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TRUST DE SON TORT (constructive trust):

G.R. No. L-27294 June 28, 1983 ALFREDO ROA, JR., LETICIA ROA DE BORJA, RUBEN ROA, CORNELIO
ROA and ELSIE ROA-CACNIO (as heirs of the late Alfredo Roa, Sr.). petitioners, vs. HON. COURT OF
APPEALS and the spouses JOAQUIN CASIO and CUSTODIA VALDEHUESA, respondents.
GUERRERO, J.: Appeal by way of certiorari from the Decision of the Court of Appeals 1 in CA-G.R. No. 34746-R
entitled "Alfredo Roa, Plaintiff-Appellant, versus Joaquin Casio et al., Defendants-Appellees," and from the
Resolution of the said Court 2 denying plaintiff-appellant's motion for reconsideration of the said Decision.
On September 1, 1955, an action for recovery of possession of a parcel of land was filed before the Court of First
Instance of Misamis Oriental by Alfredo Roa, Sr. (now deceased and subsequently substituted by his heirs, the
herein petitioners) against respondent spouses, Joaquin Casio and Custodia Valdehuesa (real name appears to
be Teodosia Valdehuesa), successors-in- interest of one Pablo Valdehuesa, now deceased.
In his complaint, Alfredo Roa, Sr. alleged that the said land is agricultural; that it is situated in Bugo, formerly within
the municipality of Tagoloan, Misamis Oriental, now comprised within the limits of the City of Cagayan de Oro; that
it is registered in his name under Original Certificate of Title No. T-21D; that he found the private respondents
occupying said land. He prayed that possession of the same be returned to him and that he be awarded actual and
moral damages in the sum of P10,000.00.
In answer to the complaint, respondent spouses alleged that the land in question formerly belonged to one Pablo
Valdehuesa, father of respondent Custodia (Teodosia) Valdehuesa and now deceased; that it was however titled in
the name of Alfredo Roa, Sr., Trinidad Reyes Roa, Esperanza Roa de Ongpin, Concepcion Roa and her husband
Zosimo Roa in Land Registration Case No. 12, G.R.L.O. Record No. 10003 of the Court of First Instance of
Misamis Oriental by virtue of an agreement entered into between the Roas and said Pablo Valdehuesa; that the
conditions of the said compromise agreement were never complied with by the Roas notwithstanding the death of
Pablo Valdehuesa in 1928 and despite repeated demands for compliance thereof; that the heirs of said Pablo
Valdehuesa sold the land in question to them on April 30, 1930, after rescinding the aforementioned compromise
agreement; and that they now enjoy the privileges of absolute ownership over said land by reason of their
continuous and adverse possession thereof since time immemorial. By way of counterclaim, the respondents
prayed for the reconveyance of the said parcel of land contending that the compromise agreement created an
implied trust between the parties to it, and for damages in the amount of P10,000.00.
In answer to private respondent's counterclaim, Alfredo Roa, Sr. maintained that the heirs of Pablo Valdehuesa
cannot rescind the compromise agreement by their own act alone or without going to court; and that the alleged
sale of the said heirs to private respondents was null and void, in view of the fact that respondent spouses knew
that the land was then titled in the name of the Roas under Act 496.
On December 22, 1959, the parties submitted to the Court a quo an agreed Stipulation of Facts, to wit:
STIPULATION OF FACTS
That parties herein, assisted by their respective attorneys, have agreed on the following facts:
1. That the plaintiff and the defendants are all of age and with capacity to sue and be sued.
2. That the plaintiff and his brothers and sisters Trinidad Reyes Roa, Esperanza Roa de Ongpin,
Concepcion Roa and Zosimo Roa, husband of the latter, were the owners pro-indiviso of a parcel
of land located in Tagoloan, Misamis Oriental, containing an area of several hundred hectares, and
sometime in 1925, and for the purpose of registering their title to said parcel of land, the said co-
owners filed an application with the Court of First Instance of Misamis Oriental, and said application
was docketed in said Court as Expediente No. 12, G.L.R.O. Record No. 10003.
3. That in the application as well as in the plans accompanying said application in Expediente No.
12, G.L.R.O. No. 10003, was included a parcel of land which is now the portion in litigation in this
case.
4. That one Pablo Valdehuesa filed an opposition in said Expediente No. 12, G.L.R.O. Record No.
10003. claiming absolute and exclusive ownership over a portion which is now the property under
litigation.
5. That sometime during the year 1925, the co-owners, said Concepcion Roa, Esperanza Roa de
Ongpin and Trinidad Reyes Roa and Zosimo Roa entered into an agreement with the said Pablo
Valdehuesa, and the terms of their agreement are contained in the document hereto attached,
made a part hereof, and marked as Exhibit "1".
6. That in compliance with his obligation under and by virtue of said Exhibit " 1" the said Pablo
Valdehuesa withdrew the opposition filed by him in said case Expediente No. 12, G.L.R.O. Record
No. 10003, and as the result of said withdrawal, the plaintiff and his co-owners succeeded in
registering their title to their property, including the portion owned by Pablo Valdehuesa as claimed
in his opposition.
7. That the said Pablo Valdehuesa died in May of 1928, and upon his death his estate passed to
the ownership of his widow and legitimate children including all his rights under said Exhibit " 1 " to
the property in question.
8. That since then the property in question has been in the possession of the defendants, and their
possession together with the possession of their predecessors in said property has been open,
continuous and uninterrupted to this date.
9. That sometime after the issuance of title in favor of the plaintiff (Transfer Certificate of Title No.
21-A) and his aforementioned brothers and sisters covering the parcel of land subject matter of the
application filed by them in Expediente No. 12, G.L.R.O. Record No. 10003, the said plaintiff and
his brothers and sisters partitioned among themselves said property, and plaintiff was adjudicated a
share in said property, of which the parcel of land covered by the opposition of Pablo Valdehuesa
withdrawn under the terms of Exhibit " 1" is a part or portion of said charge, and covered by T-21-D
(copy attached as Exh. "A").
10. That the portion in litigation as correctly described in paragraph 3 of the complaint is covered by
the certificate of title referred to above.
11. That in 1955 the plaintiff had a surveyor relocate the corners and boundaries of his land as
described in his title and that the portion of about 2 hectares on the eastern end of the land is in the
possession and is actually occupied by the defendant. This is the portion in litigation described in
par. 3 of the complaint .
12. That Expediente No. 12, G.L.R.O. Record No. 10003 have been totally destroyed during the
last World War, and the parties reserve the right to present additional evidence during the hearing
of this case.
Cagayan de Oro City, December 22, 1959.
(Sgd.) ALFREDO ROA
Plaintiff
(Sgd.) HERNANDO PINEDA
(Attorney for Plaintiff)
(Sgd.) JOAQUIN CASIO
(Sgd.) CUSTODIA VALDEHUESA
(Defendants)
(Sgd.) MANUEL C. FERNANDEZ
(Sgd.) CONCORDIO C. DIEL
(Attorney for defendants")
The aforesaid compromise agreement mentioned in paragraph 5 of the agreed Stipulation of Facts was thereafter
ratified on May 11, 1927 as shown in Exhibit " 1" as follows:
SEPAN TODOS LOS QUE LA PRESENTE VIEREN :
Que nosotros, los abajo firmantes, mayores de edad hacemos constar:
1. Que somos los dueos mancomunados de la propiedad conocida por Terrenos de Bugu, en el municipio de
Tagoloan, provincia de Misamis.
2. Que en la tramitacion del Exp. No.12,G.L.R.O.,Record No. 10003, para el registro de dicha propiedad, el Sr.
Pablo Valdehuesa del municipio de Tagoloan, que era uno de los opositores, consintio en retirar su oposicion
contra nuestra citada solicitud de registro a condicion de que le reconozcamos su dominio y propiedad sobre
una parcela de terreno dentro de la comprension de Bugu que el ocupaba, o se le compre, y de otro modo se
le compense al reintegrarnos dicha parcela en tiempo oportuno. La descripcion del terreno referido cuya
extension es de una hectares, cuarenta y nueve areas y cincuenta y nueve centiareas, aparece en el escrito de
oposicion que obra en el referido Exp. 12, y que luego fue retirado por convenio de partes.
3. Por tanto, en complimiento de dicho convenio y como consecuencia del mismo, ratificamos lo que tenemos
prometido, para lo cual autorizamos al Sr. Zosimo Roa a que busque y adquiera otro pedazo de terreno fuera
de la comprension de Bugu, de una hectarea, cuarenta y nueve areas y cincuenta y nueve centiareas, poco
mas o menos, y que sea acceptable para el Sr. Pablo Valdehuesa, como canje or permuta con la parcela que
el ocupa; en la inteligencia de que el valor de compra no exceda de P400.00 en su defecto, si no se encuentra
un terreno que sea satisfactorio para el Sr. Pablo Valdehuesa, se le compensara el reintegro arriba citado en la
mencionada cantidad de P400.00.
4. Por su parte, el Sr. Pablo Valdehuesa, acepta todo lo establecido en este documento, obligandose a
respetarlo y acatarlo.
En testimonio de todo lo cual, firmamos el presente documento en Cagayan de Misamis, hoy, 11 de Mayo de
1927.
(Sgd.) Trinidad Roa de Reyes (Sgd.) Esperanza Roa de Ongpin
(Sgd.) Concepcion Roa (Sgd.) Zosimo Roa
__________________________
Alfredo Roa
___________________________
Pablo Valdehuesa
Pursuant to said Exhibit "1", Concepcion, Esperanza, Trinidad and Zosimo, all surnamed Roa, agreed to replace
the land of Pablo Valdehuesa with another parcel of land with an area of 1.4959 hectares to be given to Pablo
Valdehuesa in exchange for the land occupied by him, or if said land was not acceptable to him, to pay him the
amount of P400.00. Neither of these undertakings was complied with by the Roas and Pablo Valdehuesa continued
in possession of the land occupied by him until the same was sold by the heirs of Pablo Valdehuesa to the
respondent spouses on April 30, 1930.
On March 6, 1964, the lower court rendered the decision ordering the plaintiff Alfredo Roa to reconvey the land in
dispute to the defendants, now the respondent spouses, on the ground that same could not have been registered in
the name of the plaintiff and his brother and sisters if not for the compromise agreement aforestated and further to
pay said defendants the amount of P1,000.00 as attorney's fees plus costs.
On appeal taken by Alfredo Roa, the appellate court affirmed the decision of the lower court and declared that (a)
the compromise agreement created an express trust between the Roa brothers and sisters, including Alfredo, Sr.,
(b) that the respondent spouses' action for reconveyance was imprescriptible on the authority of Mirabiles, et al. v.
Quito, et al., L- 14008, October 18, 1956; and (c) that Alfredo Roa cannot invoke the indefeasibility and
imprescriptibility of the Torrens title issued in his name for the land in dispute since the said title was secured by him
in breach of an express trust, and thus, the Court ordered the reconveyance of the property within fifteen (15) days
from the finality of the decision.
Alfredo Roa, now substituted by his heirs, the herein petitioners Alfredo Roa, Jr., Leticia Roa de Borja, Ruben Roa,
Cornelio Roa and Elsie Roa-Cacnio, moved to reconsider the adverse decision. Acting on this motion for
reconsideration, the Court of Appeals in a majority resolution denied the said motion, and while conceding that "the
creation of an express trust leaves room for doubt," the said Court ruled that the compromise agreement, at the
least gave rise to an implied trust under Art. 1456 of the New Civil Code. Hence, petitioners filed this present
petition on the following assignment of errors:
I. The respondent Court of Appeals erred when it ruled that Alfredo Roa, the petitioners' predecessor-in-interest,
was bound by the compromise agreement (Exh. "I") in the execution of which, according to the Stipulation of
Facts, said Alfredo Roa neither participated nor signed.
II. On the assumption that the aforementioned compromise agreement was binding upon Alfredo Roa, the
respondent Court of Appeals erred when it held the said agreement, which stipulated the conveyance of the
property in dispute for a consideration, as having established a trust relationship between the parties to it.
III. The respondent Court of Appeals erred when it held that the ruling in the case of Gerona, et al. va. De
Guzman, G.R. No. L-19060, May 29, 1964, is inapplicable to the case at bar.
On the first assigned error, We reject the contention of the petitioners that Alfredo Roa, Sr. was not bound by the
compromise agreement for not being a participant or signatory thereto. It may be true that Alfredo Roa, Sr. did not
sign the compromise agreement, Exh. " 1 ", for he was then in Manila working as a newspaperman but he certainly
benefited from the effects of the compromise agreement which obliged Pablo Valdehuesa to withdraw, as he did
withdraw his opposition to the registration of the Roa property under the Torrens system. The Roa property was
subsequently registered without opposition and title was issued thereto in the name of Alfredo Roa, his brother
Zosimo and his sisters Trinidad, Esperanza and Concepcion, all surnamed Roa as co-owners thereof. Certainly, the
Roas may not escape compliance from their obligation under the compromise agreement by partitioning the
property and assigning the property in dispute as part of the share of the petitioners. Moreover, it will be a pure and
simple case of unjust enrichment for petitioners to acquire and own the property of Pablo Valdehuesa, without
paying the value thereof or exchanging the land with another with an equal area as originally agreed.
With respect to the second assignment of error, We do not agree with the holding of the respondent appellate court
that an express trust was created between the parties by reason of the compromise agreement entered into
between them. Express trusts are created by the intention of the trustor or one of the parties (Article 1441, New
Civil Code). While no particular words are required for the creation of an express trust, it being sufficient that a trust
is clearly intended (Article 1444, New Civil Code), in the case at bar, We find no direct and positive intent to create
a trust relationship between the parties to the compromise agreement under which Pablo Valdehuesa agreed to
withdraw his opposition to the application for registration upon the commitment of the Roas to give Valdehuesa
another piece of land of equal area or pay its price of P 400.00. It seems clear to Us that the Roas under the
compromise agreement did not commit themselves to hold the lot claimed by Pablo Valdehuesa for Pablo
Valdehuesa and in Pablo Valdehuesa's name.
If the compromise agreement did not result to an express trust relationship, did it, however, give rise to an implied
trust? Private respondents claim that under the terms of the compromise agreement, the land claimed by Pablo
Valdehuesa should be deemed held in trust by the Roas when the latter failed to relocate him or pay the price
therefor. The respondent appellate court took private respondents' position, and opined, 3 thus
It could thus be gleaned that had it not been for the promise of the Roas contained in Exhibit 1,
Valdehuesa would not have been induced to withdraw his opposition in the land registration case.
When, therefore, the Roas turned their back to a solemn agreement entered in a court
proceedings, they were guilty of fraud.
Fraud is every kind of deception, whether in the form of insidious machinations,
manipulations, concealments or misrepresentations, for the purpose of leading
another party into error and then execute a particular act. It must have a
determining influence on the consent of the victim."
It results from the foregoing that although the creation of an express trust leaves room for doubt, by
operation of law, an implied trust is created,
Art. 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. (N.C.C)".
We cannot sustain the holding of the respondent appellate court in its Resolution denying petitioners' motion for
reconsideration that by operation of law an implied trust was created under the terms of the compromise agreement
in the light of Article 1456 of the New Civil Code cited above. We rule that Art. 1456 is not applicable because it is
quite clear that the property of Pablo Valdehuesa was acquired by the Roas not through mistake or fraud but by
reason of the voluntary agreement of Valdehuesa to withdraw his opposition to the registration of the land under the
Torrens system.
There is incontrovertible evidence that the Roas intended to abide by the compromise agreement at the time of the
execution of the same. The private respondents themselves introduced additional evidence which showed that on
May 11, 1927, Trinidad Roa, Esperanza Roa de Ongpin, Concepcion Roa and Zosimo Roa confirmed in writing the
terms and conditions of the agreement they had entered into with Pablo Valdehuesa in the land registration
proceedings. Even the respondent appellate court expressly determined the aforesaid failure of the Roas to comply
with the terms of the compromise agreement to be an afterthought; thus,
The change of mind of the plaintiff-appellant later is of no moment in the case at bar. 4
While it is Our ruling that the compromise agreement between the parties did not create an express trust nor an
implied trust under Art. 1456 of the New Civil Code, We may, however, make recourse to the principles of the
general law of trusts, insofar as they are not in conflict with the New Civil Code, Code of Commerce, the Rules of
Court and special laws which under Art. 1442 of the New Civil Code are adopted. While Articles 1448 to 1456 of the
New Civil Code enumerates cases of implied trust, Art. 1447 specifically stipulates that the enumeration of the
cases of implied trust does not exclude others established by the general law of trusts, but the limitations laid down
in Art 1442 shag be applicable.
In American law and jurisprudence, We find the following general principles:
A constructive trust, otherwise known as a trust ex maleficio, a trust ex delicto, a trust de son tort,
an involuntary trust, or an implied trust, is a trust by operation of law which arises contrary to
intention and in invitum, against one who, by fraud, actual or constructive, by duress or abuse of
confidence, by commission of wrong, or by any form of unconscionable conduct, artifice,
concealment, or questionable means, or who in any way against equity and good conscience,
either has obtained or holds the legal right to property which he ought not, in equity and good
conscience, hold and enjoy. It is raised by equity to satisfy the demands of justice. However, a
constructive trust does not arise on every moral wrong in acquiring or holding property or on every
abuse of confidence in business or other affairs; ordinarily such a trust arises and will be declared
only on wrongful acquisitions or retentions of property of which equity, in accordance with its
fundamental principles and the traditional exercise of its jurisdiction or in accordance with statutory
provision, takes cognizance. It has been broadly ruled that a breach of confidence, although in
business or social relations, rendering an acquisition or retention of property by one person
unconscionable against another, raises a constructive trust.
And specifically applicable to the case at bar is the doctrine that "A constructive trust is substantially an appropriate
remedy against unjust enrichment. It is raised by equity in respect of property, which has been acquired by fraud, or
where, although acquired originally without fraud, it is against equity that it should be retained by the person holding
it." (76 Am. Jur. 2d, Sec. 222, p. 447).
The above principle is not in conflict with the New Civil Code, Code of Commerce, Rules of Court and special laws.
And since We are a court of law and of equity, the case at bar must be resolved on the general principles of law on
constructive trust which basically rest on equitable considerations in order to satisfy the demands of justice,
morality, conscience and fair dealing and thus protect the innocent against fraud. As the respondent court said, "It
behooves upon the courts to shield fiduciary relations against every manner of chickanery or detestable design
cloaked by legal technicalities."
The next point to resolve is whether the counterclaim of private respondents for the reconveyance of the property in
dispute has already prescribed in the light of established jurisprudence that the right to enforce an implied trust
prescribes in ten years.
Admittedly, Pablo Valdehuesa and his heirs remained in possession of the property in question in 1925 when by
reason of the compromise agreement Valdehuesa withdrew his opposition to the registration applied for by the
Roas for which reason the latter were able to obtain a Torrens title to the property in their name. However,
Valdehuesa and his heirs continued their possession of the land until he sold the property in question to private
respondents herein on April 30, 1930 and the latter remained in possession and were never disturbed in their
occupancy until the filing of the original complaint for recovery of possession on Sept. 1, 1955 after demand was
made upon them when a relocation survey initiated by petitioners established that private respondents were
actually occupying about 2 hectares on the eastern end of the property. Upon these facts, the prescriptive period
may only be counted from the time petitioners repudiated the trust relation in 1955 upon the filing of the complaint
for recovery of possession against private respondents so that the counterclaim of the private respondents
contained in their amended answer of June 12, 1956 wherein they asserted absolute ownership of the disputed
realty by reason of their continuous and adverse possession of the same is well within the ten-year prescriptive
period.
Finally, the case at bar is quite similar to the case of Dolores Pacheco vs. Santiago Arro, 85 Phil. 505, wherein the
claim to the lots in the cadastral case was withdrawn by the respondents relying upon the assurance and promise
made in open court by Dr. M. Y. in behalf of J. Y. y R., the predecessor-in-interest of the petitioners and the Court
held that a trust or a fiduciary relation between them arose, or resulted therefrom, or was created thereby and the
trustee cannot invoke the statute of limitations to bar the action and defeat the right of the cestuis que trustent.
(Cited in Tolentino, Civil Code of the Philippines, Vol. IV, p. 627).
WHEREFORE, IN VIEW OF THE FOREGOING, the judgment appealed from is hereby AFFIRMED. SO ORDERED.
SOLIDARITY:
G.R. No. 156302 April 7, 2009 THE HEIRS OF GEORGE Y. POE, Petitioners, vs. MALAYAN INSURANCE
COMPANY, INC., Respondent. D E C I S I O N
CHICO-NAZARIO, J.: The instant Petition for Review under Rule 451 of the Rules of Court assails the Decision2
dated 26 June 2002 of the Court of Appeals in CA-G.R. SP No. 67297, which granted the Petition for Certiorari of
respondent Malayan Insurance Company, Inc. (MICI) and recalled and set aside the Order 3 dated 6 September
2001 of the Regional Trial Court (RTC), Branch 73, of Antipolo City, in Civil Case No. 93-2705. The RTC, in its
recalled Order, denied the Notice of Appeal of MICI and granted the Motion for the Issuance of a Writ of Execution
filed by petitioners Heirs of George Y. Poe. The present Petition also challenges the Resolution 4 dated 29
November 2002 of the appellate court denying petitioners Motion for Reconsideration.
Records show that on 26 January 1996 at about 4:45 a.m., George Y. Poe (George) while waiting for a ride to work
in front of Capital Garments Corporation, Ortigas Avenue Extension, Barangay Dolores, Taytay, Rizal, was run over
by a ten-wheeler Isuzu hauler truck with Plate No. PMH-858 owned by Rhoda Santos (Rhoda), and then being
driven by Willie Labrador (Willie).5 The said truck was insured with respondent MICI under Policy No. CV-293-
007446-8.
To seek redress for Georges untimely death, his heirs and herein petitioners, namely, his widow Emercelinda, and
their children Flerida and Fernando, filed with the RTC a Complaint for damages against Rhoda and respondent
MICI, docketed as Civil Case No. 93-2705.6 Petitioners identified Rhoda and respondent MICI, as follows:
Defendant RHODA SANTOS is likewise of legal age, Filipino and a resident of Real Street, Pamplona, Las Pias,
Metro Manila where she may be served with summons and other court processes.
[Herein respondent] MALAYAN INSURANCE COMPANY, INC. (hereinafter "[MICI]" for brevity) is a corporation duly
organized and existing under Philippine law with address at Yuchengco Bldg., 484 Q. Paredes Street, Binondo,
Manila where it may be served with summons and other processes of this Honorable Court;
Defendant Rhoda Santos, who is engaged in the business, among others, of selling gravel and sand is the
registered owner of one Isuzu Truck, with Plate No. PMH-858 and is the employer of Willie Labrador the authorized
driver of the aforesaid truck.
[Respondent MICI] on the other hand is the insurer of Rhoda Santos under a valid and existing insurance policy
duly issued by said [MICI], Policy No. CV-293-007446-8 over the subject vehicle owned by Rhoda Santos, Truck-
Hauler Isuzu 10 wheeler with plate no. PMH-858, serial no. SRZ451-1928340 and motor no. 10PA1-403803. Under
said insurance policy, [MICI] binds itself, among others, to be liable for damages as well as any bodily injury to third
persons which may be caused by the operation of the insured vehicle. 7
And prayed that:
[J]udgment issue in favor of [herein petitioners] ordering [Rhoda and herein respondent MICI] jointly and solidarily
to pay the [petitioners] the following:
1. Actual damages in the total amount of THIRTY SIX THOUSAND (P36,000.00) PESOS for funeral and
burial expenses;
2. Actual damages in the amount of EIGHT HUNDRED FIVE THOUSAND NINE HUNDRED EIGHTY
FOUR (P805,984.00) PESOS as loss of earnings and financial support given by the deceased by reason of
his income and employment;
3. Moral damages in the amount of FIFTY THOUSAND (P50,000.00) PESOS;
4. Exemplary damages in the amount of FIFTY THOUSAND (P50,000.00) PESOS;
5. Attorneys fees in the amount of FIFTY THOUSAND (P50,000.00) PESOS and litigation expense in the
amount of ONE THOUSAND FIVE HUNDRED (P1,500.00) PESOS for each court appearance;
6. The costs of suit.
Other reliefs just and equitable in the premises are likewise prayed for.8
Rhoda and respondent MICI made the following admissions in their Joint Answer 9 :
That [Rhoda and herein respondent MICI] admit the allegations in paragraphs 2, 3 and 4 of the complaint;
That [Rhoda and respondent MICI] admit the allegations in paragraph 5 of the complaint that the cargo truck is
insured with [respondent] Malayan Insurance Company, Inc. [(MICI)] however, the liability of the insured company
attached only if there is a judicial pronouncement that the insured and her driver are liable and moreover, the
liability of the insurance company is subject to the limitations set forth in the insurance policy. 10
Rhoda and respondent MICI denied liability for Georges death averring, among other defenses, that: a) the
accident was caused by the negligent act of the victim George, who surreptitiously and unexpectedly crossed the
road, catching the driver Willie by surprise, and despite the latters effort to swerve the truck to the right, the said
vehicle still came into contact with the victim; b) the liability of respondent MICI, if any, would attach only upon a
judicial pronouncement that the insured Rhoda and her driver Willie are liable; c) the liability of MICI should be
based on the extent of the insurance coverage as embodied in Rhodas policy; and d) Rhoda had always exercised
the diligence of a good father of a family in the selection and supervision of her driver Willie.
After the termination of the pre-trial proceedings, trial on the merits ensued.
Petitioners introduced and offered evidence in support of their claims for damages against MICI, and then rested
their case. Thereafter, the hearings for the reception of the evidence of Rhoda and respondent MICI were
scheduled, but they failed to adduce their evidence despite several postponements granted by the trial court. Thus,
during the hearing on 9 June 1995, the RTC, upon motion of petitioners counsel, issued an Order 11 declaring that
Rhoda and respondent MICI had waived their right to present evidence, and ordering the parties to already submit
their respective Memorandum within 15 days, after which, the case would be deemed submitted for decision.
Rhoda and respondent MICI filed a Motion for Reconsideration 12 of the Order dated 9 June 1995, but it was denied
by the RTC in another Order dated 11 August 1995.13
Consequently, Rhoda and respondent MICI filed a Petition for Certiorari, Mandamus, 14 Prohibition and Injunction
with Prayer for a Temporary Restraining Order and Writ of Preliminary Injunction, assailing the Orders dated 9 June
1995 and 11 August 1995 of the RTC foreclosing their right to adduce evidence in support of their defense. The
Petition was docketed as CA-G.R. SP No. 38948.
The Court of Appeals, through its Third Division, promulgated a Decision 15 on 29 April 1996, denying due course to
the Petition in CA-G.R. SP No. 38948. Rhoda and respondent MICI elevated the matter to the Supreme Court via a
Petition for Certiorari,16 docketed as G.R. No. 126244. This Court likewise dismissed the Petition in G.R. No.
126244 in a Resolution dated 30 September 1996. 17 Entry of Judgment was made in G.R. No. 126244 on 8
November 1996.18
On 28 Feb 2000, the RTC rendered a Decision in Civil Case No. 93-2705, the dispositive portion of which reads:
Wherefore, Rhoda and herein respondent MICI are hereby ordered to pay jointly and solidarily to the herein petitioners the
following:
1. Moral damages amounting to P100,000.00;
2. Actual damages for loss of earning capacity amounting to P805,984.00;
3. P36,000.00 for funeral expenses;
4. P50,000.00 as exemplary damages;
5. P50,000.00 for attorneys fees plus P1,500 per court appearance; and
6. Cost of suit.19
Rhoda and respondent MICI received their copy of the foregoing RTC Decision on 14 March 2000. 20 On 22 March
2000, respondent MICI and Rhoda filed a Motion for Reconsideration 21 of said Decision, averring therein that the
RTC erred in ruling that the obligation of Rhoda and respondent MICI to petitioners was solidary or joint and
several; in computing Georges loss of earning capacity not in accord with established jurisprudence; and in
awarding moral damages although it was not buttressed by evidence.
Resolving the Motion of respondent MICI and Rhoda, the RTC issued an Order 22 on 24 January 2001 modifying
and amending its Decision dated 28 February 2000, and dismissing the case against respondent MICI.
The RTC held that:
After a careful evaluation of the issues at hand, the contention of the [herein respondent MICI] as far as the solidary
liability of the insurance company with the other defendant [Rhoda] is meritorious. However, the assailed Decision
can be modified or amended to correct the same honest inadvertence without necessarily reversing it and set aside
to conform with the evidence on hand.
The RTC also re-computed Georges loss of earning capacity, as follows:
The computation of actual damages for loss of earning capacity was determined by applying the formula adopted in
the American Expectancy Table of Mortality or the actuarial of Combined Experience Table of Mortality applied in x
x x Villa Rey Transit, Inc. v. Court of Appeals (31 SCRA 521). Moral damages is awarded in accordance with Article
2206 of the New Civil Code of the Philippines. While death indemnity in the amount of P50,000.00 is automatically
awarded in cases where the victim had died (People v. Sison, September 14, 1990 [189 SCRA 643]). 23
In the end, the RTC decreed:
WHEREFORE, in view of the foregoing consideration, the Decision of this Court dated 28 February 2000 is hereby amended or
modified. Said Decision should read as follows:
"Wherefore, defendant Rhoda Santos is hereby ordered to pay to the [herein petitioners] the following:
1. Moral damages amounting to P100,000.00;
2. Actual damages for loss of earning capacity amounting to P102,106.00;
3. P36,000.00 for funeral expenses;
4. P50,000.00 as death indemnity;
5. P50,000.00 for attorneys fees plus P1,500.00 per court appearance;
6. Costs of the suit.
The case against Malayan Insurance Company, Inc. is hereby dismissed." 24
It was petitioners turn to file a Motion for Reconsideration 25 of the 24 January 2001 Order, to which respondent
MICI filed a "Vigorous Opposition to the Plaintiffs Motion for Reconsideration." 26
On 15 June 2001, the RTC issued an Order reinstating its Decision dated 28 February 2000, relevant portions of
which state:
Finding the arguments raised by the [herein petitioners] in their Motion for Reconsideration of the Order of this
Court dated January 24, 2001 to be more meritorious to [herein respondents] Malayan Insurance Co., Inc. (sic)
arguments in its vigorous opposition thereto, said motion is hereby granted.
Accordingly, the Order under consideration is hereby reconsidered and set aside. The decision of this Court dated
February 28, 2000 is hereby reinstated.
Notify parties herein.27
Respondent MICI received a copy of the 15 June 2001 Order of the RTC on 27 June 2001.
Aggrieved by the latest turn of events, respondent MICI filed on 9 July 2001 a Notice of Appeal 28 of the 28 February
2000 Decision of the RTC, reinstated by the 15 June 2001 Resolution of the same court. Rhoda did not join
respondent MICI in its Notice of Appeal.29
Petitioners filed their Opposition30 to the Notice of Appeal of respondent MICI, with a Motion for the Issuance of Writ
of Execution.
After considering the recent pleadings of the parties, the RTC, in its Order dated 6 September 2001, denied the
Notice of Appeal of respondent MICI and granted petitioners Motion for the Issuance of Writ of Execution. The RTC
reasoned in its Order:
The records disclosed that on February 28, 2000 this Court rendered a Decision in favor of the [herein petitioners]
and against [Rhoda and herein respondent MICI]. The Decision was said to have been received by MICI on March
14, 2000. Eight days after or on March 22, 2000, MICI mailed its Motion for Reconsideration to this Court and
granted the same in the Order dated January 24, 2001. From this Order, [petitioners] filed a Motion for
Reconsideration on February 21, 2001 to which MICI filed a vigorous opposition. On June 15, 2001 this Court
granted [petitioners] motion reinstating the Decision dated February 28, 2000. According to MICI, the June 15,
2001 order was received by it on June 27, 2001. MICI filed a Notice of Appeal on July 9, 2001 or twelve (12) days
from receipt of said Order.
[Petitioners] contend that the Notice of Appeal was filed out of time while [respondent] MICI opposes, arguing
otherwise. The latter interposed that the Order dated June 15, 2001 is in reality a new Decision thereby giving it a
fresh fifteen (15) days within which to file notice of appeal.
[Respondent] MICIs contention is not meritorious. The fifteen (15) day period within which to file a notice of appeal
should be reckoned from the date it received the Decision on March 14, 2000. So that when MICI mailed its Motion
for Reconsideration on March 22, 2000, eight (8) days had already lapsed, MICI has remaining seven (7) days to
file a notice of appeal. However, when it received the last Order of this Court it took [respondent] MICI twelve (12)
days to file the same. Needless to say, MICIs Notice of Appeal was filed out of time. The Court cannot countenance
the argument of MICI that a resolution to a motion for a final order or judgment will have the effect of giving a fresh
reglementary period. This would be contrary to what was provided in the rules of procedure. 31
Accordingly, the RTC adjudged:
WHEREFORE, premises considered, [herein respondent] MICIs Notice of Appeal is hereby Denied for having filed
out of time making the Decision of this Court dated February 28, 2000 as final and executory. Accordingly, the
Motion for Issuance of Writ of Execution filed by [herein petitioners] is hereby Granted.
Notify parties herein.32
Respondent MICI filed a Petition for Certiorari33 under Rule 65 of the Rules of Court before the Court of Appeals,
which was docketed as CA-G.R. SP No. 67297. The Petition assailed, for having been rendered by the RTC with
grave abuse of discretion amounting to lack or excess of jurisdiction, the following: (1) the Order dated 6 September
2001, denying the Notice of Appeal of respondent MICI and granting petitioners Motion for the Issuance of Writ of
Execution; (2) the Decision dated 28 February 2000, holding Rhoda and respondent MICI jointly and severally
liable for Georges death; and (3) the Order dated 15 June 2001, reinstating the Decision dated 28 February 2000.
The Court of Appeals granted the Petition for Certiorari of respondent MICI in a Decision dated 26 June 2000,
ratiocinating thus:
Prescinding therefrom, we hold that the fifteen (15) day period to appeal must be reckoned from the time
the [herein respondent] Malayan received the order dated 15 June 2001 reversing in toto the order of 24
January 2000 and reinstating in full the Decision dated 28 February 2000. Thus, [respondent] Malayan had
until 12 July 2001 within which to file its notice of appeal. Therefore, when [respondent] Malayan filed its notice of
appeal on 09 July 2001, it was well within the reglementary period and should have been given due course by the
public respondent court.
It was therefore, an excess of jurisdiction on the part of the public respondent court when it reckoned the
[respondent] Malayans period to appeal on the date it received on 14 March 2000 the formers decision dated 28
February 2000. As earlier expostulated, the said decision was completely vacated insofar as the [respondent]
Malayan is concerned when the public respondent court in its order dated 24 January 2001 dismissed the case
against the former. Thus, to reckon the fifteen (15) days to appeal from the day the [respondent] Malayan received
the said decision on 14 March 2000, is the height of absurdity because there was nothing for the [respondent]
Malayan to appeal inasmuch as the public respondent court vacated the said decision in favor of the former.
The aforesaid conclusion finds support in Sta. Romana vs. Lacson (104 SCRA 93), where the court, relying on the
case of Magdalena Estate, Inc. vs. Caluag, 11 SCRA 334, held that where the court of origin made a thoroughly
(sic) restudy of the original judgment and rendered the amended and clarified judgment only after considering all
the factual and legal issues, the amended and clarified decision was an entirely new decision which superseded
(sic). For all intents and purposes, the court concluded the trial court rendered a new judgment from which the time
to appeal must be reckoned.
In the instant case, what is involved is not merely a substantial amendment or modification of the original decision,
but the total reversal thereof in the order dated 24 January 2000. Given the rationale in the aforecited cases, it is
only logical that the period of appeal be counted from 27 June 2001, the date that [respondent] Malayan received
the order dated 15 June 2001 reversing in toto the order of 24 January 2000 and reinstating the Decision dated 28
February 2000.34 (Emphasis supplied.)
The fallo of the Decision of the Court of Appeals reads:
WHEREFORE, in consideration of the foregoing premises, the petition for certiorari is partially GRANTED. Accordingly, the
public respondent courts order dated 06 September 2001 is hereby RECALLED and SET ASIDE.
Public respondent court is hereby directed to approve the petitioner Malayans notice of appeal and to refrain from executing the
writ of execution granted on 06 September 2001.35
The Court of Appeals denied petitioners Motion for Reconsideration in a Resolution dated 29 November 2002.
Understandably distraught, petitioners come before this Court in this Petition for Review, which raise the following
issues:
I.
Whether or not the respondent Court of Appeals committed grave abuse of discretion when it ruled that private
respondent could file a Petition for Certiorari even though its Motion for Reconsideration was still pending resolution
with the lower court.
II.
Whether or not the respondent Court of Appeals committed grave abuse of discretion when it ruled that the private
respondent had filed its Notice of Appeal with the trial court within the reglementary period. 36
The Court first turns its attention to the primary issue for its resolution: whether the Notice of Appeal filed by
respondent MICI before the RTC was filed out of time.
The period for filing a Notice of Appeal is set by Rule 41, Section 3 of the 1997 Rules of Court:
SEC. 3. Period of ordinary appeal. The appeal shall be taken within fifteen (15) days from notice of the judgment or
final order appealed from. Where a record on appeal is required, the appellants shall file a notice of appeal and a
record on appeal within thirty (30) days from notice of the judgment or final order. x x x.
The period of appeal shall be interrupted by a timely motion for new trial or reconsideration. No motion for extension
of time to file a motion for new trial or reconsideration shall be allowed.
It is clear under the Rules that an appeal should be taken within 15 days from the notice of judgment or final order
appealed from.37 A final judgment or order is one that finally disposes of a case, leaving nothing more for the court
to do with respect to it. It is an adjudication on the merits which, considering the evidence presented at the trial,
declares categorically what the rights and obligations of the parties are; or it may be an order or judgment that
dismisses an action.38
Propitious to petitioners is Neypes v. Court of Appeals,39 which the Court promulgated on 14 September 2005, and
wherein it laid down the fresh period rule:
To standardize the appeal periods provided in the Rules and to afford litigants fair opportunity to appeal their cases,
the Court deems it practical to allow a fresh period of 15 days within which to file the notice of appeal in the
Regional Trial Court, counted from receipt of the order dismissing a motion for a new trial or motion for
reconsideration.
Henceforth, this "fresh period rule" shall also apply to Rule 40 governing appeals from the Municipal Trial Courts
to the Regional Trial Courts; Rule 42 on petitions for review from the Regional Trial Courts to the Court of
Appeals; Rule 43 on appeals from quasi-judicial agencies to the Court of Appeals and Rule 45 governing appeals
by certiorari to the Supreme Court. The new rule aims to regiment or make the appeal period uniform, to be
counted from receipt of the order denying the motion for new trial, motion for reconsideration (whether full or partial)
or any final order or resolution. (Emphases ours.)
The fresh period of 15 days becomes significant when a party opts to file a motion for new trial or motion for
reconsideration. In this manner, the trial court which rendered the assailed decision is given another opportunity to
review the case and, in the process, minimize and/or rectify any error of judgment. 40 With the advent of the fresh
period rule, parties who availed themselves of the remedy of motion for reconsideration are now allowed to file a
notice of appeal within fifteen days from the denial of that motion. 41
The Court has accentuated that the fresh period rule is not inconsistent with Rule 41, Section 3 of the Rules of
Court which states that the appeal shall be taken "within fifteen (15) days from notice of judgment or final order
appealed from." The use of the disjunctive word "or" signifies disassociation and independence of one thing from
another. It should, as a rule, be construed in the sense which it ordinarily implies. 42 Hence, the use of "or" in the
above provision supposes that the notice of appeal may be filed within 15 days from the notice of judgment or
within 15 days from notice of the final order in the case.
Applying the fresh period rule, the Court agrees with the Court of Appeals and holds that respondent MICI
seasonably filed its Notice of Appeal with the RTC on 9 July 2001, just 12 days from 27 June 2001, when it received
the denial of its Motion for Reconsideration of the 15 June 2001 Resolution reinstating the 28 February 2000
Decision of the RTC.
The fresh period rule may be applied to the case of respondent MICI, although the events which transpired
concerning its Notice of Appeal took place in June and July 2001, inasmuch as rules of procedure may be given
retroactive effect on actions pending and undetermined at the time of their passage. The Court notes that Neypes
was promulgated on 14 September 2005, while the instant Petition was still pending before this Court.
Reference may be made to Republic v. Court of Appeals,43 involving the retroactive application of A.M. No. 00-2-03-
SC which provided that the 60-day period within which to file a petition for certiorari shall be reckoned from receipt
of the order denying the motion for reconsideration. In said case, the Court declared that rules of procedure "may
be given retroactive effect to actions pending and undetermined at the time of their passage and this will not violate
any right of a person who may feel that he is adversely affected, inasmuch as there is no vested rights in rules of
procedure."
Hence, the fresh period rule laid down in Neypes was applied by the Court in resolving the subsequent cases of
Sumaway v. Urban Bank, Inc.,44 Elbia v. Ceniza,45 First Aqua Sugar Traders, Inc. v. Bank of the Philippine
Islands,46 even though the antecedent facts giving rise to said cases transpired before the promulgation of Neypes.
In De los Santos v. Vda de Mangubat,47 particularly, the Court applied the fresh period rule, elucidating that
procedural law refers to the adjective law which prescribes rules and forms of procedure in order that courts may be
able to administer justice. Procedural laws do not come within the legal conception of a retroactive law, or the
general rule against the retroactive operation of statutes. The fresh period rule is irrefragably procedural,
prescribing the manner in which the appropriate period for appeal is to be computed or determined and, therefore,
can be made applicable to actions pending upon its effectivity without danger of violating anyone elses rights.
Since the Court affirms the ruling of the Court of Appeals that respondent MICI filed its Notice of Appeal with the
RTC within the reglementary period, the appropriate action, under ordinary circumstances, would be for the Court to
remand the case to the RTC so that the RTC could approve the Notice of Appeal of respondent MICI and
respondent MICI could already file its appeal with the Court of Appeals.
However, considering that the case at bar has been pending for almost sixteen years, 48 and the records of the same
are already before this Court, remand is no longer necessary.
Jurisprudence dictates that remand of a case to a lower court does not follow if, in the interest of justice, the
Supreme Court itself can resolve the dispute based on the records before it. As a rule, remand is avoided in the
following instances: (a) where the ends of justice would not be subserved by a remand; or (b) where public interest
demands an early disposition of the case; or (c) where the trial court has already received all the evidence
presented by both parties, and the Supreme Court is in a position, based upon said evidence, to decide the case on
its merits. In Lao v. People, the Supreme Court, in consideration of the years that it had taken for the controversy
therein to reach it, concluded that remand of the case to a lower court was no longer the more expeditious and
practical route to follow, and it then decided the said case based on the evidentiary record before it.
The consistent stand of the Court has always been that a case should be decided in its totality, resolving all
interlocking issues in order to render justice to all concerned and to end the litigation once and for all. Verily, courts
should always strive to settle the entire controversy in a single proceeding, leaving no root or branch to bear the
seed of future litigation. Where the public interest so demands, the court will broaden its inquiry into a case and
decide the same on the merits rather than merely resolve the procedural question raised. Such rule obtains in this
case.
The Court is convinced that the non-remanding of the case at bar is absolutely justified. Petitioners have already
suffered from the tragic loss of a loved one, and must not be made to endure more pain and uncertainty brought
about by the continued pendency of their claims against those liable. The case has been dragging on for almost 16
years now without the petitioners having been fully compensated for their loss. The Court cannot countenance such
a glaring indifference to petitioners cry for justice. To be sure, they deserve nothing less than full compensation to
give effect to their substantive rights.53
The complete records of the present case have been elevated to this Court, and the pleadings and evidence therein
could fully support its factual adjudication. Indeed, after painstakingly going over the records, the Court finds that
the material and decisive facts are beyond dispute: George was killed when he was hit by the truck driven by Willie,
an employee of Rhoda; and the truck is insured with respondent MICI. The only issue left for the Court to resolve is
the extent of the liability of Rhoda and respondent MICI for Georges death and the appropriate amount of the
damages to be awarded to petitioners.
The Court now turns to the issue of who is liable for damages for the death of George.
Respondent MICI does not deny that it is the insurer of the truck. Nevertheless, it asserts that its liability is limited,
and it should not be held solidarily liable with Rhoda for all the damages awarded to petitioners.
A solidary or joint and several obligation is one in which each debtor is liable for the entire obligation, and each
creditor is entitled to demand the whole obligation. In a joint obligation, each obligor answers only for a part of the
whole liability and to each obligee belongs only a part of the correlative rights. Well-entrenched is the rule that
solidary obligation cannot lightly be inferred. There is solidary liability only when the obligation expressly so states,
when the law so provides or when the nature of the obligation so requires. 54
It is settled that where the insurance contract provides for indemnity against liability to third persons, the liability of
the insurer is direct and such third persons can directly sue the insurer. The direct liability of the insurer under
indemnity contracts against third party liability does not mean, however, that the insurer can be held solidarily liable
with the insured and/or the other parties found at fault, since they are being held liable under different obligations.
The liability of the insured carrier or vehicle owner is based on tort, in accordance with the provisions of the Civil
Code;55 while that of the insurer arises from contract, particularly, the insurance policy. The third-party liability of the
insurer is only up to the extent of the insurance policy and that required by law; and it cannot be held solidarily liable
for anything beyond that amount.56 Any award beyond the insurance coverage would already be the sole liability of
the insured and/or the other parties at fault. 57
In Vda. de Maglana v. Consolacion,58 it was ruled that an insurer in an indemnity contract for third-party liability is
directly liable to the injured party up to the extent specified in the agreement, but it cannot be held solidarily liable
beyond that amount. According to respondent MICI, its liability as insurer of Rhodas truck is limited. Following Vda.
de Maglana, petitioners would have had the option either (1) to claim the amount awarded to them from respondent
MICI, up to the extent of the insurance coverage, and the balance from Rhoda; or (2) to enforce the entire judgment
against Rhoda, subject to reimbursement from respondent MICI to the extent of the insurance coverage. The Court,
though, is precluded from applying its ruling in Vda. de Maglana by the difference in one vital detail between the
said case and the one at bar. The insurer was able to sufficiently establish its limited liability in Vda. de Maglana,
while the same cannot be said for respondent MICI herein.
The Court highlights that in this case, the insurance policy between Rhoda and respondent MICI, covering the truck
involved in the accident which killed George, was never presented. There is no means, therefore, for this Court to
ascertain the supposed limited liability of respondent MICI under said policy. Without the presentation of the
insurance policy, the Court cannot determine the existence of any limitation on the liability of respondent MICI under
said policy, and the extent or amount of such limitation.
It should be remembered that respondent MICI readily admits that it is the insurer of the truck that hit and killed
George, except that it insists that its liability under the insurance policy is limited. As the party asserting its limited
liability, respondent MICI then has the burden of evidence to establish its claim. In civil cases, the party that alleges
a fact has the burden of proving it. Burden of proof is the duty of a party to present evidence on the facts in issue
necessary to prove its claim or defense by the amount of evidence required by law.59 Regrettably, respondent MICI
failed to discharge this burden.60 The Court cannot rely on mere allegations of limited liability sans proof.
The failure of respondent MICI to present the insurance policy which, understandably, is not in petitioners
possession, but in the custody and absolute control of respondent MICI as the insurer and/or Rhoda as the insured
gives rise to the presumption that its presentation is prejudicial to the cause of respondent MICI. 61 When the
evidence tends to prove a material fact which imposes a liability on a party, and he has it in his power to produce
evidence which, from its very nature, must overthrow the case made against him if it is not founded on fact, and he
refuses to produce such evidence, the presumption arises that the evidence, if produced, would operate to his
prejudice and support the case of his adversary.62
Respondent MICI had all the opportunity to prove before the RTC that its liability under the insurance policy it
issued to Rhoda, was limited; yet, respondent MICI failed to do so. The failure of respondent MICI to rebut that
which would have naturally invited an immediate, pervasive, and stiff opposition from it created an adverse
inference that either the controverting evidence to be presented by respondent MICI would only prejudice its case,
or that the uncontroverted evidence of petitioners indeed speaks of the truth. And such adverse inference,
recognized and adhered to by courts in judging the weight of evidence in all kinds of proceedings, surely is not
without basis its rationale and effect rest on sound, logical and practical considerations, viz:
The presumption that a man will do that which tends to his obvious advantage, if he possesses the means, supplies
a most important test for judging of the comparative weight of evidence x x x If, on the supposition that a charge or
claim is unfounded, the party against whom it is made has evidence within his reach by which he may repel that
which is offered to his prejudice, his omission to do so supplies a strong presumption that the charge or claim is
well founded; it would be contrary to every principle of reason, and to all experience of human conduct, to form any
other conclusion." (Starkie on Evidence, p. 846, Moore on Facts, Vol. I, p. 544)
xxxx
The ordinary rule is that one who has knowledge peculiarly within his own control, and refuses to divulge it, cannot
complain if the court puts the most unfavorable construction upon his silence, and infers that a disclosure would
have shown the fact to be as claimed by the opposing party." (Societe, etc., v. Allen, 90 Fed. Rep. 815, 817, 33
C.C.A. 282, per Taft, C.J., Moore on Facts, Vol. I, p. 561). 63
The inference still holds even if it be assumed, for argument's sake, that the solidary liability of respondent MICI
with Rhoda is improbable, for it has likewise been said that:
Weak evidence becomes strong by the neglect of the party against whom it is put in, in not showing by means
within the easy control of that party that the conclusion drawn from such evidence is untrue. (Pittsburgh, etc., R. Co.
v. Callaghan, 50 III. App. 676, 681, Moore on Facts, Vol. I, p. 572). 64
Given the admission of respondent MICI that it is the insurer of the truck involved in the accident that killed George,
and in the utter absence of proof to establish both the existence and the extent/amount of the alleged limited liability
of respondent MICI as insurer, the Court could only conclude that respondent MICI had agreed to fully indemnify
third-party liabilities. Consequently, there is no more difference in the amounts of damages which petitioners can
recover from Rhoda or respondent MICI; petitioners can recover the said amounts in full from either of them, thus,
making their liabilities solidary or joint and several.
The Court now comes to the issue of the amounts of the damages awarded.
In its Decision dated 22 February 2000, the RTC awarded petitioners moral and actual damages, as well as funeral
expenses and attorneys fees. Subsequently, in its Order dated 24 January 2001, the RTC reduced the amount of
actual damages from P805,984.00 to P102,106.00, but additionally awarded death indemnity in the amount of
P50,000.00. Its award of moral damages and funeral expenses as well as attorneys fees remained constant in its
28 February 2000 decision and was carried over to its 24 January 2001 Order.
The Court shall now proceed to scrutinize said award of damages.
As regards the award of actual damages, Article 2199 of the Civil Code provides that "[e]xcept as provided by law
or by stipulation one is entitled to an adequate compensation only for such pecuniary loss suffered by him as he
has duly proved x x x."
The RTC awarded P36,000.00 for burial expenses. The award of P36,000.00 for burial expenses is duly supported
by receipts evidencing that petitioners did incur this expense. The petitioners held a wake for two days at their
residence and another two days at the Loyola Memorial Park. 65 The amount covered the expenses by petitioners
for the wake, funeral and burial of George. 66
As to compensation for loss of earning capacity, the RTC initially awarded P805,984.00 in its 28 February 2000
Decision, which it later reduced to P102,106.00 on 24 January 2001.
Art. 2206 of the Civil Code provides that in addition to the indemnity for death caused by a crime or quasi-delict, the
"defendant shall be liable for the loss of the earning capacity of the deceased, and the indemnity shall be paid to
the heirs of the latter, x x x." Compensation of this nature is awarded not for loss of earnings but for loss of capacity
to earn money. Hence, it is proper that compensation for loss of earning capacity should be awarded to the
petitioners in accordance with the formula established in decided cases for computing net earning capacity, to wit:
The formula for the computation of unearned income is:
Net Earning Capacity = life expectancy x (gross annual income -reasonable and necessary living
expenses).
Life expectancy is determined in accordance with the formula:
2 / 3 x [80 - age of deceased at the time of death] 67
Jurisprudence provides that the first factor, i.e., life expectancy, shall be computed by applying the formula (2/3 x
[80 - age at death]) adopted in the American Expectancy Table of Mortality or the Actuarial of Combined Experience
Table of Mortality.
The second factor is computed by multiplying the life expectancy by the net earnings of the deceased, i.e., the total
earnings less expenses necessary in the creation of such earnings or income and less living and other incidental
expenses. The loss is not equivalent to the entire earnings of the deceased, but only such portion that he would
have used to support his dependents or heirs. Hence, the Court deducts from his gross earnings the necessary
expenses supposed to be used by the deceased for his own needs. The Court explained in Villa Rey Transit v.
Court of Appeals68 :
[The award of damages for loss of earning capacity is] concerned with the determination of the losses or damages
sustained by the private respondents, as dependents and intestate heirs of the deceased, and that said damages
consist, not of the full amount of his earnings, but of the support they received or would have received from him had
he not died in consequence of the negligence of petitioner's agent. In fixing the amount of that support, we must
reckon with the "necessary expenses of his own living," which should be deducted from his earnings. Thus, it has
been consistently held that earning capacity, as an element of damages to one's estate for his death by wrongful
act is necessarily his net earning capacity or his capacity to acquire money, "less necessary expense for his own
living." Stated otherwise, the amount recoverable is not the loss of the entire earning, but rather the loss of that
portion of the earnings which the beneficiary would have received. In other words, only net earnings, and not gross
earnings are to be considered that is, the total of the earnings less expenses necessary in the creation of such
earnings or income and less living and other incidental expenses."
Applying the aforestated jurisprudential guidelines in the computation of the amount of award for damages set out
in Villa Rey, the Court computes the award for the loss of Georges earning capacity as follows:
Life expectancy = 2/3 x [80 - age of deceased at the time of death]
2/3 x [80 56]
2/3 x [24]
FORMULA NET EARNING CAPACITY (NEC)
If:
Age at time of death of George Poe = 5869
Monthly Income at time of death = P6,94670
Gross Annual Income (GAI) = [(6,946) (12)] = P83,352
Reasonable/Necessary Living Expenses (R/NLE) = 50%71 of GAI = P41,676
NEC = [2/3 (80-58)] [83,352-41,676]
= [2/3 (22)] [41,676]
= [14.67] [41,676]
= P611,386.92
Therefore, Georges lost net earning capacity is equivalent to P611,386.92
The RTC awarded moral damages72 in the amount of P100,000.00. With respect to moral damages, the same are
awarded under the following circumstances:
The award of moral damages is aimed at a restoration, within the limits of the possible, of the spiritual status quo
ante. Moral damages are designed to compensate and alleviate in some way the physical suffering, mental
anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and
similar injury unjustly caused a person. Although incapable of pecuniary computation, they must be proportionate to
the suffering inflicted. The amount of the award bears no relation whatsoever with the wealth or means of the
offender.
In the instant case, petitioners testimonies reveal the intense suffering which they continue to experience as a
result of Georges death.73 It is not difficult to comprehend that the sudden and unexpected loss of a husband and
father would cause mental anguish and serious anxiety in the wife and children he left behind. Moral damages in
the amount of P100,000.00 are proper for Georges death.74
The RTC also awarded P50,000.00 as death indemnity which the Court shall not disturb. The award of P50,000.00
as death indemnity is in accordance with current rulings of the Court. 75
Finally, the RTC awarded attorneys fees to petitioners. Petitioners are entitled to attorneys fees. Under Article 2008
of the Civil Code, attorneys fees may be granted when a party is compelled to litigate or incur expenses to protect
his interest by reason of an unjustified act of the other party.76 In Metro Manila Transit Corporation v. Court of
Appeals,77 the Court held that an award of P50,000.00 as attorneys fees was reasonable. Hence, petitioners are
entitled to attorneys fees in that amount.78
WHEREFORE, premises considered, the instant Petition is PARTIALLY GRANTED. While the Court AFFIRMS the Decision,
dated 26 June 2002, and Resolution, dated 29 November 2002, of the Court of Appeals in CA-G.R. SP No. 67297, granting the
Petition for Certiorari of respondent Malayan Insurance Company, Inc., the Court, nonetheless, RESOLVES, in consideration of
the speedy administration of justice, and the peculiar circumstances of the case, to give DUE COURSE to the present Petition
and decide the same on its merits.
Rhoda Santos and respondent Malayan Insurance Company, Inc. are hereby ordered to pay jointly and severally the petitioners
Heirs of George Y. Poe the following:
(1) Funeral expenses P36,000.00;
(2) Actual damages for loss of earning capacity P611,386.92;
(3) Moral damages amounting to P100,000.00;
(4) Death indemnity P50,000.00; and
(5) Attorneys fees P50,000.00 plus P1,500.00 per court appearance.
No costs. SO ORDERED.
NO NOVATION EVEN CHANGE OF PARTIES ELEMENT OF NOVATION LACKING
G.R. No. 163244 June 22, 2009 SPOUSES JOSE T. VALENZUELA and GLORIA VALENZUELA, Petitioners, vs.KALAYAAN
DEVELOPMENT & INDUSTRIAL CORPORATION, Respondent. D E C I S I O N
PERALTA, J.: This is a petition for review on certiorari assailing the Decision1 dated January 23, 2004 of the Court of
Appeals in CA-G.R. CV No. 69814, and its Resolution 2 dated April 20, 2004, denying petitioners motion for
reconsideration.
The factual and procedural antecedents are as follows:
Kalayaan Development and Industrial Corporation (Kalayaan) is the owner of a parcel of land covered by Transfer
Certificate of Title (TCT) No. T-1330263 issued by the Register of Deeds of Metro Manila, District III. Later,
petitioners, Spouses Jose T. Valenzuela and Gloria Valenzuela (Gloria), occupied the said property and introduced
several improvements thereon.
When Kalayaan discovered that the lot was being illegally occupied by the petitioners, it demanded that they
immediately vacate the premises and surrender possession thereof. Petitioners then negotiated with Kalayaan to
purchase the portion of the lot they were occupying. On August 5, 1994, the parties executed a Contract to Sell 4
wherein they stipulated that petitioners would purchase 236 square meters of the subject property for
P1,416,000.00. Petitioners initially gave P500,000.00 upon signing the contract and agreed to pay the balance of
P916,000.00 in twelve (12) equal monthly installments, or P76,333.75 a month until fully paid.5 The parties also
agreed that, in case petitioners failed to pay any of the installments, they would be liable for liquidated penalty at
the rate of 3% a month compounded monthly until fully paid. It was also stipulated that Kalayaan shall execute the
corresponding deed of absolute sale over the subject property only upon full payment of the total purchase price. 6
Thereafter, petitioners made the following payments: P70,000.00 on October 20, 1994; P70,000.00 on November
23, 1994; and P68,000.00 on December 20, 1994, or a total of P208,000.00. After these payments, petitioners
failed to pay the agreed monthly installments.
In a letter7 dated September 6, 1995, petitioners requested Kalayaan that they be issued a deed of sale for the 118
sq. m. portion of the lot where their house was standing, considering that they no longer had the resources to pay
the remaining balance. They reasoned that, since they had already paid one-half of the purchase price, or a total of
P708,000.00 representing 118 sq. m. of the subject property, they should be issued a deed of sale for the said
portion of the property.
In a letter8 dated December 15, 1995, Kalayaan reminded petitioners of their unpaid balance and asked that they
settle it within the next few days. In a demand letter 9 dated January 30, 1996, Kalayaan, through counsel,
demanded that petitioners pay their outstanding obligation, including the agreed penalties, within ten (10) days from
receipt of the letter, or they would be constrained to file the necessary actions against them. Again, in a letter 10
dated March 30, 1996, Kalayaan gave petitioners another opportunity to settle their obligation within a period of ten
(10) days from receipt thereof.1avvphi1
On June 13, 1996, petitioners wrote Atty. Atilano Huaben Lim, then counsel of Kalayaan, and requested him to
intercede on their behalf and to propose to Kalayaan that Glorias sister, Juliet Flores Giron (Juliet), was willing to
assume payment of the remaining balance for the 118 sq. m. portion of the subject property at P10,000.00 a
month.11 Petitioners stated that they had already separated the said 118 sq. m. portion and had the property
surveyed by a licensed geodetic engineer to determine the unpaid portion of the property that needed to be
separated from their lot.
On January 20, 1997, March 20, 1997, April 20, 1997, June 20, 1997, July 20, 1997, September 20, 1997, October
20, 1997, and December 20, 1997, Juliet made payments of P10,000.00 per month to Kalayaan, which the latter
accepted for and in behalf of her sister Gloria. 12
Thereafter, Kalayaans in-house counsel, Atty. Reynaldo Romero, demanded that petitioners pay their outstanding
obligation. However, his demands remained unheeded. Thus, on June 19, 1998, Kalayaan filed a Complaint for
Rescission of Contract and Damages13 against petitioners before the Regional Trial Court (RTC) of Caloocan City,
Branch 126, which was later docketed as Civil Case No. C-18378.
On September 3, 1998, petitioners filed their Answer with Counterclaim 14 praying, among other things, that the RTC
dismiss the complaint and for Kalayaan to deliver the corresponding TCT to the subject property, so that the same
may be cancelled and a new one issued in the name of the petitioners. Petitioners also prayed for the award of
exemplary damages, moral damages, attorneys fees, and cost of suit. 15
After filing their respective pleadings, trial on the merits ensued. On August 2, 2000, the RTC rendered a Decision 16
in favor of Kalayaan, rescinding the contract between the parties; ordering the petitioners to vacate the premises;
and to pay the amount of P100,000.00 as attorneys fees. The decretal portion of the Decision reads:
IN VIEW OF ALL THE FOREGOING, judgment is hereby rendered rescinding the contract between the plaintiff and
the defendants and ordering the defendants and all persons claiming rights under them to vacate the premises and
to surrender possession thereof to the plaintiff. Moreover, defendants shall pay the amount of P100,000.00 as
attorneys fees.
The counterclaim of the defendants is hereby ordered DISMISSED for lack of merit. SO ORDERED. 17
Aggrieved, petitioners sought recourse before the Court of Appeals (CA) in their appeal docketed as CA-G.R. CV
No. 163244. Petitioners argued that the RTC erred when:
IT RULED THAT THE PLAINTIFF-APPELLEE MADE A VALID FORMAL DEMAND UPON THE DEFENDANTS-
APPELANTS TO PAY THE LATTERS DUE AND OUTSTANDING OBLIGATION;
IT RULED THAT THE PRINCIPLE OF NOVATION OF AN EXISTING OBLIGATION IS NOT APPLICABLE IN THE
INSTANT CASE;
IT RULED THAT THE PRINCIPLE OF RESCISSION IS APPLICABLE IN THE CASE AND THAT THE PLAINTIFF-
APPELLEE IS ENTITLED THERETO VIS--VIS THE DEFENDANTS-APPELLANTS;
IT FAILED TO RULE THAT THE PLAINTIFF-APPELLEE IS BARRED BY ESTOPPEL FROM ASKING FOR THE
RESCISSION OF THE CONTRACT TO SELL.
IT RULED THAT THE DEFENDANTS-APPELLANTS DID NOT HAVE THE FINANCIAL CAPACITY TO PAY THE
REMAINING BALANCE OF THE OBLIGATION AND THAT, CONSEQUENTLY, COMPLIANCE WITH THE TERMS
OF THE SAID OBLIGATION HAS BECOME IMPOSSIBLE.
IT RULED THAT THE PLAINTIFF-APPELLEE IS ENTITLED TO ITS CLAIM FOR ATTORNEYS FEES AND THE
COST OF SUIT.18
On January 23, 2004, the CA rendered a Decision affirming the Decision of the RTC, the dispositive portion of
which reads:
WHEREFORE, premises considered, the assailed decision dated August 2, 2000 is hereby AFFIRMED, and the
present appeal is hereby DISMISSED for lack of merit. SO ORDERED. (Emphasis supplied.) 19
Petitioners filed a Motion for Reconsideration,20 but it was denied for lack of merit in a Resolution 21 dated April 20,
2004.
Hence, the present petition assigning the following errors:
I. THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO APPLY THE PROVISIONS OF THE NEW
CIVIL CODE REGARDING SUBSTANTIAL PERFORMANCE IN THE JUST RESOLUTION OF THE
PETITIONERS APPEAL.
II. THE HONORABLE COURT OF APPEALS SHOULD HAVE APPLIED THE APPLICABLE PROVISIONS OF THE
LAW VIS--VIS THE RESCISSION OF CONTRACTS TO SELL REAL PROPERTY, SPECIFICALLY THE
REQUIREMENT OF A PRIOR AND VALIDLY NOTARIZED LETTER OF DEMAND.
III. THE HONORABLE COURT OF APPEALS FAILED TO APPLY TO THE INSTANT CASE THE PERTINENT
PROVISIONS OF THE NEW CIVIL CODE REGARDING THE PRINCIPLE OF NOVATION AS A MODE OF
EXTINGUISHING AN OBLIGATION.
IV. THE AWARD, BY THE COURT OF APPEALS, OF ATTORNEYS FEES, WAS NOT IN ACCORD WITH THE
FACTS AND THE LAW.
Petitioners maintain that they should have been entitled to get at least one-half of the subject property, because
payment equivalent to its value has been made to, and received by Kalayaan. Petitioners posit that the RTC should
have applied Article 123422 of the Civil Code to the present case, considering that it has been factually established
that they were able to pay at least one-half of the total obligation in good faith.
Petitioners contend that Kalayaan allowed Juliet to continue with the payment of the other half of the property in
installments of P10,000.00 a month. They also insist that they or Juliet was not given proper demand. They
maintain that the demand letters that were previously sent to them were for their previous obligation with Kalayaan
and not for the new agreement between Juliet and Kalayaan to assume payment of the unpaid portion of the
subject property. Petitioners aver that, for a demand of rescission to be valid, it is an absolute requirement that
should be made by way of a duly notarized written notice.
Petitioners likewise claim that there was a valid novation in the present case. They aver that the CA failed to see
that the original contract between the petitioners and Kalayaan was altered, changed, modified and restructured, as
a consequence of the change in the person of the principal debtor and the monthly amortization to be paid for the
subject property. When they agreed to a monthly amortization of P10,000.00 per month, the original contract was
changed; and Kalayaan recognized Juliets capacity to pay, as well as her designation as the new debtor. The
original contract was novated and the principal obligation to pay for the remaining half of the subject property was
transferred from petitioners to Juliet. When Kalayaan accepted the payments made by the new debtor, Juliet, it
waived its right to rescind the previous contract. Thus, the action for rescission filed by Kalayaan against them, was
unfounded, since the contract sought to be rescinded was no longer in existence.
Finally, petitioners question the RTCs award of attorneys fees. They maintain that there was no basis for the RTC
to have awarded the same. They claim that Kalayaan was not forced, by their acts, to litigate, because Juliet was
offering to pay the installments, but the offer was denied by Kalayaan. Moreover, since there were no awards for
moral and exemplary damages, the award of attorneys fees would have no basis and should be deleted.
The petition is devoid of merit.
In the present case, the nature and characteristics of a contract to sell is determinative of the propriety of the
remedy of rescission and the award of attorneys fees.
Under a contract to sell, the seller retains title to the thing to be sold until the purchaser fully pays the agreed
purchase price. The full payment is a positive suspensive condition, the non-fulfillment of which is not a breach of
contract, but merely an event that prevents the seller from conveying title to the purchaser. The non-payment of the
purchase price renders the contract to sell ineffective and without force and effect. 23 Unlike a contract of sale, where
the title to the property passes to the vendee upon the delivery of the thing sold, in a contract to sell, ownership is,
by agreement, reserved to the vendor and is not to pass to the vendee until full payment of the purchase price.
Otherwise stated, in a contract of sale, the vendor loses ownership over the property and cannot recover it until and
unless the contract is resolved or rescinded; whereas, in a contract to sell, title is retained by the vendor until full
payment of the purchase price. In the latter contract, payment of the price is a positive suspensive condition, failure
of which is not a breach but an event that prevents the obligation of the vendor to convey title from becoming
effective.24
Since the obligation of respondent did not arise because of the failure of petitioners to fully pay the purchase price,
Article 119125 of the Civil Code would have no application.
Rayos v. Court of Appeals26 elucidates:
Construing the contracts together, it is evident that the parties executed a contract to sell and not a contract of sale.
The petitioners retained ownership without further remedies by the respondents until the payment of the purchase
price of the property in full. Such payment is a positive suspensive condition, failure of which is not really a breach,
serious or otherwise, but an event that prevents the obligation of the petitioners to convey title from arising, in
accordance with Article 1184 of the Civil Code. x x x
xxxx
The non-fulfillment by the respondent of his obligation to pay, which is a suspensive condition to the obligation of
the petitioners to sell and deliver the title to the property, rendered the contract to sell ineffective and without force
and effect. The parties stand as if the conditional obligation had never existed. Article 1191 of the New Civil Code
will not apply because it presupposes an obligation already extant. There can be no rescission of an obligation that
is still non-existing, the suspensive condition not having happened.
The parties contract to sell explicitly provides that Kalayaan "shall execute and deliver the corresponding deed of
absolute sale over" the subject property to the petitioners "upon full payment of the total purchase price." Since
petitioners failed to fully pay the purchase price for the entire property, Kalayaans obligation to convey title to the
property did not arise. Thus, Kalayaan may validly cancel the contract to sell its land to petitioner, not because it
had the power to rescind the contract, but because their obligation thereunder did not arise.
Petitioners failed to pay the balance of the purchase price. Such payment is a positive suspensive condition, failure
of which is not a breach, serious or otherwise, but an event that prevents the obligation of the seller to convey title
from arising.27 The non-fulfillment by petitioners of their obligation to pay, which is a suspensive condition for the
obligation of Kalayaan to sell and deliver the title to the property, rendered the Contract to Sell ineffective and
without force and effect. The parties stand as if the conditional obligation had never existed. 28 Inasmuch as the
suspensive condition did not take place, Kalayaan cannot be compelled to transfer ownership of the property to
petitioners.
As regards petitioners claim of novation, we do not give credence to petitioners assertion that the contract to sell
was novated when Juliet was allegedly designated as the new debtor and substituted the petitioners in paying the
balance of the purchase price.
Novation is the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one
which extinguishes or modifies the first, either by changing the object or principal conditions, or by substituting
another in place of the debtor, or by subrogating a third person in the rights of the creditor.29
Article 1292 of the Civil Code provides that "[i]n order that an obligation may be extinguished by another which
substitutes the same, it is imperative that it be so declared in unequivocal terms, or that the old and the new
obligations be on every point incompatible with each other." Novation is never presumed. Parties to a contract must
expressly agree that they are abrogating their old contract in favor of a new one. In the absence of an express
agreement, novation takes place only when the old and the new obligations are incompatible on every point. 30 The
test of incompatibility is whether or not the two obligations can stand together, each one having its independent
existence. If they cannot, they are incompatible and the latter obligation novates the first. 31
Thus, in order that a novation can take place, the concurrence of the following requisites are indispensable:
1) There must be a previous valid obligation;
2) There must be an agreement of the parties concerned to a new contract;
3) There must be the extinguishment of the old contract; and
4) There must be the validity of the new contract.
In the instant case, none of the requisites are present. There is only one existing and binding contract between the
parties, because Kalayaan never agreed to the creation of a new contract between them or Juliet. True, petitioners
may have offered that they be substituted by Juliet as the new debtor to pay for the remaining obligation.
Nonetheless, Kalayaan did not acquiesce to the proposal.
Its acceptance of several payments after it demanded that petitioners pay their outstanding obligation did not
modify their original contract. Petitioners, admittedly, have been in default; and Kalayaans acceptance of the late
payments is, at best, an act of tolerance on the part of Kalayaan that could not have modified the contract.
As to the partial payments made by petitioners from September 16, 1994 to December 20, 1997, amounting to
P788,000.00, this Court resolves that the said amount be returned to the petitioners, there being no provision
regarding forfeiture of payments made in the Contract to Sell. To rule otherwise will be unjust enrichment on the
part of Kalayaan at the expense of the petitioners.
Also, the three percent (3%) penalty interest appearing in the contract is patently iniquitous and unconscionable as
to warrant the exercise by this Court of its judicial discretion. Art. 2227 of the Civil Code provides that "[l]iquidated
damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they are iniquitous or
unconscionable." A perusal of the Contract to Sell reveals that the three percent (3%) penalty interest on unpaid
monthly installments (per condition No. 3) would translate to a yearly penalty interest of thirty-six percent (36%).
Although this Court on various occasions has eliminated altogether the three percent (3%) penalty interest for being
unconscionable,32 We are not inclined to do the same in the present case. A reduction is more consistent with
fairness and equity. We should not lose sight of the fact that Kalayaan remains an unpaid seller and that it has
suffered, one way or another, from petitioners non-performance of its contractual obligations. In view of such
glaring reality, We invoke the authority granted to us by Article 1229 33 of the Civil Code, and as equity dictates, the
penalty interest is accordingly reimposed at a reduced rate of one percent (1%) interest per month, or twelve
percent (12%) per annum,34 to be deducted from the partial payments made by the petitioners.1avvphi1
As to the award of attorneys fees, the undeniable source of the present controversy is the failure of petitioners to
pay the balance of the purchase price. It is elementary that when attorneys fees is awarded, they are so
adjudicated, because it is in the nature of actual damages suffered by the party to whom it is awarded, as he was
constrained to engage the services of a counsel to represent him for the protection of his interest. 35 Thus, although
the award of attorneys fees to Kalayaan was warranted by the circumstances obtained in this case, we find it
equitable to reduce the award from P100,000.00 to P50,000.00.
WHEREFORE, premises considered, the Decision of the Regional Trial Court in Civil Case No. C-18378, dated August 2, 2000,
is hereby MODIFIED to the extent that the contract between the parties is cancelled and the attorneys fees is reduced to
P50,000.00. Respondent is further ordered to refund the amount paid by the petitioners after deducting the penalty interest due.
In all other aspects, the Decision stands.
Subject to the above disquisitions, the Decision dated January 23, 2004 and the Resolution dated April 20, 2004, of the Court of
Appeals in CA-G.R. CV No. 69814, are AFFIRMED. SO ORDERED.
PERFECTION of CONTRACT
G.R. No. 177936 January 18, 2012 STARBRIGHT SALES ENTERPRISES, INC., Petitioner, vs. PHILIPPINE REALTY
CORPORATION, MSGR. DOMINGO A. CIRILOS, TROPICANA PROPERTIES AND DEVELOPMENT CORPORATION and
STANDARD REALTY CORPORATION, Respondents. D E C I S I O N
ABAD, J.: The present case involves a determination of the perfection of contract of sale.
The Facts and the Case
On April 17, 1988 Ramon Licup wrote Msgr. Domingo A. Cirilos, offering to buy three contiguous parcels of land in
Paraaque that The Holy See and Philippine Realty Corporation (PRC) owned for P1,240.00 per square meter.
Licup accepted the responsibility for removing the illegal settlers on the land and enclosed a check for P100,000.00
to "close the transaction."1 He undertook to pay the balance of the purchase price upon presentation of the title for
transfer and once the property has been cleared of its occupants.
Msgr. Cirilos, representing The Holy See and PRC, signed his name on the conforme portion of the letter and
accepted the check. But the check could not be encashed due to Licups stop-order payment. Licup wrote Msgr.
Cirilos on April 26, 1988, requesting that the titles to the land be instead transferred to petitioner Starbright Sales
Enterprises, Inc. (SSE). He enclosed a new check for the same amount. SSEs representatives, Mr. and Mrs. Cu,
did not sign the letter.
On November 29, 1988 Msgr. Cirilos wrote SSE, requesting it to remove the occupants on the property and, should
it decide not to do this, Msgr. Cirilos would return to it the P100,000.00 that he received. On January 24, 1989 SSE
replied with an "updated proposal."2 It would be willing to comply with Msgr. Cirilos condition provided the purchase
price is lowered to P1,150.00 per square meter.
On January 26, 1989 Msgr. Cirilos wrote back, rejecting the "updated proposal." He said that other buyers were
willing to acquire the property on an "as is, where is" basis at P1,400.00 per square meter. He gave SSE seven
days within which to buy the property at P1,400.00 per square meter, otherwise, Msgr. Cirilos would take it that SSE
has lost interest in the same. He enclosed a check for P100,000.00 in his letter as refund of what he earlier
received.
On February 4, 1989 SSE wrote Msgr. Cirilos that they already had a perfected contract of sale in the April 17, 1988
letter which he signed and that, consequently, he could no longer impose amendments such as the removal of the
informal settlers at the buyers expense and the increase in the purchase price.
SSE claimed that it got no reply from Msgr. Cirilos and that the next thing they knew, the land had been sold to
Tropicana Properties on March 30, 1989. On May 15, 1989 SSE demanded rescission of that sale. Meanwhile, on
August 4, 1989 Tropicana Properties sold the three parcels of land to Standard Realty.
Its demand for rescission unheeded, SSE filed a complaint for annulment of sale and reconveyance with damages
before the Regional Trial Court (RTC) of Makati, Branch 61, against The Holy See, PRC, Msgr. Cirilos, and
Tropicana Properties in Civil Case 90-183. SSE amended its complaint on February 24, 1992, impleading Standard
Realty as additional defendant.
The Holy See sought dismissal of the case against it, claiming that as a foreign government, it cannot be sued
without its consent. The RTC held otherwise but, on December 1, 1994, 3 the Court reversed the ruling of the RTC
and ordered the case against The Holy See dismissed. By Order of January 26, 1996 the case was transferred to
the Paraaque RTC, Branch 258.
SSE alleged that Licups original letter of April 17, 1988 to Msgr. Cirilos constituted a perfected contract. Licup even
gave an earnest money of P100,000.00 to "close the transaction." His offer to rid the land of its occupants was a
"mere gesture of accommodation if only to expedite the transfer of its title." 4 Further, SSE claimed that, in
representing The Holy See and PRC, Msgr. Cirilos acted in bad faith when he set the price of the property at
P1,400.00 per square meter when in truth, the property was sold to Tropicana Properties for only P760.68 per
square meter.
Msgr. Cirilos maintained, on the other hand, that based on their exchange of letters, no contract of sale was
perfected between SSE and the parties he represented. And, only after the negotiations between them fell through
did he sell the land to Tropicana Properties.
In its Decision of February 14, 2000, the Paraaque RTC treated the April 17, 1988 letter between Licum and Msgr.
Cirilos as a perfected contract of sale between the parties. Msgr. Cirilos attempted to change the terms of contract
and return SSEs initial deposit but the parties reached no agreement regarding such change. Since such
agreement was wanting, the original terms provided in the April 17, 1988 letter continued to bind the parties.
On appeal to the Court of Appeals (CA), the latter rendered judgment on November 10, 2006, 5 reversing the
Paraaque RTC decision. The CA held that no perfected contract can be gleaned from the April 17, 1988 letter that
SSE had relied on. Indeed, the subsequent exchange of letters between SSE and Msgr. Cirilos show that the
parties were grappling with the terms of the sale. Msgr. Cirilos made no unconditional acceptance that would give
rise to a perfected contract.
As to the P100,000.00 given to Msgr. Cirilos, the CA considered it an option money that secured for SSE only the
privilege to buy the property even if Licup called it a "deposit." The CA denied SSEs motion for reconsideration on
May 2, 2007.
The Issue Presented
The only issue in this case is whether or not the CA erred in holding that no perfected contract of sale existed
between SSE and the land owners, represented by Msgr. Cirilos.
The Courts Ruling
Three elements are needed to create a perfected contract: 1) the consent of the contracting parties; (2) an object
certain which is the subject matter of the contract; and (3) the cause of the obligation which is established. 6 Under
the law on sales, a contract of sale is perfected when the seller, obligates himself, for a price certain, to deliver and
to transfer ownership of a thing or right to the buyer, over which the latter agrees. 7 From that moment, the parties
may demand reciprocal performance.
The Court believes that the April 17, 1988 letter between Licup and Msgr. Cirilos, the representative of the
propertys owners, constituted a perfected contract. When Msgr. Cirilos affixed his signature on that letter, he
expressed his conformity to the terms of Licups offer appearing on it. There was meeting of the minds as to the
object and consideration of the contract.
But when Licup ordered a stop-payment on his deposit and proposed in his April 26, 1988 letter to Msgr. Cirilos that
the property be instead transferred to SSE, a subjective novation took place.
A subjective novation results through substitution of the person of the debtor or through subrogation of a third
person to the rights of the creditor. To accomplish a subjective novation through change in the person of the debtor,
the old debtor needs to be expressly released from the obligation and the third person or new debtor needs to
assume his place in the relation.8
Novation serves two functions one is to extinguish an existing obligation, the other to substitute a new one in its
place requiring concurrence of four requisites: 1) a previous valid obligation; 2) an agreement of all parties
concerned to a new contract; 3) the extinguishment of the old obligation; and 4) the birth of a valid new obligation. 9
Notably, Licup and Msgr. Cirilos affixed their signatures on the original agreement embodied in Licups letter of April
26, 1988. No similar letter agreement can be found between SSE and Msgr. Cirilos.
The proposed substitution of Licup by SSE opened the negotiation stage for a new contract of sale as between
SSE and the owners. The succeeding exchange of letters between Mr. Stephen Cu, SSEs representative, and
Msgr. Cirilos attests to an unfinished negotiation. Msgr. Cirilos referred to his discussion with SSE regarding the
purchase as a "pending transaction."10
Cu, on the other hand, regarded SSEs first letter to Msgr. Cirilos as an "updated proposal." 11 This proposal took up
two issues: which party would undertake to evict the occupants on the property and how much must the
consideration be for the property. These are clear indications that there was no meeting of the minds between the
parties.1avvphi1 As it turned out, the parties reached no consensus regarding these issues, thus producing no
perfected sale between them.
Parenthetically, Msgr. Cirilos did not act in bad faith when he sold the property to Tropicana even if it was for a
lesser consideration. More than a month had passed since the last communication between the parties on February
4, 1989. It is not improbable for prospective buyers to offer to buy the property during that time.
The P100,000.00 that was given to Msgr. Cirilos as "deposit" cannot be considered as earnest money. Where the
parties merely exchanged offers and counter-offers, no contract is perfected since they did not yet give their
consent to such offers.12 Earnest money applies to a perfected sale.
SSE cannot revert to the original terms stated in Licups letter to Msgr. Cirilos dated April 17, 1988 since it was not
privy to such contract. The parties to it were Licup and Msgr. Cirilos. Under the principle of relativity of contracts,
contracts can only bind the parties who entered into it. It cannot favor or prejudice a third person. 13 Petitioner SSE
cannot, therefore, impose the terms Licup stated in his April 17, 1988 letter upon the owners.
WHEREFORE, the Court DISMISSES the petition and AFFIRMS the Court of Appeals Decision dated November
10, 2006 in CA-G.R. CV 67366.SO ORDERED.

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