
adversely to the judgment obligor. (Emphasis supplied.)
Based on the allegations in the Complaint and the applicable rules, respondent was already
substituted to and acquired all the rights, title, interest, and claim of the Spouses De Guzman to
the subject property on April 13, 1989, when the one-year redemption period expired. Upon the
deaths of Amelia de Guzman on January 1, 1997 and her husband Serafin de Guzman on April
23, 2001, they had no more rights, title, interest, and claim to the subject property to pass on by
succession to petitioners as their heirs.
Petitioners, though, insist that Rule39, Section 33 of the 1997 Rules of Court should not be
applied retroactively. According to petitioners, when the execution sale was purportedly
conducted in 1988 and the redemption period expired in 1989, it was Rule 39, Section 35 of the
1964 Rules of Court which was in effect, and it read:
Sec. 35. Deed and possession to be given at expiration of redemption period. By whom executed
or given. If no redemption be made within twelve (12) months after the sale, the purchaser, or
his assignee, is entitled to a conveyance and possession of the property; or, if so redeemed
whenever sixty (60) days have elapsed and no other redemption has been made and notice
thereof given, and the time for redemption has expired, the last redemptioner, or his assignee, is
entitled to the conveyance and possession; but in all cases the judgment debtor shall have the
entire period of twelve (12) months from the date of the sale to redeem the property. The deed
shall be executed by the officer making the sale or by his successor in office, and in the latter
case shall have the same validity as though the officer making the sale had continued in office
and executed it.
Upon the execution and delivery of said deed the purchaser, or redemptioner, or his assignee,
shall be substituted to and acquire all the right, title, interest and claim of the judgment debtor to

the property as of the time of the levy, except as against the judgment debtor in possession, in
which case the substitution shall be effective as of the date of the deed. The possession of the
property shall be given to the purchaser or last redemptioner by the same officer unless a third
party is actually holding the property adversely to the judgment debtor. (Emphasis supplied.)
Under the 1964 Rules of Court, the purchaser, or redemptioner, or his assignee, shall be
substituted to and acquire all the rights, title, interest, and claim of the judgment debtor to the
property only after execution and delivery of the deed of conveyance. Petitioners point out that
respondent has yet to secure such a deed.
The issue of the retroactive application of procedural rules is not novel and had been squarely
addressed by the Court in Calacala v. Republic of the Philippines,11 as follows:
To start with, petitioners base their claim of legal title not on the strength of any independent
writing in their favor but simply and solely on respondent Republics failure to secure the
Certificate of Final Sale, execute an Affidavit of Consolidation of Ownership and obtain a writ of
possession over the property in dispute within ten (10) years from the registration of the
Certificate of Sale.
Petitioners reliance on the foregoing shortcomings or in actions of respondent Republic
cannot stand.
For one, it bears stressing that petitioners predecessors-in-interest lost whatever right they
had over land in question from the very moment they failed to redeem it during the 1-year
period of redemption. Certainly, the Republics failure to execute the acts referred to by the
petitioners within ten (10) years from the registration of the Certificate of Sale cannot, in
any way, operate to restore whatever rights petitioners predecessors-in-interest had over
the same. For sure, petitioners have yet to cite any provision of law or rule of
jurisprudence, and we are not aware of any, to the effect that the failure of a buyer in a
foreclosure sale to secure a Certificate of Final Sale, execute an Affidavit of Consolidation
of Ownership and obtain a writ of possession over the property thus acquired, within ten
(10) years from the registration of the Certificate of Sale will operate to bring ownership
back to him whose property has been previously foreclosed and sold. x x x.
Quite the contrary, Section 33, Rule 39 of the 1997 Rules of Civil Procedure explicitly provides
that "[u]pon the expiration of the right of redemption, the purchaser or redemptioner shall be
substituted to and acquire all the rights, title, interest and claim of the judgment obligor to the
property as of the time of the levy."
Concededly, the 1997 Rules of Civil Procedure was yet in existent when the facts of this case
transpired. Even then, the application thereof to this case is justified by our pronouncement in
Lascano vs. Universal Steel Smelting Co., Inc., et al., to wit:
Procedural laws are construed to be applicable to actions pending and undetermined at the time
of their passage, and are deemed retroactive in that sense and to that extent. As a general rule, the
retroactive application of procedural laws cannot be considered violative of any personal rights
because no vested right may attach to nor arise therefrom.

Moreover, with the rule that the expiration of the 1-year redemption period forecloses the
obligors right to redeem and that the sale thereby becomes absolute, the issuance thereafter of a
final deed of sale is at best a mere formality and mere confirmation of the title that is already
vested in the purchaser. As this Court has said in Manuel vs. Philippine National Bank, et al.:
Note must be taken of the fact that under the Rules of Court the expiration of that one-year
period forecloses the owners right to redeem, thus making the sheriffs sale absolute. The
issuance thereafter of a final deed of sale becomes a mere formality, an act merely confirmatory
of the title that is already in the purchaser and constituting official evidence of that fact.
With the reality that petitioners are not holders of any legal title over the property subject of this
case and are bereft of any equitable claim thereon, the very first requisite of an action to quiet
title, i.e., that the plaintiff or complainant has a legal or an equitable title to or interest in the real
property subject matter of the action, is miserably wanting in this case. (Emphasis supplied,
citations omitted.)
Calacala thus settled that Rule 39, Section 33 of the 1997 Rules of Court can be applied
retroactively to cases still pending and undetermined at the time of its passage,12 such as the
present case. By virtue of said provision, the expiration of the one-year redemption period
foreclosed the right to redeem of the spouses De Guzman (as well as petitioners, as their
successors-in-interest) and the sale of the subject property to respondent became absolute, so that
the issuance thereafter of a final deed of sale and/or conveyance is at best a mere formality and
mere confirmation of the title that was already vested in respondent.
The allegations in petitioners Complaint also do not support the second requisite for an action to
quiet title, i.e., that the deed, claim, encumbrance or proceeding alleged to cast cloud on a
plaintiff's title is in fact invalid or inoperative despite its prima facie appearance of validity or
legal efficacy.
Petitioners argue that respondent, in filing a Motion to Dismiss the Complaint based on failure to
state a cause of action, was deemed to have admitted all the allegations in said Complaint,
including those under paragraphs 8 to 11, viz: that no execution sale was actually conducted on
June 30, 1983 as it was legally impossible for the levy and execution sale to have been done on
the same day; that an execution sale conducted on any other date was void for lack of notice and
publication; that an execution sale with due notice and publication was still void because
respondent was not capacitated to acquire and own agricultural land with an area exceeding the
retention limits set by law; that assuming there was a valid execution sale conducted, the
Sheriffs Certificate of Sale had lost its effectivity because of prescription, laches, and estoppel;
that assuming there was a valid execution sale conducted, respondent is guilty of fraud and bad
faith in suspending indefinitely the consolidation of the title in its name for the purpose of
concealing the acquisition of the subject property from the public and the government, more
particularly, the Department of Agrarian Reform (DAR); and that there being no valid execution
sale conducted 10 years from finality of judgment in Civil Case No. 120680, said judgment had
already prescribed and the writ of execution and Notice of Levy issued pursuant to the same had
become ineffective. By these allegations, petitioners posit, the Sheriffs Certificate of Sale
annotated on TCT No. 3531 is either void or ineffective, and constitutes a cloud on their title to
the subject property.

The Court is not persuaded.

While the general rule is that a motion to dismiss on the ground of failure to state a cause of
action in the complaint hypothetically admits the truth of the facts alleged therein, there are
exceptions to the general rule as explicated by the Court in Vergel de Dios v. Bristol Laboratories
Phils., Inc.13:
Before discussing whether or not those allegations in the complaint referred to sufficiently state a
cause or causes of action, it may be well to state beforehand the rule, uniformly held by this
Court, that in order to sustain a dismissal on the ground that the complaint states no cause of
action, the insufficiency of the cause of action must appear on the face of the complaint, and the
test of the sufficiency of the facts alleged in the complaint to constitute a cause of action is
whether or not, admitting the facts alleged, the court could render a valid judgment upon the
same in accordance with the prayer of the complaint. For the purpose, the motion to dismiss must
hypothetically admit the truth of the facts alleged in the complaint. The admission, however, is
limited only to all material and relevant facts which are well pleaded in the complaint. Thus, it
has been ruled that a demurrer admits only such matters of fact as are sufficiently pleaded; that
the demurrer does not admit the truth of mere epithets charging fraud; nor allegations of legal
conclusions; nor an erroneous statement of law. The admission of the truth of material and
relevant facts well pleaded does not extend to render a demurrer an admission of inferences or
conclusions drawn therefrom, even if alleged in the pleading; nor mere inferences or conclusions
from facts not stated; nor conclusions of law; nor matters of evidence; nor surplusage and
irrelevant matter. Examples of allegations considered by this Court as conclusions of law are:
that defendant had incurred damages as a consequence of the "malicious and unjustified"
institution of the action; that "with intent of circumventing the constitutional prohibition that no
officer or employee in the civil service shall be removed or suspended except for cause as
provided by law, respondents "maliciously and illegally for the purpose of political persecution
and political vengeance, reverted the fund of the salary item x x x and furthermore eliminated or
abolished the said position effective July 1, 1960"; that the "defendant usurped the office of
Senator of the Philippines." From American jurisprudence come the following examples:
"Bare allegations in employees action for breach of employment contract that master had
breached or violated the contract or discharged him in a wrongful, illegal, unlawful, unjust,
arbitrary or fraudulent manner or without authority are compulsory and insufficient in absence of
additional allegations and raise no triable issue." Wise vs. Southern Pacific Co., 35 Cal. Rptr.
652.
"Allegations that defendants acted maliciously and unreasonably were conclusionary." Norkin
vs. U.S. Fire Ins. Co., 47 Cal. Rptr. 15.
"Allegations that acts of defendants are arbitrary, capricious, fraudulent, wrongful, and unlawful
are mere conclusions of law not admitted by demurrer." Burt vs. Irvine Co., 47 Cal. Rptr. 362.
"A bare characterization in a petition of unlawfulness, is merely a legal conclusion and a wish of
the pleader, and such a legal conclusion unsubstantiated by facts which could give it life, has no
standing in any court where issues must be presented and determined by facts in ordinary and

concise language." Petty vs. Dayton Musicians Assn., 153 NE2d 218, affirmed 153 NE2d 223.
"Where acts of defendants were described as willful, wanton and malicious and an abuse of
process, such descriptions were mere conclusions of the pleader and were not admitted by
motion to dismiss." Burr vs. State Bank of St. Charles, 100NE2d 773, 344 Ill. App. 332.
xxxx
As quoted above, paragraph 5 of the complaint avers that the "defendants actuated by ulterior
motives, contrary to law and morals, with abuse of their advantageous position as employers, in
gross and evident bad faith and without giving plaintiff Alfredo Vergel de Dios his due, willfully,
maliciously, unlawfully, and in a summary and arbitrary manner, dismissed said plaintiff Alfredo
Vergel de Dios by means of a libelous letter." It further avers that the "charges and statements
mentioned in said letter are not true" and that the "defendants knowingly made the same in order
to justify their dismissal of Alfredo Vergel de Dios." In the light of the examples cited above, the
allegations that the defendants-appellees were "actuated by ulterior motives, contrary to law and
morals, with abuse of their advantageous position as employers, in gross and evident bad faith
and without giving plaintiff Alfredo Vergel de Dios his due, willfully, maliciously, unlawfully,
and in a summary and arbitrary manner," are conclusions of law, inferences from facts not
alleged and expressions of opinion unsupported by factual premises. For nowhere in the
complaint can be found any particular factual allegations as to the ulterior motives of the
defendants-appellees; as to how they abused their position as employer; as to how or why there
was bad faith; and as to how plaintiff Alfredo Vergel de Dios was deprived of his due. Likewise,
the allegation characterizing the letter of dismissal as a "libelous letter" is a conclusion of law
without factual basis. And the allegations that the "charges and statements mentioned in said
letter are not true," and that defendants "knowingly made the same," are legal conclusions or
mere expressions of opinion, there being no factual premises showing why the charges and
statements in the letter are not true; nor is there stated any particular fact or circumstance upon
which the defendants-appellees knowledge of the falsity thereof can be predicated.
Pursuant, therefore, to the rule stated above that conclusions of law, inferences or conclusions
from facts not stated, and mere expressions of opinion, are not deemed admitted by the motion to
dismiss, what should be deemed admitted in paragraph 5 of the complaint would be the bare
allegation that Alfredo Vergel de Dios was dismissed from employment on September 15, 1965,
per letter of dismissal of even date, a copy of which was attached to the complaint and made part
thereof as Annex "A". At this juncture, it should be pointed out that the succeeding allegations of
the complaint are anchored on the allegations in paragraph 5, except the later part of paragraph 9
alleging refusal of the defendants-appellees to make an accounting of funds which allegation is
an inference from facts not alleged, there being no allegation in the pleading to the effect that any
amount is due the plaintiffs-appellants and that the amount is being withheld by the defendantsappellees. Since the only fact alleged and deemed admitted by the motion to dismiss is that
Alfredo Vergel de Dios was dismissed from employment on September 15, 1965, the other
allegations premised on the allegations in paragraph 5 must be considered in that light alone.
Applying now the test of the sufficiency of the facts alleged to constitute a cause of action, can
the court render a valid judgment upon the facts alleged and deemed admitted, in accordance
with the prayer of the complaint? Certainly not, there being no alleged and admitted fact showing
that the defendants-appellees have committed acts constituting a "delict or wrong" by which the

defendants-appellees violated the right of the plaintiffs-appellants causing them loss or injury. Or
more specifically, there is no alleged and admitted fact that defendants-appellees fabricated a
false ground to dismiss Alfredo Vergel de Dios from employment, the admitted fact being that
his dismissal was for a just cause, as shown by the letter of dismissal, Annex "A" of the
complaint. In this regard, while the letter of dismissal is being attached to the complaint to show
its existence and character, in the absence of material facts well pleaded in the complaint and
admitted, showing the nature of the dismissal, the complaint should be read and interpreted with
the aid of the exhibit, Annex "A", which, on its face, shows that the dismissal was for a just
cause. (Citations omitted.)
Upon scrutiny, the allegations in paragraphs 8 to 11 of petitioners Complaint consisted of
conclusions of law; inferences or conclusions drawn from facts not alleged in the Complaint;
expressions of opinions unsupported by factual premises; and mere epithets charging fraud,
which respondent was not deemed to have admitted when it filed its Motion to Dismiss on the
ground of failure to state a cause of action.
In particular, petitioners allegation that no actual execution sale was conducted on June 30, 1983
or, in the alternative, that the execution sale conducted on another date was void for not
complying with notice and publication requirements, was purely based on the following sentence
in the Sheriffs Certificate of Sale:
[O]n June 30, 1983, LEVY was made upon the right, titles, interests and participation of
defendants SERAFIN & JOSEFINO DE GUZMAN and sold at public auction sale in front of the
Capitol Building of Cavite situated at Trece Martires City, after due publication of the Sheriffs
Sale in the Record Newsweekly, and after the Notice of Sheriffs Sale was posted in three (3)
conspicuous places and later sold in favor of Tabangao Realty Incorporated, with address at 4th
Floor, Insular Life Bldg., Ayala Ave., Makati, Metro Manila as the highest bidder for the amount
of SEVENTY THOUSAND PESOS (P70,000.00) Philippine Currency, the properties of said
defendants x x x.14
Concededly, the aforequoted sentence, read as is, imply that the levy and execution sale of the
subject property both took place on June 30, 1983. However, the annotations on TCT No. 3531,
attached to petitioners Complaint, show that it was only the Notice of Levy which was executed
on June 30, 1983 and inscribed on the said certificate of title on July 1, 1983; while the Sheriffs
Certificate of Sale, evidencing the execution sale itself, was subsequently executed almost five
years later on February 4, 1988 and inscribed on the certificate of title on April 13, 1988. In the
regular course of executing judgments, the levy upon the real property precedes the execution
sale because the latter can only take place after compliance with notice and publication
requirements. The Court stresses that the Sheriffs Certificate of Sale had been executed and
signed by Jose R. Bawalan, as Clerk of Court and Ex-Officio Sheriff of Cavite, and approved by
Acting Judge Proceso P. Silangcruz of RTC-Trece Martires, who are both presumed to have
regularly performed their official duties. The validity of such Certificate cannot be so easily
overcome by mere inferences from a lone sentence that, unfortunately, was vaguely constructed
or imprecisely worded, and unsupported by any factual premise.

Equally unavailing is petitioners charge of bad faith and fraud on the part of respondent for
delaying the consolidation of title despite the expiration of the one-year redemption period in
order to conceal its purchase of the subject property from the DAR and evade the application of
agrarian reform laws. Not only was such charge consisted purely of petitioners opinions and
conclusions of law and devoid of any factual premise, it also pertained to purported actions of
respondent subsequent to the issuance of the Sheriffs Certificate of Sale and would have no
bearing on the validity or legal efficacy of said Certificate.
Lastly, petitioners assert that because of respondents failure to secure a final deed of sale and/or
conveyance 13 years after registration of the Sheriffs Certificate of Title on TCT No. 3531, the
said Certificate had lost its effectivity and was deemed terminated and extinguished by
prescription, laches, and estoppel. They also maintain that there being no valid execution sale,
respondent had likewise lost to prescription its right to have the judgment in Civil Case No.
120680 executed more than 10 years from finality of the same.
There is no merit in petitioners arguments.
The Court reiterates that all rights, title, interest, and claim of the spouses De Guzman to the
subject property was already acquired by respondent upon the expiration of the one-year
redemption period without redemption being made. The execution of the final deed of sale and/or
conveyance to respondent is a mere formality and confirmation of the title already vested in
respondent. Rule39, Section 33 of the 1997 Rules of Court states that "[t]he deed [of
conveyance] shall be executed by the officer making the sale or by his successor in office," who,
in the present case, is the Sheriff of RTC-Trece Martires. There is nothing in the Rules requiring
the institution of a separate action for execution of such a deed, therefore, no prescriptive period
for any action has begun to run. Respondent will only have to seek recourse from the courts if
the Sheriff refuses to execute the deed, and only then will there be a cause of action for
respondent to compel the Sheriff to execute the deed and the prescriptive period for such an
action begin to run.
Moreover, the Court, in Ching v. Family Savings Bank,15 granted the "Motion to Retrieve
Records, for Issuance of Final Deed of Conveyance, to Order the Register of Deeds of Makati
City to Transfer Title and For Writ of Possession" filed by Family Savings Bank, the highest
bidder, even after more than two decades since the levy and auction sale. The Court held that:
The arguments and contentions of the Spouses Ching cannot be upheld.
First, the Spouses Ching's reliance on prescription is unavailing in the case at bar. The Spouses
Ching are implying that the RTC violated Section 6, Rule 39 of the Rules of Court, viz.:
Sec. 6. Execution by motion or by independent action. A final and executory judgment or order
may be executed on motion within five (5) years from the date of its entry. After the lapse of
such time, and before it is barred by the statute of limitations, a judgment may be enforced by
action. The revived judgment may also be enforced by motion within five (5) years from the date
of its entry and thereafter by action before it is barred by the statute of limitations.

However, it must be noted that contrary to their allegation, the summary judgment of the RTC in
Civil Case No. 142309 had in fact already been enforced. During the pendency of the case, the
subject property was already levied upon. Subsequently, after summary judgment and while the
case was on appeal, the RTC granted the Banks motion for execution pending appeal.
Consequently, on October 10, 1983, an auction sale of the subject property was conducted, with
the Bank emerging as the highest bidder. Later, a Certificate of Sale in its favor was executed by
the Sheriff and, thereafter, inscribed as a memorandum of encumbrance on TCT No. S-3151.
It is settled that execution is enforced by the fact of levy and sale. The result of such execution
was that title over the subject property was vested immediately in the purchaser subject only to
the Spouses Chings right to redeem the property within the period provided for by law. The right
acquired by the purchaser at an execution sale is inchoate and does not become absolute until
after the expiration of the redemption period without the right of redemption having been
exercised. But inchoate though it be, it is, like any other right, entitled to protection and must be
respected until extinguished by redemption. Since, the Spouses Ching failed to redeem the
subject property within the period allowed by law, they have been divested of their rights over
the property.
Verily, the Bank's "Motion to Retrieve Records, for Issuance of Final Deed of Conveyance, to
Order the Register of Deeds of Makati City to Transfer Title and for Writ of Possession" was
merely a consequence of the execution of the summary judgment as the judgment in Civil Case
No. 142309 had already been enforced when the lot was levied upon and sold at public auction,
with the Bank as the highest bidder.16
Given that neither of the two requisites for an action to quiet title could be gleaned from the
allegations in petitioners' Complaint, said Complaint was properly dismissed by R TC-Trece
Martires for failure to state a cause of action.
WHEREFORE, the Petition is DENIED and the Orders dated March 4, 2002 and May 21, 2002
of the RTC, Branch 23, Trece Martires City in Civil Case No. TM-1118 are AFFIRMED.
SO ORDERED.
TERESITA J. LEONARDO-DE CASTRO
Associate Justice
WE CONCUR:
MARIA LOURDES P.A. SERENO
Chief Justice
LUCAS P. BERSAMIN
Associate Justice

JOSE PORTUGAL PEREZ

Associate Justice

ESTELA M. PERLAS-BERNABE
Associate Justice

C E R T I F I C AT I O N
Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above
Decision had been reached in consultation before the case was assigned to the writer of the
opinion of the Court's Division.
MARIA LOURDES P.A. SERENO
Chief Justic

SIMULATION OF CONTRACT

FIRST DIVISION
G.R. No. 212277

February 11, 2015

ROBERT and NENITA DE LEON, Petitioners,

vs.
GILBERT and ANALYN DELA LLANA, Respondents.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1 are the Decision2 dated July 31, 2013 and the
Resolution3 dated March 31, 2014 of the Court of Appeals (CA) in CA-G.R. SP No. 03523-MIN
which reversed and set aside the Decision4 dated June 11, 2009 and the Order5 dated March 1,
2010 of the Regional Trial Court of Davao City, Branch 11 (RTC) dismissing Civil Case No.
32,003-07.
The Facts
This case stemmed from an unlawful detainer complaint6 (first ejectment complaint) filed by
respondent Gilbert dela Llana (Gilbert) against petitioner Robert de Leon (Robert) and a certain
Gil de Leon (Gil) on March 7, 2005 before the 3rd Municipal Circuit Trial Court of NabunturanMawab, Compostela Valley Province (MCTC Nabunturan-Mawab), docketed as Civil Case No.
821. In the said complaint, Gilbert averred that sometime in 1999, he, through an undated
contract of lease,7 leased a portion of a 541 square-meter property situated in Poblacion,
Nabunturan, Compostela Valley Province, registered in his name,8 to Robert, which the latter
intended to use as a lottery outlet. The lease contract had a term of five (5) years and contained a
stipulation that any case arising from the same shall befiled in the courts of Davao City only.9
Gilbert claimed that Robert and Gil failed to pay their rental arrears to him and refused to vacate
the subject property, despite repeated demands,10 thus, the first ejectment complaint.
In their defense, Robert and Gil posited that the aforementioned lease contract was simulated11
and, hence, not binding on the parties.
The MCTC-Nabunturan-Mawab Ruling
in Civil Case No. 821
In a Decision12 dated January 24, 2006 (January 24, 2006 Decision), the MCTC-NabunturanMawab dismissed the first ejectment complaint, holding that the undated lease contract was a
relatively simulated contract and, as such, non-binding. This conclusion was based on its finding
that there was no effort on Gilberts part to collect any rental payments from Robert and Gil for
more or less six (6) years and that it was only upon the filing of the said complaint that Gilbert
wanted them ejected. Accordingly, it sustained Robert and Gils assertion that the undated lease

contract was a mere formality so as to comply with the requirement of the Philippine Charity
Sweepstakes Office (PCSO) inorder to install a lottery outlet.13
Separately, the MCTC-Nabunturan-Mawab opined that granting arguendo that the lease contract
is not simulated, the dismissal of Gilberts complaint was still in order on the ground of improper
venue given that the parties expressly agreed that any dispute arising from the same shall be
brought before the courtsof Davao City only, to the exclusion of other courts,14 which does not
obtain in this case.
Dissatisfied, Gilbert moved for reconsideration which was, however, denied in an Order15 dated
March 20, 2006, considering that it was a prohibited pleading under the Revised Rules on
Summary Procedure.
On August 8, 2006, an Entry of Final Judgment16 was issued certifying that the MCTCNabunturan-Mawabs January 24, 2006 Decision had already become final and executory on
March 20, 2006.
The MTCC-Davao City Proceedings
in Civil Case No. 19,590-B-06
The foregoing notwithstanding, on November 13, 2006, Gilbert, together with his spouse Analyn
delaLlana (respondents), filed a second complaint17 for unlawful detainer, damages, and
attorneys fees(second ejectment complaint)against Robert and his wife Nenita de Leon
(petitioners), also grounded on petitioners failure to pay rent under the undated lease contract,
but this time, before the Municipal Trial Court in Cities of Davao City, Branch 2 (MTCC-Davao
City), docketed as Civil Case No. 19,590-B-06. In the Verification and Certification of NonForum Shopping18 thereof, respondents disclosed that a previous ejectment complaint had been
filed, but was,however, dismissed due to improper venue.
In their Answer,19 petitioners raised the defense of res judicata, particularly averring that the
second ejectment complaint should be dismissed given that it was already barred by prior
judgment, i.e., by the MCTC-Nabunturan-Mawabs January 24, 2006 Decision in Civil Case No.
821, which had already attained finality.20 In this relation, petitioners further claimed that
respondents willfully made false declarations in the Verification and Certification of Non-Forum
Shopping of said pleading regarding the status of the pending and related cases at the time of its
filing.21
In a Decision22 dated July 26, 2007, the MTCC-Davao City ruled in favor of respondents, and
thereby ordered petitioners to: (a) vacate the subject property and turn over its possession to
respondents; (b) pay rental arrears in the amount of P8,000.00 for the period covering January
1999 up to January 2007; (c) pay monthly rental in the amount of P100.00 per month beginning
February 2007 until they have vacated the subject property; and (d) pay costs of suit.23 Without
ruling on the issue of whether or not the second ejectment complaint was barred by prior
judgment,the MTCC-Davao City found that the undated lease contract was nota simulated
contract for the reason that the requisites for simulation have notbeen shown in the case at bar.
Nevertheless, it opined that even assuming that said contract was simulated, Roberts actions

showed that he clearly recognized Gilbert as the administrator of the subject property.Further, it
debunked petitioners claim of ownership over their occupied portion, considering that title over
the subject property was registered under Gilberts name which thus could not be subjected to a
collateral attack. Lastly, it ruled that even without the contract of lease, the complaint could still
prosper given that petitioners occupancy may be regarded as one of tolerance, and, thus, their
occupation becomes unlawful upon demand.24
Aggrieved, petitioners appealed tothe RTC, docketed as Civil Case No. 32,003-07.
The RTC Ruling
In a Decision25 dated June 11, 2009, the RTC reversed and set aside the MTCC-Davao City
ruling, and ordered the dismissal of the second ejectment complaint since the venue was
improperly laid. It held that venue for real actions does not admit of any exceptions, stating that
the proper venue for forcible entry and unlawful detainer cases is the municipal trial court of the
municipality or city where said property is situated, which in this case, should be the Municipal
Trial Court of Nabunturan, Compostela Valley Province.26 Relative thereto, it enunciated that
the parties stipulation on venue as found in their undated lease contract could not be enforced,
considering that the cause of action herein is not one for breach of contract or specific
performance, but for unlawful detainer whose venue was specifically provided for by the Rules
of Civil Procedure.27
Respondents moved for reconsideration28 which was, however, denied in an Order29 dated
March 1, 2010. Hence, they elevated their case before the CA, docketed as CA-G.R. SP No.
03523-MIN.
The CA Ruling
In a Decision30 dated July 31, 2013, the CAreversed and set aside the RTC issuances and,
consequently, reinstated the MTCC-Davao Citys Decision. With its discussion solely focused on
the propriety of the second ejectment complaints venue, i.e., whether or not it was properly laid
before the MTCC-Davao City, the CA categorically ruled that in unlawful detainer cases, venue
may be validly stipulated by the contracting parties.31
Unconvinced, petitioners filed a motion for reconsideration32 which the CA, however, denied in
a Resolution33 dated March 31, 2014, hence, this petition.
The Issue Before the Court
The core issue to be resolved iswhether or not the principle of res judicataapplies that is,
whether or notthe second ejectment complaint was barred by prior judgment, i.e., by the MCTCNabunturan-Mawabs January 24, 2006 Decision in Civil Case No. 821.
The Courts Ruling

Res judicata (meaning, a "matter adjudged")34 is a fundamental principle of law which precludes
parties from re-litigating issues actually litigated and determined by a prior and final
judgment.35 It means that "a final judgment or decree on the merits by a court of competent
jurisdiction is conclusive of the rights of the parties ortheir privies in all later suits on all points
and matters determined in the former suit."36
Notably, res judicatahas two (2) concepts. The first is "bar by prior judgment" in which the
judgment ordecree of a court of competent jurisdiction on the merits concludes the litigation
between the parties, as well as their privies, and constitutes a bar to a new action or suit
involving the same cause of action before the sameor other tribunal, while the second concept is
"conclusiveness of judgment" in which any right, fact or matter in issue directly adjudicated or
necessarilyinvolved in the determination of an action before a competent court in which
judgment is rendered on the merits is conclusively settled by the judgment therein and cannot
again be litigated between the parties and their privies whether or not the claim, demand,
purpose, or subject matter of the two actions is the same.37
There is a bar by prior judgment where there is identity of parties, subject matter, and causes of
actionbetween the first case where the judgment was rendered and the second case that is sought
to be barred.38 There is conclusiveness of judgment, on the other hand, where there is identity of
parties in the first and second cases, but no identity of causes of action.39 Tested against the
foregoing, the Court rules that res judicata, in the concept of bar by prior judgment, applies in
this case.
As the records would show, the MCTC-Nabunturan-Mawab, through its January 24, 2006
Decision in Civil Case No. 821, dismissed the first ejectment complaint filed by Gilbert against
Robert and Gil for the reason that the undated lease contract entered into by Gilbert and Robert
was relatively simulated (properly speaking, should be absolutely simulated as will be explained
later) and, hence, supposedly non-binding on the parties. To explicate, this pronouncement was
made in reference to the cause of action raised in the first ejectment complaint that is, the
alleged breach of the same lease contract dueto non-payment of rent. Therefore, to find that the
said contract was simulated and thereby non-binding negates the cause of action raised in the
said complaint, hence, resulting in its dismissal.
By resolving the substantive issue therein that is, the right of Gilbert to recover the de facto
possession of the subject property arising from Roberts breach of the undated lease contract
the MCTC-Nabunturan Mawabs January 24, 2006 Decision should be properly considered as a
judgment on the merits. In Allied Banking Corporation v. CA,40 citing Escarte v. Office of the
President,41 the Court defined "judgment on the merits" as follows:
As a technical legal term, merits has been defined in law dictionaries as a matter of substance in
law, as distinguished from matter of form, and as the real or substantial grounds of action or
defense, in contradistinction to some technical or collateral matter raised in the course of the suit.
A judgment is upon the merits when it amounts to a declaration of the law to the respective rights
and duties of the parties, based upon the ultimate fact or state of facts disclosed by the pleadings
and evidence, and upon which the right of recovery depends, irrespective of formal, technical or
dilatory objectives or contentions.

Simply stated, a judgment on the merits is one wherein there is an unequivocal determination of
the rights and obligations of the parties with respect to the causes of action and the subject
matter,42 such as the MCTC Nabunturan-Mawabs January 24, 2006 Decision which had
resolved the substantive issue in Civil Case No. 821 as above-explained. Contrary to
respondents stance,43 said Decision was not premised on a mere technical ground, particularly,
on improper venue. This is evinced by the qualifier "granting arguendo" which opens the
discussion thereof, to show that the first ejectment complaint would, according to the MCTCNabunturan Mawab, have been dismissed on improper venue notwithstanding the undated lease
contracts simulated character.44
Importantly, the MCTC-Nabunturan-Mawabs January 24, 2006 Decision in Civil Case No.
821had already attainedfinality on March 20, 2006 as per an Entry of Final Judgment45 dated
August 8, 2006. Thereafter, or on November 13, 2006, Gilbert (now joined by his wife, Analyn)
filed a second ejectment complaint before the MTCC-Davao City, docketed as Civil Case No.
19,590-B-06, again against the same party, Robert (now joined by his wife, Nenita), involving
the same subject matter, i.e., the leased portion of Gilberts 541 square-meter property situated in
Poblacion, Nabunturan, Compostela Valley Province, and the same cause of action, i.e., Roberts
(and Gils, now Analyns) ejectment thereat due to Roberts alleged breach of their undated lease
contract for non-payment of rentals.
With the identity of the parties, subject matter, and cause of action between Civil Case Nos.
821and 19,590-B-06, it cannot thus be seriously doubted that the final and executory judgment in
the first case had already barred the resolution of the second. Res judicata, which, to note, was
raised by petitioners at the earliest opportunity, i.e., in their answer to the second ejectment
complaint,46 but was ignored by the MTCC-Davao City, the RTC, and the CA, therefore obtains
in their favor. Consequently, the instant petition should be granted.
The Court must, however, clarify that res judicata only applies in reference to the cause of action
raised by Gilbert in both ejectment complaints that is, his entitlement to the de facto possession
of the subject property based on breach of contract (due to non-payment of rent), which was
resolved to be simulated and, hence, non-binding. Accordingly, any subsequent ejectment
complaint raising a different cause of action say for instance, recovery of de factopossession
grounded on tolerance (which was, by the way, not duly raised by the respondents in this case
and, therefore, improperly taken cognizance of the MTCC-Davao City in its ruling47) is not
barred by the Courts current disposition. In effect, the dismissal of the second ejectment
complaint, by virtue ofthis Decision, is without prejudice to the filing of another ejectment
complaint grounded on a different cause of action, albeit involving the same parties and subject
matter.
As a final point of concern, the Court deems it apt to correct the MCTC-Nabunturan-Mawabs
characterization of the simulated character of the undated lease contract, which, to note, stands as
a mere error in terminology that would not negate the granting of the present petition on the
ground of res judicata. Properly speaking, the contract, as gathered from the MCTC-NabunturanMawabs ratiocination, should be considered as an absolutely and not a relatively simulated
contract. The distinction between the two was discussed in Heirs of Intac v. CA,48 viz.: Articles
1345 and 1346 of the Civil Code provide:

Art. 1345. Simulation of a contract may be absolute or relative. The former takes place when the
parties do not intend to be bound at all; the latter, whenthe parties conceal their true agreement.
Art. 1346. An absolutely simulated or fictitious contract is void. A relative simulation, when it
does not prejudice a third person and is not intended for any purpose contrary to law, morals,
good customs, public order or public policy binds the parties to their real agreement.
If the parties state a false cause in the contract to conceal their real agreement, the contract is
only relatively simulated and the parties are still bound by their real agreement. Hence, where the
essential requisites of a contract are present and the simulation refers only to the content or terms
of the contract, the agreement is absolutely binding and enforceable between the parties and their
successors in interest.
In absolute simulation, there is a colorable contract but it has no substance as the parties have
nointention to be bound by it. "The main characteristic of an absolute simulation is that the
apparent contract is not really desired or intended to produce legal effect or in any way alter the
juridical situation of the parties." "As a result, an absolutely simulated or fictitious contract is
void, and the parties may recover from each other what they may have given under the
contract."49 (Emphasis supplied)
The relevant portions of the MCTC-Nabunturan-Mawabs January 24, 2006 Decision read:
On the issue that the contract is simulated, the [MCTCNabunturan-Mawab] affords [Roberts]
counsel the benefit of doubt.1wphi1 The Court submits that the contract is relatively simulated
for cogent reasons:
It tickles the [MCTC-Nabunturan-Mawabs] imagination why, despite the stark fact that [Robert
and Gil have] failed to pay the agreed monthly rentals for more or less six (6) years, it was only
upon the filing of the instant complaint that [Gilbert] wanted [Robert and Gil] ejected. In spite of
the undeniable fact that [Robert and Gil have] failed to pay their monthly rentals, there was not
any effort exerted by [Gilbert] to collect the same prior to the filing of the action.
Failure of other parties to demand performance of the obligation of the other for unreasonable
length of time renders the contract ineffective x x x.
Now the [MCTC-Nabunturan-Mawab] entertains the thought that the filing of the case at bench
on March 7, 2005 was just a mere leverage or shall we say a cushion in view of [Fely de Leons]
filing of the aforesaid civil case against [Gilbert] on June 28, 2004.
In a simulated contract, the parties do not intend to be bound by the same x x x.
The [MCTC-Nabunturan-Mawab] is now inclined to toe the line of [Robert and Gil] that the
execution of the contract was just a mere formality with the requirement of the PCSO for one to
install or put up a lottery outlet.50
As may be gleaned from the foregoing, it is quite apparent that the MCTC-Nabunturan-Mawab
actually intended to mean that the undated lease contract subject of this case was absolutely

simulated. Its pronouncement that the parties did not intend to be bound by their agreement is
simply inconsistent with relative simulation. Note that regardless of the correctness of its ruling
on the contracts simulated character, the fact of the matter is that the same had already attained
finality. As a result, the MCTC Nabunturan-Mawabs January 24, 2006 Decision bars any other
action involving the same parties, subject matter, and cause of action, such as the second
ejectment complaint.
Further, with the undated lease contract definitely settled as absolutely simulated, and hence,
void, there can be no invocation of the exclusive venue stipulation on the part of either party;
thus, the general rule on the filing of real actions51 in the court where the property is situated
as in the filing of the first ejectment complaint before the MCTC-Nabunturan-Mawab located in
Compostela Valley same as the subject property of this case prevails.
WHEREFORE, the petition is GRANTED. The Decision dated July 31, 2013 and the Resolution
dated March 31, 2014 of the Court of Appeals in CA-G.R. SP No. 03523-MIN are hereby
REVERSED and SET ASIDE. The ejectment complaint of respondents-spouses Gilbert and
Analyn dela Llana in Civil Case No. 19,590-B-06 before the Municipal Trial Court in Cities of
Davao City, Branch 2 is DISMISSED without prejudice as afore-discussed.
SO ORDERED.
ESTELA M. PERLAS-BERNABE
Associate Justice
WE CONCUR:
MARIA LOURDES P.A. SERENO
Chief Justice
Chairperson
TERESITA J. LEONARDO-DE
CASTRO
Associate Justice

LUCAS P. BERSAMIN
Associate Justice

JOSE PORTUGAL PEREZ

Associate Justice
C E R T I F I C AT I O N
Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above
Decision had been reached in consultation before the case was assigned to the writer of the
opinion of the Court's Division.
MARIA LOURDES P.A. SERENO
Chief Justice

THIRD DIVISION
G.R. No. 174581

February 4, 2015

ATTY. LEO N. CAUBANG, Petitioner,

vs.
JESUS G. CRISOLOGO and NANETTE B. CRISOLOGO, Respondents.
DECISION
PERALTA, J.:
For the Court's resolution is a Petition for Review under Rule 45 of the Rules of Court which
petitioner Atty. Leo N. Caubang filed, questioning the Decision1 of the Court of Appeals (CA),
dated May 22, 2006, and its Resolution2 dated August 16, 2006 in CA-G.R. CV. No. 68365. The
CA affirmed the Decision3 of the Regional Trial Court (RTC) of Davao City, Branch 12, dated
August 1, 2000, with modifications, in Civil Case No. 27168-99.
The facts, as gathered from the records, are as follows:
On December 17, 1993, respondents spouses Jesus and Nannette Crisologo (the Spouses
Crisologo) obtained an Express Loan in the amount of P200,000.00 from PDCP Development
Bank Inc. (PDCP Bank). On January 26, 1994, the Spouses Crisologo acquired another loan
from the same bank, this time a Term Loan of P1,500,000.00 covered by a Loan Agreement. As
security for both loans,the spouses mortgaged their property covered by Transfer Certificate of
Title (TCT) No. T-181103. Upon release of the Term Loan, they were given two (2) promissory
notes, for the amount of P500,000.00 on February 9, 1994 and P1,000,000.00 on February 21,
1994.
Under the promissory notes, the Spouses Crisologo agreed to pay the principal amount of the
loan over a periodof three (3) years in twelve (12) equal quarterly amortizations. Although they
were able to pay the Express Loan, starting August 22, 1994, however, or after payment of the
first few installments on the other loans, the spouses defaulted in the amortizations. Despite
several demands made by the bank, the spouses still failed to pay.
On May 31, 1996, the spouses received a detailed breakdown of their outstanding obligation.
Finding the charges to be excessive, they wrote a letter to the bank proposing to pay their loan in
full with a request that the interest and penalty charges be waived. The manager of PDCP Bank,
Davao Branch, advised them to deposit their P1,500,000.00 obligation as manifestation of their
intent to pay the loan. As a counter-offer, the spouses agreed to deposit the amount but on the
condition that the bank should first return to them the title over the mortgaged property. The bank
did not reply until July 7, 1997, where they senta letter denying the spouses counteroffer and

demanding payment of the loan already amounting to P2,822,469.90. By October 20, 1997, the
debt had ballooned to P3,041,287.00. For failure to settle the account, the Davao branch of the
bank recommended the foreclosure of the mortgage to its head office. On March 20, 1998, PDCP
Bank filed a Petition for the Extrajudicial Foreclosure of the Mortgage.
On June 8, 1998, petitioner Leo Caubang, as Notary Public, prepared the Notices of Sale,
announcing the foreclosure of the real estate mortgage and the sale of the mortgaged property at
public auction on July 15, 1998. He caused the posting of said notices in three (3) public places:
the Barangay Hall of Matina, City Hall of Davao,and Bangkerohan Public Market. Publication
was, likewise, made in the Oriental Daily Examiner, one of the local newspapers in Davao City.
On July 15, 1998, Caubang conducted the auction sale of the mortgaged property, with the bank
as the only bidder.1wphi1 The bank bidded for P1,331,460.00, leaving a deficiency of
P2,207,349.97. Thereafter, a Certificate of Sale in favor of the bank was issued.
Later, the Spouses Crisologo were surprised to learn that their mortgaged property had already
been soldto the bank. Thus, they filed a Complaint for Nullity of Extrajudicial Foreclosure and
Auction Sale and Damages against PDCP Bank and Caubang.
On August 1, 2000, the Davao RTC rendered a Decision nullifying the extrajudicial foreclosure
of the real estate mortgage for failure to comply with the publication requirement, the dispositive
portion of which reads:
WHEREFORE, judgment is hereby rendered:
1. Declaring the Extra-Judicial Foreclosure sale of plaintiffs property, covered by TCT
No. T-181103, null and void.
2. Ordering the Register of Deeds for the City of Davao to cancel Entry No. 113255 on
TCT No. T-181103, the entry relative to the Certificate of Sale executed by Atty. Leo
Caubang on August 5, 1998, and if a new title has been issued to defendant PDCP, to
cancel the same, and to reinstate TCT No. T-181103 in the name of Nannette B.
Crisologo, of legal age, Filipino, married to Jesus Crisologo, and a resident of Davao
City, Philippines.
All the other claims of the parties are disallowed.
No pronouncement as to costs.
SO ORDERED.4

The Spouses Crisologo appealed before the CA, seeking a partial modification of the RTC
Decision, insofar as their claims for moral and exemplary damages, attorneys fees, and costs of
suit were concerned. On May 22, 2006, the appellate court modified the decretal portion to read:
WHEREFORE, judgment is hereby rendered:
1. Declaring the Extra-Judicial Foreclosure sale of plaintiffs property, covered by TCT #
T-181103, null and void.
2. Ordering the Register of Deeds for the City of Davao to cancel Entry No. T-181103,
the entry relative to the Certificate of Sale executed by Atty. Leo Caubang on August 5,
1998, and if a new title has been issued to defendant PDCP, to cancel the same, and to
reinstate TCT No. T-181103 in the name of Nannette B. Crisologo, of legal age, Filipino,
married to Jesus Crisologo, and a resident of Davao City, Philippines; and
3. Atty. Caubang is ordered to pay appellants the sum of P41,500.00 as attorneys fees
and P30,248.50 as litigation expenses.
All other claims of the parties are disallowed.
SO ORDERED.5
Caubang filed a Motion for Reconsideration, but the same was denied. Hence, he filed the
present petition.
Caubang mainly assails the CAs ruling on the publication of the notices in the Oriental Daily
Examiner. He firmly contends that the CAs finding was based on assumptions and speculations.
The petition lacks merit.
Under Section 3 of Act No. 3135:6
Section 3. Notice of sale; posting; when publication required. Notice shall be given by posting
notices ofthe sale for not less than twenty days in at least three public places of the municipality
or city where the property is situated, and if such property is worth more than four hundred
pesos, such notices shall also be published once a week for at least three consecutive weeks in a
newspaper of general circulation in the municipality or city.7
Caubang never made an effort to inquire as to whether the Oriental Daily Examiner was indeed a
newspaper of general circulation, as required by law. It was shown that the Oriental Daily
Examiner is not even on the list of newspapers accredited to publish legal notices, as recorded in
the Davao RTCs Office of the Clerk of Court. It also has no paying subscribers and it would
only publish whenever there are customers. Since there was no proper publication of the notice

of sale, the Spouses Crisologo, as well as the rest of the general public, were never informed that
the mortgaged property was about to be foreclosed and auctioned. As a result, PDCP Bank
became the sole bidder. This allowed the bank to bid for a very low price (P1,331,460.00) and go
after the spouses for a bigger amount as deficiency.
The principal object of a notice of sale in a foreclosure of mortgage is not so much to notify the
mortgagor as to inform the public generally of the nature and condition of the property to be
sold, and of the time, place, and terms of the sale. Notices are given to secure bidders and
prevent a sacrifice of the property. Therefore, statutory provisions governing publication of
notice of mortgage foreclosure sales must be strictly complied with and slight deviations
therefrom will invalidate the notice and render the sale, at the very least, voidable. Certainly, the
statutory requirements of posting and publication are mandated and imbued with public policy
considerations. Failure to advertise a mortgage foreclosure sale in compliance with the statutory
requirements constitutes a jurisdictional defect, and any substantial error in a notice of sale will
render the notice insufficient and will consequently vitiate the sale.8
Since it was Caubang who caused the improper publication of the notices which, in turn,
compelled the Spouses Crisologo to litigate and incur expenses involving the declaration of
nullity of the auction sale for the protection of their interest on the property, the CA aptly held
that Caubang shall be the one liable for the spouses' claim for litigation expenses and attorney's
fees.
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals, dated May 22,
2006, and its Resolution dated August 16, 2006, in CA-G.R. CV. No. 68365, are hereby
AFFIRMED.
SO ORDERED.
DIOSDADO M. PERALTA
Associate Justice
WE CONCUR:
PRESBITERO J. VELASCO, JR.
Associate Justice
Chairperson
MARTIN S. VILLARAMA, JR.
Associate Justice

BIENVENIDO L. REYES
Associate Justice

FRANCIS H. JARDELEZA
Associate Justice

CONTRACT VALIDLY RESCINDED

SECOND DIVISION
G.R. No. 199990

February 4, 2015

SPOUSES ROLANDO and HERMINIA SALVADOR, Petitioners,

vs.
SPOUSES ROGELIO AND ELIZABETH RABAJA and ROSARIO GONZALES,
Respondents.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari seeking to reverse and set aside the August 22, 2011
Decision1 and the January 5, 2012 Resolution2 of the Court of Appeals (CA) in CA-G.R. CV
No. 90296 which affirmed with modification the March 29, 2007 Decision of the Regional Trial
Court Branch 214 (RTC-Branch 214), Mandaluyong City in Civil Case No. MC-03-2175, for
rescission of a contract (rescission case).
The Facts
This case stemmed from a dispute involving the sellers, petitioner spouses Rolando and
Herminia Salvador (Spouses Salvador); the sellers' agent, Rosario Gonzales (Gonzales), and the
buyers, respondent Spouses Rogelio and Elizabeth Rabaja (Spouses Rabaja), over a parcel of
land situated at No. 25, Merryland Village, 375 Jose Rizal Street, Mandaluyong City (subject
property),covered by Transfer Certificate of Title (TCT) No. 13426 and registered in the names
of Spouses Salvador. From 1994 until 2002, Spouses Rabaja were leasing an apartment in the
subject lot.
Sometime in July 1998, Spouses Rabaja learned that Spouses Salvador were looking for a buyer
of the subject property. Petitioner Herminia Salvador (Herminia)personally introduced Gonzales
to them as the administrator of the said property. Spouses Salvador even handed to Gonzales the
owners duplicate certificate of title over the subject property. On July, 3, 1998, Spouses Rabaja
made an initial payment of P48,000.00 to Gonzales in the presence of Herminia. Gonzales then
presented the Special Power of Attorney3 (SPA),executed by Rolando Salvador (Rolando) and
dated July 24, 1998. On the same day, the parties executed the Contract to Sell4 which stipulated
that for a consideration of P5,000,000.00, Spouses Salvador sold, transferred and conveyed in
favor of Spouses Rabaja the subject property. Spouses Rabaja made several payments totalling
P950,000.00, which were received by Gonzales pursuant to the SPA provided earlier as
evidenced by the check vouchers signed by Gonzales and the improvised receipts signed by
Herminia.
Sometime in June 1999, however, Spouses Salvador complained to Spouses Rabaja that they did
not receive any payment from Gonzales. This prompted Spouses Rabaja to suspend further

payment of the purchase price; and as a consequence, they received a notice to vacate the subject
property from Spouses Salvador for non-payment of rentals.
Thereafter, Spouses Salvador instituted an action for ejectment against Spouses Rabaja. In turn,
Spouses Rabaja filed an action for rescission of contract against Spouses Salvador and Gonzales,
the subject matter of the present petition.
In the action for ejectment, the complaint was filed before the Metropolitan Trial Court of
Mandaluyong City, Branch 60 (MeTC),where it was docketed as Civil Case No. 17344. In its
August 14, 2002 Decision,5 the MeTC ruled in favor of Spouses Salvador finding that valid
grounds existed for the eviction of Spouses Rabaja from the subject property and ordering them
to pay back rentals. Spouses Salvador were able to garnish the amount of P593,400.006 from
Spouses Rabajas time deposit account pursuant to a writ of execution issued by the MeTC.7
Spouses Rabaja appealed to the Regional Trial Court, Branch 212, Mandaluyong City (RTC-Br.
212)which reversed the MeTC ruling in its March 1, 2005 decision.8 The RTC-Br. 212 found
that no lease agreement existed between the parties. Thereafter, Spouses Salvador filed an appeal
with the CA which was docketed as CAG.R. SP No. 89259. On March 31, 2006, the CA ruled in
favor of Spouses Salvador and reinstated the MeTC ruling ejecting Spouses Rabaja.9 Not having
been appealed, the CA decision in CA-G.R. SP No. 89259 became final and executory on May
12, 2006.10
Meanwhile, the rescission case filed by Spouses Rabaja against Spouses Salvador and Gonzales
and docketed as Civil Case No. MC No. 03-2175 was also raffled to RTC-Br. 212. In their
complaint,11 dated July 7, 2003, Spouses Rabaja demanded the rescission of the contract to sell
praying that the amount of P950,000.00 they previously paid to Spouses Salvador be returned to
them. They likewise prayed that damages be awarded due to the contractual breach committed by
Spouses Salvador.
Spouses Salvador filed their answer with counterclaim and cross-claim12 contending that there
was no meeting of the minds between the parties and that the SPA in favor of Gonzales was
falsified. In fact, they filed a case for falsification against Gonzales, but it was dismissed because
the original of the alleged falsified SPA could not be produced. They further averred that they did
not receive any payment from Spouses Rabaja through Gonzales. In her defense, Gonzales filed
her answer13 stating that the SPA was not falsified and that the payments of Spouses Rabaja
amounting to P950,000.00 were all handed over to Spouses Salvador.
The pre-trial conference began but attempts to amicably settle the case were unsuccessful. It was
formally reset to February 4, 2005, but Spouses Salvador and their counsel failed to attend.
Consequently, the RTC issued the pre-trial order14 declaring Spouses Salvador in default and
allowing Spouses Rabaja to present their evidence ex parte against Spouses Salvador and
Gonzales to present evidence in her favor.
A motion for reconsideration,15 dated March 28, 2005, was filed by Spouses Salvador on the
said pre-trial order beseeching the liberality of the court. The rescission case was then re-raffled
to RTC-Br. 214 after the Presiding Judge of RTC-Br. 212 inhibited herself. In the Order,16 dated
October 24, 2005, the RTC-Br. 214 denied the motion for reconsideration because Spouses

Salvador provided a flimsy excuse for their non-appearance in the pre-trial conference.
Thereafter, trial proceeded and Spouses Rabaja and Gonzales presented their respective
testimonial and documentary evidence.
RTC Ruling
On March 29, 2007, the RTC-Br. 214 rendered a decision17 in favor of Spouses Rabaja. It held
that the signature of Spouses Salvador affixed in the contract to sell appeared to be authentic. It
also held that the contract, although denominated as "contract to sell," was actually a contract of
sale because Spouses Salvador, as vendors, did not reserve their title to the property until the
vendees had fully paid the purchase price. Since the contract entered into was a reciprocal
contract, it could be validly rescinded by Spouses Rabaja, and in the process, they could recover
the amount of P950,000.00 jointly and severally from Spouses Salvador and Gonzales. The RTC
stated that Gonzales was undoubtedly the attorney-in-fact of Spouses Salvador absent any taint
of irregularity. Spouses Rabaja could not be faulted in dealing with Gonzales who was duly
equipped with the SPA from Spouses Salvador.
The RTC-Br. 214 then ruled that the amount of P593,400.00 garnished from the time deposit
account of Spouses Rabaja, representing the award of rental arrearages in the separate ejectment
suit, should be returned by Spouses Salvador.18 The court viewed that such amount was part of
the purchase price of the subject property which must be returned. It also awarded moral and
exemplary damages in favor of Spouses Rabaja and attorneys fees in favor of Gonzales. The
dispositive portion of the said decision reads:
WHEREFORE, this court renders judgment as follows:
a. Ordering the "Contract to Sell" entered into by the plaintiff and defendant spouses
Rolando and Herminia Salvador on July 24, 1998 as RESCINDED;
b. Ordering defendant spouses Rolando and Herminia Salvador and defendant Rosario S.
Gonzales jointly and severally liable to pay plaintiffs:
1. the amount of NINE HUNDRED FIFTY THOUSAND PESOS (P950,000.00),
representing the payments made by the latter for the purchase of subject property;
2. the amount of TWENTY THOUSAND PESOS (P20,000.00), as moral
damages;
3. the amount of TWENTY THOUSAND PESOS (P20,000.00), as exemplary
damages;
4. the amount of ONE HUNDRED THOUSAND PESOS (P100,000.00), as
attorneys fees;
5. the cost of suit.

c. Ordering defendant Spouses Rolando and Herminia Salvador to pay plaintiffs the
amount of FIVE HUNDRED NINETY THREE THOUSAND PESOS (P593,000.00)
(sic), representing the amount garnished from the Metrobank deposit of plaintiffs as
payment for their alleged back rentals;
d. Ordering the defendant Spouses Rolando and Herminia Salvador to pay defendant
Rosario Gonzales on her cross-claim in the amount of ONE HUNDRED THOUSAND
PESOS (P100,000.00);
e. Dismissing the counterclaims of the defendants against the plaintiff.
SO ORDERED.19
Gonzales filed a motion for partial reconsideration, but it was denied by the RTC-Br. 114 in its
Order,20 dated September 12, 2007. Undaunted, Spouses Salvador and Gonzales filed an appeal
before the CA.
CA Ruling
On March 29, 2007, the CA affirmed the decision of the RTC-Br. 114 with modifications. It ruled
that the "contract to sell" was indeed a contract of sale and that Gonzales was armed with an SPA
and was, in fact, introduced to Spouses Rabaja by Spouses Salvador as the administrator of the
property. Spouses Rabaja could not be blamed if they had transacted with Gonzales. The CA then
held that Spouses Salvador should return the amount of P593,400.00 pursuant to a separate
ejectment case, reasoning that Spouses Salvador misled the court because an examination of CAG.R. SP No. 89260showed that Spouses Rabaja were not involved in that case. CA-G.R. SP No.
59260 was an action between Spouses Salvador and Gonzales only and involved a completely
different residential apartment located at 302-C Jupiter Street, Dreamland Subdivision,
Mandaluyong City.
The CA, however, ruled that Gonzales was not solidarily liable with Spouses Salvador. The
agent must expressly bind himself or exceed the limit of his authority in order to be solidarily
liable. It was not shown that Gonzales as agent of Spouses Salvador exceeded her authority or
expressly bound herself to be solidarily liable. The decretal portion of the CA decision reads:
WHEREFORE, the appeal is PARTLY GRANTED. The assailed Decision dated March 29, 2007
and the Order dated September 12, 2007, of the Regional Trial Court, Branch 214, Mandaluyong
City, in Civil Case No. MC-03-2175, are AFFIRMED with MODIFICATION in that Rosario
Gonzalez is not jointly and severally liable to pay Spouses Rabaja the amounts enumerated in
paragraph (b) of the Decision dated March 29, 2007.
SO ORDERED.21
Spouses Salvador filed a motion for reconsideration but it was denied by the CA in its January 5,
2012 Resolution.
Hence, this petition.

ASSIGNMENT OF ERRORS
I
THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE LOWER COURT
GRAVELY ABUSED ITS DISCRETION IN DECLARING PETITIONERS IN DEFAULT AND
IN DEPRIVING THEM OF THE OPPORTUNITY TO CROSS-EXAMINE RESPONDENTS
SPS. RABAJA AS WELL AS TO PRESENT EVIDENCE FOR AND IN THEIR BEHALF,
GIVEN THE MERITORIOUS DEFENSES RAISED IN THEIR ANSWER THAT
CATEGORICALLY AND DIRECTLY DISPUTE RESPONDENTS SPS. RABAJAS CAUSE
OF ACTION.
II
THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE TRIAL COURT
GRAVELY ERRED IN GIVING CREDENCE TO THE TESTIMONY OF RESPONDENT
GONZALES THAT PAYMENTS WERE INDEED REMITTED TO AND RECEIVED BY
PETITIONER HERMINIA SALVADOR EVEN AS THE IMPROVISED RECEIPTS
WEREEVIDENTLY MADE UP AND FALSIFIED BY RESPONDENT GONZALES.
III
THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE TRIAL COURT
GRAVELY ERRED IN RESCINDING THE CONTRACT TO SELL WHENTHERE IS
NOTHING TO RESCIND AS NO VALID CONTRACT TO SELL WAS ENTERED INTO,
AND IN DIRECTING THE REFUND OF THE AMOUNT OF P950,000.00 WHEN THE
EVIDENCECLEARLY SHOWS THAT SAID AMOUNT WAS PAIDTO AND RECEIVED BY
RESPONDENT GONZALES ALONE WHO MISAPPROPRIATED THE SAME.
IV
THE COURT OF APPEALS ERRED IN AFFIRMING THE TRIAL COURTS DECISION FOR
PETITIONERS TO RETURN THE AMOUNT OF P543,400.00 REPRESENTING RENTALS
IN ARREARS GARNISHED OR WITHDRAWN BY VIRTUE OF A WRIT OF EXECUTION
ISSUED IN AN EJECTMENT CASE WHICH WAS TRIED AND DECIDED BY ANOTHER
COURT.
V
THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE LOWER COURT
GRAVELY ERRED IN AWARDING DAMAGES TO RESPONDENTS SPS. RABAJA, THERE
BEING NO FACTUAL AND LEGAL BASES FOR SUCH AWARD. VI THE COURT OF
APPEALS ERRED IN NOT HOLDING THAT THE TRIAL COURT GRAVELY ERRED IN
AWARDING P100,000.00 TO RESPONDENT GONZALES AS ATTORNEYS FEES WHEN
RESPONDENT GONZALES, IN FACT, COMMITTED FORGERY AND FALSIFICATION IN
DEALING WITH THE PROPERTY OF PETITIONERS AND MISAPPROPRIATED THE

MONIES PAID TO HER BY RESPONDENTS SPS. RABAJA, THUS GIVING PREMIUM TO

HER FRAUDULENT ACTS.22
The foregoing can be synthesized into three main issues. First, Spouses Salvador contend that the
order of default must be lifted because reasonable grounds exist to justify their failure to attend
the pre-trial conference on February 4, 2005. Second, Spouses Salvador raise in issue the
veracity of the receipts given by Gonzales, the SPA and the validity of the contract to sell.
They claim that the improvised receipts should not be given credence because these were crude
and suspicious, measuring only by 2 x 2 inches which showed that Gonzales misappropriated the
payments of Spouses Rabaja for herself and did not remit the amount of P950,000.00 to them. As
there was no consideration, then no valid contract to sell existed. Third, Spouses Salvador argue
that the ejectment case, from which the amount of P593,400.00 was garnished, already became
final and executory and could not anymore be disturbed. Lastly, the award of damages in favor of
Spouses Rabaja and Gonzales was improper absent any legal and factual bases.
On January 21, 2013, Spouses Salvador filed their supplemental petition23 informing the Court
that RTC-Br. 213 had rendered a decision in Civil Case No. MC00-1082, an action for rescission
of the SPA. The said decision held that Spouses Salvador properly revoked the SPA in favor of
Gonzales due to loss of trust and confidence. On September 11, 2013, Gonzales filed her
comment to the supplemental petition,24 contending that the RTC-Branch 213 decision had no
bearing because it had not yet attained finality. On even date, Spouses Rabaja filed their
Comment,25 asserting that the present petition is a mere rehash of the previous arguments of
Spouses Salvador before the CA. On November 15, 2013, Spouses Salvador replied that they
merely wanted to show that the findings by the RTC-Br. 213 should be given weight as a fullblown trial was conducted therein.26
The Courts Ruling
As a general rule, the Courts jurisdiction in a Rule 45 petition is limited to the review of pure
questions of law. A question of law arises when the doubt or difference exists as to what the law
is on a certain state of facts. Negatively put, Rule 45 does not allow the review of questions of
fact. A question of fact exists when the doubt or difference arises as to the truth or falsity of the
allegations.27
The present petition presents questions of fact because it requires the Court to examine the
veracity of the evidence presented during the trial, such as the improvised receipts, the SPA given
to Gonzales and the contract to sell. Even the petitioner spouses themselves concede and ask the
Court to consider questions of fact,28 but the Court finds no reason to disturb the findings of fact
of the lower courts absent any compelling reason to the contrary.
The failure of Spouses Salvador
to attend pre-trial conference
warrants the presentation of
evidence ex parte by Spouses
Rabaja

On the procedural aspect, the Court reiterates the rule that the failure to attend the pre-trial
conference does not result in the default of an absent party. Under the 1997 Rules of Civil
Procedure, a defendant is only declared in default if he fails to file his Answer within the
reglementary period.29 On the other hand, if a defendant fails to attend the pre-trial conference,
the plaintiff can present his evidence ex parte. Sections 4 and 5, Rule 18 of the Rules of Court
provide:
Sec. 4. Appearance of parties.
It shall be the duty of the parties and their counsel to appear at the pre-trial. The non-appearance
of a party may be excused only if a valid cause is shown therefor or if a representative shall
appear in his behalf fully authorized in writing to enter into an amicable settlement, to submit to
alternative modes of dispute resolution, and to enter into stipulations or admissions of facts and
of documents.
Sec. 5. Effect of failure to appear.
The failure of the plaintiff to appear when so required pursuant to the next preceding section
shall be cause for dismissal of the action. The dismissal shall be with prejudice, unless otherwise
ordered by the court. A similar failure on the part of the defendant shall be cause to allow the
plaintiff to present his evidence ex parteand the court to render judgment on the basis thereof.
[Emphasis supplied]
The case of Philippine American Life & General Insurance Company v. Joseph Enario30
discussed the difference between the non-appearance of a defendant in a pre-trial conference and
the declaration of a defendant in default in the present Rules of Civil Procedure. The decision
instructs:
Prior to the 1997 Revised Rules of Civil Procedure, the phrase "as in default" was initially
included in Rule 20 of the old rules, and which read as follows:
Sec. 2. A party who fails to appear at a pre-trial conference may be non-suited or considered as in
default.
It was, however, amended in the 1997 Revised Rules of Civil Procedure. Justice Regalado, in his
book, REMEDIAL LAW COMPENDIUM, explained the rationale for the deletion of the phrase
"as in default" in the amended provision, to wit:
1. This is a substantial reproduction of Section 2 of the former Rule 20 with the change that,
instead of defendant being declared "as in default" by reason of his non-appearance, this section
now spells out that the procedure will be to allow the ex parte presentation of plaintiffs evidence
and the rendition of judgment on the basis thereof. While actually the procedure remains the
same, the purpose is one of semantical propriety or terminological accuracy as there were
criticisms on the use of the word "default" in the former provision since that term is identified
with the failure to file a required answer, not appearance in court.

Still, in the same book, Justice Regalado clarified that while the order of default no longer
obtained, its effects were retained, thus:
Failure to file a responsive pleading within the reglementary period, and not failure to appear at
the hearing, is the sole ground for an order of default, except the failure to appear at a pre-trial
conference wherein the effects of a default on the part of the defendant are followed, that is, the
plaintiff shall be allowed to present evidence ex parte and a judgment based thereon may be
rendered against defendant.
From the foregoing, the failure of a party to appear at the pre-trial has indeed adverse
consequences. If the absent party is the plaintiff, then his case shall be dismissed. If it is the
defendant who fails to appear, then the plaintiff is allowed to present his evidence ex parte and
the court shall render judgment based on the evidence presented. Thus, the plaintiff is given the
privilege to present his evidence without objection from the defendant, the likelihood being that
the court will decide in favor of the plaintiff, the defendant having forfeited the opportunity to
rebut or present its own evidence.31 The stringent application of the rules on pre-trial is
necessitated from the significant role of the pre-trial stage in the litigation process. Pretrial is an
answer to the clarion call for the speedy disposition of cases. Although it was discretionary under
the 1940 Rules of Court, it was made mandatory under the 1964 Rules and the subsequent
amendments in 1997.32 "The importance of pre-trial in civil actions cannot be
overemphasized."33
There is no dispute that Spouses Salvador and their counsel failed to attend the pre-trial
conference set on February 4, 2005 despite proper notice. Spouses Salvador aver that their nonattendance was due to the fault of their counsel as he forgot to update his calendar.34 This excuse
smacks of carelessness, and indifference to the pre-trial stage. It simply cannot be considered as a
justifiable excuse by the Court. As a result of their inattentiveness, Spouses Salvador could no
longer present any evidence in their favor. Spouses Rabaja, as plaintiffs, were properly allowed
by the RTC to present evidence ex parte against Spouses Salvador as defendants. Considering
that Gonzales as co-defendant was able to attend the pre-trial conference, she was allowed to
present her evidence. The RTC could only render judgment based on the evidence presented
during the trial.
Gonzales, as agent of Spouses
Salvador, could validly receive
the payments of Spouses
Rabaja
Even on the substantial aspect, the petition does not warrant consideration. The Court agrees
with the courts below in finding that the contract entered into by the parties was essentially a
contract of sale which could be validly rescinded. Spouses Salvador insist that they did not
receive the payments made by Spouses Rabaja from Gonzales which totalled P950,000.00 and
that Gonzales was not their duly authorized agent. These contentions, however, must fail in light
of the applicable provisions of the New Civil Code which state:

Art. 1900. So far as third persons are concerned, an act is deemed to have been performed within
the scope of the agent's authority, if such act is within the terms of the power of attorney, as
written, even if the agent has in fact exceeded the limits of his authority according to an
understanding between the principal and the agent.
xxxx
Art. 1902. A third person with whom the agent wishes to contract on behalf of the principal may
require the presentation of the power of attorney, or the instructions as regards the agency.
Private or secret orders and instructions of the principal do not prejudice third persons who have
relied upon the power of attorney or instructions shown them.
xxxx
Art. 1910. The principal must comply with all the obligations which the agent may have
contracted within the scope of his authority.
Persons dealing with an agent must ascertain not only the fact of agency, but also the nature and
extent of the agents authority. A third person with whom the agent wishes to contract on behalf
of the principal may require the presentation of the power of attorney, or the instructions as
regards the agency. The basis for agency is representation and a person dealing with an agent is
put upon inquiry and must discover on his own peril the authority of the agent.35
According to Article 1990 of the New Civil Code, insofar as third persons are concerned, an act
is deemed to have been performed within the scope of the agent's authority, if such act is within
the terms of the power of attorney, as written. In this case, Spouses Rabaja did not recklessly
enter into a contract to sell with Gonzales. They required her presentation of the power of
attorney before they transacted with her principal. And when Gonzales presented the SPA to
Spouses Rabaja, the latter had no reason not to rely on it.
The law mandates an agent to act within the scope of his authority which what appears in the
written terms of the power of attorney granted upon him.36 The Court holds that, indeed,
Gonzales acted within the scope of her authority. The SPA precisely stated that she could
administer the property, negotiate the sale and collect any document and all payments related to
the subject property.37 As the agent acted within the scope of his authority, the principal must
comply with all the obligations.38 As correctly held by the CA, considering that it was not
shown that Gonzales exceeded her authority or that she expressly bound herself to be liable, then
she could not be considered personally and solidarily liable with the principal, Spouses
Salvador.39
Perhaps the most significant point which defeats the petition would be the fact that it was
Herminia herself who personally introduced Gonzalez to Spouses Rabaja as the administrator of
the subject property. By their own ostensible acts, Spouses Salvador made third persons believe
that Gonzales was duly authorized to administer, negotiate and sell the subject property. This fact
was even affirmed by Spouses Salvador themselves in their petition where they stated that they
had authorized Gonzales to look for a buyer of their property.40 It is already too late in the day

for Spouses Salvador to retract the representation to unjustifiably escape their principal
obligation.
As correctly held by the CA and the RTC, considering that there was a valid SPA, then Spouses
Rabaja properly made payments to Gonzales, as agent of Spouses Salvador; and it was as if they
paid to Spouses Salvador. It is of no moment, insofar as Spouses Rabaja are concerned, whether
or not the payments were actually remitted to Spouses Salvador. Any internal matter,
arrangement, grievance or strife between the principal and the agent is theirs alone and should
not affect third persons. If Spouses Salvador did not receive the payments or they wish to
specifically revoke the SPA, then their recourse is to institute a separate action against Gonzales.
Such action, however, is not any more covered by the present proceeding.
The amount of P593,400.00
should not be returned by
Spouses Salvador
Nevertheless, the assailed decision of the CA must be modified with respect to the amount of
P593,400.00 garnished by Spouses Salvador and ordered returned to Spouses Rabaja. The RTC
ordered the return of the amount garnished holding that it constituted a part of the purchase price.
The CA ruled that Spouses Salvador misled the Court when they improperly cited CA-G.R. SP
No. 89260 to prove their entitlement to the said amount. Both courts erred in their ruling. First,
the garnishment of the amount of P593,400.00 against Spouses Rabaja was pursuant to the CA
decision in CA-G.R. SP No. 89259, an entirely different case involving an action for ejectment,
and it does not concern the rescission case which is on appeal before this Court. Moreover, the
decision on the ejectment case is final and executory and an entry of judgment has already been
made.41 Nothing is more settled in law than that when a final judgment is executory, it thereby
becomes immutable and unalterable. The judgment may no longer be modified in any respect,
even if the modification is meant to correct what is perceived to be an erroneous conclusion of
fact or law, and regardless of whether the modification is attempted to be made by the court
which rendered it or by the highest Court of the land. The doctrine is founded on consideration of
public policy and sound practice that, at the risk of occasional errors, judgments must become
final at some definite point in time.42
The March 31, 2006 CA decision43 in CA-G.R. SP No. 89259has long been final and executory
and cannot any more be disturbed by the Court. Public policy dictates that once a judgment
becomes final, executory and unappealable, the prevailing party should not be denied the fruits
of his victory by some subterfuge devised by the losing party. Unjustified delay in the
enforcement of a judgment sets at naught the role and purpose of the courts to resolve justiciable
controversies with finality.44
Meanwhile, in ruling that the garnishment was improper and thus ordering the return of the
garnished amount, the CA referred to its decision in CA-G.R. SP No. 89260. Spouses Salvador,
however, clarified in its motion for reconsideration45 before the CA and in the present petition46
that the garnishment was pursuant to CA-G.R. SP No. 89259, and not CA-G.R. SP No. 89260,
another ejectment case involving another property. A perusal of the records reveals that indeed
the garnishment was pursuant to the ejectment case in the MeTC, docketed as Civil Case No.

17344,47 where Spouses Rabaja were the defendants. The MeTC decision was then reinstated by
the CA in CA-G.R. SP No. 89259, not CA-G.R. SP No. 89260. There, a writ of execution48 and
notice of pay49 were issued against Spouses Rabaja in the amount of P591,900.00.
Second, Spouses Rabajas appeal with the RTC never sought relief in returning the garnished
amount.50 Such issue simply emerged in the RTC decision. This is highly improper because the
courts grant of relief is limited only to what has been prayed for in the complaint or related
thereto, supported by evidence, and covered by the partys cause of action.51
If Spouses Rabaja would have any objection on the manner and propriety of the execution, then
they must institute their opposition to the execution proceeding a separate case. Spouses Rabaja
can invoke the Civil Code provisions on legal compensation or set-off under Articles 1278, 1279
and 1270.52 The two obligations appear to have respectively offset each other, compensation
having taken effectby operation of law pursuant to the said provisions of the Civil Code, since all
the requisites provided in Art. 1279 of the said Code for automatic compensation are duly
present.
No award of actual, moral and
exemplary damages
The award of damages to Spouses Rabaja cannot be sustained by this Court. The filing alone of a
civil action should not be a ground for an award of moral damages in the same way that a clearly
unfounded civil action is not among the grounds for moral damages.53 Article 2220 of the New
Civil Code provides that to award moral damages in a breach of contract, the defendant must act
fraudulently or in bad faith. In this case, Spouses Rabaja failed to sufficiently show that Spouses
Salvador acted in a fraudulent manner or with bad faith when it breached the contract of sale.
Thus, the award of moral damages cannot be warranted.
As to the award of exemplary damages, Article 2229 of the New Civil Code provides that
exemplary damages may be imposed by way of example or correction for the public good, in
addition to the moral, temperate, liquidated or compensatory damages.54 The claimant must first
establish his right to moral, temperate, liquidated or compensatory damages. In this case,
considering that Spouses Rabaja failed to prove moral or compensatory damages, then there
could be no award of exemplary damages.
With regard to attorneys fees, neither Spouses Rabaja nor Gonzales is entitled to the
award.1wphi1 The settled rule is that no premium should be placed on the right to litigate and
that not every winning party is entitled to an automatic grant of attorneys fees.55 The RTC
reasoned that Gonzales was forced to litigate due to the acts of Spouses Salvador. The Court does
not agree. Gonzales, as agent of Spouses Salvador, should have expected that she would be
called to litigation in connection with her fiduciary duties to the principal.
In view of all the foregoing, the CA decision should be affirmed with the following
modifications:

1. The order requiring defendant Spouses Rolando and Herminia Salvador to pay
plaintiffs the amount of Five Hundred Ninety Three Thousand (P593,000.00) Pesos,
representing the amount garnished from the Metrobank deposit of plaintiffs as for their
back rentals should be deleted;
2. The award of moral damages in the amount of Twenty Thousand (P20,000.00) Pesos;
exemplary damages in the amount of Twenty Thousand (P20,000.00) Pesos, and
attorneys fees in the amount of One Hundred Thousand (P100,000.00) Pesos in favor of
Spouses Rabaja should be deleted; and
3. The award of attorneys fees in amount of One Hundred Thousand (P100,000.00)
Pesos in favor of Gonzales should be deleted.
The other amounts awarded are subject to interest at the legal rate of 6% per annum, to be
reckoned from the date of finality of this judgment until fully paid.
WHEREFORE, the petition is PARTLY GRANTED. The March 29, 2007 Decision of the
Regional Trial Court, Branch 214, Mandaluyong City, in Civil Case No. MC-03-2175, is
MODIFIED to read as follows:
"WHEREFORE, this Court renders judgment as follows:
a. Ordering the "Contract to Sell" entered into by Spouses Rogelio and Elizabeth Rabaja
and Spouses Rolando and Herminia Salvador on July 24, 1998 as RESCINDED;
b. Ordering Spouses Rolando and Herminia Salvador to pay Spouses Rogelio and
Elizabeth Rabaja:
1. The amount of Nine Hundred Fifty Thousand (P950,000.00) Pesos,
representing the payments made by the latter for the purchase of the subject
property; and
2. The cost of suit;
c. Dismissing the counterclaims of Spouses Rolando and Herminia Salvador and Rosario
Gonzales against Spouses Rogelio and Elizabeth Rabaja.
The amounts awarded are subject to interest at the legal rate of 6% per annum to be reckoned
from the date of finality of this judgment until fully paid."
As aforestated, this is without prejudice to the invocation by either party of the Civil Code
provisions on legal compensation or set-off under Articles 1278, 1279 and 1270.
SO ORDERED.

JOSE CATRAL MENDOZA

Associate Justice
WE CONCUR:
ANTONIO T. CARPIO
Associate Justice
Chairperson
PRESBITERO J. VELASCO, JR.*
Associate Justice

MARIANO C. DEL CASTILLO

Associate Justice

MARVIC M.V.F. LEONEN

Associate Justice
AT T E S T AT I O N
I attest that the conclusions in the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Court's Division.
ANTONIO T. CARPIO
Associate Justice
Chairperson, Second Division