 Title of the case

 Doctrine
 Facts
 Issue/s of the case
 Ruling

FIRST DIVISION

ADRIAN WILSON INTERNATIONAL G.R. No. 162608

ASSOCIATES, INC.,
Petitioner, Present:

CORONA, C.J., Chairperson,

VELASCO, JR.,
- versus - LEONARDO-DE CASTRO,
DEL CASTILLO, and
PEREZ, JJ.

TMX PHILIPPINES, INC., Promulgated:

Respondent. July 26, 2010
x------------------------------------------------------------
-------x

DECISION

DEL CASTILLO, J.:

A claimant is entitled to be compensated reasonably and commensurately

for what he or she has lost as a result of anothers act or omission, and the amount
of damages to be awarded shall be equivalent to what have been pleaded and
adequately proven. Should the claimant fail to prove with exactitude the extent of
injury he or she sustained, the court will still allow redress if it finds that the
claimant has suffered due to anothers fault.

In this petition for review on certiorari, petitioner Adrian Wilson International

Associates, Inc. (AWIA) assails the Decision[1] of the Court of Appeals (CA)
dated August 14, 2003 in CA-G.R. CV No. 49272 which affirmed with
modification the Decision[2] of the Regional Trial Court (RTC) of Makati City,
Branch 150 by further ordering AWIA to pay to respondent TMX Philippines,
Inc. (TMX) the amount of P1,546,084.00 representing the reimbursement of
salaries of TMXs employees. AWIA now pleads that we reinstate the RTC
Decision or reduce the amount of actual damages representing the reimbursement
of the salaries of the TMX employees.

Factual Antecedents

TMX engaged the services of AWIA for the construction of its watch assembly
plant located in the EPZA[3]-run Mactan Export Processing Zone
in Cebu (composed of twin modules and another separately designed
module).[4] Their Agreement[5] dated December 29, 1978 provided that AWIA
would provide basic and detailed architectural designs, plans, and specifications,
as well as structural, mechanical, and electrical engineering services.

Specifically, one of AWIAs duties was construction administration, i.e., to

guard TMX from defects and deficiencies during the construction phase by
determining the progress and quality of the work of the general contractor, P.G.
Dakay Construction Company (P.G. Dakay). This is to ensure that this contractor
works in accordance with the directed specifications.

Construction began in 1979 and was completed in 1980. After five years,
however, TMX noticed numerous cracks and beam deflections (vertical
shifting)[6] along the roof girders and beams in columns B, C, F, and G of the twin
modules. TMX, opining that the problem may have been due to design errors,
informed AWIA of the situation.

In its report dated April 24, 1985,[7] AWIA, thru its project manager
Anthony R. Stoner, maintained that its structural roof design of the building was
correct and that the building was not in danger of collapsing.

AWIA attributed the existing cracks along column line G to the marginal
strength of the concrete that was poured during a heavy rainfall on July 18,
1979. This was based on a construction report dated July 19, 1979, furnished to
TMX, of TMXP 2 Project Inspector/AWIA site representative Engr. Gavino
Lacanilao (Engr. Lacanilao).[8] In his report, Engr. Lacanilao narrated that the
night before, the concrete pouring operations on lines F and G of Bays 11-16,
Section C of TMXs main building were temporarily suspended due to the
following mistakes committed by the contractor in the pouring of concrete: a) the
presence of rainwater that diluted the concrete; b) the failure to apply grout as a
binder, and c) the use of concrete that was mixed for more than 45 minutes. To
AWIA, these mistakes had cost the quality of the roofs concrete strength. AWIA
thus suggested measures to correct the roof problem, one of them being the
installation of a lally column using steel pipe sections.

TMX also sought the opinion of two architectural consultancy firms, the
Fletcher-Thompson, Inc. (Fletcher-Thompson) and C.N. Ramientos and
Associates. Both concluded that the cracks and displacements of the roofs
structural system were due to AWIAs errors in the design calculations and in the
factoring of live and dead load and concrete strengths.[9]
Similar to the suggestion of AWIA, Fletcher-Thompson recommended the
installation of lally columns. Thus, as preventive and corrective measure, TMX
shored up the beams and girders with 118 steel lally columns in all the buildings
modules.

The major construction work was done in December 1985, during which
TMX was forced to stop its operations from December 1-18, 1985, putting its
employees on forced leave with pay. All in all, TMX
[10]
spent P3,931,583.00, i.e., P2,385,499.00 for shoring
[11]
expenses, and P1,546,084.00, representing wages of its employees for the
period December 1-18, 1985.[12]

Laying the blame on AWIA for the roof defects, TMX sought
reimbursement of everything it had spent for the corrective work by suing AWIA
for damages before the RTC of Makati. The case was docketed as Civil Case No.
16587 and raffled to Branch 150.[13]

In its Answer, AWIA insisted on the correctness of its design and that the
same was approved by TMX. It stressed that it faithfully complied with its
obligation of administering the construction contract and was not responsible for
whatever mistakes the contractor made. According to AWIA, TMX has its own
staff who supervised the construction and to whom AWIAs inspectors submitted
their reports. Conversely, AWIA blamed TMX for the cracks, alleging that the
latters supervising staff ignored the July 19, 1979 construction report of Engr.
Lacanilao[14] and that TMX refused to conduct an in-place testing of the
concrete. Defending itself against the monetary claims of TMX, AWIA averred
that the latter overreacted when it installed 118 lally columns, instead of only 11
columns as recommended by Fletcher-Thompson.[15]

Ruling of the Regional Trial Court

After weighing the evidence submitted by the parties, the trial court noted that
TMX apparently was satisfied with AWIAs services because after the completion
of the Mactan assembly plant in 1980, TMX rehired AWIA four years later for the
design of two more separate extensions of the building. All of AWIAs documents,
designs, drawings, plans and specifications of the building were subject to TMX
and its parent companys approval, which both relayed their comments and
instructions to AWIA. During the construction phase, TMX had its own
engineering team which actively participated in the project. The trial court
concluded that AWIA complied faithfully with its obligations in all phases
indicated in the Agreement.[16]

The court a quo found that only 11 shoring columns on the roof girders
were necessary to remedy the cracks and deflections in lines B and G, and thus
reduced the shoring expenses AWIA incurred on a pro-rate basis. It was also noted
that the defects were not solely attributable to AWIA, because TMX ignored Engr.
Lacanilaos July 19, 1979construction report on the pouring of diluted
concrete. Thus:
This Court finds that there was no necessity at all for plaintiff
TMX to have installed 118 shoring columns all over its
building. Except for the bare allegation of TMX president Rogelio Lim
that this was done upon the recommendation of Engr. Ramientos and
its U.S.-based consultant Fletcher-Thompson, plaintiff has not shown
that it was necessary to put up more than one hundred columns at all
beam intersections with sophisticated designs using expensive
materials. Admittedly, cracks and deflections appeared in some beams
and roof girders after five (5) years from the buildings completion. The
subject building or any part thereof has not collapsed nor has ever
fallen down. As a matter of fact, it was plaintiffs own consultant
Fletcher-Thompson in its Beam Deflection Check (Exhibits 5 to 5-J)
who recommended the installation of eleven (11) shoring columns on
the roof girders which had failures (T.S.N., July 3, 1990, pp. 27-
34). Even plaintiffs complaint mentions cracks and deflections only on
column lines B and G. To allow plaintiff reimbursement for putting up
118 columns all over the building would unduly favor plaintiff
TMX. Only eleven (11) columns would have been necessary to correct
the crackings and deflections in column lines B and G. Any excess of
that would be considered as a renovation or added improvement of
which the defendant should not be made to shoulder.

Thus, the defendant should reimburse TMX only for eleven (11)
shoring columns as its just and equitable share in the expenses incurred
by plaintiff. Taking the ratio of 11 and 118 columns and applying the
same to the total amount of P2,385,499.00, the expenses for installing
11 columns would be P222,377.00.

As regards the claim for reimbursement of P1,546,084.00

representing the salaries and wages that plaintiff allegedly paid its
employees during the work stoppage from December 1 to 18, 1985, the
same should be denied.

As testified by defendants witness, Engineer Labrador, it was

agreed that the 11 shoring columns will be put up late December since
admittedly the last two (2) weeks of December up to the first week of
January was plaintiffs scheduled production shutdown as its employees
usually go on vacation during those days. Moreover, it is observed that
plaintiff failed to present during the hearing of this case the pertinent
payroll documents to substantiate its claim. What it produced were only
computer printouts of the salaries allegedly paid to its employees for
the period in question.

x x x x[17]

The dispositive portion of the trial courts Decision reads:

WHEREFORE, the Court hereby renders judgment as follows:

1. Defendant is ordered to pay plaintiff TMX the amount

of P222,377.00 as compensatory damages;
 2. Defendant is ordered to pay P80,000.00 to plaintiff TMX as
attorneys fees and litigation expenses;

3. The complaint of plaintiff EPZA against defendant is

DISMISSED.

4. The counterclaim of defendant is DISMISSED.

SO ORDERED.[18]

Both parties appealed to the CA but AWIA later withdrew its appeal
leaving TMX to contest the judgment of the trial court.

Ruling of the Court of Appeals

The CA agreed with the RTC that AWIA is responsible for the payment of only
11 shoring columns. However, the CA differed as to the RTCs finding that AWIA
completely abided by its obligations. To the CA, AWIA failed to promptly and
adequately notify its principal of the quality and progress of the work, including
the defects and deficiencies in the construction and a determination of how these
will be rectified by the contractor. It said:

To excuse AWIA from any liability for the contractors failure to carry
out the work in accordance with the contract documents, it is required,
under their Agreement, to have kept the OWNER currently
and adequately informed in writing of the progress and quality of the
work. In the case at bar, We hold that the written report given by
AWIA to TMX of the incident could not be the proper notice
contemplated in the Agreement. Notably, the report merely contains
statements and account of events that transpired during such pouring
operations. It did not contain any warning or recommendation as to put
TMX on notice that something has to be done. Nor did it inform TMX
that said incident threatened the strength of concrete or structural
integrity of the roof. For this, AWIA is liable. x x x[19]

The CA further modified the RTCs Decision by ordering AWIA to reimburse

TMX the amount of P1,546,084.00 representing the salaries TMX had paid to its
employees during the involuntary work stoppage. The appellate court found the
check vouchers and financial schedule of payments as sufficient proofs.
Issues

Hence, AWIA filed this Petition for Review on Certiorari,[20] raising the following
issues: a) whether AWIA properly discharged its duty as construction
administrator and b) whether there is a valid basis for the reimbursement of the
salaries paid to the employees of TMX.

Petitioners Arguments

AWIAs arguments are summed up as follows:

a) It complied with its obligation to keep TMX adequately informed

about the progress and quality of the work of the contractor. Engr. Lacanilao,
AWIAs site representative, even delayed the pouring of the concrete and rejected
the concrete that had been mixed for more than 45 minutes during the July 18,
1979 incident. These actions were immediately reported to TMX the following
day. TMXs staff of engineers however found no cause for alarm to take remedial
measures after being informed. On the contrary, TMX accepted the work done on
the building without objections and considered Engr. Lacanilaos report as
sufficient compliance with AWIAs responsibility of submitting a report.

b) Assuming that AWIA failed to keep TMX adequately informed of the

ill-effects of the July 18, 1979 incident, still, AWIA cannot be held liable for all
the salaries allegedly paid to TMX employees during December, 1985. The
factory shutdown for the whole month of December cannot be solely attributed to
AWIAs inadequate reporting of weak cement mixture, but was also due to TMXs
decision to install 118 permanent shoring columns instead of only 11 columns as
recommended by Fletcher-Thompson.

Moreover, AWIA contends that TMX failed to prove its claim of payment of
alleged salaries during the shutdown period because the pieces of evidence it
presented are mere summaries of salaries paid and vouchers for checks deposited
in a bank for the alleged salaries. There are no proofs that TMX employees
actually received their salaries during said shutdown period. And even if it could
be held responsible for reimbursing the employees salaries, AWIA claims that it
should not be held liable for the TMX employees salaries during the entire period
of installation. Had only 11 columns been installed, the period of shutdown due to
remedial work would have been shorter. AWIA thus asks for a reduction of the
award, computed at a formula used by the trial court as basis for awarding TMX
the cost of installing only 11 columns. Hence, the salary should be computed at
11/118 of P1,546,084.00, or P144,210.37.

Respondents Arguments

On the other hand, TMX maintains that:

a) AWIA can no longer challenge the finding of the RTC and the CA of
its liability. The fact that the trial court ordered the payment of the costs of the 11
columns is an implicit recognition that AWIA was responsible for the roof
damage. AWIA did not appeal this judgment and thus this decision had become
final and executory. At most, AWIA can only challenge the CA Decision insofar
as the additional award of reimbursement of the employees salaries is concerned.

b) The CA was correct in its finding that AWIA breached the

Agreement. The report of Engr. Lacanilao had misled TMX into believing that no
problem existed and that nothing was to be rectified when it was AWIAs duty
under the Agreement to notify and promptly alert TMX of remedial measures that
must be taken when there are defects in the work of the contractor.

c) The breach warrants a full reimbursement of salaries TMX

claims. AWIA cannot use as defense the adequacy of Engr. Lacanilaos report
when this contradicts its own answer to the complaint, stating therein that the
cause of the roof failure was the marginal strength of the concrete during a
rainfall. The construction and repair of certain portions of the roof system forced
TMX to undergo work stoppage and pay its employees wages during the repair
period, the ultimate cause of which was AWIAs failure to warn TMX of the
possible consequences of the July 18, 1979 incident. Furthermore, the pieces of
documentary evidence TMX submitted to support a claim of reimbursement,
which included the names of employees, their gross pay and deductions, were
never contested during the trial and were appreciated by the CA. The evidence,
coupled by the testimony of TMX President Rogelio Lim that the amounts stated
in the documents were actually paid to the employees, constituted competent and
admissible evidence.

TMX also contends that it was baseless and speculative for AWIA to assume that
the time necessary to install 11 columns would not require a period of two weeks,
considering that the construction work for installing permanent shoring columns
was disruptive. Certain factors, such as pre-installation activities (e.g. careful
individual packing of hundreds of TMXs sensitive equipment and materials
necessary for watch-making and the painstaking excavation of areas where the
new columns were to be attached, which may take long depending on the
difficulty and the location), and faster pace of work as time progresses, should be
taken into account. Nonetheless, for TMX, AWIAs proposed computation of
11/118 multiplied by the amount of salaries claimed was erroneous, because
AWIA assumed that all the 118 columns had been installed from December 1-18,
1995, when the installation was completed in four weeks. Even if it would be
assumed that AWIAs mathematical formula was correct, and assuming that half of
the 118 columns were installed from December 1-18, 1995, the proper calculation
should be 11/50 multiplied by P1,546,084.00, or P288,253.00.

Our Ruling

AWIA failed in its duty to guard TMX

against the contractors work deficiencies

AWIA persistently faults TMX for its alleged neglect of Engr. Lacanilaos
report. But according to the parties Agreement, the duty of alerting TMX of the
problems in the construction of the building behooves entirely on AWIA. The
following provisions in the December 29, 1978 Agreement state what AWIAs
specific responsibilities are in contract administration:

CONSTRUCTION PHASE ADMINISTRATION OF THE

CONSTRUCTION CONTRACT

xxxx
 1.1.14. The CONSULTANT, shall make periodic and regular
visits to the site to determine the progress and quality of the Work and
to determine if the Work is proceeding in accordance with the Contract
Documents. On the basis of his on-site observations as a
CONSULTANT, he shall guard the OWNER against, and shall
promptly notify the OWNER in writing of, defects and deficiencies in
the Work of the Contractor and non-compliance with the Contract
Documents. The CONSULTANT shall be required to make such on-
site inspections as may be reasonably determined by the OWNER to be
necessary. Provided that the CONSULTANT shall have kept the
OWNER currently and adequately informed in writing of the progress
and quality of the work, the CONSULTANT shall not be responsible
for construction means, methods, techniques, sequences or procedures,
or for safety precautions in connection with the Work, and he shall not
be responsible for the Contractors failure to carry out the Work in
accordance with the Contract Documents.

1.1.15 Based on such observations at the site and on the Contractors

Applications for Payment, the CONSULTANT shall determine the
amount owing to the Contractor and shall issue Certificates for
Payment in such amounts. The issuance of a Certificate for Payment
shall constitute a representation by the CONSULTANT to the
OWNER, based on the CONSULTANTs observations at the site as
provided in Subparagraph 1.1.14 and on the data comprising the
Application for Payment, that the Work has progressed to the point
indicated; that to the best of the CONSULTANTs knowledge,
information and belief, the quality of the Work is in accordance with
the Contract Documents (subject to an evaluation of the Work for
conformance with the Contract Documents upon Substantial
Completion to the results of any subsequent tests required by the
Contract Documents, to minor deviations from the Contract
Documents correctable prior to completion, and to any specific
qualifications stated in the Certificate for Payment); and that the
Contractor is entitled to payment in the amount certified. By issuing a
Certificate for Payment, the CONSULTANT shall not be deemed to
represent that he has made any examination to ascertain how and for
what purpose the Contractor has used the moneys paid on account of
the Contract Sum.

1.1.16 The CONSULTANT shall be, in the first instance, the

interpreter of the requirements of the Contract Documents and the
 impartial judge of the performance thereunder by the Contractor.The
CONSULTANT shall make decisions on all claims of the Contractor
relating to the execution and progress of the Work and all other matters
or questions related thereto.

1.1.17 The CONSULTANT shall have authority to reject Work which

does not conform to the Contract Documents. Whenever, in his
reasonable opinion, he considers it necessary or advisable to insure the
proper implementation of the intent of the Contract Documents, he will
have authority, with the OWNERs approval, to require special
inspection or testing of any Work in accordance with the provisions of
the Contract Documents whether or not such Work be then fabricated,
installed or completed.

xxxx

1.1.20 The CONSULTANT shall conduct inspections to determine the

Dates of Substantial Completion and final completion, shall receive
and review written guarantees and related documents assembled by the
Contractor, and shall issue a final Certificate for Payment. The
CONSULTANT shall use its best efforts to enforce warranties and
guarantees furnished by the Contractor or by suppliers of materials or
equipment to the extent of assisting OWNER in any arbitration or court
action if necessary.

1.1.21 The CONSULTANT shall not be responsible for the acts

or omissions of the Contractor, or any Subcontractors, or any of the
Contractors or Subcontractors agents or employees, or any other
persons performing any of the Work but will promptly inform
OWNER thereof in writing and determine how such acts or omissions
will be rectified by the Contractor prior to issuing a final Certificate of
Payment.

x x x x[21]

As can be inferred from the contract, TMX could solely and absolutely rely
on the assessments and recommendations of AWIA. Under the aforementioned
provisions, AWIA was tasked to guard TMX against construction problems and to
ensure the quality of P.G. Dakays performance. It also had the authority to
approve or reject the contractors work, and it could issue certificates of payments
for the progress billings of the contractor only if it found the latters job as covered
by each of the billings satisfactory. Thus, it is irrelevant whether TMX has its own
engineering staff to evaluate the reports about the construction work. Taking
together Sections 1.1.14 and 1.1.21, AWIA is not liable for the contractors
construction errors on the following conditions: a) that it promptly and adequately
informs TMX of whatever defects and deficiencies in the construction are and b)
that it determines how these problems could be repaired. AWIA should not release
a final certification of payment in favor of the contractor unless these had been
done.

The July 19, 1979 report[22] of Engr. Lacanilao is quoted below:

TO MR. ROGELIO Q. LIM

FROM GAVINO S. LACANILAO

DATE 19 JULY 1979

TMXP 2, General Manager TMXP 2, Project Inspector

SUBJECT HEAVY RAINS DURING THE POURING

Last night at 22:45 hours while we were continuously pouring

(Monolythic Concreting) on lines F and G of Bays 11 to 16 Section C
of Main Building a signal for heavy rains coming was noted, so all the
personnel involved in the pouring covered the newly poured concrete
with polyethylene (Plastic) sheets to protect from the rain. When the
rain started the newly poured concrete were protected.

During the heavy rain the pouring was temporarily suspended. Since I
was the only one who has a rain coat, I inspected the whole top area
and found out that rain water accumulated which was approximately
thirteen (13) inches deep, because the water line was just below one (1)
inch of my rubber boots.

So I removed all the temporary plugs of the C.I. downspouts to prevent

accumulated rain water from destruction, and that was the only time
that the water dispersed little by little.
When the rain stopped, Engineers Ramon Aseniero and E. Gahi told
me that they will continue the pouring. I advised that they must first
remove the water on top of both the plastic sheets and the newly poured
concrete so that the concrete to be poured will not be diluted.

While men working between bays 15 and 16 were busy applying air
pressure on the surface of the fresh concrete with water and the forms
to be poured, I suddenly saw the contents in the bucket of one of the
overhead cranes was about to be poured out on the newly poured
concrete. So I ran and told Engr. E. Gahi why he is already pouring the
concrete in the bucket while the rain water is still there? And Engr.
Gahi told me that he was just following the order of Mr. John Y. Lim
who just arrived and without assessing the situation and asking my
decision being the inspector of the project.

So I approached Mr. Lim and asked him why he gave the order of
pouring the concrete? He told me right away and pointing at the
stopped poured concrete is already sitting. So I told him that if he
continue [sic] pouring the concrete, I will go out of the construction site
or I will not certify the said area. That was the time our argument
stopped.

The following are my reasons why I delay the pouring:

*The poured concrete before the rain was with standing water.

*All the forms to be concreted were covered with water.

Note: If they will pour concrete on the above reasons, the mixed
concrete will be diluted too much with water that it will lessen the
strength of the roofing slab.

*They were pouring the concrete without first applying grout to act as
binder on the surface of the washed concrete.

*They [sic] concrete they were trying to pour was already more than 45
minutes in the mixer, because the rain stopped at 01:15 hrs of July 20,
1979.

Specification manual page 02800-6 Section 1.04.04 truck mixing

second to the last paragraph says:
 Concrete not in place within 45 minutes from the time
the ingredients were charged into the mixing drum or
that has developed initial sitting should not be
used. No exemption. So I rejected the two (2) batches.

Respectfully,

(Signed) G.S. LACANILAO

TMXP 2, Project Inspector

The subject report is merely a narration of what Engr. Lacanilao had done
and the justifications why he delayed the pouring of concrete and why he rejected
two batches of concrete mix. Engr. Lacanilao explained that P.G. Dakays
representative did not proceed with the pouring of the substandard concrete mix,
after he was informed that he (Engr. Lacanilao) would not certify the area. TMX
then was led to believe that this incident was no cause for alarm since apparently,
Engr. Lacanilao had prevented a possible problem.The report did not in any way
warn TMX that the quality of the roof may be in jeopardy and that it had to be
rectified. AWIA even approved all of P.G. Dakays progress billings and issued a
final certification of payment, an assurance that it found no problems at all with
the construction work. Ironically though, when the cracks and deflections in
certain sections of the roof had appeared, AWIA cited the marginal strength of the
concrete as a result of the July 18, 1979 incident as the most probable cause of the
cracks in TMXs roof.

AWIAs failure to adequately inform TMX of the possible implications of

the contractors mistake in the concrete pouring was a crucial factor that had cost
the former to spend for the repairs.

AWIA breached its responsibility to

inform TMX of the contractors mistake.
TMX may demand for damages duly
proven as a natural consequence of the
roof failures it has suffered. If the
amount it claims cannot be proven with
certainty, temperate damages may be
awarded instead.

In contracts and quasi-contracts, the damages for which the obligor who acted in
good faith is liable shall be those that are the natural and probable consequences of
the breach of the obligation.[23]

Both the trial court and the CA held AWIA liable for the cost of 11 shoring
columns. AWIA no longer challenged this ruling when it withdrew its appeal to
the appellate court, rendering the judgment final and executory.[24] We also found
that AWIA had breached its duty of contract administration. Had the effects on the
marginal strength of the concrete been promptly disclosed to TMX, the cracks and
deflections could have been rectified by the contractor before it was issued its final
certification of payment and the owner could have been spared from further
expenses. There is a causal connection between AWIAs negligence and the
expenses incurred by TMX. The latter was compelled to shutdown the plant
during the workdays in December to repair the roof. In the process, it incurred
expenses for the repairs, including the salaries of its workers who were put on
forced leave, for which it can ask for reimbursement as actual damages.

Actual damages puts the claimant in the position in which he had been before he
was injured. The award thereof must be based on the evidence presented, not on
the personal knowledge of the court; and certainly not on flimsy, remote,
speculative and nonsubstantial proof.[25] Under the Civil Code, one is entitled to an
adequate compensation only for such pecuniary loss suffered by him as he has
duly proved.[26]

After an exhaustive perusal of the records pertaining to the claim of the

salaries covering December 1-18, 1985 allegedly paid to TMX employees, we
find that TMXs pieces of evidence do not substantiate such plea for the full
reimbursement of the salaries. To prove that salaries have been paid, TMX has the
burden to show that payments have actually been made to its
employees. However, the documents it submitted were composed only of a master
list of daily and monthly paid employees, summarized and itemized lists and
computations of payroll costs during the covered period of shoring installation,
salary structures, and vouchers prepared by the accounting department. These
pieces of evidence, as well as the bare assertion of the TMX President, do not
show a reasonable degree of certainty of actual payment to and actual receipt by
its workers but only reflect the list of disbursements. No other witnesses who
could corroborate the actual payment of the salaries of the employees during the
shutdown period were presented. Vouchers are not receipts. A receipt is a written
and signed acknowledgment that money has been received or goods have been
delivered, while a voucher is documentary record of a business
transaction.[27] Hence, the RTC correctly preferred the payroll documents (which
contain the signatures of employees), implying that these are the primary/best
evidence of payment, or that which [afford] the greatest certainty of the fact in
question.[28]

While TMX failed to prove the exact amount of the salaries it had paid, we
however acknowledge that TMX had to pay its employees during the shutdown
and had suffered pecuniary loss for the structural problem. Moreover, we concede
to AWIAs stance that the installation of only 11 shoring columns, instead of 118,
would significantly reduce the number of days allotted for the repairs. As a matter
of equity, therefore, a relief to TMX in the form of temperate damages[29] is
warranted. We find the amount of P500,000.00 reasonable and sufficient under the
circumstances.

WHEREFORE, the instant petition is PARTIALLY GRANTED. The

Decision of the Court of Appeals in CA-G.R. CV No. 49272 is AFFIRMED with
the MODIFICATION that the award of P1,546,084.00 as part of actual damages
is deleted, and in lieu thereof, temperate damages amounting to P500,000.00 are
awarded. Costs against AWIA.

SO ORDERED.

G.R. No. 165554 July 26, 2010

LAZARO PASCO and LAURO PASCO, Petitioners,

vs.
HEIRS OF FILOMENA DE GUZMAN, represented by CRESENCIA DE GUZMAN-
PRINCIPE, Respondents.

DECISION
DEL CASTILLO, J.:

No court should shield a party from compliance with valid obligations based on wholly
unsubstantiated claims of mistake or fraud. Having refused to abide by a compromise
agreement, the aggrieved party may either enforce it or regard it as rescinded and insist
upon the original demand.

This Petition for Review on Certiorari1 assails the May 13, 2004 Decision2 of the Court of
Appeals (CA) and its October 5, 2004 Resolution3 in CA-G.R. SP No. 81464 which dismissed
petitioners’ appeal and affirmed the validity of the parties’ Compromise Agreement.

Factual Antecedents

The present petition began with a Complaint for Sum of Money and Damages4 filed on
December 13, 2000 by respondents, the heirs of Filomena de Guzman (Filomena),
represented by Cresencia de Guzman-Principe (Cresencia), against petitioners Lauro Pasco
(Lauro) and Lazaro Pasco (Lazaro). The case was filed before the Municipal Trial Court
(MTC) of Bocaue, Bulacan, and docketed as Civil Case No. MM-3191.5

In their Complaint,6 herein respondents alleged that on February 7, 1997, petitioners

obtained a loan in the amount of ₱140,000.00 from Filomena (now deceased). To secure the
petitioners’ loan, Lauro executed a chattel mortgage on his Isuzu Jeep in favor of Filomena.
Upon her death, her heirs sought to collect from the petitioners, to no avail. Despite
numerous demands, petitioners refused to either pay the balance of the loan or surrender
the Isuzu Jeep to the respondents. Thus, respondents were constrained to file the collection
case to compel the petitioners to pay the principal amount of ₱140,000.00 plus damages in
the amount of 5% monthly interest from February 7, 1997, 25% attorney’s fees, exemplary
damages, and expenses of litigation.

Filomena’s heirs, consisting of Avelina de Guzman-Cumplido, Cecilia de Guzman, Rosita de

Guzman, Natividad de Guzman, and Cresencia de Guzman-Principe, authorized Cresencia
to act as their attorney-in-fact through a Special Power of Attorney7 (SPA) dated April 6,
1999. The SPA authorized Cresencia to do the following on behalf of the co-heirs:

1) To represent us on all matters concerning the intestate estate of our deceased

sister, Filomena de Guzman;

2) To file cases for collection of all accounts due said Filomena de Guzman or her
estate, including the power to file petition for foreclosure of mortgaged properties;

3) To do and perform all other acts necessary to carry out the powers hereinabove
conferred.

During the pre-trial of the case on February 15, 2002, the parties verbally agreed to settle the
case. On February 21, 2002, the parties jointly filed a Compromise Agreement8 that was
signed by the parties and their respective counsel. Said Compromise Agreement, approved
by the MTC in an Order9 dated April 4, 2002, contained the following salient provisions:

1. That [petitioners] admit their principal loan and obligation to the [respondents] in
the sum of One Hundred Forty Thousand Pesos (₱140,000.00) Philippine currency;
 in addition to the incidental and other miscellaneous expenses that they have
incurred in the pursuit of this case, in the further sum of ₱18,700.00;

2. That, [petitioners] undertake to pay to the [respondents] their aforementioned

obligations, together with attorney’s fees equivalent to ten percentum (10%) of the
total sum thereof, directly at the BULACAN OFFICE of the [respondents’] counsel,
located at No. 24 Hornbill Street, St. Francis Subdivision, Bo. Pandayan,
Meycauayan, Bulacan, WITHOUT NEED OF FURTHER DEMAND in the following
specific manner, to wit:

₱60,000.00 – to be paid on or before May 15, 2002

₱10,000.00 – monthly payments thereafter, starting June 15, 2002 up to and

until the aforementioned obligations shall have been fully paid;

3. That, provided that [petitioners] shall truely [sic] comply with the foregoing
specifically agreed manner of payments, [respondents] shall forego and waive all the
interests charges of 5% monthly from February 7, 1998 and the 25% attorney’s fees
provided for in Annex "AA" of the Complaint;

4. In the event of failure on the part of the [petitioners] to comply with any of the
specific provisions of this Compromise Agreement, the [respondents] shall be entitled
to the issuance of a "Writ of Execution" to enforce the satisfaction of [petitioners’]
obligations, as mentioned in paragraph 1, together with the 5% monthly interests
charges and attorney’s fees mentioned in paragraph 3 thereof.10

Ruling of the Municipal Trial Court

Unfortunately, this was not the end of litigation. On May 2, 2002, petitioners filed a verified
Motion to Set Aside Decision11 alleging that the Agreement was written in a language not
understood by them, and the terms and conditions thereof were not fully explained to them.
Petitioners further questioned the MTC’s jurisdiction, arguing that the total amount allegedly
covered by the Compromise Agreement amounted to ₱588,500.00, which exceeded the
MTC’s ₱200,000.00 jurisdictional limit. In an Order12 dated June 28, 2002, the MTC denied
the motion; it also granted Cresencia’s prayer for the issuance of a writ of execution. The writ
of execution13 was subsequently issued on July 3, 2002. Petitioners’ Motion for
Reconsideration and to Quash Writ/Order of Execution14 dated August 1, 2002 was denied
by the MTC in an Order15 dated September 5, 2002.

Undeterred, on October 10, 2002, petitioners filed a Petition for Certiorari and Prohibition
with Application for Temporary Restraining Order/Preliminary Injunction16 before the
Regional Trial Court (RTC) of Bocaue. The case was raffled to Branch 82,17 and docketed as
Civil Case No. 764-M-2002. In their petition, petitioners argued that the MTC gravely abused
its discretion in approving the Compromise Agreement because (1) the amount involved was
beyond the jurisdiction of the MTC; (2) the MTC failed to ascertain that the parties fully
understood the contents of the Agreement; (3) Crescencia had no authority to represent her
co-heirs because Filomena’s estate had a personality of its own; and (4) the Compromise
Agreement was void for failure of the judge and Cresencia to explain the terms and
conditions to the petitioners.

In their Comment18 dated October 29, 2002, respondents argued that (1) the principal claim
of ₱140,000.00 was within the MTC’s jurisdiction; and (2) the records reveal that it was the
petitioners themselves, assisted by their counsel, who proposed the terms of the settlement,
which offer of compromise was accepted in open court by the respondents. Thus, the
Compromise Agreement merely reduced the parties’ agreement into writing.

Ruling of the Regional Trial Court

The RTC initially granted petitioners’ prayer for the issuance of a Temporary Restraining
Order (TRO)19 on November 18, 2002, and later issued a preliminary injunction in an
Order20 dated December 10, 2002, primarily on the ground that the SPA did not specifically
authorize Cresencia to settle the case. However, Presiding Judge Herminia V. Pasamba
later inhibited herself,21 so the case was re-raffled to Branch 6, presided over by Judge
Manuel D.J. Siayngo.22 The grant of the preliminary injunction was thus reconsidered and set
aside in an Order23dated May 15, 2003. In the same Order, the RTC dismissed the petition
and held that (1) the MTC had jurisdiction over the subject matter; (2) Cresencia was
authorized to institute the action and enter into a Compromise Agreement on behalf of her
co-heirs; and (3) the MTC’s approval of the Compromise Agreement was not done in a
capricious, whimsical, or arbitrary manner; thus, petitioners’ resort to certiorari under Rule 65
was improper. Petitioners’ Motion for Reconsideration24 was denied,25 hence they sought
recourse before the CA.

Ruling of the Court of Appeals

In its Decision26 dated May 13, 2004 and Resolution27 dated October 5,

2004, the CA dismissed petitioners’ appeal, and held that:

1) the MTC had jurisdiction, since the principal amount of the loan only amounted to
₱140,000.00;

2) Cresencia was duly authorized by her co-heirs to enter into the Compromise
Agreement;

3) Petitioners improperly sought recourse before the RTC through a Petition

for Certiorari under Rule 65, when the proper remedy was a Petition for Relief from
Judgment under Rule 38.

Issues

Before us, petitioners claim that, first, they correctly resorted to the remedy of certiorari under
Rule 65; second, the RTC gravely erred in dismissing their Petition for Certiorari and
Prohibition, when the matter under consideration was merely the propriety of the grant of the
preliminary injunction; and third, that the SPA did not validly authorize Cresencia to enter into
the Compromise Agreement on behalf of her co-heirs.

Our Ruling

We deny the petition.

The MTC had jurisdiction over the case.

It bears stressing that the question of the MTC’s jurisdiction has not been raised before this
Court; hence, petitioners appear to have admitted that the MTC had jurisdiction to approve
the Compromise Agreement. In any event, it is beyond dispute that the Judiciary
Reorganization Act of 1980, or Batas Pambansa (BP) Blg. 129,28 as amended by Republic
Act No. 7691,29 fixes the MTC’s jurisdiction over cases where "the demand does not exceed
Two hundred thousand pesos (₱200,000.00) exclusive of interest, damages of whatever
kind, attorney's fees, litigation expenses, and costs."30 Thus, respondents’ initiatory
complaint, covering the principal amount of ₱140,000.00, falls squarely within the MTC’s
jurisdiction.

Petitioners properly resorted to the special civil action of certiorari.

On the first question, the CA held that the proper remedy from the MTC’s Order approving
the Compromise Agreement was a Petition for Relief from Judgment under Rule 38 and not
a Petition for Certiorari under Rule 65. We recall that petitioners filed a verified Motion to Set
Aside Decision on May 2, 2002,31 which was denied by the MTC on June 28, 2002. This
Order of denial was properly the subject of a petition for certiorari, pursuant to Rule 41,
Section 1, of the Rules of Court:

Section 1. Subject of Appeal – An appeal may be taken from a judgment or final order that
completely disposes of the case, or of a particular matter therein when declared by these
Rules to be appealable.

No appeal may be taken from:

xxxx

(e) an order denying a motion to set aside a judgment by consent, confession or compromise
on the ground of fraud, mistake or duress, or any other ground vitiating consent.

xxxx

In all the above instances where the judgment or final order is not appealable, the aggrieved
party may file an appropriate special civil action under Rule 65.

From the express language of Rule 41, therefore, the MTC’s denial of petitioners’ Motion to
Set Aside Decision could not have been appealed. Indeed, a decision based on a
compromise agreement is immediately final and executory and cannot be the subject of
appeal,32 for when parties enter into a compromise agreement and request a court to render
a decision on the basis of their agreement, it is presumed that such action constitutes a
waiver of the right to appeal said decision.33 While there may have been other remedies
available to assail the decision,34petitioners were well within their rights to institute a special
civil action under Rule 65.

The Regional Trial Court rightly dismissed the petition for certiorari.

On the second issue, petitioners argue that the RTC, in reconsidering the order granting the
application for writ of preliminary injunction, should not have gone so far as dismissing the
main case filed by the petitioners. They claim that the issue in their application for writ of
preliminary injunction was different from the issues in the main case for certiorari, and that
the dissolution of the preliminary injunction should have been without prejudice to the
conduct of further proceedings in the main case. They also claim that the RTC did not have
the power to dismiss the case without requiring the parties to file memoranda.

These assertions are belied, however, by petitioners’ own submissions.

Their arguments were exactly the same, whether relating to the preliminary or permanent
injunction. Identical matters were at issue – the MTC’s jurisdiction, petitioners’ alleged
vitiated consent, and the propriety of enforcing the Compromise Agreement. The reliefs
sought, too, were the same, that is, the grant of an injunction against the enforcement of the
compromise:35

WHEREFORE, it is most respectfully prayed that:

1) A Temporary Restraining Order and/or Preliminary Injunction issue ex parte

directing the respondents to cease and desist from enforcing, executing, or
implementing in any manner the Decision dated April 4, 2002 and acting in Civil
Case No. MM-3191 until further orders from this Honorable Court.

2) After hearing, the temporary restraining order/ex parte injunction be replaced by a

writ of preliminary injunction.

3) After hearing on the merits, judgment be rendered:

a. Making the injunction permanent.

Since the RTC found at the preliminary injunction phase that petitioners were not entitled to
an injunction (whether preliminary or permanent), that petitioners’ arguments were
insufficient to support the relief sought, and that the MTC’s approval of the Compromise
Agreement was not done in a capricious, whimsical, or arbitary manner, the RTC was not
required to engage in unnecessary duplication of proceedings. As such, it rightly dismissed
the petition.

In addition, nothing in the Rules of Court commands the RTC to require the parties to file
Memoranda. Indeed, Rule 65, Sec. 8 is explicit in that the court "may dismiss the petition if it
finds the same to be patently without merit, prosecuted manifestly for delay, or that the
questions raised therein are too unsubstantial to require consideration."36

Cresencia was authorized to enter into the Compromise Agreement.

As regards the third issue, petitioners maintain that the SPA was fatally defective because
Cresencia was not specifically authorized to enter into a compromise agreement. Here, we
fully concur with the findings of the CA that:

x x x It is undisputed that Cresencia’s co-heirs executed a Special Power of Attorney, dated

6 April 1999, designating the former as their attorney-in-fact and empowering her to file
cases for collection of all the accounts due to Filomena or her estate. Consequently,
Cresencia entered into the subject Compromise Agreement in order to collect the overdue
loan obtained by Pasco from Filomena. In so doing, Cresencia was merely performing her
duty as attorney-in-fact of her co-heirs pursuant to the Special Power of Attorney given to
her.37
1avv phi 1
Our ruling in Trinidad v. Court of Appeals38 is illuminating. In Trinidad, the heirs of Vicente
Trinidad executed a SPA in favor of Nenita Trinidad (Nenita) to be their representative in
litigation involving the sale of real property covered by the decedent’s estate. As here, there
was no specific authority to enter into a Compromise Agreement. When a compromise
agreement was finally reached, the heirs later sought to invalidate it, claiming that Nenita
was not specifically authorized to enter into the compromise agreement. We held then, as we
do now, that the SPA necessarily included the power of the attorney-in-fact to compromise
the case, and that Nenita’s co-heirs could not belatedly disavow their original
authorization.39 This ruling is even more significant here, where the co-heirs have not taken
any action to invalidate the Compromise Agreement or assail their SPA.

Moreover, we note that petitioners never assailed the validity of the SPA

during the pre-trial stage prior to entering the Compromise Agreement. This matter was
never even raised as a ground in petitioners’ Motion to Set Aside the compromise, or in the
initial Petition before the RTC. It was only months later, in December 2002, that petitioners –
rather self-servingly - claimed that the SPA was insufficient.

The stated interest rate should be reduced.

Although the petition is unmeritorious, we find the 5% monthly interest rate stipulated in
Clause 4 of the Compromise Agreement to be iniquitous and unconscionable. Accordingly,
the legal interest of 12% per annum must be imposed in lieu of the excessive interest
stipulated in the agreement. As we held in Castro v. Tan:40

In several cases, we have ruled that stipulations authorizing iniquitous or unconscionable

interests are contrary to morals, if not against the law. In Medel v. Court of Appeals, we
annulled a stipulated 5.5% per month or 66% per annum interest on a ₱500,000.00 loan and
a 6% per month or 72% per annum interest on a ₱60,000.00 loan, respectively, for being
excessive, iniquitous, unconscionable and exorbitant. In Ruiz v. Court of Appeals, we
declared a 3% monthly interest imposed on four separate loans to be excessive. In both
cases, the interest rates were reduced to 12% per annum.

In this case, the 5% monthly interest rate, or 60% per annum, compounded monthly,
stipulated in the Kasulatan is even higher than the 3% monthly interest rate imposed in
the Ruiz case. Thus, we similarly hold the 5% monthly interest to be excessive, iniquitous,
unconscionable and exorbitant, contrary to morals, and the law. It is therefore void ab
initio for being violative of Article 1306 of the Civil Code. x x x (citations omitted)

The proceeds of the loan should be released to Filomena’s heirs only upon settlement of her
estate.

Finally, it is true that Filomena’s estate has a different juridical personality than that of the
heirs. Nonetheless, her heirs certainly have an interest in the preservation of the estate and
the recovery of its properties,41 for at the moment of Filomena’s death, the heirs start to own
the property, subject to the decedent's liabilities. In this connection, Article 777 of the Civil
Code states that "[t]he rights to the succession are transmitted from the moment of the death
of the decedent."42

Unfortunately, the records before us do not show the status of the proceedings for the
settlement of the estate of Filomena, if any. But to allow the release of the funds directly to
the heirs would amount to a distribution of the estate; which distribution and delivery should
be made only after, not before, the payment of all debts, charges, expenses, and taxes of the
estate have been paid.43 We thus decree that respondent Cresencia should deposit the
amounts received from the petitioners with the MTC of Bocaue, Bulacan and in turn, the
MTC of Bocaue, Bulacan should hold in abeyance the release of the amounts to Filomena’s
heirs until after a showing that the proper procedure for the settlement of Filomena’s estate
has been followed.

WHEREFORE, the petition is DENIED. The May 13, 2004 Decision of the Court of Appeals
and its October 5, 2004 Resolution are AFFIRMED with MODIFICATIONS that the interest
rate of 5% per month (60% per annum) is ordered reduced to 12 % per annum. Respondent
Cresencia De Guzman-Principe is DIRECTED to deposit with the Municipal Trial Court of
Bocaue, Bulacan the amounts received from the petitioners. The Municipal Trial Court of
Bocaue, Bulacan is likewise DIRECTED to hold in abeyance the release of any amounts
recovered from the petitioners until after a showing that the procedure for settlement of
estates of Filomena de Guzman’s estate has been followed, and after all charges on the
estate have been fully satisfied.

SO ORDERED.

G.R. No. 166236 July 29, 2010

NOLI ALFONSO and ERLINDA FUNDIALAN, Petitioners,

vs.
SPOUSES HENRY and LIWANAG ANDRES, Respondents.

DECISION

DEL CASTILLO, J.:

Technical rules may be relaxed only for the furtherance of justice and to benefit the
deserving.

In the present petition for review, petitioners assail the August 10, 2004 Resolution1 of the
Court of Appeals (CA) in CA-G.R. CV. No. 78362, which dismissed the appeal before it for
failure of petitioners to file their brief within the extended reglementary period.

Factual Antecedents

The present case stemmed from a complaint for accion publiciana with damages filed by
respondent spouses Henry and Liwanag Andres against Noli Alfonso and spouses Reynaldo
and Erlinda Fundialan before the Regional Trial Court (RTC), Branch 77, San Mateo, Rizal.

On July 8, 1997, the RTC rendered a Decision2 in favor of respondents. The dispositive
portion of the Decision states:

WHEREFORE, premises considered judgment is rendered in favor of the plaintiffs and

against the defendants and all persons claiming rights under them who are ordered:

1. to vacate the premises located at 236 General Luna St., Dulongbayan 11, San
Mateo, Rizal;
 2. to jointly and severally pay the sum [of] ₱100.00 as reasonable compensation for
the use of said premises commencing from 04 September 1995; [and]

3. to jointly and severally pay the sum of ₱10,000.00 as and for attorney's fees and to
pay the cost of suit.

SO ORDERED.3

Petitioners,4 thus, appealed to the CA.

Proceedings Before the Court of Appeals

On November 5, 2003, petitioners' previous counsel was notified by the CA to file appellants'
brief within 45 days from receipt of the notice. The original 45-day period expired on
December 21, 2003. But before then, on December 8, 2003, petitioners' former counsel filed
a Motion to Withdraw Appearance. Petitioners consented to the withdrawal.

On December 19, 2003, petitioners themselves moved for an extension of 30 days or until
January 21, 2004 within which to file their appellants' brief. Then on March 3, 2004,
petitioners themselves again moved for a fresh period of 45 days from March 3, 2004 or until
April 18, 2004 within which to file their appellants' brief.

On March 17, 2004, the CA issued a Resolution:5 a) noting the withdrawal of appearance of
petitioners' former counsel; b) requiring petitioners to cause the Entry of Appearance of their
new counsel; and c) granting petitioners' motions for extension of time to file their brief for a
period totaling 75 days, commencing from December 21, 2003 or until March 5, 2004.

Petitioners themselves received a copy of this Resolution only on April 6, 2004. By that time,
the extension to file appellants' brief had already long expired.

On April 14, 2004, the Public Attorney's Office (PAO), having been approached by
petitioners, entered6 its appearance as new counsel for petitioners. However, on August 10,
2004, the CA issued the assailed Resolution dismissing petitioners' appeal, to wit:

FOR failure of defendants-appellants to file their brief within the extended reglementary
period which expired on March 5, 2004 as per Judicial Records Division report dated July 26,
2004, the appeal is hereby DISMISSED pursuant to Sec. 1 (e), Rule 50 of the 1997 Rules of
Civil Procedure.

SO ORDERED.

On September 6, 2004, the PAO filed their Motion for Reconsideration7 which requested for
a fresh period of 45 days from September 7, 2004 or until October 22, 2004 within which to
file appellants' brief. On October 21, 2004, the brief8 was filed by the PAO.

On November 26, 2004, the CA issued a Resolution9 which denied petitioners' motion for
reconsideration. Hence, this petition for review.

Issues

Petitioners raise the following issues:

 I

THE HONORABLE COURT OF APPEALS ERRED IN DISMISSING PETITIONERS'

APPEAL FOR FAILURE TO FILE THEIR DEFENDANTS-APPELLANTS’ BRIEF,
DESPITE THE ATTENDANCE OF PECULIAR FACTS AND CIRCUMSTANCES
SURROUNDING SUCH FAILURE, LIKE THE GROSS AND RECKLESS
NEGLIGENCE OF THEIR FORMER COUNSEL, THE ABSENCE OF MANIFEST
INTENT TO CAUSE DELAY, THE SERIOUS QUESTIONS OF LAW POSED FOR
RESOLUTION BEFORE THE APPELLATE COURT, AND THE FACT THAT THE
APPELLANTS' BRIEF HAD ALREADY BEEN FILED WITH THE COURT OF
APPEALS AND ALREADY FORMED PART OF THE RECORDS OF THE CASE.

II

THE DISMISSAL OF PETITIONERS' APPEAL BY THE HONORABLE COURT OF

APPEALS IS HIGHLY UNJUSTIFIED, INIQUITOUS AND UNCONSCIONABLE
BECAUSE IT OVERLOOKED AND/OR DISREGARDED THE MERITS OF
PETITIONERS’ CASE WHICH INVOLVES A DEPRIVATION OF THEIR PROPERTY
RIGHTS.10

Petitioners' Arguments

Petitioners contend that their failure to file their appellants' brief within the required period
was due to their indigency and poverty. They submit that there is no justification for the
dismissal of their appeal specially since the PAO had just entered its appearance as new
counsel for petitioners as directed by the CA, and had as yet no opportunity to prepare the
brief. They contend that appeal should be allowed since the brief had anyway already been
prepared and filed by the PAO before it sought reconsideration of the dismissal of the appeal
and is already part of the records. They contend that the late filing of the brief should be
excused under the circumstances so that the case may be decided on the merits and not
merely on technicalities.

Respondents’ Arguments

On the other hand, respondents contend that failure to file appellants' brief on time is one
instance where the CA may dismiss an appeal. In the present case, they contend that the CA
exercised sound discretion when it dismissed the appeal upon petitioners’ failure to file their
appellants' brief within the extended period of 75 days after the original 45-day period
expired.

Our Ruling

The petition has no merit.

Failure to file Brief On Time

Rule 50 of the Rules of Court states:

Section 1. Grounds for dismissal of appeal.-An appeal may be dismissed by the Court of
Appeals, on its own motion or on that of the appellee, on the following grounds:
xxxx

(e) Failure of the appellant to serve and file the required number of copies of his brief or
memorandum within the time provided by these Rules;

Petitioners plead for the suspension of the rules and cite a number of cases where the Court
excused the late filing of a notice of appeal as well as the late filing of the appellant's brief.
They further cite Development Bank of the Philippines v. Court of Appeals11 where the late
filing of the appellant's brief was excused because the Court found the case impressed with
public interest.

The cases cited by petitioners are not in point. In the present civil case which involves the
failure to file the appellants' brief on time, there is no showing of any public interest involved.
Neither is there a showing that an injustice will result due to the application of technical rules.

Poverty cannot be used as an excuse to justify petitioners' complacency in allowing months

to pass by before exerting the required effort to find a replacement lawyer. Poverty is not a
justification for delaying a case. Both parties have a right to a speedy resolution of their case.
Not only petitioners, but also the respondents, have a right to have the case finally settled
without delay.

Furthermore, the failure to file a brief on time was due primarily to petitioners' unwise choices
and not really due to poverty. Petitioners were able to get a lawyer to represent them despite
their poverty. They were able to get two other lawyers after they consented to the withdrawal
of their first lawyer. But they hired their subsequent lawyers too late.

It must be pointed out that petitioners had a choice of whether to continue the services of
their original lawyer or consent to let him go. They could also have requested the said lawyer
to file the required appellants' brief before consenting to his withdrawal from the case. But
they did neither of these. Then, not having done so, they delayed in engaging their
replacement lawyer. Their poor choices and lack of sufficient diligence, not poverty, are the
main culprits for the situation they now find themselves in. It would not be fair to pass on the
bad consequences of their choices to respondents. Petitioners' low regard for the rules or
nonchalance toward procedural requirements, which they camouflage with the cloak of
poverty, has in fact contributed much to the delay, and hence frustration of justice, in the
present case.

No compelling reason to disregard technicalities

Petitioners beg us to disregard technicalities because they claim that on the merits their case
is strong. A study of the records fails to so convince us.

Petitioners theorize that publication of the deed of extrajudicial settlement of the estate of
Marcelino Alfonso is required before their father, Jose Alfonso (Jose) could validly transfer
the subject property. We are not convinced. In Alejandrino v. Court of Appeals,12 the Court
upheld the effectivity of a deed of extrajudicial settlement that was neither notarized nor
published.

Significantly, the title of the property owned by a person who dies intestate passes at once to
his heirs. Such transmission is subject to the claims of administration and the property may
be taken from the heirs for the purpose of paying debts and expenses, but this does not
prevent an immediate passage of the title, upon the death of the intestate, from himself to his
heirs.13 The deed of extrajudicial settlement executed by Filomena Santos Vda. de Alfonso
1avvphi1

and Jose evidences their intention to partition the inherited property. It delineated what
portion of the inherited property would belong to whom.

The sale to respondents was made after the execution of the deed of extrajudicial settlement
of the estate. The extrajudicial settlement of estate, even though not published, being
deemed a partition14 of the inherited property, Jose could validly transfer ownership over the
specific portion of the property that was assigned to him.15

The records show that Jose did in fact sell to respondents the subject property. The deed of
sale executed by Jose in favor of the respondents being a public document, is entitled to full
faith and credit in the absence of competent

evidence that its execution was tainted with defects and irregularities that would warrant a
declaration of nullity. As found by the RTC, petitioners failed to prove any defect or
irregularities in the execution of the deed of sale. They failed to prove

by strong evidence, the alleged lack of consent of Jose to the sale of the subject real
property. As found by the RTC, although Jose was suffering from partial paralysis and could
no longer sign his name, there is no showing that his mental faculties were affected in such a
way as to negate the existence of his valid consent to the sale, as manifested by his
thumbmark on the deed of sale. The records sufficiently show that he was capable of
boarding a tricycle to go on trips by himself. Sufficient testimonial evidence in fact shows that
Jose asked respondents to buy the subject property so that it could be taken out from the
bank to which it was mortgaged. This fact evinces that Jose’s mental faculties functioned
intelligently.

In view of the foregoing, we find no compelling reason to overturn the assailed CA resolution.
We find no injustice in the dismissal of the appeal by the CA. Justice dictates that this case
be put to rest already so that the respondents may not be deprived of their rights.

WHEREFORE, the petition is DENIED. The August 10, 2004 Resolution of the Court of
Appeals in CA-G.R. CV. No. 78362 is AFFIRMED.

SO ORDERED.

SPOUSES RAMY and ZENAIDA G.R. No. 170073

PUDADERA,
Petitioners,
Present:
- versus -
CORONA, C. J., Chairperson,
IRENEO MAGALLANES and the VELASCO, JR.,
late DAISY TERESA CORTEL LEONARDO-DE CASTRO,
MAGALLANES substituted by her DEL CASTILLO, and
 children, NELLY M. MARQUEZ, PEREZ, JJ.
ELISEO MAGALLANES and
ANGEL MAGALLANES, Promulgated:
Respondents. October 18, 2010
x------------------------------------------------------------
-------x

DECISION

DEL CASTILLO, J.:

One is considered a buyer in bad faith not only when he purchases real
estate with knowledge of a defect or lack of title in his seller but also when he has
knowledge of facts which should have alerted him to conduct further inquiry or
investigation.

This Petition for Review on Certiorari seeks to reverse and set aside the
Court of Appeals (CAs) June 6, 2005 Decision[1] in CA-G.R. CV No. 55850,
which affirmed the September 3, 1996 Decision[2] of the Regional Trial Court
(RTC) of Iloilo City, Branch 39 in Civil Case No. 22234. Likewise assailed is the
September 20, 2005 Resolution[3]denying petitioners motion for reconsideration.
Factual Antecedents

Belen Consing Lazaro (Lazaro) was the absolute owner of a parcel of land,
Lot 11-E, with an area of 5,333 square meters (sq. m.) located in the District of
Arevalo, Iloilo City and covered by Transfer Certificate of Title (TCT) No. T-
51250. On March 13, 1979, Lazaro sold a 400 sq. m. portion of Lot 11-E to Daisy
Teresa Cortel Magallanes (Magallanes) for the sum of P22,000.00 under a
Contract To Sale[4] [sic] payable in two years. On July 21, 1980, upon full
payment of the monthly installments, Lazaro executed a Deed of Definite Sale[5] in
favor of Magallanes. Thereafter, Magallanes had the lot fenced and had a nipa hut
constructed thereon.

The other portions of Lot 11-E were, likewise, sold by Lazaro to several
buyers, namely, Elizabeth Norada, Jose Macaluda, Jose Melocoton, Nonilon
Esteya, Angeles Palma, Medina Anduyan, Evangelina Anas and Mario
Gonzales.[6] On July 14, 1980, Lazaro executed a Partition Agreement[7] in favor
of Magallanes and the aforesaid buyers delineating the portions to be owned by
each buyer. Under this agreement, Magallanes and Mario Gonzales were assigned
an 800 sq. m. portion of Lot 11-E, with each owning 400 sq. m. thereof,
denominated as Lot No. 11-E-8 in a Subdivision Plan[8] which was approved by
the Director of Lands on August 25, 1980.

It appears that the Partition Agreement became the subject of legal disputes
because Lazaro refused to turn over the mother title, TCT No. T-51250, of Lot 11-
E to the aforesaid buyers, thus, preventing them from titling in their names the
subdivided portions thereof. Consequently, Magallanes, along with the other
buyers, filed an adverse claim with the Register of Deeds of Ilolilo City which was
annotated at the back of TCT No. T-51250 on April 29, 1981.[9] Thereafter,
Magallanes and Gonzales filed a motion to surrender title in Cadastral Case No.
9741 with the then Court of First Instance of Iloilo City, Branch 1 and caused the
annotation of a notice of lis pendens at the back of TCT No. T-51250 on October
22, 1981.[10]

On November 23, 1981, Lazaro sold Lot 11-E-8, i.e., the lot previously
assigned to Magallanes and Mario Gonzales under the aforesaid Partition
Agreement, to her niece, Lynn Lazaro, and the latters husband, Rogelio Natividad
(Spouses Natividad), for the sum of P8,000.00.[11] As a result, a new title, TCT No.
T-58606,[12] was issued in the name of Spouses Natividad. Due to this
development, Magallanes pursued her claims against Spouses Natividad by filing
a civil case for specific performance, injunction and damages. On September 2,
1983, Magallanes caused the annotation of a notice of lis pendens at the back of
TCT No. T-58606.[13] Subsequently, Spouses Natividad subdivided Lot 11-E-8
into two, Lot 11-E-8-A and Lot 11-E-8-B, each containing 400 sq. m.
The civil case filed by Magallanes was later dismissed by the trial court for
lack of jurisdiction as per an Order dated September 16, 1985 which was inscribed
at the back of TCT No. T-58606 on July 7, 1986.[14] Four days prior to this
inscription or on July 3, 1986, Spouses Natividad sold Lot 11-E-8-A (subject lot)
to petitioner Ramy Pudadera (who later married petitioner Zenaida Pudadera on
July 31, 1989) as evidenced by a Deed of Sale[15] for the sum of P25,000.00. As a
consequence, a new title, TCT No. 72734,[16] was issued in the name of the latter.
 Sometime thereafter Magallanes caused the construction of two houses of
strong materials on the subject lot. On April 20, 1990, petitioners filed an action
for forcible entry against Magallanes with the Municipal Trial Court in Cities of
Iloilo City, Branch 2. On July 17, 1991, the trial court dismissed the action.[17] It
held that Magallanes was first in possession of the subject lot by virtue of the Deed
of Definite Sale dated July 21, 1980 between Lazaro and Magallanes. After the
aforesaid sale, Magallanes filled the lot with soil; put up a fence; and built a small
hut thereon. On the other hand, the trial court found that when petitioner Ramy
Pudadera bought the subject lot from Spouses Natividad on July 3, 1986, the
former had notice that someone else was already in possession of the subject lot.
Having failed to recover the possession of the subject lot through the aforesaid
forcible entry case, petitioners commenced the subject action for Recovery of
Ownership, Quieting of Title and Damages against Magallanes and her husband,
Ireneo, in a Complaint[18] dated February 25, 1995. Petitioners alleged that they are
the absolute owners of Lot 11-E-8-A as evidenced by TCT No. T-72734; that
Magallanes is also claiming the said lot as per a Deed of Definite Sale dated July
21, 1980; that the lot claimed by Magallanes is different from Lot 11-E-8-A; and
that Magallanes constructed, without the consent of petitioners, several houses on
said lot. They prayed that they be declared the rightful owners of Lot 11-E-8-A
and that Magallanes be ordered to pay damages.

In her Answer,[19] Magallanes countered that she is the absolute lawful

owner of Lot 11-E-8-A; that Lot 11-E-8-A belongs to her while Lot 11-E-8-B
belongs to Mario Gonzales; that petitioners had prior knowledge of the sale
between her and Lazaro; that she enclosed Lot 11-E-8-A with a fence, constructed
a house and caused soil fillings on said lot which petitioners were aware of; and
that she has been in actual possession of the said lot from March 11, 1979 up to
the present. She prayed that TCT No. T-72734 in the name of petitioner Ramy
Pudadera be cancelled and a new one be issued in her name.
During the pendency of this case, Magallanes passed away and was
substituted by her heirs, herein respondents.
Ruling of the Regional Trial Court

On September 6, 1996, the trial court rendered judgment in favor of

respondents, viz:
 WHEREFORE, premises considered, judgment is hereby rendered in
favor of the [respondents] and against the [petitioners]:

1. Declaring the [respondent] Daisy Teresa Cortel

Magallanes, substituted by her heirs, Nelly M. Magallanes, Eliseo
Magallanes and Angel Magallanes and Ireneo Magallanes, as the
rightful owners of Lot 11-E-8-A, Psd-06-002539, which is now
covered by Transfer Certificate of Title No. T-72734, still in the
name of Ramy Pudadera, situated in the District of Arevalo, Iloilo
City, with an area of 400 square meters more or less;

2. The [petitioners] spouses Ramy Pudadera and Zenaida

Pudadera are hereby ordered to execute the necessary Deed of
Reconveyance in favor of the above-named parties, namely[,] Nelly
M. Magallanes, Eliseo Magallanes, x x x Angel Magallanes, and
Ireneo Magallanes;

3. Ordering the [petitioners] to pay jointly and severally

the [respondents] the amount of P10,000.00 as attorneys fees and
the costs of the suit.

SO ORDERED. [20]

The trial court ruled that respondents are the rightful owners of the subject lot
which was sold by Lazaro to their predecessor-in-interest, Magallanes, on July 21,
1980. When Lazaro sold the subject lot for a second time to Spouses Natividad on
November 23, 1981, no rights were transmitted because, by then, Magallanes was
already the owner thereof. For the same reason, when Spouses Natividad
subsequently sold the subject lot to petitioners on July 3, 1986, nothing was
transferred to the latter.

The trial court further held that petitioners cannot be considered buyers in good
faith and for value because after Magallanes bought the subject lot from Lazaro,
Magallanes immediately took possession of the lot, and constructed a fence with
barbed wire around the property. The presence of these structures should, thus,
have alerted petitioners to the possible flaw in the title of the Spouses Natividad
considering that petitioners visited the subject lot several times before purchasing
the same. Neither can petitioners claim that the title of the subject lot was clean
considering that a notice of lis pendens was annotated thereon in connection with a
civil case that Magallanes filed against Spouses Natividad involving the subject
lot. Although the notice of lis pendens was subsequently cancelled on July 7,
1986, the deed of sale between petitioners and Spouses Natividad was executed on
July 3, 1986 or four days before said cancellation. Thus, petitioners had notice that
the subject property was under litigation. Since respondents are the rightful owners
of the subject lot, petitioners should execute a deed of conveyance in favor of the
former so that a new title may be issued in the name of the respondents.

Ruling of the Court of Appeals

On June 6, 2005, the CA rendered the assailed Decision:

WHEREFORE, with all the foregoing, the decision of the Regional
Trial Court, Branch 39, Iloilo City dated September 3, 1996 in civil
case no. 22234 for Quieting of Title, Ownership and Damages is
hereby AFFIRMED in toto.

All other claims and counterclaims are hereby dismissed for lack of
factual and legal basis.

No pronouncement as to cost.

SO ORDERED. [21]

In affirming the ruling of the trial court, the appellate court reasoned that under the
rule on double sale what finds relevance is whether the second buyer registered the
second sale in good faith, that is, without knowledge of any defect in the title of
the seller. Petitioners predecessor-in-interest, Spouses Natividad, were not
registrants in good faith. When Magallanes first bought the subject lot from
Lazaro on July 21, 1980, Magallanes took possession of the same and had it
fenced and filled with soil. This was made way ahead of the November 23, 1981
Deed of Sale between Lazaro and Spouses Natividad. With so much movement
and transactions involving the subject lot and given that Lyn Lazaro-Natividad is
the niece of Lazaro, the appellate court found it hard to believe that the Spouses
Natividad were completely unaware of any controversy over the subject lot.
The CA, likewise, agreed with the trial court that at the time petitioners acquired
the subject lot from Spouses Natividad on July 3, 1986, a notice of lis pendens was
still annotated at the back of TCT No. T-58606 due to a civil case filed by
Magallanes against Spouses Natividad. Although the case was subsequently
dismissed by the trial court for lack of jurisdiction, the notice of lis pendens was
still subsisting at the time of the sale of the subject lot between Spouses Natividad
and petitioners on July 3, 1986 because the lis pendensnotice was cancelled only
on July 7, 1986. Consequently, petitioners cannot be considered buyers and
registrants in good faith because they were aware of a flaw in the title of the
Spouses Natividad prior to their purchase thereof.

Issues

1. The Court of Appeals erred in not considering the judicial admissions of

Magallanes as well as the documentary evidence showing that she was
claiming a different lot, Lot No. 11-E-8-B, and not Lot 11-E-8-A which is
registered in the name of petitioners under TCT No. T-72734, consequently, its
findings that Magallanes is the rightful owner of Lot 11-E-8-A is contrary to
the evidence on record;

2. The Court of Appeals erred in applying the principle of innocent purchasers

for value and in good faith to petitioners. Granting that the said principle may
be applied, the Court of Appeals erred in finding that petitioners are not
innocent purchasers for value;

3. The Court of Appeals erred in affirming the award of attorneys fees against
the petitioners.[22]

Petitioners Arguments

Petitioners postulate that the subject lot is different from the lot which
Magallanes bought from Lazaro. As per Magallanes testimony in the ejectment
case, she applied for the zoning permit for Lot 11-E-8-B and not Lot 11-E-8-
A. Further, the tax declarations submitted in evidence therein showed that
Magallanes paid for the real estate taxes of Lot 11-E-8-B and not Lot 11-E-8-
A. Hence, there is no conflict of claims since petitioners are asserting their
rights over Lot 11-E-8-A while respondents claim ownership over Lot 11-E-8-
B. Moreover, assuming that there was a double sale, the same did not involve
petitioners. The first sale was between Lazaro and Magallanes while the second
sale was between Lazaro and Spouses Natividad.It was erroneous for the
appellate court to conclude that Lyn Natividad was in bad faith simply because
she is the niece of Lazaro. The Spouses Natividad were not impleaded in this
case and cannot be charged as buyers in bad faith without giving them their day
in court. Petitioners claim that respondents should first impugn the validity of
Spouses Natividads title by proving that the latter acted in bad faith when they
bought the subject lot from Lazaro. Petitioners aver that the evidence on record
failed to overcome the presumption of good faith. Considering that Spouses
Natividad were buyers in good faith and considering further that petitioners
title was derived from Lazaro, petitioners should, likewise, be considered
buyers in good faith.

Petitioners further argue that the rule on notice of lis pendens was
improperly applied in this case. The trial courts order dismissing the civil case
filed by Magallanes against Spouses Natividad had long become final and
executory before petitioners bought the subject lot from Spouses
Natividad. While it is true that the order of dismissal was annotated at the back
of TCT No. T-58606 only on July 7, 1986 or four days after the sale between
Spouses Natividad and petitioners, the cancellation of the notice of lis pendens
was a mere formality. In legal contemplation, the notice was, at the time of the
sale on July 3, 1986, ineffective. Citing Spouses Po Lam v. Court of
Appeals,[23] petitioners contend that the then existing court order for the
cancellation of the lis pendens notice at the time of the sale made them buyers
in good faith.

Finally, petitioners question the award of attorneys fees in favor of respondents

for lack of basis. Petitioners claim that they should be awarded damages
because respondents unlawfully prevented them from taking possession of the
subject lot.

Respondents Arguments
 Respondents counter that they are in possession of, and claiming
ownership over the subject lot, i.e., Lot 11-E-8-A, and not Lot 11-E-8-B. The
claim of petitioners that the subject lot is different from what respondents assert
to be lawfully theirs is, thus, misleading. The subject lot was acquired by
respondents predecessor-in-interest, Magallanes, when Lazaro sold the same to
Magallanes through a contract to sell in 1979 and a deed of sale in 1980 after
full payment of the monthly installments.
After executing the contract to sell, Magallanes immediately took
possession of the subject lot; constructed a fence with barbed wire; and filled it
up with soil in preparation for the construction of concrete houses. She also
built a nipa hut and stayed therein since 1979 up to her demise. Respondents
emphasize that upon payment of the full purchase price under the contract to
sell and the execution of the deed of sale, Magallanes undertook steps to protect
her rights due to the refusal of Lazaro to surrender the mother title of the
subject lot. Magallanes recorded an adverse claim at the back of the mother title
of the subject lot and an initial notice of lis pendens thereon. She then filed a
civil case against Lazaro, and, later on, against Lazaros successors-in-interest,
Spouses Natividad, which resulted in the inscription of a notice of lis pendens
on TCT No. 51250 and TCT No. T-58606. When petitioners bought the subject
lot from Spouses Natividad on July 3, 1986, the said notice of lis pendens was
subsisting because the court dismissal of said case was inscribed on the title
only on July 7, 1986. Petitioners cannot, therefore, be considered buyers in
good faith.

Our Ruling

We affirm the decision of the CA with modifications.

Petitioners and respondents are claiming ownership over the same lot.

Petitioners contend that they are claiming ownership over Lot 11-E-8-A while
Magallanes claim is over Lot 11-E-8-B. Thus, there is no conflict between their claims.
The argument is specious.

It is clear that Magallanes is claiming ownership over Lot 11-E-8-A and not Lot 11-E-8-
B. In her Answer to the Complaint, she alleged that she is the absolute lawful owner
of Lot 11-E-8-A.[24]Her act of fencing Lot 11-E-8-A and constructing two houses of
strong materials thereon further evince her claim of ownership over the subject lot. Thus,
in the forcible entry case which petitioners previously filed against Magallanes involving
the subject lot, the trial court noted:

At the pre-trial conference held on June 13, 1990, both parties agreed to a relocation
survey of the lot whereupon the Court commissioned the Bureau of Lands to undertake a
relocation survey of the lot in question.

On October 1, 1990, the Bureau of Lands thru Engr. Filomeno P. Daflo submitted the
relocation survey report with the following findings: x x x

xxxx

5. That it was ascertained in our investigation that the entire

lot occupied by [Magallanes] (lot 11-E-8-A) is the very same lot
claimed by the [petitioners], as pointed out by its
representative.[25] (Emphasis supplied.)

After losing in the aforesaid forcible entry case, petitioners commenced the
subject action for quieting of title and recovery of ownership over Lot 11-E-8-
A. Plainly, both parties are asserting ownership over the same lot, i.e. Lot 11-E-
8-A, notwithstanding the error in the entries made by Magallanes in her zoning
application and tax declaration forms.

The notice of lis pendens at the back of

the mother title of the subject lot was
already ordered cancelled at the time of
the sale of the subject lot to petitioners,
hence, said notice cannot be made a
basis for finding petitioners as buyers
in bad faith.

A notice of lis pendens at the back of the mother title (i.e., TCT No. T-
58606) of Lot 11-E-8-A was inscribed on September 2, 1983 in connection
with the civil case for specific performance, injunction and damages which
Magallanes filed against Spouses Natividad. This case was subsequently
dismissed by the trial court for lack of jurisdiction in an Order dated September
16, 1985 which has already become final and executory as per the Certification
dated June 16, 1986 issued by the Branch Clerk of Court of the RTC of Iloilo
City, Branch 33.[26] The aforesaid court dismissal was, however, inscribed only
on July 7, 1986 or three days after the sale of the subject lot to petitioners.[27]

Based on these established facts, petitioners correctly argue that the said
notice of lis pendens cannot be made the basis for holding that they are buyers in
bad faith. Indeed, at the time of the sale of the subject lot by Spouses Natividad to
petitioners on July 7, 1986, the civil case filed by Magallanes against Spouses
Natividad had long been dismissed for lack of jurisdiction and the said order of
dismissal had become final and executory. In Spouses Po Lam v. Court of
Appeals,[28] the buyers similarly bought a property while a notice of lis
pendens was subsisting on its title. Nonetheless, we ruled that the buyers cannot be
considered in bad faith because the alleged flaw, the notice of lis pendens, was
already being ordered cancelled at the time of the sale and the cancellation of the
notice terminated the effects of such notice.[29]

This notwithstanding, petitioners cannot be considered buyers in good faith

because, as will be discussed hereunder, they were aware of other circumstances
pointing to a possible flaw in the title of Spouses Natividad prior to the sale of the
subject lot. Despite these circumstances, petitioners did not take steps to ascertain
the status of the subject lot but instead proceeded with the purchase of the same.

One who buys a property with

knowledge of facts which should put him
upon inquiry or investigation as to a
possible defect in the title of the seller
acts in bad faith.
 Lot 11-E-8, of which the subject lot (i.e., Lot 11-E-8-A) forms part, was
sold by Lazaro to two different buyers. As narrated earlier, Lot 11-E-8 is a portion
of Lot 11-E, a 5,333 sq. m. lot covered by TCT No. T-51250. Lazaro subdivided
the said lot and sold portions thereof to several buyers. One of these buyers was
Magallanes who purchased a 400 sq. m. portion on March 13, 1979. The metes
and bounds of this lot were later delineated in a Partition Agreement dated July 14,
1980 executed by Lazaro in favor of the aforesaid buyers. As per this agreement,
Magallanes and Mario Gonzales were assigned Lot 11-E-8 comprising 800 sq. m
with each owning a 400 sq. m. portion thereof. This was the first sale
involving Lot 11-E-8.

After the aforesaid sale, it appears Lazaro refused to turnover the mother
title of Lot 11-E which resulted in the filing of legal suits by Magallanes and the
other buyers against her (Lazaro). While these suits were pending, Lazaro
sold Lot 11-E-8 to her niece Lynn and the latters husband Rogelio Natividad on
November 23, 1981. Consequently, a new title, TCT No. T-58606, was issued
covering Lot 11-E-8 in the name of Spouses Natividad. This was the second sale
of Lot 11-E-8.

Subsequently, Spouses Natividad subdivided Lot 11-E-8 into

two, i.e., Lot 11-E-8-A and Lot 11-E-8-B, with each containing 400 sq. m. On
July 3, 1986, they sold Lot 11-E-8-A to petitioners. Lot 11-E-8-A is the 400 sq. m.
portion of Lot 11-E-8 which Magallanes claims to be owned by her pursuant to
the aforesaid Partition Agreement while the other half, Lot 11-E-8-B, pertains to
the lot of Mario Gonzales.

The question before us, then, is who between petitioners and respondents
have a better right over Lot 11-E-8-A?

Article 1544 of the Civil Code provides:

Art. 1544. If the same thing should have been sold to different
vendees, the ownership shall be transferred to the person who may
 have first taken possession thereof in good faith, if it should be movable
property.

Should it be immovable property, the ownership shall belong to

the person acquiring it who in good faith first recorded it in the Registry
of Property.

Should there be no inscription, the ownership shall pertain to the

person who in good faith was first in the possession; and, in the absence
thereof, to the person who presents the oldest title, provided there is
good faith.

Thus, in case of a double sale of immovables, ownership shall belong to (1) the
first registrant in good faith; (2) then, the first possessor in good faith; and (3)
finally, the buyer who in good faith presents the oldest title.[30] However, mere
registration is not enough to confer ownership. The law requires that the second
buyer must have acquired and registered the immovable property in good faith. In
order for the second buyer to displace the first buyer, the following must be
shown: (1) the second buyer must show that he acted in good faith (i.e., in
ignorance of the first sale and of the first buyers rights) from the time of
acquisition until title is transferred to him by registration or failing registration, by
delivery of possession; and (2) the second buyer must show continuing good faith
and innocence or lack of knowledge of the first sale until his contract ripens into
full ownership through prior registration as provided by law.[31]

One is considered a purchaser in good faith if he buys the property without

notice that some other person has a right to or interest in such property and pays its
fair price before he has notice of the adverse claims and interest of another person
in the same property.[32] Well-settled is the rule that every person dealing with
registered land may safely rely on the correctness of the certificate of title issued
therefor and the law will in no way oblige him to go beyond the certificate to
determine the condition of the property.[33]However, this rule shall not apply when
the party has actual knowledge of facts and circumstances that would impel a
reasonably cautious man to make such inquiry or when the purchaser has
knowledge of a defect or the lack of title in his vendor or of sufficient facts to
induce a reasonably prudent man to inquire into the status of the title of the
property in litigation.[34] His mere refusal to believe that such defect exists, or his
willful closing of his eyes to the possibility of the existence of a defect in his
vendors title will not make him an innocent purchaser for value if it later develops
that the title was in fact defective, and it appears that he had such notice of the
defect had he acted with that measure of precaution which may reasonably be
required of a prudent man in a like situation.[35]

In the case at bar, both the trial court and CA found that petitioners were not
buyers and registrants in good faith owing to the fact that Magallanes constructed
a fence and small hut on the subject lot and has been in actual physical possession
since 1979. Hence, petitioners were aware or should have been aware of
Magallanes prior physical possession and claim of ownership over the subject lot
when they visited the lot on several occasions prior to the sale thereof. Thus, the
trial court held:

This Court believes the version of [Magallanes], that when she

bought the property from [Lazaro], she took immediate possession of
the 400-square meter portion and constructed a fence [with] barbed
wire surrounding the said property. She also constructed a house made
of nipa, bamboo and concrete materials. This fact was even confirmed
by [petitioner] Zenaida Pudadera in her testimony.

This Court cannot believe the testimony of [petitioner] Zenaida

Pudadera that they were the ones who constructed the fence
surrounding the 400-square meter portion, because there was already
an existing fence made of bamboos and barbed wire put up by
[Magallanes]. When the [petitioners] therefore, visited the land in
question, several times before the purchase, particularly [petitioner]
Ramy Pudadera, he must have seen the fence surrounding the property
in question. He should have been curious why there was an existing
fence surrounding the property? [sic] He should have asked or verified
as to the status of the said property. A real estate buyer must exercise
ordinary care in buying x x x real estate, especially the existence of the
fence in this case which must have [alerted him to inquire] whether
someone was already in possession of the property in question.[36]
We find no sufficient reason to disturb these findings. The factual findings of the
trial court are accorded great weight and respect and are even binding on this
Court particularly where, as here, the findings of the trial and appellate courts
concur.[37] Although this rule is subject to certain exceptions, we find none
obtaining in this case.

Petitioners next argue that since the second sale involves Lazaro and their
predecessor-in-interest, Spouses Natividad, due process requires that Spouses
Natividad should first be allowed to establish that they (Spouses Natividad) are
second buyers and first registrants in good faith before any finding on petitioners
own good faith can be made considering that they (petitioners) merely acquired
their title from Spouses Natividad. Petitioners lament that Spouses Natividad were
not impleaded in this case. Thus, the finding that petitioners acted in bad faith was
improper.

The argument fails on two grounds.

First, as previously explained, the evidence duly established that petitioners

were aware of facts pointing to a possible flaw in the title of Spouses Natividad
when they visited the subject lot on several occasions prior to the sale. This, by
itself, was sufficient basis to rule that they acted in bad faith. Stated differently, the
presence or absence of good faith on the part of Spouses Natividad during the
second sale involving the subject lot will not erase the bad faith of petitioners in
purchasing the subject lot from Spouses Natividad.

Second, petitioners miscomprehend the right to due process. The records

indicate that at no instance during the trial of this case were they prevented from
presenting evidence, including the testimonies of Spouses Natividad, to support
their claims. Thus, they were not denied their day in court. Petitioners seem to
forget that they were the ones who filed this action to recover ownership and quiet
title against Magallanes. If petitioners intended to bolster their claim of good faith
by impleading the Spouses Natividad in this case, there was nothing to prevent
them from doing so. Time and again, we have ruled that the burden of proof to
establish the status of a purchaser and registrant in good faith lies upon the one
who asserts it.[38] This onus probandi cannot be discharged by mere invocation of
the legal presumption of good faith.[39]
 In sum, petitioners were negligent in not taking the necessary steps to
determine the status of the subject lot despite the presence of circumstances which
would have impelled a reasonably cautious man to do so. Thus, we affirm the
findings of the lower courts that they cannot be considered buyers and registrants
in good faith. Magallanes, as the first buyer and actual possessor, was correctly
adjudged by the trial court as the rightful owner of the subject lot and the
conveyance thereof in favor of her heirs, herein respondents, is proper under the
premises. In addition, the trial court should be ordered to cause the cancellation of
TCT No. T-72734 by the Register of Deeds of Iloilo City and the issuance of a
new certificate of title in the names of respondents.[40] This is without prejudice to
any remedy which petitioners may have against Spouses Natividad and/or Lazaro.

The award of attorneys fees is improper.

On the issue of the propriety of attorneys fees which the trial court awarded
in favor of respondents, we are inclined to agree with petitioners that the same
should be deleted for lack of basis. An award of attorneys fees is the exception
rather than the rule.[41] The right to litigate is so precious that a penalty should not
be charged on those who may exercise it erroneously.[42] It is not given merely
because the defendant prevails and the action is later declared to be unfounded
unless there was a deliberate intent to cause prejudice to the other party.[43] We
find the evidence of bad faith on the part of petitioners in instituting the subject
action to be wanting. Thus, we delete the award of attorneys fees.

WHEREFORE, the petition is PARTIALLY GRANTED. The June 6,

2005 Decision and September 20, 2005 Resolution of the Court of Appeals in CA-
G.R. CV No. 55850 are AFFIRMED with the following MODIFICATIONS:
(1) The Regional Trial Court of Iloilo City, Branch 39 is ORDERED to cause the
cancellation by the Register of Deeds of Iloilo City of TCT No. T-72734 and the
issuance, in lieu thereof, of the corresponding certificate of title in the names of
respondents, heirs of Daisy Teresa Cortel Magallanes, and (2) The award of
attorneys fees in favor of respondents is DELETED.

No pronouncement as to costs.
 SO ORDERED.

FIRST DIVISION

JOCELYN M. TOLEDO , G.R. No. 172139

Petitioner,

Present:

CORONA, C. J., Chairperson,

- versus - LEONARDO-DE CASTRO,
DEL CASTILLO,
ABAD,⃰ and
PEREZ, JJ.

MARILOU M. HYDEN, Promulgated:

Respondent. December 8, 2010
x------------------------------------------------------------
-------x

DECISION

DEL CASTILLO, J.:

It is true that the imposition of an unconscionable rate of interest on a money debt

is immoral and unjust and the court may come to the aid of the aggrieved party to
that contract. However, before doing so, courts have to consider the settled
principle that the law will not relieve a party from the effects of an unwise, foolish
or disastrous contract if such party had full awareness of what she was doing.

This Petition for Review on Certiorari[1] assails the Decision[2] dated August 24,
2005 of the Court of Appeals (CA) in CA-G.R. CV No. 79805, which affirmed
the Decision dated March 10, 2003[3] of the Regional Trial Court (RTC),
Branch 22, Cebu City in Civil Case No. CEB-22867. Also assailed is the
Resolution dated March 8, 2006 denying the motion for reconsideration.
Factual Antecedents

Petitioner Jocelyn M. Toledo (Jocelyn), who was then the Vice-President of the
College Assurance Plan (CAP) Phils., Inc., obtained several loans from respondent
Marilou M. Hyden (Marilou). The transactions are briefly summarized below:

1) August 15, 1993

P 30,000.00
2) April 21, 1994 100,000.00
3) October 2, 1995 30,000.00
4) October 9, 1995 30,000.00
5) May 22, 1997 100,000.00 with 7% monthly interest
TOTAL AMOUNT OF LOAN P 290,000.00[4]
From August 15, 1993 up to December 31, 1997, Jocelyn had been religiously
paying Marilou the stipulated monthly interest by issuing checks and depositing
sums of money in the bank account of the latter. However, the total principal
amount of P290,000.00 remained unpaid. Thus, in April 1998, Marilou visited
Jocelyn in her office at CAP in Cebu Cityand asked Jocelyn and the other
employees who were likewise indebted to her to acknowledge their debts. A
document entitled Acknowledgment of Debt[5] for the amount of P290,000.00 was
signed by Jocelyn with two of her subordinates as witnesses. The said amount
represents the principal consolidated amount of the aforementioned previous debts
due on December 25, 1998. Also on said occasion, Jocelyn issued five checks to
Marilou representing renewal payment of her five previous loans, viz:

Check No. 0010761 dated September 2, 1998 ........ P 30,000.00

.
Check No. 0010762 dated September 9, 1998 ........ 30,000.00
.
Check No. 0010763 dated September 15, 1998 ........ 30,000.00
.
Check No. 0010764 dated September 22, 1998 ........ 100,000.00
.
Check No. 0010765 dated September 25, 1998 ........ 100,000.00
.
TOTAL P 290,000.00
 In June 1998, Jocelyn asked Marilou for the recall of Check No. 0010761
in the amount of P30,000.00 and replaced the same with six checks, in staggered
amounts, namely:

Check No. 0010494 dated July 2, 1998 ......... P 6,625.00

Check No. 0010495 dated August 2, 1998 ......... 6,300.00
Check No. 0010496 dated September 2, 1998 ......... 5,975.00
Check No. 0010497 dated October 2, 1998 ......... 6,500.00
Check No. 0010498 dated November 2, 1998 ......... 5,325.00
Check No. 0010499 dated December 2, 1998 ......... 5,000.00
TOTAL P 35,725.00

After honoring Check Nos. 0010494, 0010495 and 0010496, Jocelyn ordered the
stop payment on the remaining checks and on October 27, 1998, filed with the
RTC of Cebu City a complaint[6] against Marilou for Declaration of Nullity and
Payment, Annulment, Sum of Money, Injunction and Damages.

Jocelyn averred that Marilou forced, threatened and intimidated her into signing
the Acknowledgment of Debt and at the same time forced her to issue the seven
postdated checks.She claimed that Marilou even threatened to sue her for violation
of Batas Pambansa (BP) Blg. 22 or the Bouncing Checks Law if she will not sign
the said document and draw the above-mentioned checks. Jocelyn further claimed
that the application of her total payment of P528,550.00 to interest alone is illegal,
unfounded, unjust, oppressive and contrary to law because there was no written
agreement to pay interest.

On November 23, 1998, Marilou filed an Answer[7] with Special

Affirmative Defenses and Counterclaim alleging that Jocelyn voluntarily obtained
the said loans knowing fully well that the interest rate was at 6% to 7% per month.
In fact, a 6% to 7% advance interest was already deducted from the loan amount
given to Jocelyn.

Ruling of the Regional Trial Court

The court a quo did not find any showing that Jocelyn was forced,
threatened, or intimidated in signing the document referred to as Acknowledgment
of Debt and in issuing the postdated checks. Thus, in its March 10, 2003 Decision
the trial court ruled in favor of Marilou, viz:

WHEREFORE, premised on the foregoing, the Court hereby

declares the document Acknowledgment of Debt valid and binding.
PLAINTIFF is indebted to DEFENDANT [for] the amount of TWO
HUNDRED NINETY THOUSAND (P290,000.00) PESOS since
December 25, 1998 less the amount of EIGHTEEN THOUSAND
NINE HUNDRED (P18,900.00) PESOS, equivalent to the three
checks made good (P6,625.00 dated 07-02-1998; P6,300.00 dated 08-
02-1998; and P5,975.00 dated 09-02-1998).

Consequently, PLAINTIFF is hereby ordered to pay

DEFENDANT the amount of TWO HUNDRED SEVENTY ONE
THOUSAND ONE HUNDRED (P271,100.00) PESOS due on
December 25, 1998 with a 12% interest per annum or 1% interest per
month until such time that the said amount shall have been fully paid.

No pronouncement as to costs.

SO ORDERED.[8]

On March 26, 2003, Jocelyn filed an Earnest Motion for Reconsideration,[9] which
was denied by the trial court in its Order[10] dated April 29, 2003 stating that it
finds no sufficient reason to disturb its March 10, 2003 Decision.

Ruling of the Court of Appeals

On appeal, Jocelyn asserts that she had made payments in the total amount
of P778,000.00 for a principal amount of loan of only P290,000.00. What is
appalling, according to Jocelyn, was that such payments covered only the interest
because of the excessive, iniquitous, unconscionable and exorbitant imposition of
the 6% to 7% monthly interest.
On August 24, 2005, the CA issued its Decision which provides:

WHEREFORE, premises considered, the Decision dated March

10, 2003 and the Order dated April 29, 2003, of the Regional Trial
 Court, 7th Judicial Region, Branch 22, Cebu City, in Civil Case No.
CEB-22867 are hereby AFFIRMED. No pronouncement as to costs.

SO ORDERED.[11]

The Motion for Reconsideration[12] filed by Jocelyn was denied by the CA through
its Resolution[13] dated March 8, 2006.

Issues

Hence, this petition raising the following issues:

I.
Whether the CA gravely erred when it held that the imposition of
interest at the rate of six percent (6%) to seven percent (7%) is not
contrary to law, morals, good customs, public order or public policy.

II.
Whether the CA gravely erred when it failed to declare that the
Acknowledgment of Debt is an inexistent contract that is void from the
very beginning pursuant to Article 1409 of the New Civil Code.

Petitioners Arguments

Jocelyn posits that the CA erred when it held that the imposition of interest at the
rates of 6% to 7% per month is not contrary to law, not unconscionable and not
contrary to morals. She likewise contends that the CA erred in ruling that the
Acknowledgment of Debt is valid and binding. According to Jocelyn, even
assuming that the execution of said document was not attended with force, threat
and intimidation, the same must nevertheless be declared null and void for being
contrary to law and public policy. This is borne out by the fact that the payments
in the total amount of P778,000.00 was applied to interest payment alone. This
only proves that the transaction was iniquitous, excessive, oppressive and
unconscionable.
Respondents Arguments

On the other hand, Marilou would like this Court to consider the fact that
the document referred to as Acknowledgment of Debt was executed in the safe
surroundings of the office of Jocelyn and it was witnessed by two of her staff. If at
all there had been coercion, then Jocelyn could have easily prevented her staff
from affixing their signatures to said document. In fact, petitioner had admitted
that she was the one who went to the tables of her staff to let them sign the said
document.

Our Ruling

The petition is without merit.

The 6% to 7% interest per month paid by

Jocelyn is not excessive under the
circumstances of this case.

In view of Central Bank Circular No. 905 s. 1982, which suspended the Usury
Law ceiling on interest effective January 1, 1983, parties to a loan agreement have
wide latitude to stipulate interest rates. Nevertheless, such stipulated interest rates
may be declared as illegal if the same is unconscionable.[14] There is certainly
nothing in said circular which grants lenders carte blanche authority to raise
interest rates to levels which will either enslave their borrowers or lead to a
hemorrhaging of their assets.[15] In fact, in Medel v. Court of Appeals,[16] we
annulled a stipulated 5.5% per month or 66% per annum interest with additional
service charge of 2% per annum and penalty charge of 1% per month on
a P500,000.00 loan for being excessive, iniquitous, unconscionable and exorbitant.

In this case, however, we cannot consider the disputed 6% to 7% monthly interest

rate to be iniquitous or unconscionable vis--vis the principle laid down
in Medel. Noteworthy is the fact that in Medel, the defendant-spouses were never
able to pay their indebtedness from the very beginning and when their obligations
ballooned into a staggering sum, the creditors filed a collection case against
them. In this case, there was no urgency of the need for money on the part of
Jocelyn, the debtor, which compelled her to enter into said loan transactions. She
used the money from the loans to make advance payments for prospective clients
of educational plans offered by her employer. In this way, her sales production
would increase, thereby entitling her to 50% rebate on her sales. This is the reason
why she did not mind the 6% to 7% monthly interest. Notably too, a business
transaction of this nature between Jocelyn and Marilou continued for more than
five years. Jocelyn religiously paid the agreed amount of interest until she ordered
for stop payment on some of the checks issued to Marilou. The checks were in fact
sufficiently funded when she ordered the stop payment and then filed a case
questioning the imposition of a 6% to 7% interest rate for being allegedly
iniquitous or unconscionable and, hence, contrary to morals.

It was clearly shown that before Jocelyn availed of said loans, she knew fully well
that the same carried with it an interest rate of 6% to 7% per month, yet she did not
complain. In fact, when she availed of said loans, an advance interest of 6% to 7%
was already deducted from the loan amount, yet she never uttered a word of
protest.

After years of benefiting from the proceeds of the loans bearing an interest
rate of 6% to 7% per month and paying for the same, Jocelyn cannot now go to
court to have the said interest rate annulled on the ground that it is excessive,
iniquitous, unconscionable, exorbitant, and absolutely revolting to the conscience
of man. This is so because among the maxims of equity are (1) he who seeks
equity must do equity, and (2) he who comes into equity must come with clean
hands. The latter is a frequently stated maxim which is also expressed in the
principle that he who has done inequity shall not have equity. It signifies that a
litigant may be denied relief by a court of equity on the ground that his conduct
has been inequitable, unfair and dishonest, or fraudulent, or deceitful as to the
controversy in issue. [17]

We are convinced that Jocelyn did not come to court for equitable relief with
equity or with clean hands. It is patently clear from the above summary of the facts
that the conduct of Jocelyn can by no means be characterized as nobly fair, just,
and reasonable. This Court likewise notes certain acts of Jocelyn before filing the
case with the RTC. In September 1998, she requested Marilou not to deposit her
checks as she can cover the checks only the following month. On the next month,
Jocelyn again requested for another extension of one month. It turned out that she
was only sweet-talking Marilou into believing that she had no money at that
time. But as testified by Serapio Romarate,[18] an employee of the Bank of
Commerce where Jocelyn is one of their clients, there was an available balance
of P276,203.03 in the latters account and yet she ordered for the stop payments of
the seven checks which can actually be covered by the available funds in said
account. She then caught Marilou by surprise when she surreptitiously filed a case
for declaration of nullity of the document and for damages.

The document Acknowledgment of Debt

is valid and binding.

Jocelyn seeks for the nullification of the document entitled Acknowledgment of

Debt and wants this Court to declare that she is no longer indebted to Marilou in
the amount of P290,000.00 as she had already paid a total amount
of P778,000.00. She claims that said document is an inexistent contract that is void
from the very beginning as clearly provided for by Article 1409[19] of the New
Civil Code.

Jocelyn further claims that she signed the said document and issued the seven
postdated checks because Marilou threatened to sue her for violation of BP Blg.
22.

Jocelyn is misguided. Even if there was indeed such threat made by

Marilou, the same is not considered as threat that would vitiate consent. Article
1335 of the New Civil Code is very specific on this matter. It provides:

Art. 1335. There is violence when in order to wrest consent,

serious or irresistible force is employed.

xxxx
 A threat to enforce ones claim through competent authority,
if the claim is just or legal, does not vitiate consent. (Emphasis
supplied.)

Clearly, we cannot grant Jocelyn the relief she seeks.

As can be seen from the records of the case, Jocelyn has failed to prove her claim
that she was made to sign the document Acknowledgment of Debt and draw the
seven Bank of Commerce checks through force, threat and intimidation. As earlier
stressed, said document was signed in the office of Jocelyn, a high ranking
executive of CAP, and it was Jocelyn herself who went to the table of her two
subordinates to procure their signatures as witnesses to the execution of said
document. If indeed, she was forced to sign said document, then Jocelyn should
have immediately taken the proper legal remedy. But she did not. Furthermore, it
must be noted that after the execution of said document, Jocelyn honored the first
three checks before filing the complaint with the RTC. If indeed she was forced
she would never have made good on the first three checks.

It is provided, as one of the conclusive presumptions under Rule 131, Section 2(a),
of the Rules of Court that, Whenever a party has, by his own declaration, act or
omission, intentionally and deliberately led another to believe a particular thing to
be true, and to act upon such belief, he cannot, in any litigation arising out of such
declaration, act or omission, be permitted to falsify it. This is known as the
principle of estoppel.

The essential elements of estoppel are: (1) conduct amounting to false

representation or concealment of material facts or at least calculated to convey the
impression that the facts are otherwise than, and inconsistent with, those which the
party subsequently attempts to assert; (2) intent, or at least expectation, that this
conduct shall be acted upon by, or at least influence, the other party; and, (3)
knowledge, actual or constructive, of the real facts.[20]

Here, it is uncontested that Jocelyn had in fact signed the Acknowledgment of

Debt in April 1998 and two of her subordinates served as witnesses to its
execution, knowing fully well the nature of the contract she was entering
into. Next, Jocelyn issued five checks in favor of Marilou representing renewal
payment of her loans amounting to P290,000.00. In June 1998, she asked to recall
Check No. 0010761 in the amount of P30,000.00 and replaced the same with six
checks, in staggered amounts. All these are indicia that Jocelyn treated the
Acknowledgment of Debt as a valid and binding contract.

More significantly, Jocelyn already availed herself of the benefits of the

Acknowledgment of Debt, the validity of which she now impugns. As aptly found
by the RTC and the CA, Jocelyn was making a business out of the loaned
amounts. She was actually using the money to make advance payments for her
prospective clients so that her sales production would increase. Accordingly, she
did not mind the 6% to 7% interest per month as she was getting a 50% rebate on
her sales.

Clearly, by her own acts, Jocelyn is estopped from impugning the validity of the
Acknowledgment of Debt. [A] party to a contract cannot deny the validity thereof
after enjoying its benefits without outrage to ones sense of justice and
fairness.[21] It is a long established doctrine that the law does not relieve a party
from the effects of an unwise, foolish or disastrous contract, entered into with all
the required formalities and with full awareness of what she was doing. Courts
have no power to relieve parties from obligations voluntarily assumed, simply
because their contracts turned out to be disastrous or unwise investments.[22]

WHEREFORE, the instant petition for review on certiorari is DENIED. The

Decision of the Court of Appeals in CA-G.R. CV No. 79805 dated August 24,
2005 affirming the Decision dated March 10, 2003 of the Regional Trial Court,
Branch 22, Cebu City, in Civil Case No. CEB-22867 is AFFIRMED.

SO ORDERED.