1

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 83588

September 29, 1997

Spouses ADORACION C. PANGILINAN and GEORGE B. PANGILINAN

represented in this suit by their Attorney-in-fact. ARCADIO S.
MALLARI, petitioners,
vs.
COURT OF APPEALS, JOSE R. CANLAS and LUIS R. CANLAS and RURAL
BANK OF STA. RITA, INC.,respondents.
TORRES, JR., J.:
This petition for review seeks to set aside the January 14, 1988 decision 1 and
May 31, 1988 resolution of the Court of Appeals in CA-GR CV No. 09175 which
reversed the December 12, 1985 decision of the Regional Trial Court, Third
Judicial Region, Branch XLVIII, San Fernando, Pampanga.
On May 18, 1968, petitioners Pangilinan (husband and wife), and the private
respondents Jose R. Canlas and Luis R. Canlas entered into a Contract to Buy
and To Sell a subdivision lot at Sto. Nio Village, San Fernando, Pampanga,
particularly Lot No. 1, Block 3; with an area of 577 square meters at P30.00 per
square meter, for a total contract price of P17,310.00, payable on installment
basis at P189.02 a month for 120 months. 2 The sum of P1,731 representing 10%
of the total price of the lot was paid by the petitioners to the private respondents
and thereafter monthly installments which amounted to about 85% of the total
price were effected as of January, 1974; the last payment thereof was made on
May 14, 1975 (Exh. C-54). 3 Paragraph 5 of the contract provided for automatic
extrajudicial rescission upon default in payment of three (3) consecutive monthly
installments or to comply with any of the terms and conditions, with forfeitures of
installments as rents and as payment for damages. The said contract to buy and
to sell as well as the receipts of various payments made by petitioners in favor of
private respondents were given by the former to Mr. Arcadio S. Mallari. Mr.
Mallari equipped with a Special Power of Attorney dated May 15, 1983 from the
spouses Adoracion C. Pangilinan and George Pangilinan went personally to the
private respondents and requested them to release the title of the lot as he would
pay in full the alleged remaining balance of P1,875.00. The private respondents
told him to return after two weeks as they would confer with each other. When he
returned, the private respondent Jose R. Canlas told him that they were not in a
position to release the title to said lot because the same had already been
disposed of Mr. Mallari discovered that the lot was mortgaged to the Rural Bank

of Sta. Rita. On July 25, 1983, after the lapse of eight years from the last date of
payment, he instituted a complaint for Specific Performance and Damages
docketed as Civil Case No. 6843 entitled "Spouses Adoracion G. Pangilinan, et.
al. vs. Jose R. Canlas, et. al." before the Regional Trial Court, Branch XLVIII, San
Fernando, Pampanga. On December 12, 1985, the trial court rendered its
decision, the decretal part of which provides:
In view of all the foregoing, judgment is hereby rendered against the
defendants Jose R. Canlas and Luis R. Canlas ordering them the
following:
1) to accept the final payment or balance of the consideration
of the lot in the amount of P2,277.82;
2) to execute the final deed of sale of the lot in question in
favor of herein plaintiffs;
3) to pay the mortgage loan to the defendant Rural bank for the
purpose of releasing the said lot embraced in Transfer
Certificate of Title No. 89745-R, Registry of Deeds for the
Province of Pampanga in order to free the said lot from
encumbrances;
4) to pay plaintiff the amount of P5,000.00 for attorney's fees;
P2,000.00 for litigation expenses;
5) to pay plaintiff the amount of P10,000.00 for exemplary
damages as a corrective measure due to malevolent act of
defendants Canlases;
6) to pay the costs of the suit.
The counterclaim interposed by the defendant Jose R. Canlas and Luis
R. Canlas are hereby dismissed for lack of evidence.
The defendant Rural Bank of Sta. Rita Incorporated is hereby absolved
of any liability but its counterclaim is hereby dismissed for lack of
evidence.
SO ORDERED. 4
Private respondents appealed the abovementioned decision to the Court of
Appeals which on January 14, 1988, promulgated its judgment which reversed
and set aside the decision of the trial court, to wit:

WHEREFORE, the decision appealed from is hereby SET ASIDE.

Another judgment is hereby entered DISMISSING Civil Case No. 6843
before the court below. The counter-claim of defendants-appellants is
hereby DISMISSED.

above-mentioned premises and as payment for the damages suffered

for the failure of the VENDEE to fulfill his part of this agreement; and for
the VENDEE hereby renounces his right to demand or reclaim the
return of the same obliges himself to peacefully vacate the premises
and deliver the same to the VENDORS. 6

SO ORDERED. 5
Petitioners filed a motion for reconsideration but it was denied for lack of merit by
the Court of Appeals in its resolution of May 31, 1988. Hence, petitioner instituted
the instant petition for review raising two (2) assignment of errors, viz.:
1) THE COURT OF APPEALS ERRED THAT A CREDITOR CAN
UNILATERALLY AND SUMMARILY RESCIND A CONTRACT TO SELL
A SUBDIVISION LOT;
2) THE COURT OF APPEALS ERRED IN RULING THAT HEREIN
PETITIONERS ARE GUILTY OF LACHES.
Petitioners vigorously argue that automatic rescission of a contract extrajudicially
undertaken by a creditor maybe effected only if the defaulter was duly informed
of the intention of the creditor to rescind the contract. If the defaulter will not
object, then the creditor may proceed to extrajudicially rescind or cancel the
contract, however, if the defaulter will manifest his objection, then the matter of
rescission will be subjected to judicial determination. They further alleged that
even if there is a waiver stipulated in the contract of adhesion, regarding
rescission, such waiver will not apply because the waiver must be unequivocal
and intelligently made. Moreover, granting that petitioners have committed a
breach of contract for their failure to pay the balance of the consideration, yet this
breach is slight, considering that 85% of the total consideration for the lot has
been paid.
The Court is not persuaded.
The fifth paragraph of the Contract to Buy and to Sell pertinently reads:
This contract shall be considered automatically rescinded and canceled
and of no further force or effect, upon failure of the VENDEE to pay
when due, three (3) consecutive monthly installments or to comply with
any of the terms and conditions hereof, in which case the VENDORS
shall have the right to resell said parcel of land to any person or
purchaser, as if this contract has never been entered into. In such case
of cancellation of this contract, all amounts paid in accordance with the
agreement together with all the improvements made on the premises
shall be considered as rents paid for the use and occupation of the

Article 1592 7 of the New Civil Code, requiring demand by suit or by notarial act in
case the vendor of realty wants to rescind does not apply to a contract to sell but
only to contract of sale. In contracts to sell, where ownership is retained by the
seller and is not to pass until the full payment, such payment, as we said, is a
positive suspensive condition, the failure of which is not a breach, casual or
serious, but simply an event that prevented the obligation of the vendor to convey
title from acquiring binding force. To argue that there was only a casual breach is
to proceed from the assumption that the contract is one of absolute sale, where
non-payment is a resolutory condition, which is not the case. 8
The applicable provision of law in instant case is Article 1191 of the New Civil
Code which provides as follows:
Art. 1191. The power to rescind obligations is implied in reciprocal ones,
in case one of the obligors should not comply with what is incumbent
upon him.
The injured party may choose between the fulfillment and the rescission
of the obligation, with the payment of damages in either case. He may
also seek rescission, even after he has chosen fulfillment, if the latter
should become impossible.
The Court shall decree the rescission claimed, unless there be just
cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons
who have acquired the thing, in accordance with articles 1385 and 1388
and the Mortgage Law. (1124)
Pursuant to the above, the law makes it available to the injured party alternative
remedies such as the power to rescind or enforce fulfillment of the contract, with
damages in either case if the obligor does not comply with what is incumbent
upon him. There is nothing in this law which prohibits the parties from entering
into an agreement that a violation of the terms of the contract would cause its
cancellation even without court intervention. The rationale for the foregoing is
that in contracts providing for automatic revocation, judicial intervention is
necessary not for purposes of obtaining a judicial declaration rescinding a
contract already deemed rescinded by virtue of an agreement providing for
rescission even without judicial intervention, but in order to determine whether or

not the rescission was proper. Where such propriety is sustained, the decision of
the court will be merely declaratory of the revocation, but it is not in itself the
revocatory act. 9 Moreover, the vendor's right in contracts to sell with reserved
title to extrajudicially cancel the sale upon failure of the vendee to pay the
stipulated installments and retain the sums and installments already received has
long been recognized by the well-established doctrine of 39 years
standing. 10 The validity of the stipulation in the contract providing for automatic
rescission upon non-payment cannot be doubted. It is in the nature of an
agreement granting a party the right to rescind a contract unilaterally in case of
breach without need of going to court. Thus, rescission under Article 1191 was
inevitable due to petitioners' failure to pay the stipulated price within the original
period fixed in the agreement.
On the second assigned error, petitioners aver that the doctrine of laches is not
applicable in this particular case because (1) petitioner's failure to pay in full the
balance of 15% of the total price of the lot was due to the reneged obligation of
the private respondent to improve the subdivision and install facilities; and, (2)
the mortgage of the lot to the Rural Bank of Sta. Rita was done without their
consent and knowledge.
The same has no merit. It must be noted that upon a careful examination of the
records of this case, it appears that the contention of the petitioners that their
failure to pay the balance of 15% of the total contract price of the lot was due to
the inability of the private respondent to improve the subdivision and install
facilities which was raised only for the first time on appeal. They did not raise this
issue before the lower courts. It is settled that an issue which was neither averred
in the complaint nor raised during the trial in the court below cannot be raised for
the first time on appeal. 11 Issues of fact and arguments not adequately brought
to the attention of the trial court need not be and ordinarily will not be considered
by a reviewing court as they cannot be raised for the first time on
appeal. 12 Assumingarguendo that it was raised before the trial court, the same
would be without merit because the failure of the private respondents to install
facilities would not deter them from asking for the rescission of the agreement if
petitioners failed to comply with their obligation to pay the monthly installments
when they become due, otherwise, the right of rescission would be rendered
inutile. In the same vein, petitioners by virtue of their contract with private
respondents should have complied in good faith with its terms and conditions
being the law between them. From the moment the contract is perfected, the
parties are bound not only to the fulfillment of what has been expressly stipulated
but also to all consequences which, according to their nature, may be in keeping
with good faith, usage and law. 13 The Contract to Buy and to Sell, specifically
paragraph 5 thereof, not being contrary to law, morals, good customs, public
order or public policy, is valid and binding between the parties thereto.
As stated by the appellate court, thus:

The peculiar fact that militates against the cause of the appellees is that
the appellees spouses Pangilinan did not directly and personally
prosecute the present proceedings. As shown from the records, Mr.
Mallari had equipped himself with the special power of attorney in his
favor by the appellees executed only on May 15, 1983 or about six
(should be eight) years from the date of last payment, made on May 14,
1975 for the January, 1974 installment, during which time, the actual
buyers, the Pangilinans had not by themselves personally shown
interest in compelling the appellants to accept the remaining balance of
the purchase price of the said subdivision lot, to execute in their favor
the Deed of Absolute Sale and deliver to them the Transfer Certificate of
Title over the said property. The aforesaid circumstances constitute
laches. There was failure or neglect on the part of the Pangilinan
spouses for an unreasonable and unexplained length of time to do that
which by exercising due diligence or could have been done earlier, such
failure or negligence warrants a presumption that they had abandoned
or declined to assert such right (Tejado vs. Zamacoma, 138 SCRA 78).
Further, the Court of Appeals, stated:
The disturbing fact in the case at bar is that the spouses Pangilinan who
bought the subject lot from the appellant seller did not directly and
personally prosecute the present case from May, 1975 (date of last
payment for January, 1974 installment). Mr. Arcadio S. Mallari, the
alleged attorney-in-fact of the said spouses, represented them in the
instant case which was filed only on July 25, 1983. He has an alleged
special power of attorney in his favor by the appellees which appears to
have been executed on May 15, 1983 or about eight (8) years from the
date of last payment on May 14, 1975 by the buyer spouses for the
January, 1974 installment. Mr. Mallari was the only witness for the
prosecution. He alone identified the said power of attorney executed in
his favor and testified on its due execution. The notary public who
appears to have notarized the said document was not presented neither
did the Pangilinan spouses appear in the lower court. There was no
mention in his (Mallari) testimony of the whereabouts of the said
Pangilinan spouses nor why the instant case had to be filed by him for
them. The Court has doubts whether or not the said Pangilinan spouses
are really interested in the prosecution of this case. And more than this,
in the mind of the Court, the genuineness of the said special power of
attorney has not been satisfactorily proved.
It also bears emphasis that from the said last payment on May 14, 1975,
for the January, 1974 installment up to the execution of the alleged
special power of attorney (assuming the same to be true) in favor of Mr.
Mallari, on May 15, 1983, and the filing of Mallari of the instant case
(which covers a period of eight (8) years)* the actual buyers, the

Pangilinan spouses had not by themselves personally shown interest in

compelling the appellants to accept the remaining balance of the
purchase price of the subdivision lot, to execute in their favor the Deed
of Absolute Sale and deliver to them the Transfer Certificate of Title over
the said lot. Such failure/neglect on their part constitutes laches
because for an unreasonable and unexplained length of time [eight (8)
years], they failed/neglected to do that which by exercising due
diligence could or should have been done earlier, and as stated in the
decision rendered in the present appeal, such failure or negligence
warrants a presumption that they had abandoned or declined to assert
such right.

Footnotes
1 Penned by J. Paras and concurred by J. Mendoza and J. Limcaoco.
2 Rollo, Exhibits B., p. 3.
3 Rollo, p. 31.
4 Ibid., p. 24.
5 Ibid., p. 30.

Explicitly, spouses Pangilinan instead of being vigilant and diligent in asserting

their rights over the subject property had failed to assert their rights when the law
requires them to act. Laches or "stale demands" is based upon grounds of public
policy which requires, for the peace of society, the discouragement of stale
claims and unlike the statute of limitations, is not a mere question of time but is
principally a question of the inequity or unfairness of permitting a right or claim to
be enforced or asserted. 14
The legal adage finds application in the case at bar. Tempus enim modus tollendi
obligationes et actiones, quia tempus currit contra desides et sui juris
contemptores For time is a means of dissipating obligations and actions,
because time runs against the slothful and careless of their own rights.
IN VIEW WHEREOF, the petition is hereby DENIED and the decision of
respondent court AFFIRMED in toto.
Regalado and Puno, JJ., concur.
Mendoza, J., is on leave.

6 Exhibits B, Rollo, p. 3.
7 Art. 1592. In the sale of immovable property, even though it may have
been stipulated that upon failure to pay the price at the time agreed
upon the rescission of the contract shall of right take place, the vendee
may pay, even after the expiration of the period, as long as no demand
for rescission of the contract has been made upon him either judicially
or by a notarial act. After the demand, the court may not grant him a
new term. (1504a)
8 Manuel vs. Rodriguez, No. L-13435, July 27, 1960, 109 Phil 1; Roque
vs. Lapuz, No. L-32811, March 31, 1980, 96 SCRA 741.
9 Roman Catholic Archbishop of Manila vs. Court of Appeals, G.R. Nos.
77425 and 77450, June 19, 1991; 198 SCRA 300; De Luna vs. Abrigo,
G.R. No. 57455, January 18, 1990; 181 SCRA 150.
10 Luzon brokerage Co., Inc. vs. Maritime Building Co., Inc., No. L25885, November 16, 1978, 86 SCRA 305.
11 Reparations Commission vs. Visayan Packing Corporation, G.R. No.
30712, February 6, 1991; 193 SCRA 531.
12 Berin vs. Court of Appeals, G.R. No. 57490, February 27, 1991, 194
SCRA 508.
13 Samhwa Company Ltd. vs. Intermediate Appellate Court, G.R. No.
74305, January 31, 1992, 205 SCRA 632.

14 Bergado vs. Court of Appeals, G.R. No. 84051, May 19, 1989, 173
SCRA 497; Marcelino vs. Court of Appeals, G.R. No. 94422, June 26,
1992, 210 SCRA 444.

Republic of the Philippines

SUPREME COURT
Manila

from the SECOND PARTY such damages caused by the noncompliance with this contract.
This contract was duly approved by the President of the Philippines.

EN BANC
G.R. No. L-11897

October 31, 1964

FERNANDO A. FROILAN, plaintiff-appellee,

vs.
PAN ORIENTAL SHIPPING COMPANY, defendant-appellant,
REPUBLIC OF THE PHILIPPINES, and COMPANIA MARITIMA, intervenorsappellees.
Sycip, Salazar & Associates and Enrique Fernando & Emma QuisumbingFernando for defendant-appellant.
The Government Corporate Counsel for intervenors-appellees.
Rafael Dinglasan for plaintiff-appellee.
BARRERA, J.:
On March 7, 1947, Fernando A. Froilan purchased from the Shipping
Administration a boat described as MV/FS 197 for the sum of P200,000.00, with
a down payment of P50,000,00. To secure payment of the unpaid balance of the
purchase price, a mortgage was constituted on the vessel in favor of the
Shipping Administration in a contract which provides, among others, the
following:
In the event that the FIRST PARTY should elect to exercise its rights to
rescind under the terms of this contract, it shall have the right to take
possession of the vessel herein sold in the condition that it is at the time
of rescission but in no case in a worse condition than when originally
delivered to the second party, ordinary wear and tear excepted and in
case at the time of rescission the condition of the vessel is not
satisfactory to the FIRST PARTY, it shall have the right to have the
vessel reconditioned, repaired, dry-docked at the expense of the
SECOND PARTY. The same right is hereby granted to the FIRST
PARTY in case the SECOND PARTY should for any reason refuse or
fail to comply with this condition of sale and return the vessel herein
sold in a condition not satisfactory to the FIRST PARTY.
The right of rescission shall be considered as a cumulative remedy
granted to the FIRST PARTY and shall not in any way prejudice his right
to demand immediate and complete payment of the purchase price of
the vessel under the terms herein provided, and to demand and collect

Froilan appeared to have defaulted in spite of demands, not only in the payment
of the first installment on the unpaid balance of the purchase price and the
interest thereon when they fell due, but also failed in his express undertaking to
pay the premiums on the insurance coverage of the vessel, obliging the Shipping
Administration to advance such payment to the insurance company.
Consequently, the Shipping Administration requested the Commissioner of
Customs on June 1, 1948 to refuse clearance on the vessel and the voyage
thereof was ordered suspended.
Thereafter, Froilan asked for a reconsideration of the action taken by the
Shipping Administration, claiming that his failure to pay the required installments
was due to the fact that he was awaiting the decision of the President on the
petition of the shipowners for an extension of the period of payment of the
purchased vessels, which petition was favorably acted upon.
On July 3, 1948, the Shipping Administration and Froilan entered into an
agreement whereby the latter undertook to liquidate immediately all of his
outstanding accounts, including the insurance premiums, within 30 days, and
have the vessel overhauled, and promised that in case of his default, he shall
"waive, any formal notice of demand and to redeliver the said vessel peaceably
and amicably without any other proceedings" (Exh. 39).
Again, Froilan failed to settle his accounts within the prescribed period, thus, the
Shipping Administration threatened to rescind the contract unless payment be
immediately made. On August 28, 1948, upon Froilan's request, the Shipping
Administration agreed to release the vessel on condition that the same would be
overhauled and repaired and the accrued interest on the first installment would
be paid. The Administration also allowed the mortgagor to pay his overdue
accounts, amounting now to P48,500.00 in monthly installments, with warming
that in case of further default, it would immediately repossess the vessel and
rescind the contract. Froilan failed to pay. On January 17, 1949, the Shipping
Administration required him to return the vessel or else file a bond for P25,000.00
in five days. In a letter dated January 28, 1949, Froilan requested that the period
for filing the bond be extended to February 15, 1949, upon the express condition
and understanding that:
... . If I fail to file the required bond on the said date, February 15, 1949,
to the satisfaction of the Shipping Administration, I am willing to
relinquish and I do hereby relinquish any and all rights I have or may
have on the said vessel including any payments made thereon to the
Shipping Administration, without prejudice to other rights the Shipping

Administration may have against me under the contract of sale

executed in my favor.
I wish to reiterate that if I fail to file the bond within the period I have
requested, any and all rights I have on the vessel and any payments
made to the Shipping Administration shall be considered automatically
forfeited in favor of the Shipping Administration and the ownership of the
said vessel will be as it is hereby automatically transferred to the
Shipping Administration which is then hereby authorized to take
immediate possession of said vessel. (Exh. 66)
This letter of Froilan was submitted by the General Manager of the Shipping
Administration to the board of directors for proper consideration. By resolution of
January 31, 1949, the petition was granted subject specifically to the conditions
set forth therein. Froilan again failed to make good his promises. Hence, on
February 18, 1949, the General Manager of the Shipping Ad-ministration wrote
the Collector of Customs of Manila, advising the latter that the Shipping
Administration, by action of its board, terminated the contract with Froilan, and
requesting the suspension of the clearance of the boat effective that date (Exh.
70).
On February 21, 1949, the General Manager directed its officers, Capt. Laconico
and others, to take immediate possession of the vessel and to suspend the
unloading of all cargoes on the same until the owners thereof made the
corresponding arrangement with the Shipping Administration. Pursuant to these
instructions, the boat was, not only actually repossessed, but the title thereto was
registered again in the name of the Shipping Administration, thereby retransferring the ownership thereof to the government.
On February 22, 1949, Pan Oriental Shipping Co., hereinafter referred to as Pan
Oriental, offered to charter said vessel FS-197 for a monthly rent of P3,000.00.
Because the government was then spending for the guarding of the boat and
subsistence of the crew-members since repossession, the Shipping
Administration on April 1, 1949, accepted Pan Oriental's offer "in principle"
subject to the condition that the latter shall cause the repair of the vessel,
advancing the cost of labor and drydocking thereof, and the Shipping
Administration to furnish the necessary spare parts. In accordance with this
charter contract, the vessel was delivered to the possession of Pan Oriental.
In the meantime, or on February 22, 1949, Froilan tried to explain his failure to
comply with the obligations he assumed and asked that he be given another
extension up to March 15, 1949 to file the necessary bond. Then on March 8,
Froilan offered to pay all his overdue accounts. However, as he failed to fulfill
even these offers made by him in these two communications, the Shipping
Administration denied his petition for reconsideration (of the rescission of the
contract) on March 22, 1949. It should be noted that while his petition for
reconsideration was denied on March 22, it does not appear when he formally
formulated his appeal. In the meantime, as already stated, the boat has being

repossessed by the Shipping Administration and the title thereto re-registered in

the name of the government, and delivered to the Pan Oriental in virtue of the
charter agreement. On June 2, 1949, Froilan protested to the President against
the charter of the vessel.
On the same date, the Executive Office advised the Administration and the
Commissioner of Customs not to dispose of the vessel in favor of another party
pending final decision by the President on the appeal of Froilan (Exhs. 93-A and
93-D). But since the vessel was already cleared in favor of Pan Oriental prior to
the receipt of the foregoing communication, and allegedly in order to prevent its
being made answerable for damages, the General Manager of the Shipping
Administration advised the Collector of Customs not to suspend the voyage of
the vessel pending final decision on the appeal of Froilan. Similar manifestation,
to allow the Pan Oriental's operation of the vessel without prejudice to whatever
action the President may take in the case, was also made by the Administration
to the Executive Secretary.
On June 4, 1949, the Shipping Administration and the Pan Oriental formalized
the charter agreement and signed a bareboat contract with option to purchase,
containing the following pertinent provisions:
III. CHARTER HIRE, TIME OF PAYMENT. The CHARTERER shall
pay to the owner a monthly charter hire of THREE THOUSAND
(P3,000.00) PESOS from date of delivery of the vessel, payable in
advance on or before the 5th of every current month until the return of
the vessel to OWNER or purchase of the vessel by CHARTERER.
XII. RIGHT OF OPTION TO PURCHASE. The right of option to
purchase the vessel at the price of P150,000.00 plus the amount
expended for its present repairs is hereby granted to the CHARTERER
within 120 days from the execution of this Contract, unless otherwise
extended by the OWNER. This right shall be deemed exercised only if,
before the expiration of the said period, or its extension by the OWNER
the CHARTERER completes the payment, including any amount paid
as Charter hire, of a total sum of not less than twenty-five percentum
(25%) of said price of the vessel.
The period of option may be extended by the OWNER without in any
way affecting the other provisions, stipulations, and terms of this
contract.
If, for any reason whatsoever, the CHARTERER fails to exercise its
option to purchase within the period stipulated, or within the extension
thereof by the OWNER, its right of option to purchase shall be deemed
terminated, without prejudice to the continuance of the Charter Party
provisions of this contract. The right to dispose of the vessel or
terminate the Charter Party at its discretion is reserved to the OWNER.

XIII. TRANSFER OF OWNERSHIP OF THE VESSEL. After the

CHARTERER has exercised his right of option as provided in the
preceding paragraph (XII), the vessel shall be deemed conditionally sold
to the purchaser, but the ownership thereof shall not be deemed
transferred unless and until all the price of the vessel, together with the
interests thereon, and any other obligation due and payable to the
OWNER under this contract, have been fully paid by the CHARTERER.
xxx

xxx

xxx

XXI. APPROVAL OF THE PRESIDENT. This contract shall take

effect only upon approval of His Excellency, the President.
On September 6, 1949, the Cabinet revoked the cancellation of Froilan's contract
of sale and restored to him all his rights thereunder, on condition that he would
give not less than P10,000.00 to settle partially his overdue accounts and that
reimbursement of the expenses incurred for the repair and drydocking of the
vessel performed by Pan Oriental was to be made in accordance with future
adjustment between him and the Shipping Administration (Exh. I). Later, pursuant
to this reservation, Froilan's request to the Executive Secretary that the
Administration advance the payment of the expenses incurred by Pan Oriental in
the drydocking and repair of the vessel, was granted on condition that Froilan
assume to pay the same and file a bond to cover said undertaking (Exh. 111).
On September 7, 1949, the formal bareboat charter with option to purchase filed
on June 4, 1949, in favor of the Pan Oriental was returned to the General
Manager of the Shipping Administration without action (not disapproval), only
because of the Cabinet resolution of September 6, 1949 restoring Froilan to his
rights under the conditions set forth therein, namely, the payment of P10,000.00
to settle partially his overdue accounts and the filing of a bond to guarantee the
reimbursement of the expenses incurred by the Pan Oriental in the drydocking
and repair of the vessel. But Froilan again failed to comply with these conditions.
And so the Cabinet, considering Froilan's consistent failure to comply with his
obligations, including those imposed in the resolution of September 6, 1949,
resolved to reconsider said previous resolution restoring him to his previous
rights. And, in a letter dated December 3, 1949, the Executive Secretary
authorized the Administration to continue its charter contract with Pan Oriental in
respect to FS-197 and enforce whatever rights it may still have under the original
contract with Froilan (Exh. 188).
Froilan, for his part, petitioned anew for a reconsideration of this action of the
Cabinet, claiming that other ship purchasers, including the President-Treasurer of
the Pan Oriental himself, had also defaulted in payment and yet no action to
rescind their contracts had been taken against them. He also offered to make a
cash partial payment of P10,000.00 on his overdue accounts and reimburse Pan
Oriental of all its necessary expense on the vessel. Pan Oriental, however, not
only expressed its unwillingness to relinquish possession of the vessel, but also
tendered the sum of P15,000.00 which, together with its alleged expenses

already made on the vessel, cover 25% of the cost of the vessel, as provided in
the option granted in the bareboat contract (Exh. 122). This amount was
accepted by the Administration as deposit, subject to the final determination of
Froilan's appeal by the President. The Executive Secretary was also informed of
the exercise by Pan Oriental of said option to purchase.
On August 25, 1950, the Cabinet resolved once more to restore Froilan to his
rights under the original contract of sale, on condition that he shall pay the sum of
P10,000.00 upon delivery of the vessel to him, said amount to be credited to his
outstanding accounts; that he shall continue paying the remaining installments
due, and that he shall assume the expenses incurred for the repair and
drydocking of the vessel (Exh. 134). Pan Oriental protested to this restoration of
Froilan's rights under the contract of sale, for the reason that when the vessel
was delivered to it, the Shipping Administration had authority to dispose of the
said property, Froilan having already relinquished whatever rights he may have
thereon. Froilan paid the required cash of P10,000.00, and as Pan Oriental
refused to surrender possession of the vessel, he filed an action for replevin in
the Court of First Instance of Manila (Civil Case No. 13196) to recover
possession thereof and to have him declared the rightful owner of said property.
Upon plaintiff's filing a bond of P400,000.00, the court ordered the seizure of the
vessel from Pan Oriental and its delivery to the plaintiff. Pan Oriental tried to
question the validity of this order in a petition for certiorari filed in this Court (G.R.
No. L-4577), but the same was dismissed for lack of merit by resolution of
February 22, 1951. Defendant accordingly filed an answer, denying the
averments of the complaint.
The Republic of the Philippines, having been allowed to intervene in the
proceeding, also prayed for the possession of the vessel in order that the chattel
mortgage constituted thereon may be foreclosed. Defendant Pan Oriental
resisted said intervention, claiming to have a better right to the possession of the
vessel by reason of a valid and subsisting contract in its favor, and of its right of
retention, in view of the expenses it had incurred for the repair of the said vessel.
As counterclaim, defendant demanded of the intervenor to comply with the
latter's obligation to deliver the vessel pursuant to the provisions of the charter
contract.
Thereafter, and upon plaintiff's presenting proof that he had made payment to the
intervenor Republic of the Philippines, of the sum of P162,576.96, covering the
insurance premiums, unpaid balance of the purchase price of the vessel and
interest thereon, the lower court by order of February 8, 1952, dismissed the
complaint in intervention on the ground that the claim or demand therein had
already been released. Said dismissal, however, was made without prejudice to
the determination of defendant's right, and that the release and cancellation of
the chattel mortgage did not "prejudge the question involved between the plaintiff
and the defendant which is still the subject of determination in this case."

In view of the dismissal of its complaint, intervenor Republic of the Philippines

also moved for the dismissal of defendant's counterclaims against it, which was
granted by the court. On appeal by Pan Oriental to this Court (G.R. No. L-6060),
said order was reversed and the case remanded to the lower court for further
proceedings.

Froilan. In the absence of stipulation to the contrary, the ownership of the thing
sold passes to the vendee upon the actual or constructive delivery thereof (Art.
1477, new Civil Code). It is for this reason that Froilan was able to constitute a
mortgage on the vessel in favor of the Administration, to secure payment of the
unpaid balance of the purchase price.

Subsequently, Compaia Maritima, as purchaser of the vessel from Froilan, was

allowed to intervene in the proceedings (in the lower court), said intervenor taking
common cause with the plaintiff Froilan. In its answer to the complaint in
intervention, defendant set up a counterclaim for damages in the sum of
P50,000.00, alleging that plaintiff secured the Cabinet resolutions and the writ of
replevin, resulting in its deprivation of possession of the, vessel, at the instigation
and inducement of Compaia Maritima. This counterclaim was denied by both
plaintiff and intervenor Maritima.

There is no gainsaying the fact that there was continuous violation by Froilan of
the terms of said contract of sale. The records conclusively show that
notwithstanding the numerous opportunities given him, Froilan had been remiss
in the fulfillment of his obligations thereunder. Nevertheless, the lower court
upheld his allegation that the Administration may not legally rescind the contract
without filing the corresponding complaint in court.

On September 28, 1956, the lower court rendered a decision upholding Froilan's
(and Compaia Maritima's) right to the ownership and possession of the FS-197.
It was ruled that Froilan's violations of the conditions of the contract of sale in his
favor did not automatically deprive him of his right of ownership of the vessel,
which passed to him upon execution of the contract, but merely gave rise to the
Shipping Administration's right either to foreclose the mortgage or rescind the
contract by court action. As the Shipping Administration failed to avail itself of any
of these remedies, Froilan's right of ownership remained unaffected. And the
subsequent resolutions of the Cabinet, restoring him to his rights under the said
contract, reaffirmed the same. The charter contract between the Shipping
Administration and defendant was declared null and void, not only because the
former could not have legally bound the vessel, but also due to the fact that said
agreement has not been perfected for lack of approval by the President of the
Philippines. And, even assuming that the said charter contract was valid, the
lower court held that, as the owner (Republic of the Philippines) under the same
agreement was given the right to terminate the charter or dispose of the vessel
anytime, the action of the Cabinet in cancelling or withdrawing the rescission of
Froilan's contract, had the effect of terminating the charter agreement with the
defendant. The court also dismissed (1) defendant's counterclaims against
plaintiff Froilan and intervenor Compaia Maritima, on the ground that it
(defendant) was a possessor in bad faith, and consequently, not entitled to
damages; (2) plaintiff's counterclaims against defendant, for the reason that the
same should have been directed against intervenor Republic of the Philippines;
and (3) defendant's counterclaims said intervenor Republic, on the ground that
the order dismissing the complaint in intervention had already become final and it
was materially impossible for the latter to secure possession of the vessel. From
this decision, Pan Oriental brought the instant appeal.
Contrary to appellant's contention, the ruling of the lower court that under the
contract of sale with mortgage, ownership of the vessel passed to Froilan, upon
delivery of the property to the latter, must be sustained. It is to be noted that
unlike in the charter contract where it was specifically prescribed that ownership
of the vessel shall be transferred to the vendee only upon full payment of the
purchase price, no similar provision appears in the contract of sale in favor of

Under Article 11911 of the Civil Code, in case of reciprocal obligations, the power
to rescind the contract where a party incurs in default, is impliedly given to the
injured party. Appellee maintains however, that the law contemplates of
rescission of contract by judicial action and not a unilateral act by the injured
party; consequently, the action of the Shipping Administration contravenes said
provision of the law. This is not entirely correct, because there is also nothing in
the law that prohibits the parties from entering into agreement that violation of the
terms of the contract would cause cancellation thereof, even without court
intervention. In other words, it is not always necessary for the injured party to
resort to court for rescission of the contract. As already held2judicial action is
needed where there, is absence of special provision in the contract granting to a
party the right of rescission.
In the instant case, while it may be true that the contract of sale did not expressly
give to the mortgagee the right to cancel the agreement it was, nevertheless,
provided therein that said party may rescind the contract as it may see fit in case
of breach of the terms thereof by the mortgagor. Taking into account the
promises, waivers and representations made by Froilan, to the extent that he
agreed to the automatic transfer of ownership of the vessel to the Administration,
should he fall to fulfill what was incumbent upon him, which did happen, the
rescission of the contract without judicial action is proper.
The next question to be determined is whether there had been a valid and
enforceable charter contract in favor of appellant Pan Oriental, and what was the
effect thereon of the subsequent restoration to Froilan by the Cabinet, of his
rights under the original contract of sale with mortgage.
It is not disputed that appellant Pan Oriental took possession of the vessel in
question after it had been repossessed by the Shipping Administration and title
thereto reacquired by the government, and operated the same from June 2, 1949
after it had repaired the vessel until it was dispossessed of the property on
February 3, 1951, in virtue of a bareboat charter contract entered into between
said company and the Shipping Administration. In the same agreement, appellant
as charterer, was given the option to purchase the vessel, which may be
exercised upon payment of a certain amount within a specified period. The

10

President and Treasurer of the appellant company, tendered the stipulated initial
payment on January 16, 1950. Appellant now contends that having exercised the
option, the subsequent Cabinet resolutions restoring Froilan's rights on the
vessel violated its existing rights over the same property. To the contention of
plaintiff Froilan that the charter contract never became effective because it never
received presidential approval, as required therein, Pan Oriental answers that the
letter of the Executive Secretary dated December 3, 1949 (Exh. 118), authorizing
the Shipping Administration to continue its charter contract with appellant,
satisfies such requirement (of presidential approval). It is to be noted, however,
that said letter was signed by the Executive Secretary only and not under
authority of the President. The same, therefore, cannot be considered to have
attached unto the charter contract the required consent of the Chief Executive for
its validity.
Upon the other hand, the Cabinet resolutions purporting to restore Froilan to his
former rights under the deed of sale, cannot also be considered as an act of the
President which is specifically required in all contracts relating to these vessels
(Executive Order No. 31, series of 1946). Actions of the Cabinet are merely
recommendatory or advisory in character. Unless afterwards specifically adopted
by the President as his own executive act, they cannot be considered as
equivalent to the act of approval of the President expressly required in cases
involving disposition of these vessels.
In the circumstances of this case, therefore, the resulting situation is that neither
Froilan nor the Pan Oriental holds a valid contract over the vessel. However,
since the intervenor Shipping Administration, representing the government
practically ratified its proposed contract with Froilan by receiving the full
consideration of the sale to the latter, for which reason the complaint in
intervention was dismissed as to Froilan, and since Pan Oriental has no capacity
to question this actuation of the Shipping Administration because it had no valid
contract in its favor, the decision of the lower court adjudicating the vessel to
FroiIan and its successor Compaia Maritima, must be sustained. Nevertheless,
under the circumstances already adverted to, Pan Oriental cannot be considered
a possessor in bad faith until after the institution of the instant case. However,
since it is not disputed that said appellant made useful and necessary expenses
on the vessel, appellant is entitled to the refund of such expenses with the right
to retain the vessel until he has been reimbursed therefor (Art. 546, Civil Code).
As it is by the concerted acts of defendants and intervenor Republic of the
Philippines that appellant was deprived of the possession of the vessel over
which appellant had a lien for his expenses, appellees Froilan, Compaia
Maritima, and the Republic of the Philippines3are declared liable for the
reimbursement to appellant of its legitimate expenses, as allowed by law, with
legal interest from the time of disbursement.
Modified in this manner, the decision appealed from is affirmed, without costs.
Case is remanded to the lower court for further proceedings in the matter of
expenses. So ordered.

Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L., Paredes, Bengzon,

J.P., and Zaldivar, JJ., concur.
Dizon, Regala and Makalintal, JJ., took no part.

Footnotes
1

ART. 1191. The power to rescind obligations is implied in reciprocal

ones in case one of the obligors should not comply with what is
incumbent upon him. The injured party may choose between the
fulfillment and the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission, even after he had
chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just
cause authorizing the fixing of a period.
2

De la Rama Steamship Co. v. Tan, G.R. No. L-8784, May 21, 1956.

Although the complaint in intervention by the Republic of the

Philippines was dismissed by order of the court of February 8, 1952,
such dismissal was held not to preclude the determination of
defendant's rights (G.R. No. L- 6060, Froilan v. Pan Oriental Shipping,
Sept. 30, 1954), and intervenor may be held liable for defendant's
counterclaim.

11

THIRD DIVISION

130783. The Spouses Roxas in turn filed Civil Case No. 130892 with the CFI of
Manila against Dominguez and the insurance company that issued his
performance bond. These two cases were later consolidated.7

G.R. No. 171897, October 14, 2015

PHILIPPINE TRUST COMPANY, Petitioner, v. FLORO ROXAS AND EUFEMIA
ROXAS, Respondents.
DECISION
JARDELEZA, J.:
We consider whether the principle of legal compensation may be applied to offset
the judgment debt of petitioner Philippine Trust Company ("PTC") and the loan
obligation of private respondents Floro and Eufemia Roxas ("Spouses Roxas").
I
The Spouses Roxas procured loans from PTC in the amount of Php 2,523,200 to
finance their real estate business.1 These loans were secured by real estate
mortgages on the Spouses Roxas' real properties. On April 10, 1979, the
Spouses Roxas, PTC, and Roben Construction and Furnishing Group, Inc.
entered into "a contract of building construction," under which PTC granted an
additional loan of Php 900,000 to the Spouses Roxas to enable them to finish
their ongoing housing projects located at Cabcaben, Mariveles, Bataan. This was
superseded by a new "contract of building construction" executed by and among
PTC, Spouses Roxas, and Rosendo P. Dominguez, Jr. ("Dominguez").
Dominguez substituted Roben Construction as the contractor under the same
terms and conditions of the contract dated April 10, 1979. The new contract
stipulated that the money loaned from PTC shall be devoted to the funding of the
housing projects, the rentals of which when finished, would then be used to
liquidate the loan. It also provided that PTC may only release the proceeds of the
loan for the purchase of materials and supplies when requested by Dominguez
and with the conformity of the Spouses Roxas.2 Invoices covering materials
previously purchased with the funds should also be submitted to PTC before any
subsequent release of funds is made.3 PTC, however, released to Dominguez
the sum of Php 870,000 out of the Php 900,000 although the Spouses Roxas
had agreed only to the release of not more than Php 450,000, as evidenced by a
promissory note dated April 11, 1979.4
Due to financial difficulties, however, the Spouses Roxas did not finish the
housing project. As a result, they did not receive monthly rentals from prospective
lessees of the houses, which led to missed amortization payments in their loans
from PTC.5
On March 28, 1980, Dominguez filed a complaint against PTC and the Spouses
Roxas with the Court of First Instance (CFI) of Manila,6 Branch XL for breach of
the contract of building construction. This was docketed as Civil Case No.

When the Spouses Roxas filed their answer in Civil Case No. 130783, they
included a cross-claim against PTC.8 In response, PTC filed a counterclaim
against the Spouses Roxas on their unpaid loan obligation amounting to Php
3,053,738.509 plus interest and the amount of Php 245,720 as attorney's fees;
and, in default of such payments, the foreclosure of the real estate mortgages
executed by the Spouses Roxas in favor of PTC. After trial on the merits, the trial
court rendered a decision in favor of Dominguez. It denied PTC's counterclaim
for lack of sufficient proof, without prejudice to the filing of a collection suit
against the Spouses Roxas. Both PTC and the Spouses Roxas appealed to the
Court of Appeals, docketed as CA-G.R. CV No. 30340. To this date, the same
remains pending.10
In a parallel development, while Civil Case No. 130783 was still pending in the
trial court, PTC, on August 31, 1981, filed with the provincial sheriff of Bataan a
petition for extrajudicial foreclosure of the same real estate mortgages, The
Spouses Roxas opposed the petition and filed a verified complaint against PTC
for damages with preliminary injunction in the Regional Trial Court of Bataan
docketed as Civil Case No. 4809 ("Main Case"). The complaint sought to restrain
and enjoin the sheriff from proceeding with the foreclosure sale while Civil Case
No. 130783 is still pending.11 On December 26, 1988, the Bataan RTC rendered
a Decision in favor of the Spouses Roxas, the dispositive portion of which reads
as follows:
WHEREFORE, the Court hereby renders judgment (a) Ordering the issuance of
a writ of permanent injunction perpetually enjoining defendant Philippine Trust
Company and defendant provincial sheriff of Bataan or any of his deputies from
foreclosing extrajudicially the real estate mortgage(s) executed in its favor by
plaintiffs covering the real properties subject of this action;
(b) Condemning said defendant bank to pay to plaintiffs: (1) Ordinary damages
for breach of the provisions of the contract of building construction (Exhs. "B" &
"26"), in the sum of One Hundred Thousand Pesos (P100,000.00); (2) Moral
damages for the improvident extrajudicial foreclosure of plaintiffs' mortgage(s)
after it had elected judicial foreclosure thereof, in the amount of Three Hundred
Thousand Pesos (P300,000.00) for both plaintiffs; (3) Exemplary damages by
way of example or correction for the public good in the sum of Fifty Thousand
Pesos (P50,000.00); (4) Attorney's fees in the amount of Fifty Thousand Pesos
(P50,000.00); and (5) Double costs of suit
SO ORDERED.12
The Court of Appeals affirmed the decision of the Bataan RTC. The decision
became final and executory, prompting the Spouses Roxas to file a Motion for
Execution. PTC responded by filing an Opposition to the Motion for Execution,

12

where it raised for the first time legal compensation to offset the judgment debt
due to the Spouses Roxas.

II
A

On January 25, 1994, the trial court denied PTC's Opposition and issued a writ of
execution, holding that PTC is deemed to have waived legal compensation as a
defense because it failed to invoke the same as an affirmative defense in its
answer. PTC filed a motion for reconsideration of the order, which was denied by
the trial court on April 19, 1994.13 PTC filed another motion for reconsideration,
which was again denied by the trial court on June 7, 1994.14
PTC filed a Petition for Certiorari15 under Rule 65 with the Court of Appeals
seeking the annulment of the trial court's order issuing the writ of execution and
its subsequent orders denying PTC's motions for reconsideration. On November
17, 2005, the Court of Appeals dismissed the petition for lack of merit. It found
that not all requisites of legal compensation under Article 1279 of the Civil Code
were present and that the defense of legal compensation was belatedly raised by
PTC, considering that it was raised for the first time at the execution stage.16 The
Court of Appeals denied PTC's motion for reconsideration on March 9, 2006.17
PTC then filed this Petition for Review on Certiorari18 under Rule 45, arguing that
the Court of Appeals erred in not finding that all the requisites of legal
compensation were present and in ruling that the defense of compensation was
belatedly raised. PTC claims it did not raise legal compensation as a defense
before the Bataan RTC because the judgment debt was not yet due at the time it
filed its answer. Furthermore, it had already set up as a compulsory counterclaim
the loan obligation of the Spouses Roxas in Civil Case No. 130783, which was
pending with the former CFI of Manila. But because the Manila court denied
PTC's counterclaims, PTC argues there is a change in the situation of the parties
that makes execution inequitable.
In response, the Spouses Roxas assert that the execution of the Bataan RTC
decision is proper because the prevailing party is entitled to a writ of execution as
a matter of right once a judgment becomes final.19 Moreover, the decision in Civil
Case No. 130873 is not a supervening event that warrants the stay of
execution.20 The Spouses Roxas also dispute the applicability of legal
compensation because both the demandability of the loan as well as the exact
amount due had been put in issue in Civil Case No. 130873, which is now
pending appeal with the Court of Appeals as CA-G.R. CV No. 30340.21 The
Spouses Roxas maintain that PTC is deemed to have waived compensation as a
defense because it did not raise compensation either in a motion to dismiss or as
an affirmative defense in its answer to the Main Case.22 Finally, the Spouses
Roxas point out that the orders of the Bataan RTC were challenged by PTC
through a Rule 65 petition. Thus, it was incumbent upon PTC to prove lack or
grave abuse of discretion on the part of the Bataan RTC, which PTC ultimately
failed to do.23
The petition has no merit.

We agree with the Court of Appeals that it was too late for PTC to set up legal
compensation as a defense because the Main Case had already reached the
execution stage. The rule is that once a decision becomes final and executory,
execution shall issue as a matter of right,24 and the issuance of a writ of
execution is the court's ministerial duty, compellable by mandamus.25 This is in
accordance with the doctrine of immutability of final judgments, which states that
a judgment that has become final and executory is immutable and unalterable,
and 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
rendering it or by the highest Court of the land.26 Although there are recognized
exceptions to this doctrine, one of which is where there is a supervening event
that renders execution inequitable or unjust,27 none obtains in this case.
First, there is nothing unjust or inequitable in the issuance of the writ of execution
in this case because execution will have no effect on the unpaid loan obligation
of the Spouses Roxas to PTC. The Spouses Roxas' unpaid loan obligation to
PTC is the subject of a separate case now pending before the Court of Appeals,
CA-G.R. CV No. 30340. Thus, there exists a proper forum where PTC may be
allowed to recover whatever is due from the Spouses Roxas. What is inequitable
is to allow PTC to recover its credit in full in CA-G.R. CV No. 30340 while
concurrently being allowed to offset its judgment debt in this case. In such
instance, there would effectively be double recovery on the part of PTCwhich
we cannot sanction because of the fundamental proscription against unjust
enrichment.28
Second, it would be more unjust to stay the execution of a decision that had
become final and executory twenty three (23) years ago. There should be an end
to litigation, for 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.29 Unjustified delay
in the enforcement of a judgment sets at naught the role and purpose of the
courts to resolve justiciable controversies with finality.30 To accept PTC's
contentions would not only be unfair to private respondents but, more
importantly, would defeat a vital poliey consideration behind the doctrine of
immutability of final judgments.
B
The Bataan RTC and the Court of Appeals also correctly ruled that PTC should
have raised the argument on legal compensation at the trial stage. The 1964
Rules of Court, which was then in effect at the time the Main Case was filed by
the Spouses Roxas in 1980, provides that:
RULE 9. Effect of Pleadings

13

Sec. 2. Defenses and objections not pleaded deemed waived. Defenses and
objections not pleaded either in a motion to dismiss or in the answer are
deemed waived; except the failure to state a cause of action which may be
alleged in a later pleading, if one is permitted, or by motion for judgment on the
pleadings, or at the trial on the merits; but in the last instance, the motion shall be
disposed of as provided in section 5 of Rule 10 in the light of any evidence which
may have been received. Whenever it appears that the court has no jurisdiction
over the subject-matter, it shall dismiss the action.31 (Emphasis added)
Although legal compensation takes place by operation of law, it must be alleged
and proved as a defense by the debtor who claims its benefits. Only after it is
proved will its effects retroact to the moment when all the requisites under Article
1279 of the Civil Code have concurred.32
PTC's contention that it could not have raised legal compensation as a defense
because it was not yet a debtor of the Spouses Roxas when it filed its answer is
unconvincing. Under Rule 8, Section 2 of the 1964 Rules of Court, "[a] party may
set forth two or more statements of a claim or defensealternatively or
hypothetically, either in one cause of action or defense or in separate causes of
action or defenses."33 Thus, the defense of compensation would have been
proper and allowed under the rules even if PTC disclaimed any liability at the
time it filed its answer. In Marquez v. Valencia,34 we held that when a defendant
failed to set up such alternative defenses and chosen or elected to rely on one
only, the overruling thereof was a complete determination of the controversy
between the parties, which bars a subsequent action based upon an unpleaded
defense. Unmistakably, the rationale behind this is the proscription against the
splitting of causes of action.
In any case, even if PTC were excused from pleading compensation as a
defense in its answer, we note that PTC still failed to raise this defense in its
motion for reconsideration of the Bataan RTC decision and in its subsequent
appeal. Hence, there can be no other conclusion than that PTC is already
estopped from raising the issue of legal compensation.
It is fairly clear to us that the reason why PTC did not raise legal compensation
as a defense in the Main Case is because it was banking on a favorable ruling on
its counterclaim in the other case, Civil Case No. 130873. It was presumably an
informed choice arrived at by PTC and its counsel, with full knowledge of the
consequences of its failure to plead this specific claim/defense in the Main Case.
Unfortunately for PTC, its counterclaim in the other case was disallowed. Having
adopted the wrong legal strategy, PTC cannot now expediently change its theory
of the case or its defense at the execution stage of the Main Case. Following the
doctrine of election of remedies,35 PTC's choice of setting up the Spouses Roxas'
unpaid loan obligation as a counterclaim in Civil Case No. 130873, which has
gone to judgment on the merits but is pending appeal, precludes it from raising
compensation of the same loan obligation for the purpose of opposing the writ of
execution in the Main Case. Equitable in nature, the doctrine of election of
remedies is designed to mitigate possible unfairness to both parties. It rests on

the moral premise that it is fair to hold people responsible for their choices. The
purpose of the doctrine is not to prevent any recourse to any remedy, but to
prevent a double redress for a single wrong.36
III
Even if we assume that legal compensation was not waived and was otherwise
timely raised, we find that not all requisites of legal compensation are present in
this case. Under Article 1279, in order for legal compensation to take place, the
following requisites must concur: (a) that each one of the obligors be bound
principally, and that he be at the same time a principal creditor of the other; (b)
that both debts consist in a sum of money, or if the things due are consumable,
they be of the same kind, and also of the same quality if the latter has been
stated; (c) that the two debts be due; (d) that they be liquidated and
demandable; and (e) that over neither of them there be any retention or
controversy, commenced by third persons and communicated in due time to the
debtor.
Here, the fourth requisite is absent. A debt is liquidated when its existence and
amount are determined.37 Compensation can only take place between certain
and liquidated debts; it cannot extend to unliquidated, disputed claims.38 Since
the loan obligation, including its amount and demandability, is still being disputed
in CA-G.R. CVNo. 30340, PTC's credit cannot be considered liquidated as of yet.
Consequently, no legal compensation could have taken place between PTC's
loan credit and the Spouses Roxas' judgment credit.
IV
Finally, we observe that PTC appears to have willfully engaged in forum
shopping. PTC, in its own words, opposed the execution of the Bataan RTC
decision because '"the Decision promulgated on September 4, 1990 by the RTC
of Manila, Branch 40 [in Civil Case No. 130783] denied Petitioner's
counterclaims."39 Forum shopping is committed by a party who, having received
an adverse judgment in one forum, seeks another opinion in another court, other
than by appeal or the special civil action of certiorari. More accurately, forum
shopping is the institution of two or more suits in different courts, either
simultaneously or successively, in order to ask the courts to rule on the same or
related causes and/or to grant the same or substantially the same reliefs.40
The relief PTC now seeks is compensation of its judgment debt with the Spouses
Roxas' loan obligation. In the other case, Civil Case No. 130783 (now CA-G.R.
CV No. 30340), PTC asks for the payment of the same loan obligation of the
Spouses Roxas. Essentially, PTC is seeking the same relief in both cases: the
extinguishment of the Spouses Roxas' loan obligation. Under Article 1231 of the
Civil Code, payment and compensation are modes of extinguishing an obligation.
Although legally distinct, both must be pleaded in the same case if the obligation
sought to be extinguished and the parties thereto arc identical; otherwise, it
would constitute splitting of causes of action.
Forum shopping exists when the elements of litis pendentia are present, viz.: (a)

14

identity of parties, or at least such parties as those representing the same

interests in both actions; (b) identity of rights assered and relief prayed for, the
relief being founded on the same facts; and (c) the identity of the two preceding
particulars is such that any judgment rendered in the other action, will, regardless
of which party is successful, amount to res judicata in the action under
consideration.41
We find that the elements of litis pendentiaand, as a consequence, forum
shoppingexist in this case. PTC's claim for legal compensation is founded on
the same unpaid loan obligation now being litigated in CA-G.R. CV No. 30340.
Although that case originated from a complaint filed by Dominguez for breach of
contract, PTC counterclaimed the entire unpaid loan obligation, plus interest,
owed to it by the Spouses Roxas. In other words, PTC had squarely put in issue
the matter of the Spouses Roxas' indebtedness arising from the loans the latter
obtained from PTC. It is immaterial that PTC's cause of action in the other case
was set forth by way of a counterclaim, since the latter partakes of the nature of a
complaint by the defendant against the plaintiff.42 On the other hand, while the
Main Case originally involved a different subject matter and cause of action
(i.e., the injunction against PTC's extrajudicial foreclosure and the Spouses
Roxas' claim for damages) as that embraced in CA-G.R. CV No. 30340, the
primary issue raised by PTC in its Opposition to the Motion for Execution, and
subsequently in the petition for certiorari with the Court of Appeals and the
present petition, pertained to the same loan obtained by the Spouses Roxas.
Thus, with respect to the Spouses Roxas' indebtedness to PTC, there is a clear
identity of parties, of subject matter, and of cause of action. Consequently, once a
final decision in CA-G.R. CV No. 30340 is rendered, it will constitute res
judicataand bar further litigation on the same loan obligation, including any
dispute on the applicability or non-applicability of legal compensation.
Forum shopping is an act of malpractice that is prohibited and condemned
because it trifles with the courts and abuses their processes, and degrades the
administration of justice and adds to the already congested court
dockets.43 Under Section 5 of Rule 8, willful and deliberate forum shopping is a
ground for summary dismissal of the case and constitutes direct contempt of
court, as well as a cause for administrative sanctions. The litigation could have
ended promptly if PTC had simply paid its judgment debt and awaited the final
decision in the other case to recover whatever is due from the Spouses Roxas.
Instead, this plainly unmeritorious case had to clog our docket and take up the
valuable time of this Court.
WHEREFORE, the petition for review is DENIED for lack of merit. The Decision
dated November 17, 2005 and Resolution dated March 9, 2006 of the Court of
Appeals in CA-G.R. SP No. 35203 are hereby AFFIRMED. Costs against
petitioner.
SO ORDERED.
*

Endnotes:

Designated as Additional Member in lieu of Senior Associate Justice Antonio T.

Carpio, per Special Order No. 2225 dated September 29, 2015.
**

Per raffle dated October 12, 2015.

Rollo, p. 8.

Id. at 8-9.

Id. at 9.

Id.

Id.

Now the Regional Trial Court of Manila.

Rollo p. 9.

Id.

Id. at 93.

10

Id. at 67-68.

11

Id. at 58.

12

Id. at 58-59.

13

Id. at 111-112.

14

Id. at 118-119.

15

Id. at 120-140.

16

Id. at 20-21.

17

Id. at 26-27.

18

Id. at 31-52.

19

Id. at 234-235.

20

Id. at 235-236.

21

Id. at 237-242.

**

Velasco, Jr., (Chairperson), Villarama, Jr., Mendoza, and Perlas-Bernabe, JJ.,

concur.

15

22

Id. at 242-245.

36

23

Id. at 232-234.

37

24

RULES OF COURT, Rule 39, Sec. 1.

25

Id.

First United Constructors Corporation, v. Bayanihan Automotive

Corporation, G.R. No. 164985, January 15, 20,14, 713 SCRA 354, 367.
ChanRoblesVirtualawlibrary

Valenzona v. Court of Appeals, G.R. No. 106805, September 10, 1993, 226
SCRA 306, 311.

38

26

Edillo v. Dulpina, G.R. No. 188360, January 21,2010.610 SCRA 590, 601 -602.

39

27

Valenzona v. Court of Appeals, supra.

40

Silahis Marketing Corp. v. Intermediate Appellate Court, G.R. No. 74(327,

December 7, 1989, 180 SCRA 21, 25.
Rollo, p. 45.

Young v. Keng Seng, G.R. No. 143464, March 5, 2003, 398 SCRA 629, 636637.

28

Rodriquez v. Ponferrada, G.R. Nos. 155531-34, July 29, 2005, 465 SCRA 338,
355.

41

Ayala Land, Inc. v. Valisno, G.R. No. 135899, February 2, 2000, 324 SCRA
522, 530-531.

29

Times Transit Cooperative, Inc. v. NLRC, G.R. No. 117105, March 2, 1999, 304
SCRA 11, 17
30

42

Intramuros Administration v. Contacto, G.R. No. 152576, May 5, 2003, 402

SCRA 581, 590.

Edillo v. Dulpina, supra at 602.

43

31

The 1997 Rules of Court modified the 1964 (ext but retained the same
"deemed waived" provision:cralawlawlibrary
RULE 9. Effect of Failure to Plead
Section 1. Defenses and objections not pleaded. Defenses and objections
not pleaded either in a motion to dismiss or in the answer are deemed
waived. However, when it appears from the pleadings or the evidence on record
that the court has no jurisdiction over the subject matter, that there is another
action pending between the same parties for the same cause, or that the action
is barred by a prior judgment or by statute of limitations, the court shall dismiss
the claim. (Emphasis added)
32

IV ARTURO M. TOLENTINO, COMMENTARIES AND JURISPRUDENCE ON

THE CIVIL CODE OF THE PHILIPPINES, 379 (1990); DE LEON & DE LEON,
JR., COMMENTS AND CASES ON OBLIGATIONS AND CONTRACTS 441
(2014).
33

Reproduced verbatim under the 1997 RULES OF Court.

34

99 Phil. 740 (1956), cited in Arreza v. Diaz, Jr., G.R. No. 13343, August 30,
2001, 364 SCRA 88 97.
35

DM. Consunji, Inc. v. Court of Appeals, G.R. No. 1.37873, April 20, 2001, 357
SCRA 249, 266. ("When a party having knowledge of the facts makes an election
between inconsistent remedies, the election is final and bars any action, suit, or
proceeding inconsistent with the ejected remedy, in the absence of fraud by the
other parly. The first act of election acts as a bar")

Young v. Keng Seng, supra.

16

Pursuant thereto, an Escrow Agreement,6 dated October 13, 2004, was executed
designating IE Bank as the Escrow Agent, obliging the latter to hold and take
custody of TCT No. T-197, and to release the said title to NICORP upon full
payment of the subject property.

SECOND DIVISION
G.R. No. 214057, October 19, 2015
FLORENTINA BAUTISTA-SPILLE REPRESENTED BY HER ATTORNEY-INFACT, MANUEL B. FLORES, JR., Petitioner, v. NICORP MANAGEMENT AND
DEVELOPMENT CORPORATION, BENJAMIN G. BAUTISTA AND
INTERNATIONAL EXCHAN BANK, Respondents.
DECISION
MENDOZA, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the Rules
of Court assailing the March 19, 2014 Decision1 and the August 18, 2014
Resolution2 of the Court of Appeals (CA) in CA-G.R. CV No. 97682, which
reversed and set Regional Trial Court, Branch aside the May 24, 2010
Decision3 of the Regional Trial Court, Branch 90, Dasmarias, Cavite (RTC), in
Civil Case No. 0321-04, declaring a contract to sell null and void.
The Facts:
Petitioner Florentina Bautista-Spille (petitioner) is the registered owner of a
parcel of land covered by Transfer Certificate of Title (TCT) No. T-197, located in
Imus City, Cavite, with an area of more or less 33,052 square meters (subject
property).
On June 20, 1996, petitioner and her spouse, Harold E. Spille, executed a
document denominated as General Power of Attorney4 in favor of her brother,
respondent Benjamin Bautista (Benjamin), authorizing the latter to administer all
her businesses and properties in the Philippines. The said document was
notarized before the Consulate General of the Philippines, New York, United
States of America.
On August 13, 2004, Benjamin and NICORP Management and Development
Corporation (NICORP) entered into a contract to sell5 which pertained to the
parcel of land covered by TCT No. T-197 for the agreed amount of
P15,000,000.00. In the said contract, NICORP agreed to give a down payment
equivalent to 20% of the purchase price and pay the remaining balance in eight
(8) months. It was also agreed that upon receipt of the down payment, the TCT of
the subject property would be deposited with the International Exchange Bank
(IE Bank) and placed in escrow. It would only be released upon full payment of
the agreed amount. Furthermore, Benjamin was required to submit a special
power of attorney (SPA) covering the sale transaction, otherwise, the payment of
the balance would be suspended and a penalty of P150,000.00 every month
would be imposed.

On October 14, 2004, NICORP issued a check in the amount of P2,250,000.00,

representing the down payment of the subject property.7 Thereafter, the TCT was
deposited with IE Bank and placed in escrow.
When petitioner discovered the sale, her lawyer immediately sent demand
letters8 to NICORP and Benjamin, both dated October 27, 2004, and to IE pank,
dated October 28, 2004, informing them that she was opposing the sale of the
subject property and that Benjamin was not clothed with authority to enter into a
contract to sell and demanding the return of the owner's copy of the certificate of
title to her true and lawful attorney-in-fact, Manujel B. Flores, Jr. (Flores).
NICORP, Benjamin and IE Bank, however, failed and refused to return the title of
the subject property.
Consequently, petitioner filed a complaint9 before the RTC against Benjamin,
NICORP and IE Bank for declaration of nullity of the contract to sell, pjunction,
recovery of possession and damages with prayer for the issuance of a temporary
restraining order and/or preliminary injunction because NICORP was starting the
development of the subject property into a residential subdivision and was
planning to sell the lots to prospective buyers. Petitioner denied receiving the
down payment for the subject property.
The RTC granted the writ of preliminary injunction in its Order,10 dated January
24, 2005, enjoining NICORP and all persons acting on its behalf from making or
introducing improvements, subdividing and selling any subdivided lot of the
subject property.
In its Answer,11 NICORP asked for the dismissal of the case for lack of a cause of
action and averred that Benjamin was empowered to enter into a contract to sell
by virtue of the general power of attorney; that the said authority was valid and
subsisting as there was no specific instrument that specifically revoked his
authority; that assuming Bautista exceeded his authority when he executed the
contract to sell, the agreement was still valid and enforceable as the agency was
already "coupled with interest" because of the partial payment in the amount of
P3,000,000.00; and that the contract could not just be revoked without NICORP
being reimbursed of its down payment and the costs for the initial development it
had incurred in developing the subject property into a residential subdivision.
For its part, IE Bank denied any liability and alleged that petitioner had no cause
of action against it. IE Bank asserted that, at the time of its constitution as an
escrow agent, Benjamin possessed the necessary authority from petitioner; that
because the contract to sell remained valid, it was duty-bound to observe its
duties and obligations under the Escrow Agreement; and that in the absence of
any order from the court, it was proper for the bank not to comply with petitioner's
demand for the surrender of the certificate of title.12

17

Benjamin, on the other hand, did not file any responsive pleading. Hence, he was
declared in default in the RTC Order,13 dated August 25, 2005.
On May 24, 2010, the RTC rendered its judgment, declaring the contract to sell
null and void.14 It explained that the general power of authority only pertained to
acts of administration over petitioner's businesses and properties in the
Philippines and did not include authority to sell the subject property. It pointed out
that NICORP was well aware of Benjamin's lack of authority to sell the subject
property as gleaned from the contract to sell which required the latter to procure
the SPA from petitioner and even imposed a penalty of P150,000.00 per month if
he would be delayed in securing the SPA. The dispositive portion of the RTC
decision reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the
plaintiff and against the defendants, declaring the Contract to Sell, dated October
13, 2004 between the defendant Bautista and NICORP to be null and void, and
the writ of preliminary injunction is now made permanent, and further ordering the
defendants NICORP and International Exchange Bank as follows (a) To return to the plaintiff the peaceful possession of the subject property
covered by Transfer Certificate of Title No. T-197 of the Register of Deeds of
the Province of Cavite;
(b) To return to the plaintiff the Original Owner's Duplicate of Title No. T-197 of
the Register of Deeds of the Province of Cavite;
(c) To pay to the plaintiff the amount of Php250,000.00 by way of attorney's fees;
and
(d) The Costs of suit.
SO ORDERED.15
Aggrieved, NICORP appealed before the CA.
In the assailed decision, the CA reversed the RTC decision, explaining that the
general power of attorney executed by petitioner in favor of Benjamin authorized
the latter not only to perform acts of administration over her properties but also to
perform acts of dominion which included, among others, the power to dispose the
subject property.
Petitioner filed a motion for reconsideration, but it was denied in the assailed CA
Resolution, dated August 18, 2014.
Hence, this petition anchored on the following
GROUNDS
THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ERROR IN
HOLDING THAT THE GENERAL POWER OF ATTORNEY EXECUTED BY
PETITIONER AUTHORIZED BENJAMIN BAUTISTA TO ENTER INTO THE

CONTRACT TO SELL WITH RESPONDENT IN CONTRAVENTION OF THE

ESTABLISHED PRONOUNCEMENT OF THE SUPREME COURT IN THE
CASE OF LILLIAN N. MERCADO ET AL. VS. ALLIED BANKING
CORPORATION (G.R. NO. 171460, 24 JULY 2007.
THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ERROR IN
APPLYING THE CASE OF ESTATE OF LINO OLAGUER VS. ONGJOCO (G.R.
NO. 173312, 26 AUGUST 2008) TO THE INSTANT CASE CONSIDERING
THAT THE ESTABLISHED FACTS HEREIN ARE NOT IN ALL FOURS WITH
THE FACTS SURROUNDING THE DECISION IN THE OLAGUER VS.
ONGJOCO CASE.
THE HONORABLE COURT OF APPEALS ERRED IN DISREGARDING (I)
RESPONDENT'S JUDICIAL ADMISSION AS TO BENJAMIN BAUTISTA'S
LACK OF AUTHORITY TO ENTER INTO A CONTRACT TO SELL THE
SUBJECT PROPERTY, AND (II) RESPONDENT'S KNOWLEDGE OF THE
INSUFFICIENCY OF THE GENERAL POWER OF ATTORNEY, INDICATING
BAD FAITH OF THE RESPONDENT.
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE
TRIAL COURT ERRED IN DECLARING THE CONTRACT TO SELL NULL AND
VOID.16
Petitioner argues that the general power of attorney did not clothe Benjamin with
the authority to enter into a contract to sell the subject property. She contends
that the general power of attorney pertained to the power to buy, sell, negotiate
and contract over the business and personal property but did not specifically
authorize the sale of the subject property.
Petitioner asserts that the CA erred when it disregarded the stipulation made by
NICORP during the pre-trial proceedings as stated in the pre-trial order that
Benjamin "acted beyond the scope of his authority when he failed to inform
plaintiff personally as to his dealing or negotiation with NICORP and when he
signed the Contract to Sell xxx."17 According to petitioner, such an admission was
an indication that NICORP did not consider the general power of authority as an
SPA which would have authorized Benjamin to enter into the contract to sell.
NICORP counters that the general power of attorney sufficiently conferred
authority on Benjamin to enter into the contract to sell. It asserts that the written
authority, while denominated as a general power of attorney, expressly
authorized him to sell the subject property. NICORP insists that it was a buyer in
good faith and was never negligent in ascertaining the extent of his authority to
sell the property. It explains that though the general power of attorney sufficiently
clothed Bautista with authority to sell the subject property, it nonetheless required
him to submit the SPA in order to comply with the requirements of the Register of
Deeds and the Bureau of Internal Revenue.
The issue for resolution is whether or not Benjamin was authorized to sell the
subject property.

18

The Court's Ruling

The Court finds the petition meritorious.
In petitions for review on certiorari under Rule 45 of the Rules of Civil Procedure,
only questions of law may be raised by the parties and passed upon by this
Court. It is not a function of this Court to analyze and weigh the evidence
presented by the parties all over again.18 This rule, however, has several wellrecognized exceptions, such as when the factual findings of the CA and the trial
court are conflicting or contradictory.19
The well-established rule is when a sale of a parcel of land or any interest therein
is through an agent, the authority of the latter shall be in writing, otherwise the
sale shall be void. Articles 1874 and 1878 of the Civil Code explicitly provide:
Art. 1874. When a sale of a piece of land or any interest therein is through an
agent, the authority of the latter shall be in writing; otherwise, the sale shall be
void.
Art. 1878. Special powers of attorney are necessary in the following cases:

to confer the right upon an agent to sell the real property.23 It is a general rule that
a power of attorney must be strictly construed, and courts will not infer or
presume broad powers from deeds which do not sufficiently include property or
subject under which the agent is to deal.24 Thus, when the authority is couched in
general terms, without mentioning any specific power to sell or mortgage or to do
other specific acts of strict dominion, then only acts of administration are deemed
conferred.25
In the case at bench, the only evidence adduced by NICORP to prove Benjamin's
authority to sell petitioner's property was the document denominated as General
Power of Attorney, dated June 20, 1996. The pertinent portions of the said
document reads:
KNOW ALL MEN BY THESE PRESENTS:
THAT I/WE FLORENTINA B. SPILLE, of legal age, single/married to HAROLD E.
SPILLE and residents of x x x do hereby appoint, name and constitute
BENJAMIN G. BAUTISTA resident(s) of x x x to be my/our true and lawful
attorney(s), to administer and conduct all my/our affairs and for that purpose in
my/our name(s) and on my/our behalf, to do and execute any or all of the
following acts, deeds and things to wit:

(1) x xx
(5) To enter into any contract by which the ownership of an immovable is
transmitted or acquired either gratuitously or for a valuable consideration;

1.

To exercise administration, general control and supervision over my/our

business and property in the Philippines, and to act as my/our general
representative(s) and agent(s) with full authority to buy, sell, negotiate
and contract for me/us and my/our behalf;

2.

To ask, demand, sue for, recover and receive all sums of money, debts,
dues, goods, wares, merchandise, chattels, effects and thing of
whatsoever nature or description, which now or hereafter shall be or
become due, owing, payable or belonging to me/us in or by any right,
title, ways or means howsoever, and upon receipt thereof or any part
thereof, to make, sign, execute and deliver such receipts, releases or
other discharges;

xxx. [Emphasis Supplied]

From the foregoing, it is clear that an SPA in the conveyance of real rights over
immovable property is necessary.20 In Cosmic Lumber Corporation v. Court of
Appeals,21 the Court enunciated,
When the sale of a piece of land or any interest thereon is through an agent, the
authority of the latter shall be in writing; otherwise, the sale shall be void. Thus,
the authority of an agent to execute a contract for the sale of real estate must be
conferred in writing and must give him specific authority, either to conduct the
general business of the principal or to execute a binding contract containing
terms and conditions which are in the contract he did execute. A special power
of attorney is necessary to enter into any contract by which the ownership
of an immovable is transmitted or acquired either gratuitously or for a
valuable consideration. The express mandate required by law to enable an
appointee of an agency (couched) in general terms to sell must be one that
expressly mentions a sale or that includes a sale as a necessary ingredient of the
act mentioned. For the principal to confer the right upon an agent to sell real
estate, a power of attorney must so express the powers of the agent in clear and
unmistakable language. When there is any reasonable doubt that the
language so used conveys such power, no such construction shall be
given the document.22
[Emphases Supplied]
To reiterate, such authority must be conferred in writing and must express the
powers of the agent in clear and unmistakable language in order for the principal

xxx26
Doubtless, there was no perfected contract to sell between petitioner and
NICORP. Nowhere in the General Power of Attorney was Benjamin granted,
expressly or impliedly, any power to sell the subject property or a portion thereof.
The authority expressed in the General Power of Attorney was couched in very
broad terms covering petitioner's businesses and properties. Time and again, this
Court has stressed that the power of administration does not include acts of
disposition, which are acts of strict ownership. As such, an authority to dispose
cannot proceed from an authority to administer, and vice versa, for the two
powers may only be exercised by an agent by following the provisions on agency
of the Civil Code.27
In the same vein, NICORP cannot be considered a purchaser in good faith. The
well-settled rule is that a person dealing with an assumed agent is bound to

19

ascertain not only the fact of agency but also the nature and extent of the agent's
authority.28 The law requires a higher degree of prudence from one who buys
from a person who is not the registered owner. He is expected to examine all
factual circumstances necessary for him to determine if there are any flaws in the
title of the transferor, or in his capacity to transfer the land.29 In ascertaining good
faith, or the lack of it, which is a question of intention, courts are necessarily
controlled by the evidence as to the conduct and outward acts by which alone the
inward motive may, with safety, be determined. Good faith, or want of it, is not a
visible, tangible fact that can be seen or touched, but rather a state or condition
of mind which can only be judged by actual or fancied token or signs.30
Here, the Court agrees with the RTC that NICORP was fully aware that Benjamin
was not properly authorized to enter into any transaction regarding the sale of
petitioner's property. In fact, in the contract to sell, NICORP required Benjamin to
secure the SPA from petitioner within ninety (90) days from the execution of the
contract and even imposed a substantial amount of penalty in the amount of
P150,000.00 a month in case of non-compliance plus suspension of payment of
the balance of the contract price.
Petitioner's explanation that it obliged Benjamin to secure the SPA in order to
comply with the requirements of the Register of Deeds and the Bureau of Internal
Revenue is bereft of merit. NICORP is a real estate company which is familiar
with the intricacies of the realty business. Moreover, there was no evidence that
petitioner ratified Benjamin's act of selling the subject property. On the contrary,
immediately after the execution of the contract to sell, petitioner wrote NICORP,
IE Bank and Benjamin to inform them of her opposition to the sale of the subject
property and of his lack of authority to sell it and demand the return of the
certificate of title. Clearly, NICORP was negligent in its dealings with Bautista.
In sum, the Court agrees with the findings and conclusion of the RTC. The
consent of petitioner in the contract to sell was not obtained, hence, not
enforceable. Furthermore, because NICORP is considered a builder in bad faith,
it has no right to be refunded the value of whatever improvements it introduced
on the subject property.31
WHEREFORE, the petition is GRANTED. The March 19, 2014 Decision and the
August 18, 2014 Resolution of the Court of Appeals in CA-G.R. CV No. 97682
are REVERSED and SET ASIDE. The May 24, 2010 Decision of the Regional
Trial Court, Branch 90, Dasmarias, Cavite, is REINSTATED.

Per Special Order No. 2250, dated October 14, 2015.

**

Per Special Order No. 2222, dated September 29, 2015.

**

Per Special Order No. 2223, dated September 29, 2015.

Rollo, pp. 41-50. Penned by Associate Justice Elihu A. Ybanez with Associate
Justices Japar B. Dimaampao and Melchor Q.C. Sadang, concirring.
2

Id. at 52-53. Penned by Associate Justice Elihu A. Ybanez with Associate

Justices Japar B. Dimaampao and Melchor Q.C. Sadang, concurring.
3

Id. at 297-308. Penned by Judge Perla V. Gabrera-Faller.

Id. at 80-81.

Id. at 82-85.

Id. at 124-128.

Annex of the Complaint, records, p. 25.

Rollo, pp. 86-91.

Id. at 99-110.

10

Records, pp. 158-162.

11

Id. at 136-145.

12

Id. at 130-135.

13

Id. at 210.

14

Id. at 641-652.

15

Id. at 652.

16

Rollo,p. 17.

SO ORDERED.

17

Leonardo-De Castro,*Brion,**(Acting Chairperson), Peralta,*** and Leonen, JJ.,

concur.

18

Dehesa-lnamarga v. Alano, 595 Phil. 294, 300 (2008).

19

Chua v. Soriano, 549 Phil. 578, 588-589 (2007).

Endnotes:

As quoted in the petition, id. at 26.

20

Woodchild Holdings, Inc. v. Roxas Electric and Construction Company, Inc.,

479 Phil. 896, 912 (2004).
21

332 Phil. 948 (1996).

20

22

Id. at 957-958.

23

Yoshizaki v. Joy Training Center of Aurora, Inc., G.R. No. 174978, July 31,
2013, 702 SCRA, 631, 642.
24

Woodchild Holdings, Inc. v. Roxas Electric and Construction Company, Inc.,

supra note 20, at 913.
25

Veloso v. Court of Appeals, 329 Phil. 398, 405 (1996).

26

Rollo, p. 80.

27

Aggabao v. Parulan, 644 Phil. 26, 37 (2010).

28

Lintonjua v. Fernandez, 471 Phil. 440, 458 (2004).

29

Abad v. Guimba, 503 Phil. 321, 331-332 (2005).

30

Philippine National Bank v. Militar, 526 Phil. 788, 798 (2006).

31

Arts. 449 and 546, Civil Code.

21

THIRD DIVISION
G.R. No. 173186, September 16, 2015
ANICETO UY, Petitioner, v. COURT OF APPEALS, MINDANAO STATION,
CAGAYAN DE ORO CITY, CARMENCITA NAVAL-SAI, REP. BY HER
ATTORNEY-IN FACT RODOLFO FLORENTINO,Respondents.
DECISION
JARDELEZA, J.:
This is a Petition for Review on Certiorari1 under Rule 45 of the Revised Rules of
Court assailing the Decision2 dated January 26, 2006 of the Court of Appeals,
Mindanao Station, Cagayan de Oro City in CA-G.R. CV No. 70648, and its
Resolution3 dated May 18, 2006 denying petitioner's motion for reconsideration.
The Facts
In 1979, private respondent Carmencita Naval-Sai (Naval-Sai) acquired
ownership of a parcel of land described as Lot No. 54-B (LRC) Psd 39172 and
covered by Transfer Certificate of Title (TCT) No. T-19586 from her brother. The
land was later subdivided, with the corresponding titles issued in Naval-Sai's
name in the Register of Deeds of North Cotabato.4 Two of these subdivided lots,
Lots No. 54-B-8 (LRC) Psd 173106 and No. 54-B-9 (LRC) Psd 173106, covered
by TCTs No. T-58334 and No. T-58335,5 respectively, are the subject of this case.
Subsequently, Naval-Sai sold Lot No. 54-B-76 (LRC) Psd 173106 to a certain
Bobby Adil on installment, on the condition that the absolute deed of sale will be
executed only upon full payment. Adil failed to pay the amortization, forcing him
to sell his unfinished building on the property to spouses Francisco and Louella
Omandac.7
Meanwhile, Naval-Sai borrowed money from a certain Grace Ng. As security,
Naval-Sai delivered to Ng TCTs No. T-58334 and No. T-58335 covering Lots No.
54-B-8 and No. 54-B-9, respectively. Ng, on the other hand, borrowed money
from petitioner and also delivered to the latter the two titles to guarantee payment
of the loan.8
Sometime thereafter, Naval-Sai learned that petitioner filed a case for recovery of
possession (Civil Case No. 1007) against Francisco Omandac. Branch 17 of the
Regional Trial Court (RTC) in Kidapawan City ruled in favor of petitioner.9 NavalSai filed a motion for new trial before the Court of Appeals, arguing that her
signature in the purported deed of sale presented in the case between her and
petitioner was a forgery. Civil Case No. I007, however, became final and
executory in 2001.10The spouses Omandac were ejected from the property and
petitioner gained possession of the same.11

In July 1999, Naval-Sai filed a Complaint for Annulment of Deed with

Damages12 before the same Branch 17 of the RTC in Kidapawan City against
petitioner. The subject of the complaint was the deed of sale allegedly executed
between Naval-Sai and petitioner involving Lots No. 54-B-8 and No. 54-B-9.
Naval-Sai prayed that the deed of sale be declared null and void ab
initio because the alleged sale between her and petitioner was a forgery. NavalSai argued that she never sold the lots and that her signature in the purported
deed of sale is spurious.
Naval-Sai filed an Amended Complaint13 dated July 29, 1999. She asserted that
the subject TCTs were already cancelled by virtue of the deed of sale. TCT No. T62446 was issued in lieu of TCT No. T-58334 and TCT No. T-62447 replaced
TCT No. T-58335. Hence, the Amended Complaint added as a relief the
declaration of TCTs No. T-62446 and No. T-62447, which were registered in the
name of petitioner, as null and void ab initio. Unlike the original complaint,
however, the Amended Complaint was not signed by Naval-Sai, but by her
counsel.
In his Answer with Counterclaim14 dated October 4, 1999, petitioner specifically
denied that the two TCTs were delivered to him by Ng as a guaranty for payment
of her loan. Petitioner claimed that he and Naval-Sai entered into a valid contract
of sale in 1981 and that the lots were sold for value. The corresponding TCTs
were issued in his name shortly thereafter and since then, he had been in
complete control of the properties. When Francisco Omandac constructed a
house in one of the properties, petitioner filed Civil Case No. 1007.
Petitioner also raised special and affirmative defenses of, among others, noncompliance with the requisite certification of non-forum shopping and
prescription. He asserted that jurisdiction has never been acquired over the
parties and the subject matter because the certification against forum shopping in
the Amended Complaint was defective, for having been merely signed by NavalSai's counsel. He further claimed that the action for annulment of deed of sale is
already barred by the statute of limitations and that Naval-Sai is guilty of estoppel
and laches.
The RTC dismissed the complaint on the grounds of prescription and a defective
certification against forum shopping. The dispositive portion of its order reads:
WHEREFORE, finding the defendant's defense meritorious, this Court hereby
orders the dismissal of the instant complaint without prejudice to the prosecution
in the same action of the counterclaim pleaded in the answer pursuant to Section
6 Rule 16 of the Rules of Court.
Let the hearing on the counterclaim be set on March 30, 2001.
SO ORDERED.15

22

The RTC found the action for annulment of deed of sale to be a collateral attack
on the titles, which is prohibited by law under the principle of indefeasibility of title
after the lapse of one year from registration. The RTC explained that Naval-Sai's
complaint was not only for the annulment of deed of sale but, ultimately, for the
cancellation of the titles in the name of petitioner, thus:
It is true that an action to set aside a contract which is void [ab initio] docs not
prescribe. However, a closer glance on the substance of the plaintiffs claim would
reveal that its ultimate thrust is to have the Transfer Certificate of Title Nos. T62446 and T-62447 cancelled. This is evidenced by the plaintiff's prayer asking
for the declaration of TCT Nos. T-62446 and TCT No. 62447 registered in the
name of the defendant as null and void [ab initio] in addition to her prayer for the
declaration of nullity of the subject deed of sale. x x x
Under the Land Registration Act, a title is valid and effective until annulled or
reviewed in a direct proceeding and not in a collateral one, which review must be
made within one year from the issuance of the title. After the lapse of such
period, the title would be conclusive against the whole world including the
government. In other words, the title, alter the lapse of one year from registration
become[s] indefeasible.16
On the issue of non-compliance with the required certification on non-forum
shopping, the RTC noted that Naval-Sai did not explain why she failed to comply
with the Rules. The RTC cited the case of Five Star Bus Company, Inc. v. Court
of Appeals17 where we, faced with the similar issue of whether or not to dismiss a
petition on the ground that the certification was signed by counsel, ruled that
there was non-compliance with the Supreme Court Revised Circular No. 289118 and that substantial compliance cannot be applied.19
The Court of Appeals set aside the order of the RTC in the now assailed
Decision20 dated January 26, 2006. The Court of Appeals ruled that there was
substantial compliance with the requirement of verification and certification of
non-forum shopping. It noted that the original complaint has a proper verification
and certification of non-forum shopping signed by Naval-Sai herself. What was
signed by Naval-Sai's counsel was the amended complaint dated July 29, 1999.
Its verification and certification carries the statement "x x x that this [a]mended
[c]omplaint should be taken and read together with the original complaint; x x
x"21 which the Court of Appeals found to be a "cautionary move" tantamount to
substantial compliance.22 The Court of Appeals further explained that the rule on
certification against forum shopping was complied with in the original complaint
because although an amended complaint supersedes the pleading that it
amends, it is not an initiatory pleading contemplated under the Rules of Court.23
On the issue of whether the action is a collateral attack in relation to prescription,
the Court of Appeals ruled that it is neither a direct nor a collateral attack.
According to the Court of Appeals, the action is a direct attack when the object of
an action is to annul or set aside the judgment in the registration proceeding. On
the other hand, a collateral attack is when, in an action to obtain a different relief,

an attack on the judgment or registration proceeding is nevertheless made as an

incident thereof.
Here, however, Naval-Sai is seeking a relief for an annulment of the deed of sale,
which is not an attack on the judgment or registration proceeding pursuant to
which the titles were decreed. It does not seek to set aside the judgment of
registration of titles nor does it seek to nullify the title by challenging the judgment
or proceeding that decreed its issuance. The action is in reality one for
reconveyance, which is imprescriptible when based on a void contract. Thus:
A perusal of the records of the case shows that the caption of appellant's
Complaint before the RTC is annulment of deed. However considering that the
ultimate relief sought is for the appellee to "return" the subject property to him, it
is in reality an action for reconveyance. In De Guzman [v.] Court of Appeals, the
Court held that, "the essence of an action for reconveyance is that the decree of
registration is respected as incontrovertible but what is sought instead is the
transfer of the property which has been wrongfully or erroneously registered in
another person's name, to its rightful owner or to one with a better right."
xxx
An action for reconveyance on the ground that the certificate of title was obtained
by means of a fictitious or forged deed of sale is virtually an action for the
declaration of the nullity of the forged deed, hence, it does not prescribe. x x x 24
However, the Court of Appeals emphasized that despite its discussion on the
prescriptibility of the action, it has not made a finding that the deed of sale is
indeed fictitious or forged because it is for the RTC to rule on after evidence has
been presented and evaluated. Thus, the relevant dispositive portion of the Court
of Appeals' decision reads:
WHEREFORE, premises considered, the petition is GRANTED. The assailed
Order of dismissal dated 30 March 2001 is hereby SET ASIDE and deemed of no
effect.
Let this case be remanded to the lower court for further proceedings.
SO ORDERED.25
Petitioner filed a Motion for Reconsideration26 on March 3, 2006, which was
denied by the Court of Appeals in its Resolution27 dated May 18, 2006.
Hence, this petition, which raises the following issues:
I.
THE COURT OF APPEALS ERRED WHEN IT RULED THAT THERE WAS

23

SUBSTANTIAL COMPLIANCE WITH THE REQUIREMENTS ON

CERTIFICATION FOR NON-FORUM SHOPPING.
II.
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE ACTION HAS
PRESCRIBED AND/OR THE PRIVATE RESPONDENT IS GUILTY OF
INACTION, LACHES OR ESTOPPEL.
Our Ruling
There was substantial compliance
with the requirements on
certification against forum
shopping.
A certification against forum shopping is a peculiar and personal responsibility of
the party, an assurance given to the court or other tribunal that there are no other
pending cases involving basically the same parties, issues and causes of
action.28 It must be executed by the party-pleader, not by his counsel. If, however,
for reasonable or justifiable reasons, the party-pleader is unable to sign, he must
execute a Special Power of Attorney (SPA) designating his counsel of record to
sign on his behalf.29cralawrednad
Here, the original complaint contained a proper verification and certification
against forum shopping duly signed by Naval-Sai as plaintiff. The verification and
certification in the amended complaint, on the other hand, was only signed by her
counsel, Atty. Norberta L. Ela. Atty. Ela was not authorized to sign on behalf of
Naval-Sai, as in fact, she assigned one Rodolfo Florentino as agent.30 The Court
of Appeals pointed out that in the certification in the amended complaint, Atty. Ela
specified that it should be taken and read together with the original complaint.
The Court of Appeals took this as a cautionary move on the part of Naval-Sai,
justifying the relaxation of the rules on the ground of substantial compliance. We
find, however, that this cautionary move is ineffectual because under the Rules of
Civil Procedure, an amended complaint supersedes the original complaint.31 For
all intents and purposes, therefore, the original complaint and its verification and
certification ceased to exist. This, notwithstanding, we find there was still
substantial compliance with the Rules.
In the case of Far Eastern Shipping Company v. Court of Appeals,32 while we
said that, strictly, a certification against forum shopping by counsel is a defective
certification, the verification, signed by petitioner's counsel in said case, is
substantial compliance because it served the purpose of the Rules of informing
the Court of the pendency of another action or proceeding involving the same
issues. We then explained that procedural rules are instruments in the speedy
and efficient administration of justice which should be used to achieve such end
and not to derail it.33
We also find that the prima facie merits of the case serve as a special

circumstance or a compelling reason to relax the rules on certification against

forum shopping.
In Sy Chin v. Court of Appeals,34 we recognized the flaw in the certification
against forum shopping which was signed only by the counsel, and not by the
party. In LDP Marketing, Inc. v. Monter,35 there was initially no proof that the one
who signed the certification was authorized to do so in behalf of the corporation.
In these two cases, we nonetheless chose to overlook the procedural lapses in
the interest of substantial justice and the existence of prima facie merit in the
petitions.
We have ruled that the general rule is that non-compliance or a defect in the
certification is not curable by its subsequent submission or correction. However,
there are cases where we exercised leniency and relaxed the rules on the
ground of substantial compliance, the presence of special circumstances or
compelling reasons.36 The rules on forum-shopping are designed to promote and
facilitate the orderly administration of justice and "should not be interpreted with
such absolute literalness as to subve1i its own ultimate and legitimate objective
or the goal of all rules of procedure which is to achieve substantial justice as
expeditiously as possible."37
The nature of Navai-Sai's action
is an action for reconveyance based
on a void contract, which does not
prescribe.
Petitioner argues that Naval-Sai 's action has already prescribed because her
action should have been filed within one year from the time of the registration of
the titles. He asse1is that even if the action is in reality one for reconveyance as
found by the Court of Appeals, the same is still barred by prescription based on
judicial pronouncements that an action for reconveyance of registered land
based on implied trust prescribes in ten (l 0) years. Petitioner also accuses
Naval-Sai guilty of laches and estoppel for her failure to assert her right over the
two lots for more than eighteen (18) years.
In order to arrive at a conclusion on whether the action has prescribed, we have
to determine the nature of the action.
We agree with the Court of Appeals that the action of Navai-Sai ts one for
reconveyance. Although the designation of the complaint is annulment of deed,
and does not include reconveyance, the facts alleged and reliefs sought show
that reconveyance is the end goal. What determines the nature of the action are
the allegations in the complaint The cause of action in a complaint is not
determined by the designation given by the complaint, but by what the
allegations in the body of the complaint define or describe,38 as well as the
character of the relief sought.39
An action for reconveyance is a legal and equitable remedy granted to the rightful
owner of land which has been wrongfully or erroneously registered in the name
of another for the purpose of compelling the latter to transfer or reconvey the land

24

to him.40 In an action for reconveyance, the decree of registration is respected as

incontrovertible. What is sought instead is the transfer of the property, which has
been wrongfully or erroneously registered in another person's name, to its rightful
and legal owner, or to one with a better right.41 However, such recourse cannot
be availed of once the property has passed to an innocent purchaser for value.
For an action for reconveyance to prosper, the property should not have passed
into the hands of an innocent purchaser for value.42
Here, Naval-Sai does not only seek to annul the purported deed of sale but also
to cancel TCTs No. T-62446 and No. 62447 in the name of petitioner. If the reliefs
are granted and the TCTs are cancelled, the titles to the lots will revert to NavalSai as she was the previously registered owner. Thus, a ruling in favor of NavalSai would be equal to what an action for reconveyance seeks to accomplish.
An action for reconveyance is based on Section 53, paragraph 3 of Presidential
Decree (PD) No. 1529,43 which provides:
In all cases of registration procured by fraud, the owner may pursue all his legal
and equitable remedies against the parties to such fraud without prejudice,
however, to the rights of any innocent holder for value of a certificate of title. x x x
In Caro v. Court of Appeals,44 we said that this provision should be read in
conjunction with Article 1456 of the Civil Code, which provides:
Article 1456. If property is acquired through mistake or fraud, the person
obtaining it is, by force of law, considered a trustee of an implied trust for the
benefit of the person from whom the property comes.
The law creates the obligation of the trustee to reconvey the property and its title
in favor of the true owner. Correlating Section 53, paragraph 3 of PD No. 1529
and Article 1456 of the Civil Code with Article 1144 (2) of the Civil Code,45 the
prescriptive period for the reconveyance of fraudulently registered real property is
ten (10) years reckoned from the date of the issuance of the certificate of
title.46 This ten-year prescriptive period begins to run from the date the adverse
party repudiates the implied trust, which repudiation takes place when the
adverse party registers the land.47 An exception to this rule is when the patty
seeking reconveyance based on implied or constructive trust is in actual,
continuous and peaceful possession of the property involved.48 Prescription does
not commence to run against him because the action would be in the nature of a
suit for quieting of title, an action that is imprescriptible.49
The foregoing cases on the prescriptibility of actions for reconveyance apply
when the action is based on fraud, or when the contract used as basis for the
action is voidable. Under Article 1390 of the Civil Code, a contract is voidable
when the consent of one of the contracting parties is vitiated by mistake,
violence, intimidation, undue influence or fraud. When the consent is totally
absent and not merely vitiated, the contract is void.50 An action for reconveyance
may also be based on a void contract.51When the action for reconveyance is

based on a void contract, as when there was no consent on the part of the
alleged vendor, the action is imprescriptible.52 The property may be reconveyed
to the true owner, notwithstanding the TCTs already issued in another's name.
The issuance of a certificate of title in the latter's favor could not vest upon him or
her ownership of the property; neither could it validate the purchase thereof
which is null and void. Registration does not vest title; it is merely the evidence of
such title. Our land registration laws do not give the holder any better title than
what he actually has. Being null and void, the sale produces no legal effects
whatsoever.53
Whether an action for reconveyance prescribes or not is therefore determined by
the nature of the action, that is, whether it is founded on a claim of the existence
of an implied or constructive trust, or one based on the existence of a void or
inexistent contract. This is evident in several of our past decisions. In Casipit v.
Court of Appeals,54 we rejected the claim of imprescriptibility and applied the 1 0year prescription where the action filed was based on fraud:
There is no dispute that an action for reconveyance based on a void contract is
imprescriptible (Castillo, et al. v. Madrigal, et al., G.R. No. 62650, June 27, 1991;
Baranda, et al. v. Baranda, et al., G.R. No. 73275, May 20, 1987, 150 SCRA 59).
However, We simply cannot apply this principle to the present case because the
action filed by petitioner before the trial court was 1) for reconveyance based on
fraud since the ownership of private respondents over the questioned property
was allegedly established on "false assertions, misrepresentations and deceptive
allegations" (p. 182, Records); and 2) for rescission of the "Kasulatan ng
Pagmamana at Paghahati" (pp. 173, 187, Records). x x x 55
On the other hand, in Daclag v. Macahilig,56 we rejected the claim of petitioners
that prescription is applicable because the action was based on fraud. We ruled
that the action was not subject to prescription because it was, in fact, based on a
deed of sale that was null and void. Thus:
However, a review of the factual antecedents of the case shows that
respondents' action for reconveyance was not even subject to prescription.
The deed of sale executed by Maxima in favor of petitioners was null and void,
since Maxima was not the owner of the land she sold to petitioners, and the onehalf northern portion of such land was owned by respondents. Being an absolute
nullity, the deed is subject to attack anytime, in accordance with Article 1410 of
the Civil Code that an action to declare the inexistence of a void contract does
not prescribe. x x x An action for reconveyance based on a void contract is
imprescriptible. As long as the land wrongfully registered under the Torrens
system is still in the name of the person who caused such registration, an action
in personam will lie to compel him to reconvey the property to the real
owner.57 (Citations omitted)
In Santos v. Heirs of Dominga Lustre,58 the complaint alleged that the deed of
sale was simulated by forging the signature of the original registered owner. We
ruled in favor of imprescribility applying the doctrine that the action for

25

reconveyance on the ground that the certificate of title was obtained by means of
a fictitious deed of sale is virtually an action for the declaration of its nullity, which
does not prescribe.

one based on a void or inexistent contract for lack of consent on the part of the
alleged vendor, Naval-Sai. Based on the complaint, Naval-Sai only consented to
use the titles of the two lots as security to a loan she obtained from Ng.63

Also, and more illustrative of the discussion above, in Castillo v. Heirs of Vicente
Madrigal,59 it was alleged by the plaintiffs that they never signed any document.
We ruled as follows:

Resolution of the issue of prescription hinges on whether the deed of sale was
indeed forged and, thus, void. Unfortunately, both the RTC and the Court of
Appeals did not make actual findings on the alleged forgery. No full-blown trial
occurred in the RTC to prove that the deed of sale was indeed simulated and that
the signatures were forgeries. The case was dismissed based on the pleadings
of the parties. The Court of Appeals also resolved to decide the case on available
records and pleadings, in order to avoid further delay, due to several resettings
and motions for postponement filed by the parties one after another. The lack of
factual findings on the alleged forgery from the lower courts prevents us from
ruling on the issue of prescription.

Petitioners allege that a reading of paragraphs 9 and 10 of their complaint

reveals that they impugn the existence and validity of the alleged deed of sale.
As contained therein, petitioners never entered into any transaction with any
person conveying the subject property. They did not sign any document in favor
of [anyone] neither did they give [anyone] authorization for that purpose.
Therefore, consent and cause did not exist in the execution of the deed of sale,
invoking Articles 1318, 1352 and 1409(3), of the Civil Code. And, pursuant to
Article 1410 of the Civil Code, an action for the declaration of the inexistence of a
contract does not prescribe.
In dismissing petitioners' complaint on the ground of prescription, the trial court
opined (p. 123, Rollo):
"x x x, any action for annulment of the deed and TCT 72066 should have been
instituted within ten (10) years from the accrual of the cause of action, that, (sic)
is, ten years from 1943 when the deed was executed at the earliest, or ten years
from 1944 at the latest. This action was filed on December 17, 1979, or after
more than 30 years from 1943 and 1944. The action, therefore, has long
prescribed. x x x."
The Court of Appeals expressed the same opinion (p. 51, Rollo):
"x x x, even as We consider that there was fraud in the registration and the
issuance or title in favor of defendant Madrigal creating thereby a constructive
trust in favor of the plaintiffs, the remedy of the plaintiiTs is an action for
reconveyance within ten (1 0) years from the registration of the property in the
name of defendant Madrigal (Alzona v. Capunitan, 4 SCRA 450; Gonzales v.
Jimenez 13 SCRA, 80). Again, the filing of the complaint was way beyond the
ten-year period of limitation."
Both courts ruled incorrectly. It is evident in paragraphs 9, 10 and 12 of the
complaint,supra, that petitioners sought the declaration of the inexistence of the
deed of sale because of the absence of their consent. Thus, following the
provision of Article 1410 of the Civil Code, this kind of action is imprescriptible.
The action for reconveyance is likewise imprescriptible because its basis is the
alleged void contract of sale. x x x60(Citations omitted)

Since it is apparent that the complaint on its face does not show that the action
has already prescribed, the RTC erred in dismissing it. We emphasize once more
that a summary or outright dismissal of an action is not proper where there are
factual matters in dispute, which require presentation and appreciation of
evidence.64
Applying the foregoing cases and without prejudging the issue of forgery, the
action for reconveyance will not be subject to prescription if the trial court finds
that the deed of sale is indeed forged, because the action would now be based
on a fictitious and void contract. If the trial court finds otherwise, then the issue of
prescription would not matter as the sale would stand and remain binding
between Naval-Sai and petitioner.
Similarly, the elements of laches must be proven positively. Laches is evidentiary
in nature, a fact that cannot be established by mere allegations in the
pleadings.65 Therefore, at this stage, the dismissal on the ground of laches would
be premature. The issues must be resolved in the trial on the merits.
Moreover, laches is a doctrine in equity, and applied only in the absence of, and
never against, statutory law.66 The positive mandate of Article 1410 of the Civil
Code conferring imprescriptibility to actions or defense for the declaration of the
inexistence of a contract should pre-empt and prevail over all abstract arguments
based only on equity.67
WHEREFORE, the petition is DENIED. Let the records of this case be remanded
for further proceedings to the Regional Trial Court of Kidapawan City, Branch 17,
which is hereby ORDERED to try and decide the case with dispatch.
SO ORDERED.

We conclude that, contrary to the claim of petitioner, the action for reconveyance
is based neither on an implied or constructive trust nor fraud. Naval-Sai alleged
that the purpmied deed of sale, which became the basis to transfer the titles in
petitioner's name, was an absolute forgery because she never sold the two lots
to any person.61 Naval-Sai also alleged that her signature and that of her
husband's, in the deed of sale are forgeries.62 These allegations make the action

Velasco, Jr., (Chaiperson), Peralta, Villarama, Jr., and Perez* JJ., concur.
Endnotes:

26

21

Id. at 43.

Designated as Acting Member in view of the leave of absence of Hon.

Bienvenido L. Reyes, per Special Order No. 2084 dated June 29, 2015.

22

Id. at 62.

23

Id. at 63.

CA-G.R. CV No. 70648, penned by Associate Justice Teresita Dy-Liacco Flores

and concurred in by Associate Justice Rodrigo F. Lim, Jr. and Associate Justice
Ramon R. Garcia of the Twenty-First Division, rollo, pp. 53-64

24

Id. at 61.

Id. at 77.

26

RTC records, pp. 1-2.

27

Id. at 6.

28

Rollo, pp. 15-27.

25

cralawred Id. at 63.

CA rollo, pp. 145-154.
Rollo, p. 79.

Negros Merchants Enterprises, Inc. v. China Banking Corporation, G.R. No.

150918, August 17,2007, 530 SCRA 478, 485.

It appears from the records that there is a mistake as to the number of the lot
Navai-Sai sold to Adil. Following the turn of events, this lot could only be either
Lot No. 54-B-8 or 54-B-9.
7

RTC records, p. 2.
Id
Id. at 6.

10

11

12

CA rollo, p. 47.
Memorandum of petitioner dated November 15,2007, rollo, p. 144.
Rollo, pp. 28-35.

29

Ingles v. Estrada, G.R. Nos. 141809, 147186 and 173641, April 8, 2013, 695
SCRA 285, 317-319, citing Altres v. Empleo, G.R. No. 180986, December 10,
2008, 573 SCRA 583, 597-598.
30

RTC records, p. 9.

31

RULES OF CIVIL PROCEDURE, Rule 10, Sec. 8.

32

G.R. No. 130068, October 1, 1998, 297 SCRA 30, 53.

33

Ty-De Zuzuarregui v. Villarosa, G.R. No. 183788, April 5, 2010, 617 SCRA 377,
385.
34

G.R. No. 136233, November 23, 2000, 345 SCRA 673, 684.
G.R. No. 159653, January 25, 2006, 480 SCRA 137.

13

Id. at 36-43.

35

14

Id. at 44-49.

36

15

RTC records, p. 99.

16

17

Rollo, pp. 50-51.

G.R. No. 127064, August 31, 1999,313 SCRA 367.

18

Additional Requisites for Petitions Filed with the Supreme Court and the Court
of Appeals to Prevent Forum Shopping1or Appeals to Prevent Forum Shopping
or Multiple Filing of Petitions and Complaints, February 8, 1994.
19

20

Rollo, p. 52.
Id. at 53-64.

Shipside Incorporated v. Court of Appeals, G.R. No. 143377, February 20,

2001, 352 SCRA 334, 346.
37

Dar v. Alonzo-Legasto, G.R. No. 143016, August 30, 2000, 339 SCRA 306, 309
citingGahionza v. Court of Appeals, G.R. No. 112547, July 18, 1994, 234 SCRA
192, 198.
38

Hernudd v. Lofgren, G.R. No. 140337, September 27, 2007, 534 SCRA 205,
213.
39

Caiza v. court of Appeals, G.R. No. 110427, Feburuary 24, 1997, 268 SCRA
640, 647-648.
40

Hi-Tone Marketing Corporation v. Baikal Realty Corporation, G.R. No. 149992,

August 20,2004,437 SCRA 121, 143.

27

41

Id., citing Walstrom v. Mapa, Jr., G.R. No. 38387, January 29, 1990, 181 SCRA
431, 442.

52

Id. at 136.

53
42

Philippine Economic Zone Authority v. Fernandez, G.R. No. 138971, June 6,

2001, 358 SCRA 489, 499.
43

44

Macababbad, Jr. v. Masirag, G.R. No. 161237, January 14, 2009, 576 SCRA
70, 86.
54

G.R. No. 96829, December 9, 1991, 204 SCRA 684, 693.

55

Id.

56

G.R. No. 159578, February 18, 2009, 579 SCRA 556.

Otherwise known as the Property Registration Decree.

G.R. No. 76148, December 20, 1989, 180 SCRA 401, 407.

45

ART. 1144. The following actions must be brought within ten years from the
time the right of action accrues:ChanRoblesvirtualLawlibrary
(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment
46

57

Id. at 559-560; See also Philippine National Bank v. Heirs of Estanislao Militar
and Deogracias Militar, G.R. Nos. 164801 and 165165, August 18, 2005, 467
SCRA 377; andSantos v. Santos, G.R. No. 133895, October 2, 2001, 366 SCRA
395.
58

G.R. No. 151016, August 6, 2008, 561 SCRA 120, 133.

29

G.R. No. 62650, June 27, 1991, 198 SCRA 556.

60

Id. at 560-561.

61

Rollo, pp. 29-30.

62

Id. at 32.

63

Id. at 29.

Id.

47

Crisostomo v. Garcia, Jr., G.R. No. 164787, January 31, 2006, 481 SCRA
402;Salvatierra v. Court of Appeals, G.R. No. 107797, August 26, 1996, 261
SCRA 45;Amerol v. Bagumbaran, G.R. No. L-33261, September 30, 1987, 154
SCRA 396.
48

Vda. de Gualberto v. Go, G.R. No. 139843, July 21, 2005, 463 SCRA 671, 681.

49

Brito. Sr. v. Dianala, G.R. No. 171717, December 15, 2010, 638 SCRA 529,
538.

64

ART. 1318. There is no contract unless the following requisites

concur:ChanRoblesvirtualLawlibrary

Sanchez v. Sanchez, G.R. No. 187661, December 4, 2013, 711 SCRA 541,
547.
65

(1) Consent of the contracting parties;

(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.

66

67
51

Amado D. Aquino, Land Registration and Related Proceedings, p. 133, 4th Ed.,
2007.

Id.
Santos v. Heirs of Dominga Lustre, supra note 58 at 133-134.

Philippine National Bank v. Heirs Estanislao Militar and Deogracias Militar,

supra note 57 at 389.