ROLANDO T. CATUNGAL, JOSE T. CATUNGAL, G.R. No.

146839
JR., CAROLYN T. CATUNGAL and ERLINDA
CATUNGAL-WESSEL, Present:
Petitioners,
CORONA, C.J.,
Chairperson,
VELASCO, JR.,
- versus - LEONARDO-DE CASTRO,
DEL CASTILLO, and
PEREZ, JJ.

ANGEL S. RODRIGUEZ, Promulgated:

Respondent.
March 23, 2011

x---------------------------------------------------x

DECISION

LEONARDO-DE CASTRO, J.:

Before the Court is a Petition for Review on Certiorari, assailing the following issuances of the Court of Appeals in
CA-G.R. CV No. 40627 consolidated with CA-G.R. SP No. 27565: (a) the August 8, 2000 Decision,[1] which
affirmed the Decision[2] dated May 30, 1992 of the Regional Trial Court (RTC), Branch 27 of Lapu-lapu City, Cebu
in Civil Case No. 2365-L, and (b) the January 30, 2001 Resolution,[3] denying herein petitioners motion for
reconsideration of the August 8, 2000 Decision.
The relevant factual and procedural antecedents of this case are as follows:

This controversy arose from a Complaint for Damages and Injunction with Preliminary Injunction/Restraining
Order[4] filed on December 10, 1990 by herein respondent Angel S. Rodriguez (Rodriguez), with the RTC, Branch
27, Lapu-lapu City, Cebu, docketed as Civil Case No. 2365-L against the spouses Agapita and Jose Catungal
(the spouses Catungal), the parents of petitioners.

In the said Complaint, it was alleged that Agapita T. Catungal (Agapita) owned a parcel of land (Lot 10963)
with an area of 65,246 square meters, covered by Original Certificate of Title (OCT) No. 105 [5] in her name
situated in the Barrio of Talamban, Cebu City. The said property was allegedly the exclusive paraphernal
property of Agapita.

On April 23, 1990, Agapita, with the consent of her husband Jose, entered into a Contract to Sell [6] with
respondent Rodriguez. Subsequently, the Contract to Sell was purportedly upgraded into a Conditional Deed
of Sale[7] dated July 26, 1990 between the same parties. Both the Contract to Sell and the Conditional Deed of
Sale were annotated on the title.

The provisions of the Conditional Deed of Sale pertinent to the present dispute are quoted below:

1. The VENDOR for and in consideration of the sum of TWENTY[-]FIVE MILLION PESOS
(P25,000,000.00) payable as follows:

a. FIVE HUNDRED THOUSAND PESOS (P500,000.00) downpayment upon the signing of this
agreement, receipt of which sum is hereby acknowledged in full from the VENDEE.

b. The balance of TWENTY[-]FOUR MILLION FIVE HUNDRED THOUSAND PESOS (P24,500,000.00)

shall be payable in five separate checks, made to the order of JOSE Ch. CATUNGAL, the first
check shall be for FOUR MILLION FIVE HUNDRED THOUSAND PESOS (P4,500,000.00) and the
remaining balance to be paid in four checks in the amounts of FIVE MILLION PESOS
(P5,000,000.00) each after the VENDEE have (sic) successfully negotiated, secured and provided
a Road Right of Way consisting of 12 meters in width cutting across Lot 10884 up to the national
road, either by widening the existing Road Right of Way or by securing a new Road Right of Way
of 12 meters in width. If however said Road Right of Way could not be negotiated, the VENDEE
shall give notice to the VENDOR for them to reassess and solve the problem by taking other
options and should the situation ultimately prove futile, he shall take steps to rescind or cancel
the herein Conditional Deed of Sale.
 c. That the access road or Road Right of Way leading to Lot 10963 shall be the responsibility of
the VENDEE to secure and any or all cost relative to the acquisition thereof shall be borne solely
by the VENDEE. He shall, however, be accorded with enough time necessary for the success of
his endeavor, granting him a free hand in negotiating for the passage.

BY THESE PRESENTS, the VENDOR do hereby agree to sell by way of herein CONDITIONAL DEED
OF SALE to VENDEE, his heirs, successors and assigns, the real property described in the Original
Certificate of Title No. 105 x x x.

xxxx

5. That the VENDEE has the option to rescind the sale. In the event the VENDEE exercises his
option to rescind the herein Conditional Deed of Sale, the VENDEE shall notify the VENDOR by
way of a written notice relinquishing his rights over the property. The VENDEE shall then be
reimbursed by the VENDOR the sum of FIVE HUNDRED THOUSAND PESOS (P500,000.00)
representing the downpayment, interest free, payable but contingent upon the event that the
VENDOR shall have been able to sell the property to another party.[8]

In accordance with the Conditional Deed of Sale, Rodriguez purportedly secured the necessary surveys and
plans and through his efforts, the property was reclassified from agricultural land into residential land which he
claimed substantially increased the propertys value. He likewise alleged that he actively negotiated for the
road right of way as stipulated in the contract.[9]

Rodriguez further claimed that on August 31, 1990 the spouses Catungal requested an advance
of P5,000,000.00 on the purchase price for personal reasons. Rodriquez allegedly refused on the ground that the
amount was substantial and was not due under the terms of their agreement. Shortly after his refusal to pay the
advance, he purportedly learned that the Catungals were offering the property for sale to third parties. [10]

Thereafter, Rodriguez received letters dated October 22, 1990,[11] October 24, 1990[12] and October 29,
1990,[13] all signed by Jose Catungal who was a lawyer, essentially demanding that the former make up his
mind about buying the land or exercising his option to buy because the spouses Catungal allegedly received
other offers and they needed money to pay for personal obligations and for investing in other
properties/business ventures. Should Rodriguez fail to exercise his option to buy the land, the Catungals warned
that they would consider the contract cancelled and that they were free to look for other buyers.

In a letter dated November 4, 1990,[14] Rodriguez registered his objections to what he termed the Catungals
unwarranted demands in view of the terms of the Conditional Deed of Sale which allowed him sufficient time
to negotiate a road right of way and granted him, the vendee, the exclusive right to rescind the contract. Still,
on November 15, 1990, Rodriguez purportedly received a letter dated November 9, 1990[15] from Atty.
Catungal, stating that the contract had been cancelled and terminated.

Contending that the Catungals unilateral rescission of the Conditional Deed of Sale was unjustified, arbitrary
and unwarranted, Rodriquez prayed in his Complaint, that:
1. Upon the filing of this complaint, a restraining order be issued enjoining defendants [the
spouses Catungal], their employees, agents, representatives or other persons acting in their
behalf from offering the property subject of this case for sale to third persons; from entertaining
offers or proposals by third persons to purchase the said property; and, in general, from
performing acts in furtherance or implementation of defendants rescission of their Conditional
Deed of Sale with plaintiff [Rodriguez].

2. After hearing, a writ of preliminary injunction be issued upon such reasonable bond as may be
fixed by the court enjoining defendants and other persons acting in their behalf from performing
any of the acts mentioned in the next preceding paragraph.
3. After trial, a Decision be rendered:

a) Making the injunction permanent;

b) Condemning defendants to pay to plaintiff, jointly and solidarily:

Actual damages in the amount of P400,000.00 for their unlawful rescission of the
Agreement and their performance of acts in violation or disregard of the said Agreement;

Moral damages in the amount of P200,000.00;

Exemplary damages in the amount of P200,000.00; Expenses of litigation and attorneys

fees in the amount of P100,000.00; and

Costs of suit.[16]
On December 12, 1990, the trial court issued a temporary restraining order and set the application for a writ of
preliminary injunction for hearing on December 21, 1990 with a directive to the spouses Catungal to show
cause within five days from notice why preliminary injunction should not be granted. The trial court likewise
ordered that summons be served on them.[17]

Thereafter, the spouses Catungal filed their opposition [18] to the issuance of a writ of preliminary injunction and
later filed a motion to dismiss[19] on the ground of improper venue. According to the Catungals, the subject
property was located in Cebu City and thus, the complaint should have been filed in Cebu City, not Lapu-lapu
City. Rodriguez opposed the motion to dismiss on the ground that his action was a personal action as its subject
was breach of a contract, the Conditional Deed of Sale, and not title to, or possession of real property. [20]

In an Order dated January 17, 1991,[21] the trial court denied the motion to dismiss and ruled that the complaint
involved a personal action, being merely for damages with a prayer for injunction.

Subsequently, on January 30, 1991, the trial court ordered the issuance of a writ of preliminary injunction upon
posting by Rodriguez of a bond in the amount of P100,000.00 to answer for damages that the defendants may
sustain by reason of the injunction.

On February 1, 1991, the spouses Catungal filed their Answer with Counterclaim [22] alleging that they had the
right to rescind the contract in view of (1) Rodriguezs failure to negotiate the road right of way despite the
lapse of several months since the signing of the contract, and (2) his refusal to pay the additional amount
of P5,000,000.00 asked by the Catungals, which to them indicated his lack of funds to purchase the
property. The Catungals likewise contended that Rodriguez did not have an exclusive right to rescind the
contract and that the contract, being reciprocal, meant both parties had the right to rescind.[23] The spouses
Catungal further claimed that it was Rodriguez who was in breach of their agreement and guilty of bad faith
which justified their rescission of the contract.[24] By way of counterclaim, the spouses Catungal prayed for
actual and consequential damages in the form of unearned interests from the balance (of the purchase price
in the amount) of P24,500,000.00, moral and exemplary damages in the amount of P2,000,000.00, attorneys fees
in the amount of P200,000.00 and costs of suits and litigation expenses in the amount of P10,000.00.[25] The
spouses Catungal prayed for the dismissal of the complaint and the grant of their counterclaim.

The Catungals amended their Answer twice,[26] retaining their basic allegations but amplifying their charges of
contractual breach and bad faith on the part of Rodriguez and adding the argument that in view of Article
1191 of the Civil Code, the power to rescind reciprocal obligations is granted by the law itself to both parties
and does not need an express stipulation to grant the same to the injured party. In the Second Amended
Answer with Counterclaim, the spouses Catungal added a prayer for the trial court to order the Register of
Deeds to cancel the annotations of the two contracts at the back of their OCT. [27]
On October 24, 1991, Rodriguez filed an Amended Complaint,[28] adding allegations to the effect that the
Catungals were guilty of several misrepresentations which purportedly induced Rodriguez to buy the property
at the price of P25,000,000.00. Among others, it was alleged that the spouses Catungal misrepresented that
their Lot 10963 includes a flat portion of land which later turned out to be a separate lot (Lot 10986) owned by
Teodora Tudtud who sold the same to one Antonio Pablo. The Catungals also allegedly misrepresented that the
road right of way will only traverse two lots owned by Anatolia Tudtud and her daughter Sally who were their
relatives and who had already agreed to sell a portion of the said lots for the road right of way at a price
of P550.00 per square meter. However, because of the Catungals acts of offering the property to other buyers
who offered to buy the road lots for P2,500.00 per square meter, the adjacent lot owners were no longer willing
to sell the road lots to Rodriguez at P550.00 per square meter but were asking for a price of P3,500.00 per square
meter. In other words, instead of assisting Rodriguez in his efforts to negotiate the road right of way, the spouses
Catungal allegedly intentionally and maliciously defeated Rodriguezs negotiations for a road right of way in
order to justify rescission of the said contract and enable them to offer the property to other buyers.

Despite requesting the trial court for an extension of time to file an amended Answer, [29] the Catungals did not
file an amended Answer and instead filed an Urgent Motion to Dismiss [30] again invoking the ground of
improper venue. In the meantime, for failure to file an amended Answer within the period allowed, the trial
court set the case for pre-trial on December 20, 1991.

During the pre-trial held on December 20, 1991, the trial court denied in open court the Catungals Urgent
Motion to Dismiss for violation of the rules and for being repetitious and having been previously
denied.[31] However, Atty. Catungal refused to enter into pre-trial which prompted the trial court to declare the
defendants in default and to set the presentation of the plaintiffs evidence on February 14, 1992. [32]

On December 23, 1991, the Catungals filed a motion for reconsideration[33] of the December 20, 1991 Order
denying their Urgent Motion to Dismiss but the trial court denied reconsideration in an Order dated February 3,
1992.[34] Undeterred, the Catungals subsequently filed a Motion to Lift and to Set Aside Order of Default [35] but it
was likewise denied for being in violation of the rules and for being not meritorious. [36] On February 28, 1992, the
Catungals filed a Petition for Certiorari and Prohibition[37] with the Court of Appeals, questioning the denial of
their motion to dismiss and the order of default. This was docketed as CA-G.R. SP No. 27565.

Meanwhile, Rodriguez proceeded to present his evidence before the trial court.
In a Decision dated May 30, 1992, the trial court ruled in favor of Rodriguez, finding that: (a) under the contract
it was complainant (Rodriguez) that had the option to rescind the sale; (b) Rodriguezs obligation to pay the
balance of the purchase price arises only upon successful negotiation of the road right of way; (c) he proved
his diligent efforts to negotiate the road right of way; (d) the spouses Catungal were guilty of misrepresentation
which defeated Rodriguezs efforts to acquire the road right of way; and (e) the Catungals rescission of the
contract had no basis and was in bad faith. Thus, the trial court made the injunction permanent, ordered the
Catungals to reduce the purchase price by the amount of acquisition of Lot 10963 which they misrepresented
was part of the property sold but was in fact owned by a third party and ordered them to pay P100,000.00 as
damages, P30,000.00 as attorneys fees and costs.

The Catungals appealed the decision to the Court of Appeals, asserting the commission of the following
errors by the trial court in their appellants brief[38] dated February 9, 1994:
I

THE COURT A QUO ERRED IN NOT DISMISSING OF (SIC) THE CASE ON THE GROUNDS OF IMPROPER
VENUE AND LACK OF JURISDICTION.

II

THE COURT A QUO ERRED IN CONSIDERING THE CASE AS A PERSONAL AND NOT A REAL ACTION.

III

GRANTING WITHOUT ADMITTING THAT VENUE WAS PROPERLY LAID AND THE CASE IS A PERSONAL
ACTION, THE COURT A QUO ERRED IN DECLARING THE DEFENDANTS IN DEFAULT DURING THE PRE-
TRIAL WHEN AT THAT TIME THE DEFENDANTS HAD ALREADY FILED THEIR ANSWER TO THE
COMPLAINT.

IV

THE COURT A QUO ERRED IN CONSIDERING THE DEFENDANTS AS HAVING LOST THEIR LEGAL
STANDING IN COURT WHEN AT MOST THEY COULD ONLY BE CONSIDERED AS IN DEFAULT AND STILL
ENTITLED TO NOTICES OF ALL FURTHER PROCEEDINGS ESPECIALLY AFTER THEY HAD FILED THE
MOTION TO LIFT THE ORDER OF DEFAULT.

THE COURT A QUO ERRED IN ISSUING THE WRIT [OF] PRELIMINARY INJUNCTION RESTRAINING THE
EXERCISE OF ACTS OF OWNERSHIP AND OTHER RIGHTS OVER REAL PROPERTY OUTSIDE OF THE
COURTS TERRITORIAL JURISDICTION AND INCLUDING PERSONS WHO WERE NOT BROUGHT UNDER
ITS JURISDICTION, THUS THE NULLITY OF THE WRIT.

VI

THE COURT A QUO ERRED IN NOT RESTRAINING ITSELF MOTU PROP[R]IO FROM CONTINUING WITH
THE PROCEEDINGS IN THE CASE AND IN RENDERING DECISION THEREIN IF ONLY FOR REASON OF
COURTESY AND FAIRNESS BEING MANDATED AS DISPENSER OF FAIR AND EQUAL JUSTICE TO ALL
AND SUNDRY WITHOUT FEAR OR FAVOR IT HAVING BEEN SERVED EARLIER WITH A COPY OF THE
PETITION FOR CERTIORARI QUESTIONING ITS VENUE AND JURISDICTION IN CA-G.R. NO. SP 27565 IN
FACT NOTICES FOR THE FILING OF COMMENT THERETO HAD ALREADY BEEN SENT OUT BY THE
HONORABLE COURT OF APPEALS, SECOND DIVISION, AND THE COURT A QUO WAS FURNISHED
WITH COPY OF SAID NOTICE.

VII

THE COURT A QUO ERRED IN DECIDING THE CASE IN FAVOR OF THE PLAINTIFF AND AGAINST THE
DEFENDANTS ON THE BASIS OF EVIDENCE WHICH ARE IMAGINARY, FABRICATED, AND DEVOID OF
TRUTH, TO BE STATED IN DETAIL IN THE DISCUSSION OF THIS PARTICULAR ERROR, AND, THEREFORE,
THE DECISION IS REVERSIBLE.[39]

On August 31, 1995, after being granted several extensions, Rodriguez filed his appellees
brief,[40] essentially arguing the correctness of the trial courts Decision regarding the foregoing issues raised by
the Catungals. Subsequently, the Catungals filed a Reply Brief[41] dated October 16, 1995.

From the filing of the appellants brief in 1994 up to the filing of the Reply Brief, the spouses Catungal
were represented by appellant Jose Catungal himself. However, a new counsel for the Catungals, Atty. Jesus
N. Borromeo (Atty. Borromeo), entered his appearance before the Court of Appeals on September 2,
1997.[42] On the same date, Atty. Borromeo filed a Motion for Leave of Court to File Citation of Authorities [43] and
a Citation of Authorities.[44] This would be followed by Atty. Borromeos filing of an Additional Citation of Authority
and Second Additional Citation of Authority both on November 17, 1997.[45]

During the pendency of the case with the Court of Appeals, Agapita Catungal passed away and thus,
her husband, Jose, filed on February 17, 1999 a motion for Agapitas substitution by her surviving children. [46]

On August 8, 2000, the Court of Appeals rendered a Decision in the consolidated cases CA-G.R. CV No.
40627 and CA-G.R. SP No. 27565,[47] affirming the trial courts Decision.

In a Motion for Reconsideration dated August 21, 2000,[48] counsel for the Catungals, Atty. Borromeo,
argued for the first time that paragraphs 1(b) and 5 [49] of the Conditional Deed of Sale, whether taken
separately or jointly, violated the principle of mutuality of contracts under Article 1308 of the Civil Code and
thus, said contract was void ab initio. He adverted to the cases mentioned in his various citations of authorities
to support his argument of nullity of the contract and his position that this issue may be raised for the first time
on appeal.

Meanwhile, a Second Motion for Substitution [50] was filed by Atty. Borromeo in view of the death of Jose
Catungal.
In a Resolution dated January 30, 2001, the Court of Appeals allowed the substitution of the deceased Agapita
and Jose Catungal by their surviving heirs and denied the motion for reconsideration for lack of merit

Hence, the heirs of Agapita and Jose Catungal filed on March 27, 2001 the present petition for
review,[51]
which essentially argued that the Court of Appeals erred in not finding that paragraphs 1(b) and/or 5
of the Conditional Deed of Sale, violated the principle of mutuality of contracts under Article 1308 of the Civil
Code. Thus, said contract was supposedly void ab initio and the Catungals rescission thereof was superfluous.

In his Comment,[52] Rodriguez highlighted that (a) petitioners were raising new matters that cannot be
passed upon on appeal; (b) the validity of the Conditional Deed of Sale was already admitted and petitioners
cannot be allowed to change theories on appeal; (c) the questioned paragraphs of the Conditional Deed of
Sale were valid; and (d) petitioners were the ones who committed fraud and breach of contract and were not
entitled to relief for not having come to court with clean hands.

The Court gave due course to the Petition[53] and the parties filed their respective Memoranda.

The issues to be resolved in the case at bar can be summed into two questions:

I. Are petitioners allowed to raise their theory of nullity of the Conditional Deed of Sale for the
first time on appeal?

II. Do paragraphs 1(b) and 5 of the Conditional Deed of Sale violate the principle of mutuality
of contracts under Article 1308 of the Civil Code?

On petitioners change of theory

Petitioners claimed that the Court of Appeals should have reversed the trial courts Decision on the
ground of the alleged nullity of paragraphs 1(b) and 5 of the Conditional Deed of Sale notwithstanding that the
same was not raised as an error in their appellants brief. Citing Catholic Bishop of Balanga v. Court of
Appeals,[54] petitioners argued in the Petition that this case falls under the following exceptions:

(3) Matters not assigned as errors on appeal but consideration of which is necessary in
arriving at a just decision and complete resolution of the case or to serve the interest of justice or
to avoid dispensing piecemeal justice;

(4) Matters not specifically assigned as errors on appeal but raised in the trial court and
are matters of record having some bearing on the issue submitted which the parties failed to
raise or which the lower court ignored;

(5) Matters not assigned as errors on appeal but closely related to an error assigned; and

(6) Matters not assigned as errors but upon which the determination of a question
properly assigned is dependent.[55]

We are not persuaded.

This is not an instance where a party merely failed to assign an issue as an error in the brief nor failed to
argue a material point on appeal that was raised in the trial court and supported by the record. Neither is this a
case where a party raised an error closely related to, nor dependent on the resolution of, an error properly
assigned in his brief. This is a situation where a party completely changes his theory of the case on appeal and
abandons his previous assignment of errors in his brief, which plainly should not be allowed as anathema to due
process.

Petitioners should be reminded that the object of pleadings is to draw the lines of battle between the
litigants and to indicate fairly the nature of the claims or defenses of both parties. [56] In Philippine National
Construction Corporation v. Court of Appeals,[57] we held that [w]hen a party adopts a certain theory in the
trial court, he will not be permitted to change his theory on appeal, for to permit him to do so would not only
be unfair to the other party but it would also be offensive to the basic rules of fair play, justice and due
process.[58]

We have also previously ruled that courts of justice have no jurisdiction or power to decide a question
not in issue. Thus, a judgment that goes beyond the issues and purports to adjudicate something on which the
court did not hear the parties, is not only irregular but also extrajudicial and invalid. The rule rests on the
fundamental tenets of fair play.[59]

During the proceedings before the trial court, the spouses Catungal never claimed that the provisions in
the Conditional Deed of Sale, stipulating that the payment of the balance of the purchase price was
contingent upon the successful negotiation of a road right of way (paragraph 1[b]) and granting Rodriguez the
option to rescind (paragraph 5), were void for allegedly making the fulfillment of the contract dependent solely
on the will of Rodriguez.

On the contrary, with respect to paragraph 1(b), the Catungals did not aver in the Answer (and its
amended versions) that the payment of the purchase price was subject to the will of Rodriguez but rather they
claimed that paragraph 1(b) in relation to 1(c) only presupposed a reasonable time be given to Rodriguez to
negotiate the road right of way.However, it was petitioners theory that more than sufficient time had already
been given Rodriguez to negotiate the road right of way. Consequently, Rodriguezs refusal/failure to pay the
balance of the purchase price, upon demand, was allegedly indicative of lack of funds and a breach of the
contract on the part of Rodriguez.

Anent paragraph 5 of the Conditional Deed of Sale, regarding Rodriguezs option to rescind, it was
petitioners theory in the court a quo that notwithstanding such provision, they retained the right to rescind the
contract for Rodriguezs breach of the same under Article 1191 of the Civil Code.

Verily, the first time petitioners raised their theory of the nullity of the Conditional Deed of Sale in view of
the questioned provisions was only in their Motion for Reconsideration of the Court of Appeals Decision,
affirming the trial courts judgment. The previous filing of various citations of authorities by Atty. Borromeo and
the Court of Appeals resolutions noting such citations were of no moment. The citations of authorities merely
listed cases and their main rulings without even any mention of their relevance to the present case or any
prayer for the Court of Appeals to consider them. In sum, the Court of Appeals did not err in disregarding the
citations of authorities or in denying petitioners motion for reconsideration of the assailed August 8, 2000
Decision in view of the proscription against changing legal theories on appeal.

Ruling on the questioned provisions of the Conditional Deed of Sale

Even assuming for the sake of argument that this Court may overlook the procedural misstep of petitioners, we
still cannot uphold their belatedly proffered arguments.

At the outset, it should be noted that what the parties entered into is a Conditional Deed of Sale, whereby the
spouses Catungal agreed to sell and Rodriguez agreed to buy Lot 10963 conditioned on the payment of a
certain price but the payment of the purchase price was additionally made contingent on the successful
negotiation of a road right of way.It is elementary that [i]n conditional obligations, the acquisition of rights, as
well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event
which constitutes the condition.[60]

Petitioners rely on Article 1308 of the Civil Code to support their conclusion regarding the claimed nullity of the
aforementioned provisions. Article 1308 states that [t]he contract must bind both contracting parties; its validity
or compliance cannot be left to the will of one of them.

Article 1182 of the Civil Code, in turn, provides:

Art. 1182. When the fulfillment of the condition depends upon the sole will of the debtor, the
conditional obligation shall be void. If it depends upon chance or upon the will of a third person,
the obligation shall take effect in conformity with the provisions of this Code.

In the past, this Court has distinguished between a condition imposed on the perfection of a contract and a
condition imposed merely on the performance of an obligation. While failure to comply with the first condition
results in the failure of a contract, failure to comply with the second merely gives the other party the option to
either refuse to proceed with the sale or to waive the condition. [61] This principle is evident in Article 1545 of the
Civil Code on sales, which provides in part:
 Art. 1545. Where the obligation of either party to a contract of sale is subject to any condition
which is not performed, such party may refuse to proceed with the contract or he may waive
performance of the condition x x x.

Paragraph 1(b) of the Conditional Deed of Sale, stating that respondent shall pay the balance of the
purchase price when he has successfully negotiated and secured a road right of way, is not a condition on the
perfection of the contract nor on the validity of the entire contract or its compliance as contemplated in
Article 1308. It is a condition imposed only on respondents obligation to pay the remainder of the purchase
price. In our view and applying Article 1182, such a condition is not purely potestative as petitioners contend. It
is not dependent on the sole will of the debtor but also on the will of third persons who own the adjacent land
and from whom the road right of way shall be negotiated. In a manner of speaking, such a condition is likewise
dependent on chance as there is no guarantee that respondent and the third party-landowners would come
to an agreement regarding the road right of way. This type of mixed condition is expressly allowed under Article
1182 of the Civil Code.

Analogous to the present case is Romero v. Court of Appeals,[62] wherein the Court interpreted the legal effect
of a condition in a deed of sale that the balance of the purchase price would be paid by the vendee when
the vendor has successfully ejected the informal settlers occupying the property. In Romero, we found that
such a condition did not affect the perfection of the contract but only imposed a condition on the fulfillment of
the obligation to pay the balance of the purchase price, to wit:

From the moment the contract is perfected, the parties are bound not only to the
fulfillment of what has been expressly stipulated but also to all the consequences which,
according to their nature, may be in keeping with good faith, usage and law. Under the
agreement, private respondent is obligated to evict the squatters on the property. The
ejectment of the squatters is a condition the operative act of which sets into motion the period of
compliance by petitioner of his own obligation, i.e., to pay the balance of the purchase price.
Private respondent's failure to remove the squatters from the property" within the stipulated
period gives petitioner the right to either refuse to proceed with the agreement or waive that
condition in consonance with Article 1545 of the Civil Code. This option clearly belongs to
petitioner and not to private respondent.

We share the opinion of the appellate court that the undertaking required of private
respondent does not constitute a "potestative condition dependent solely on his will" that might,
otherwise, be void in accordance with Article 1182 of the Civil Code but a "mixed" condition
"dependent not on the will of the vendor alone but also of third persons like the squatters and
government agencies and personnel concerned." We must hasten to add, however, that where
the so-called "potestative condition" is imposed not on the birth of the obligation but on its
fulfillment, only the condition is avoided, leaving unaffected the obligation itself. [63] (Emphases
supplied.)

From the provisions of the Conditional Deed of Sale subject matter of this case, it was the vendee
(Rodriguez) that had the obligation to successfully negotiate and secure the road right of way. However, in the
decision of the trial court, which was affirmed by the Court of Appeals, it was found that respondent Rodriguez
diligently exerted efforts to secure the road right of way but the spouses Catungal, in bad faith, contributed to
the collapse of the negotiations for said road right of way. To quote from the trial courts decision:

It is therefore apparent that the vendees obligations (sic) to pay the balance of the
purchase price arises only when the road-right-of-way to the property shall have been
successfully negotiated, secured and provided. In other words, the obligation to pay the
balance is conditioned upon the acquisition of the road-right-of-way, in accordance with
paragraph 2 of Article 1181 of the New Civil Code. Accordingly, an obligation dependent upon
a suspensive condition cannot be demanded until after the condition takes place because it is
only after the fulfillment of the condition that the obligation arises. (Javier v[s] CA 183 SCRA)
Exhibits H, D, P, R, T, FF and JJ show that plaintiff [Rodriguez] indeed was diligent in his efforts to
negotiate for a road-right-of-way to the property. The written offers, proposals and follow-up of
his proposals show that plaintiff [Rodriguez] went all out in his efforts to immediately acquire an
access road to the property, even going to the extent of offering P3,000.00 per square meter for
the road lots (Exh. Q) from the original P550.00 per sq. meter. This Court also notes that defendant
(sic) [the Catungals] made misrepresentation in the negotiation they have entered into with
plaintiff [Rodriguez]. (Exhs. F and G) The misrepresentation of defendant (sic) [the Catungals] as
to the third lot (Lot 10986) to be part and parcel of the subject property [(]Lot 10963) contributed
in defeating the plaintiffs [Rodriguezs] effort in acquiring the road-right-of-way to the property.
Defendants [the Catungals] cannot now invoke the non-fulfillment of the condition in the
contract as a ground for rescission when defendants [the Catungals] themselves are guilty of
preventing the fulfillment of such condition.
 From the foregoing, this Court is of the considered view that rescission of the conditional
deed of sale by the defendants is without any legal or factual basis. [64] x x x. (Emphases
supplied.)

In all, we see no cogent reason to disturb the foregoing factual findings of the trial court.

Furthermore, it is evident from the language of paragraph 1(b) that the condition precedent (for
respondents obligation to pay the balance of the purchase price to arise) in itself partly involves an obligation
to do, i.e., the undertaking of respondent to negotiate and secure a road right of way at his own expense. [65] It
does not escape our notice as well, that far from disclaiming paragraph 1(b) as void, it was the Catungals
contention before the trial court that said provision should be read in relation to paragraph 1(c) which stated:

c. That the access road or Road Right of Way leading to Lot 10963 shall be the
responsibility of the VENDEE to secure and any or all cost relative to the acquisition thereof shall
be borne solely by the VENDEE. He shall, however, be accorded with enough time necessary for
the success of his endeavor, granting him a free hand in negotiating for the
passage.[66](Emphasis supplied.)

The Catungals interpretation of the foregoing stipulation was that Rodriguezs obligation to negotiate
and secure a road right of way was one with a period and that period, i.e., enough time to negotiate, had
already lapsed by the time they demanded the payment of P5,000,000.00 from respondent. Even assuming
arguendo that the Catungals were correct that the respondents obligation to negotiate a road right of way
was one with an uncertain period, their rescission of the Conditional Deed of Sale would still be
unwarranted. Based on their own theory, the Catungals had a remedy under Article 1197 of the Civil Code,
which mandates:

Art. 1197. If the obligation does not fix a period, but from its nature and the
circumstances it can be inferred that a period was intended, the courts may fix the duration
thereof.

The courts shall also fix the duration of the period when it depends upon the will of the
debtor.

In every case, the courts shall determine such period as may under the circumstances
have been probably contemplated by the parties. Once fixed by the courts, the period cannot
be changed by them.

What the Catungals should have done was to first file an action in court to fix the period within which
Rodriguez should accomplish the successful negotiation of the road right of way pursuant to the above quoted
provision. Thus, the Catungals demand for Rodriguez to make an additional payment of P5,000,000.00 was
premature and Rodriguezs failure to accede to such demand did not justify the rescission of the contract.

With respect to petitioners argument that paragraph 5 of the Conditional Deed of Sale likewise
rendered the said contract void, we find no merit to this theory. Paragraph 5 provides:

5. That the VENDEE has the option to rescind the sale. In the event the VENDEE exercises
his option to rescind the herein Conditional Deed of Sale, the VENDEE shall notify the VENDOR by
way of a written notice relinquishing his rights over the property. The VENDEE shall then be
reimbursed by the VENDOR the sum of FIVE HUNDRED THOUSAND PESOS (P500,000.00)
representing the downpayment, interest free, payable but contingent upon the event that the
VENDOR shall have been able to sell the property to another party.[67]

Petitioners posited that the above stipulation was the deadliest provision in the Conditional Deed of Sale for
violating the principle of mutuality of contracts since it purportedly rendered the contract subject to the will of
respondent.

We do not agree.

It is petitioners strategy to insist that the Court examine the first sentence of paragraph 5 alone and resist
a correlation of such sentence with other provisions of the contract. Petitioners view, however, ignores a basic
rule in the interpretation of contracts that the contract should be taken as a whole.

Article 1374 of the Civil Code provides that [t]he various stipulations of a contract shall be interpreted
together, attributing to the doubtful ones that sense which may result from all of them taken jointly. The same
Code further sets down the rule that [i]f some stipulation of any contract should admit of several meanings, it
shall be understood as bearing that import which is most adequate to render it effectual. [68]
 Similarly, under the Rules of Court it is prescribed that [i]n the construction of an instrument where there
are several provisions or particulars, such a construction is, if possible, to be adopted as will give effect to
all[69] and for the proper construction of an instrument, the circumstances under which it was made, including
the situation of the subject thereof and of the parties to it, may be shown, so that the judge may be placed in
the position of those whose language he is to interpret.[70]

Bearing in mind the aforementioned interpretative rules, we find that the first sentence of paragraph 5
must be taken in relation with the rest of paragraph 5 and with the other provisions of the Conditional Deed of
Sale.

Reading paragraph 5 in its entirety will show that Rodriguezs option to rescind the contract is not
absolute as it is subject to the requirement that there should be written notice to the vendor and the vendor
shall only return Rodriguezs downpayment of P500,000.00, without interest, when the vendor shall have been
able to sell the property to another party. That what is stipulated to be returned is only the downpayment
of P500,000.00 in the event that Rodriguez exercises his option to rescind is significant. To recall, paragraph 1(b)
of the contract clearly states that the installments on the balance of the purchase price shall only be paid
upon successful negotiation and procurement of a road right of way. It is clear from such provision that the
existence of a road right of way is a material consideration for Rodriguez to purchase the property. Thus, prior to
him being able to procure the road right of way, by express stipulation in the contract, he is not bound to make
additional payments to the Catungals. It was further stipulated in paragraph 1(b) that: [i]f however said road
right of way cannot be negotiated, the VENDEE shall give notice to the VENDOR for them to reassess and solve
the problem by taking other options and should the situation ultimately prove futile, he [Rodriguez] shall take
steps to rescind or [cancel] the herein Conditional Deed of Sale. The intention of the parties for providing
subsequently in paragraph 5 that Rodriguez has the option to rescind the sale is undeniably only limited to the
contingency that Rodriguez shall not be able to secure the road right of way. Indeed, if the parties intended to
give Rodriguez the absolute option to rescind the sale at any time, the contract would have provided for the
return of all payments made by Rodriguez and not only the downpayment. To our mind, the reason only the
downpayment was stipulated to be returned is that the vendees option to rescind can only be exercised in the
event that no road right of way is secured and, thus, the vendee has not made any additional payments, other
than his downpayment.

In sum, Rodriguezs option to rescind the contract is not purely potestative but rather also subject to the
same mixed condition as his obligation to pay the balance of the purchase price i.e., the negotiation of a road
right of way. In the event the condition is fulfilled (or the negotiation is successful), Rodriguez must pay the
balance of the purchase price. In the event the condition is not fulfilled (or the negotiation fails), Rodriguez has
the choice either (a) to not proceed with the sale and demand return of his downpayment or (b) considering
that the condition was imposed for his benefit, to waive the condition and still pay the purchase price despite
the lack of road access. This is the most just interpretation of the parties contract that gives effect to all its
provisions.

In any event, even if we assume for the sake of argument that the grant to Rodriguez of an option to
rescind, in the manner provided for in the contract, is tantamount to a potestative condition, not being a
condition affecting the perfection of the contract, only the said condition would be considered void and the
rest of the contract will remain valid.In Romero, the Court observed that where the so-called potestative
condition is imposed not on the birth of the obligation but on its fulfillment, only the condition is avoided,
leaving unaffected the obligation itself.[71]

It cannot be gainsaid that contracts have the force of law between the contracting parties and should
be complied with in good faith.[72] We have also previously ruled that [b]eing the primary law between the
parties, the contract governs the adjudication of their rights and obligations. A court has no alternative but to
enforce the contractual stipulations in the manner they have been agreed upon and written.[73] We find no
merit in petitioners contention that their parents were merely duped into accepting the questioned provisions in
the Conditional Deed of Sale. We note that although the contract was between Agapita Catungal and
Rodriguez, Jose Catungal nonetheless signed thereon to signify his marital consent to the same. We concur with
the trial courts finding that the spouses Catungals claim of being misled into signing the contract was contrary
to human experience and conventional wisdom since it was Jose Catungal who was a practicing lawyer while
Rodriquez was a non-lawyer.[74] It can be reasonably presumed that Atty. Catungal and his wife reviewed the
provisions of the contract, understood and accepted its provisions before they affixed their signatures thereon.

After thorough review of the records of this case, we have come to the conclusion that petitioners failed to
demonstrate that the Court of Appeals committed any reversible error in deciding the present controversy.
However, having made the observation that it was desirable for the Catungals to file a separate action to fix
the period for respondent Rodriguezs obligation to negotiate a road right of way, the Court finds it necessary to
fix said period in these proceedings. It is but equitable for us to make a determination of the issue here to
obviate further delay and in line with the judicial policy of avoiding multiplicity of suits.

If still warranted, Rodriguez is given a period of thirty (30) days from the finality of this decision to
negotiate a road right of way. In the event no road right of way is secured by Rodriquez at the end of said
period, the parties shall reassess and discuss other options as stipulated in paragraph 1(b) of the Conditional
Deed of Sale and, for this purpose, they are given a period of thirty (30) days to agree on a course of action.
Should the discussions of the parties prove futile after the said thirty (30)-day period, immediately upon the
expiration of said period for discussion, Rodriguez may (a) exercise his option to rescind the contract, subject to
the return of his downpayment, in accordance with the provisions of paragraphs 1(b) and 5 of the Conditional
Deed of Sale or (b) waive the road right of way and pay the balance of the deducted purchase price as
determined in the RTC Decision dated May 30, 1992.

WHEREFORE, the Decision dated August 8, 2000 and the Resolution dated January 30, 2001 of the Court
of Appeals in CA-G.R. CV No. 40627 consolidated with CA-G.R. SP No. 27565 are AFFIRMED with the
following MODIFICATION:

If still warranted, respondent Angel S. Rodriguez is given a period of thirty (30) days from the finality of
this Decision to negotiate a road right of way. In the event no road right of way is secured by respondent at the
end of said period, the parties shall reassess and discuss other options as stipulated in paragraph 1(b) of the
Conditional Deed of Sale and, for this purpose, they are given a period of thirty (30) days to agree on a course
of action. Should the discussions of the parties prove futile after the said thirty (30)-day period, immediately
upon the expiration of said period for discussion, Rodriguez may (a) exercise his option to rescind the contract,
subject to the return of his downpayment, in accordance with the provisions of paragraphs 1(b) and 5 of the
Conditional Deed of Sale or (b) waive the road right of way and pay the balance of the deducted purchase
price as determined in the RTC Decision dated May 30, 1992.

No pronouncement as to costs.

SO ORDERED.

FONTANA RESORT AND COUNTRY CLUB, G.R. No. 154670

INC. AND RN DEVELOPMENT CORP.,
Petitioners, Present:

CORONA, C.J.,
Chairperson,
- versus - LEONARDO-DE CASTRO,
BERSAMIN,
DEL CASTILLO, and
VILLARAMA, JR., JJ.
SPOUSES ROY S. TAN AND SUSAN C. TAN,
Respondents. Promulgated:

January 30, 2012

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

LEONARDO-DE CASTRO, J.:

For review under Rule 45 of the Rules of Court is the Decision [1] dated May 30, 2002 and
Resolution[2] dated August 12, 2002 of the Court Appeals in CA-G.R. SP No. 67816. The appellate court affirmed
with modification the Decision[3] dated July 6, 2001 of the Securities and Exchange Commission (SEC) En Banc in
SEC AC Case No. 788 which, in turn, affirmed the Decision [4] dated April 28, 2000 of Hearing Officer Marciano S.
Bacalla, Jr. (Bacalla) of the SEC Securities Investigation and Clearing Department (SICD) in SEC Case No. 04-99-
6264.

Sometime in March 1997, respondent spouses Roy S. Tan and Susana C. Tan bought from petitioner RN
Development Corporation (RNDC) two class D shares of stock in petitioner Fontana Resort and Country Club,
Inc. (FRCCI), worth P387,300.00, enticed by the promises of petitioners sales agents that petitioner FRCCI would
construct a park with first-class leisure facilities in Clark Field, Pampanga, to be called Fontana Leisure Park
(FLP); that FLP would be fully developed and operational by the first quarter of 1998; and that FRCCI class D
shareholders would be admitted to one membership in the country club, which entitled them to use park
facilities and stay at a two-bedroom villa for five (5) ordinary weekdays and two (2) weekends every year for
free.[5]

Two years later, in March 1999, respondents filed before the SEC a Complaint[6] for refund of
the P387,300.00 they spent to purchase FRCCI shares of stock from petitioners. Respondents alleged that they
had been deceived into buying FRCCI shares because of petitioners fraudulent
misrepresentations. Construction of FLP turned out to be still unfinished and the policies, rules, and regulations of
the country club were obscure.

Respondents narrated that they were able to book and avail themselves of free accommodations at
an FLP villa on September 5, 1998, a Saturday. They requested that an FLP villa again be reserved for their free
use on October 17, 1998, another Saturday, for the celebration of their daughters 18 th birthday, but were
refused by petitioners.Petitioners clarified that respondents were only entitled to free accommodations at FLP
for one week annually consisting of five (5) ordinary days, one (1) Saturday and one (1) Sunday[,] and that
respondents had already exhausted their free Saturday pass for the year. According to respondents, they were
not informed of said rule regarding their free accommodations at FLP, and had they known about it, they
would not have availed themselves of the free accommodations on September 5, 1998. In January 1999,
respondents attempted once more to book and reserve an FLP villa for their free use on April 1, 1999, a
Thursday. Their reservation was confirmed by a certain Murphy Magtoto. However, on March 3, 1999, another
country club employee named Shaye called respondents to say that their reservation for April 1, 1999 was
cancelled because the FLP was already fully booked.

Petitioners filed their Answer[7] in which they asserted that respondents had been duly informed of the
privileges given to them as shareholders of FRCCI class D shares of stock since these were all explicitly provided
in the promotional materials for the country club, the Articles of Incorporation, and the By-Laws of
FRCCI. Petitioners called attention to the following paragraph in their ads:

GUEST ROOMS

As a member of the Fontana Resort and Country Club, you are entitled to 7 days stay
consisting of 5 weekdays, one Saturday and one Sunday. A total of 544 elegantly furnished villas
available in two and three bedroom units.[8]

Petitioners also cited provisions of the FRCCI Articles of Incorporation and the By-Laws on class D shares
of stock, to wit:

Class D shares may be sold to any person, irrespective of nationality or Citizenship. Every
registered owner of a class D share may be admitted to one (1) Membership in the Club and
subject to the Clubs rules and regulations, shall be entitled to use a Two (2) Bedroom Multiplex
Model Unit in the residential villas provided by the Club for one week annually consisting of five
(5) ordinary days, one (1) Saturday and one (1) Sunday. (Article Seventh, Articles of
Incorporation)

Class D shares which may be sold to any person, irrespective of nationality or

Citizenship. Every registered owner of a class D share may be admitted to one (1) Membership in
the Club and subject to the Clubs rules and regulations, shall be entitled to use a Two (2)
Bedroom Multiplex Model Unit in the residential villas provided by the Club for one week
annually consisting of five (5) ordinary days, one (1) Saturday and one (1) Sunday. [Section 2(a),
Article II of the By-Laws.][9]

Petitioners further denied that they unjustly cancelled respondents reservation for an FLP villa on April 1,
1999, explaining that:

6. There is also no truth to the claim of [herein respondents] that they were given and
had confirmed reservations for April 1, 1998. There was no reservation to cancel since there was
no confirmed reservations to speak of for the reason that April 1, 1999, being Holy Thursday, all
reservations for the Holy Week were fully booked as early as the start of the current year. The
Holy Week being a peak season for accommodations, all reservations had to be made on a
priority basis; and as admitted by [respondents], they tried to make their reservation only on
January 4, 1999, a time when all reservations have been fully booked. The fact of [respondents]
non-reservation can be attested by the fact that no confirmation number was issued in their
favor.

If at all, [respondents] were wait-listed as of January 4, 1999, meaning, they would be

given preference in the reservation in the event that any of the confirmed members/guests were
to cancel. The diligence on the part of the [herein petitioners] to inform [respondents] of the
status of their reservation can be manifested by the act of the Clubs personnel when it advised
[respondents] on March 3, 1999 that there were still no available villas for their use because of full
bookings.[10]
 Lastly, petitioners averred that when respondents were first accommodated at FLP, only minor or
finishing construction works were left to be done and that facilities of the country club were already
operational.

SEC-SICD Hearing Officer Bacalla conducted preliminary hearings and trial proper in the
case. Respondents filed separate sworn Question and Answer depositions.[11]Esther U. Lacuna, a witness for
respondents, also filed a sworn Question and Answer deposition.[12] When petitioners twice defaulted, without
any valid excuse, to present evidence on the scheduled hearing dates, Hearing Officer Bacalla deemed
petitioners to have waived their right to present evidence and considered the case submitted for resolution. [13]

Based on the evidence presented by respondents, Hearing Officer Bacalla made the following findings
in his Decision dated April 28, 2000:

To prove the merits of their case, both [herein respondents] testified. Ms. Esther U. Lacuna
likewise testified in favor of [respondents].

As established by the testimonies of [respondents] witnesses, Ms. Esther U. Lacuna, a duly

accredited sales agent of [herein petitioners] who went to see [respondents] for the purpose of
inducing them to buy membership shares of Fontana Resort and Country Club, Inc. with
promises that the park will provide its shareholders with first class leisure facilities, showing them
brochures (Exhibits V, V-1 and V-2) of the future development of the park.

Indeed [respondents] bought two (2) class D shares in Fontana Resort and Country Club,
Inc. paying P387,000.00 to [petitioners] as evidenced by provisional and official receipts (Exhibits
A to S), and signing two (2) documents designated as Agreement to Sell and Purchase Shares of
Stock (Exhibits T to U-2).

It is undisputed that many of the facilities promised were not completed within the
specified date. Ms. Lacuna even testified that less than 50% of what was promised were actually
delivered.

What was really frustrating on the part of [respondents] was when they made
reservations for the use of the Clubs facilities on the occasion of their daughters 18 th birthday on
October 17, 1998 where they were deprived of the clubs premises alleging that the two (2)
weekend stay which class D shareholders are entitled should be on a Saturday and on a
Sunday. Since [respondents] have already availed of one (1) weekend stay which was a
Saturday, they could no longer have the second weekend stay also on a Saturday.

Another occasion was when [respondents] were again denied the use of the clubs
facilities because they did not have a confirmation number although their reservation was
confirmed.

All these rules were never communicated to [respondents] when they bought their
membership shares.

It would seem that [petitioners], through their officers, would make up rules as they go
along. A clever ploy for [petitioners] to hide the lack of club facilities to accommodate the
needs of their members.

[Petitioners] failure to finish the development works at the Fontana Leisure Park within the
period they promised and their failure or refusal to accommodate [respondents] for a
reservation on October 17, 1998 and April 1, 1999, constitute gross misrepresentation detrimental
not only to the [respondents] but to the general public as well.

All these empty promises of [petitioners] may well be part of a scheme to attract, and
induce [respondents] to buy shares because surely if [petitioners] had told the truth about these
matters, [respondents] would never have bought shares in their project in the first place. [14]

Consequently, Hearing Officer Bacalla adjudged:

WHEREFORE, premises considered, judgment is hereby rendered directing [herein

petitioners] to jointly and severally pay [herein respondents]:

1) The amount of P387,000.00 plus interest at the rate of 21% per

annum computed from August 28, 1998 when demand was first made, until such
time as payment is actually made.[15]
 Petitioners appealed the above-quoted ruling of Hearing Officer Bacalla before the SEC en banc. In its
Decision dated July 6, 2001, the SEC en banc held:

WHEREFORE, the instant appeal is hereby DENIED and the Decision of Hearing Officer
Marciano S. Bacalla, Jr. dated April 28, 2000 is hereby AFFIRMED.[16]

In an Order[17] dated September 19, 2001, the SEC en banc denied petitioners Motion for
Reconsideration for being a prohibited pleading under the SEC Rules of Procedure.

Petitioners filed before the Court of Appeals a Petition for Review under Rule 43 of the Rules of
Court. Petitioners contend that even on the sole basis of respondents evidence, the appealed decisions of
Hearing Officer Bacalla and the SEC en banc are contrary to law and jurisprudence.

The Court of Appeals rendered a Decision on March 30, 2002, finding petitioners appeal to be partly
meritorious.

The Court of Appeals brushed aside the finding of the SEC that petitioners were guilty of fraudulent
misrepresentation in inducing respondents to buy FRCCI shares of stock. Instead, the appellate court declared
that:

What seems clear rather is that in inducing the respondents to buy the Fontana shares, RN
Development Corporation merely repeated to the spouses the benefits promised to all holders
of Fontana Class D shares. These inducements were in fact contained in Fontanas promotion
brochures to prospective subscribers which the spouses must obviously have read.[18]

Nonetheless, the Court of Appeals agreed with the SEC that the sale of the two FRCCI class D shares of
stock by petitioners to respondents should be rescinded. Petitioners defaulted on their promises to respondents
that FLP would be fully developed and operational by the first quarter of 1998 and that as shareholders of said
shares, respondents were entitled to the free use of first-class leisure facilities at FLP and free accommodations
at a two-bedroom villa for five (5) ordinary weekdays and two (2) weekends every year.

The Court of Appeals modified the appealed SEC judgment by ordering respondents to return their
certificates of shares of stock to petitioners upon the latters refund of the price of said shares since [t]he
essence of the questioned [SEC] judgment was really to declare as rescinded or annulled the sale or transfer of
the shares to the respondents.[19]The appellate court additionally clarified that the sale of the FRCCI shares of
stock by petitioners to respondents partakes the nature of a forbearance of money, since the amount paid by
respondents for the shares was used by petitioners to defray the construction of FLP; hence, the interest rate of
12% per annum should be imposed on said amount from the date of extrajudicial demand until its return to
respondents. The dispositive portion of the Court of Appeals judgment reads:

WHEREFORE, premises considered, the appealed judgment is MODIFIED: a) petitioner

Fontana Resort and Country Club is hereby ordered to refund and pay to the respondents
Spouses Roy S. Tan and Susana C. Tan the amount of P387,000.00, Philippine Currency,
representing the price of two of its Class D shares of stock, plus simple interest at the rate of 12%
per annum computed from August 28, 1998 when demand was first made, until payment is
completed; b) the respondent spouses are ordered to surrender to petitioner Fontana Resort
and Country Club their two (2) Class D shares issued by said petitioner upon receipt of the full
refund with interest as herein ordered.[20]

Petitioners filed a Motion for Reconsideration, but it was denied by the Court of Appeals in its Resolution
dated August 12, 2002.

Hence, the instant Petition for Review.

Petitioners, in their Memorandum,[21] submit for our consideration the following issues:

a. Was the essence of the judgment of the SEC which ordered the return of the
purchase price but not of the thing sold a declaration of rescission or annulment of the contract
of sale between RNDC and respondents?

b. Was the order of the Court of Appeals to FRCCI which was not the seller of
the thing sold (the seller was RNDC) to return the purchase price to the buyers (the respondents)
in accordance with law?

c. Was the imposition of 12% interest per annum from the date of extra-judicial
demand on an obligation which is not a loan or forbearance of money in accordance with
law?[22]
 Petitioners averred that the ruling of the Court of Appeals that the essence of the SEC judgment is the
rescission or annulment of the contract of sale of the FRCCI shares of stock between petitioners and
respondents is inconsistent with Articles 1385 and 1398 of the Civil Code. The said SEC judgment did not contain
an express declaration that it involved the rescission or annulment of contract or an explicit order for
respondents to return the thing sold. Petitioners also assert that respondents claim for refund based on fraud or
misrepresentation should have been directed only against petitioner RNDC, the registered owner and seller of
the FRCCI class D shares of stock. Petitioner FRCCI was merely the issuer of the shares sold to
respondents. Petitioners lastly question the order of the Court of Appeals for petitioners to pay 12% interest per
annum, the same being devoid of legal basis since their obligation does not constitute a loan or forbearance
of money.

In their Memorandum,[23] respondents chiefly argue that petitioners have posited mere questions of fact
and none of law, precluding this Court to take cognizance of the instant Petition under Rule 45 of the Rules of
Court. Even so, respondents maintain that the Court of Appeals did not err in ordering them to return the
certificates of shares of stock to petitioners upon the latters refund of the price thereof as the essence of
respondents claim for refund is to rescind the sale of said shares. Furthermore, both petitioners should be held
liable since they are the owners and developers of FLP. Petitioner FRCCI is primarily liable for respondents claim
for refund, and petitioner RNDC, at most, is only subsidiarily liable considering that petitioner RNDC is a mere
agent of petitioner FRCCI. Respondents finally insist that the imposition of the interest rate at 12% per annum,
computed from the date of the extrajudicial demand, is correct since the obligation of petitioners is in the
nature of a forbearance of money.

We find merit in the Petition.

We address the preliminary matter of the nature of respondents Complaint against petitioners. Well-
settled is the rule that the allegations in the complaint determine the nature of the action instituted. [24]

Respondents alleged in their Complaint that:

16. [Herein petitioners] failure to finish the development works at the Fontana Leisure Park
within the time frame that they promised, and [petitioners] failure/refusal to accom[m]odate
[herein respondents] request for reservations on 17 October 1998 and 1 April 1999, constitute
gross misrepresentation and a form of deception, not only to the [respondents], but the general
public as well.

17. [Petitioners] deliberately and maliciously misrepresented that development works will
be completed when they knew fully well that it was impossible to complete the development
works by the deadline. [Petitioners] also deliberately and maliciously deceived [respondents]
into believing that they have the privilege to utilize Club facilities, only for [respondents] to be
later on denied such use of Club facilities. All these acts are part of [petitioners] scheme to
attract, induce and convince [respondents] to buy shares, knowing that had they told the truth
about these matters, [respondents] would never have bought shares in their project.

18. On 28 August 1998, [respondents] requested their lawyer to write [petitioner] Fontana
Resort and Country Club, Inc. a letter demanding for the return of their payment. x x x.

19. [Petitioner] Fontana Resort and Country Club, Inc. responded to this letter, with a
letter of its own dated 10 September 1998, denying [respondents] request for a refund. x x x.

20. [Respondents] replied to [petitioner] Fontana Resort and Country Clubs letter with a
letter dated 13 October 1998, x x x. But despite receipt of this letter, [petitioners] failed/refused
and continue to fail /refuse to refund/return [respondents] payments.

xxxx

22. [Petitioners] acted in bad faith when it sold membership shares to [respondents],
promising development work will be completed by the first quarter of 1998 when [petitioners]
knew fully well that they were in no position and had no intention to complete development
work within the time they promised. [Petitioners] also were maliciously motivated when they
promised [respondents] use of Club facilities only to deny [respondents] such use later on.

23. It is detrimental to the interest of [respondents] and quite unfair that they will be
made to suffer from the delay in the completion of the development work, while [petitioners] are
already enjoying the purchase price paid by [respondents].

xxxx
 26. Apart from the refund of the amount of P387,300.00, [respondents] are also entitled to
be paid reasonable interest from their money. Afterall, [petitioners] have already benefitted
from this money, having been able to use it, if not for the Fontana Leisure Park project, for their
other projects as well. And had [respondents] been able to deposit the money in the bank, or
invested it in some worthwhile undertaking, they would have earned interest on the money at
the rate of at least 21% per annum.[25]

The aforequoted allegations in respondents Complaint sufficiently state a cause of action for the
annulment of a voidable contract of sale based on fraud under Article 1390, in relation to Article 1398, of the
Civil Code, and/or rescission of a reciprocal obligation under Article 1191, in relation to Article 1385, of the same
Code. Said provisions of the Civil Code are reproduced below:

Article 1390. The following contracts are voidable or annullable, even though there may
have been no damage to the contracting parties:

1. Those where one of the parties is incapable of giving consent to a contract;

2. Those where the consent is vitiated by mistake, violence, intimidation, undue
influence or fraud.

These contracts are binding, unless they are annulled by a proper action in court. They
are susceptible of ratification.
Article 1398. An obligation having been annulled, the contracting parties shall restore to
each other the things which have been the subject matter of the contract, with their fruits, and
the price with its interest, except in cases provided by law.

In obligations to render service, the value thereof shall be the basis for damages.

Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one of
the obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation,
with the payment of damages in either case. He may also seek rescission, even after he has
chosen fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the
fixing of a period.

This is understood to be without prejudice to the rights of third persons who have
acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law.

Article 1385. Rescission creates the obligation to return the things which were the object
of the contract, together with their fruits, and the price with its interest; consequently, it can be
carried out only when he who demands rescission can return whatever he may be obliged to
return.

Neither shall rescission take place when the things which are the object of the contract
are legally in the possession of third persons who did not act in bad faith.

In this case, indemnity for damages may be demanded from the person causing the loss.

It does not matter that respondents, in their Complaint, simply prayed for refund of the purchase price
they had paid for their FRCCI shares,[26] without specifically mentioning the annulment or rescission of the sale of
said shares. The Court of Appeals treated respondents Complaint as one for annulment/rescission of contract
and, accordingly, it did not simply order petitioners to refund to respondents the purchase price of the FRCCI
shares, but also directed respondents to comply with their correlative obligation of surrendering their
certificates of shares of stock to petitioners.

Now the only issue left for us to determine whether or not petitioners committed fraud or defaulted on
their promises as would justify the annulment or rescission of their contract of sale with respondents requires us
to reexamine evidence submitted by the parties and review the factual findings by the SEC and the Court of
Appeals.

As a general rule, the remedy of appeal by certiorari under Rule 45 of the Rules of Court contemplates
only questions of law and not issues of fact. This rule, however, is inapplicable in cases x x x where the factual
findings complained of are absolutely devoid of support in the records or the assailed judgment of the
appellate court is based on a misapprehension of facts.[27] Another well-recognized exception to the general
rule is when the factual findings of the administrative agency and the Court of Appeals are
contradictory.[28] The said exceptions are applicable to the case at bar.

There are contradictory findings below as to the existence of fraud: while Hearing Officer Bacalla and
the SEC en banc found that there is fraud on the part of petitioners in selling the FRCCI shares to respondents,
the Court of Appeals found none.

There is fraud when one party is induced by the other to enter into a contract, through and solely
because of the latters insidious words or machinations. But not all forms of fraud can vitiate consent. Under
Article 1330, fraud refers to dolo causante or causal fraud, in which, prior to or simultaneous with the execution
of a contract, one party secures the consent of the other by using deception, without which such consent
would not have been given.[29] Simply stated, the fraud must be the determining cause of the contract, or must
have caused the consent to be given.[30]

[T]he general rule is that he who alleges fraud or mistake in a transaction must substantiate his
allegation as the presumption is that a person takes ordinary care for his concerns and that private dealings
have been entered into fairly and regularly.[31] One who alleges defect or lack of valid consent to a contract
by reason of fraud or undue influence must establish by full, clear and convincing evidence such specific acts
that vitiated a partys consent, otherwise, the latters presumed consent to the contract prevails.[32]

In this case, respondents have miserably failed to prove how petitioners employed fraud to induce
respondents to buy FRCCI shares. It can only be expected that petitioners presented the FLP and the country
club in the most positive light in order to attract investor-members. There is no showing that in their sales talk to
respondents, petitioners actually used insidious words or machinations, without which, respondents would not
have bought the FRCCI shares. Respondents appear to be literate and of above-average means, who may
not be so easily deceived into parting with a substantial amount of money. What is apparent to us is that
respondents knowingly and willingly consented to buying FRCCI shares, but were later on disappointed with the
actual FLP facilities and club membership benefits.

Similarly, we find no evidence on record that petitioners defaulted on any of their obligations that would
have called for the rescission of the sale of the FRCCI shares to respondents.

The right to rescind a contract arises once the other party defaults in the performance of his
obligation.[33] Rescission of a contract will not be permitted for a slight or casual breach, but only such
substantial and fundamental breach as would defeat the very object of the parties in making the
agreement.[34] In the same case as fraud, the burden of establishing the default of petitioners lies upon
respondents, but respondents once more failed to discharge the same.

Respondents decry the alleged arbitrary and unreasonable denial of their request for reservation at FLP
and the obscure and ever-changing rules of the country club as regards free accommodations for FRCCI class
D shareholders.

Yet, petitioners were able to satisfactorily explain, based on clear policies, rules, and regulations
governing FLP club memberships, why they rejected respondents request for reservation on October 17, 1998.
Respondents do not dispute that the Articles of Incorporation and the By-Laws of FRCCI, as well as the
promotional materials distributed by petitioners to the public (copies of which respondents admitted receiving),
expressly stated that the subscribers of FRCCI class D shares of stock are entitled free accommodation at an
FLP two-bedroom villa only for one week annually consisting of five (5) ordinary days, one (1) Saturday and one
(1) Sunday. Thus, respondents cannot claim that they were totally ignorant of such rule or that petitioners have
been changing the rules as they go along. Respondents had already availed themselves of free
accommodations at an FLP villa on September 5, 1998, a Saturday, so that there was basis for petitioners to
deny respondents subsequent request for reservation of an FLP villa for their free use on October 17, 1998,
another Saturday.

Neither can we rescind the contract because construction of FLP facilities were still unfinished by
1998. Indeed, respondents allegation of unfinished FLP facilities was not disputed by petitioners, but
respondents themselves were not able to present competent proof of the extent of such
incompleteness. Without any idea of how much of FLP and which particular FLP facilities remain unfinished,
there is no way for us to determine whether petitioners were actually unable to deliver on their promise of a first
class leisure park and whether there is sufficient reason for us to grant rescission or annulment of the sale of
FRCCI shares. Apparently, respondents were still able to enjoy their stay at FLP despite the still ongoing
construction works, enough for them to wish to return and again reserve accommodations at the park.

Respondents additionally alleged the unreasonable cancellation of their confirmed reservation for the
free use of an FLP villa on April 1, 1999. According to respondents, their reservation was confirmed by a Mr.
Murphy Magtoto, only to be cancelled later on by a certain Shaye. Petitioners countered that April 1, 1999 was
a Holy Thursday and FLP was already fully-booked. Petitioners, however, do not deny that Murphy Magtoto and
Shaye are FLP employees who dealt with respondents. The absence of any confirmation number issued to
respondents does not also discount the possibility that the latters reservation was mistakenly confirmed by
Murphy Magtoto despite FLP being fully-booked. At most, we perceive a mix-up in the reservation process of
petitioners. This demonstrates a mere negligence on the part of petitioners, but not willful intention to deprive
respondents of their membership benefits. It does not constitute default that would call for rescission of the sale
of FRCCI shares by petitioners to respondents. For the negligence of petitioners as regards respondents
reservation for April 1, 1999, respondents are at least entitled to nominal damages in accordance with Articles
2221 and 2222 of the Civil Code.[35]

In Almeda v. Cario,[36] we have expounded on the propriety of granting nominal damages as follows:

[N]ominal damages may be awarded to a plaintiff whose right has been violated or invaded by
the defendant, for the purpose of vindicating or recognizing that right, and not for indemnifying
the plaintiff for any loss suffered by him. Its award is thus not for the purpose of indemnification
for a loss but for the recognition and vindication of a right. Indeed, nominal damages are
damages in name only and not in fact. When granted by the courts, they are not treated as an
equivalent of a wrong inflicted but simply a recognition of the existence of a technical injury. A
violation of the plaintiff's right, even if only technical, is sufficient to support an award of nominal
damages. Conversely, so long as there is a showing of a violation of the right of the plaintiff, an
award of nominal damages is proper.[37]

It is also settled that the amount of such damages is addressed to the sound discretion of the court, taking into
account the relevant circumstances.[38]

In this case, we deem that the respondents are entitled to an award of P5,000.00 as nominal damages in
recognition of their confirmed reservation for the free use of an FLP villa on April 1, 1999 which was inexcusably
cancelled by petitioner on March 3, 1999.

In sum, the respondents Complaint sufficiently alleged a cause of action for the annulment or rescission
of the contract of sale of FRCCI class D shares by petitioners to respondents; however, respondents were
unable to establish by preponderance of evidence that they are entitled to said annulment or rescission.

WHEREFORE, in view of the foregoing, the Petition is hereby GRANTED. The Decision dated May 30, 2002
and Resolution dated August 12, 2002 of the Court Appeals in CA-G.R. SP No. 67816 are REVERSED and SET
ASIDE. Petitioners are ORDERED to pay respondents the amount of P5,000.00 as nominal damages for their
negligence as regards respondents cancelled reservation for April 1, 1999, but respondents Complaint, in so far
as the annulment or rescission of the contract of sale of the FRCCI class "D shares of stock is concerned,
is DISMISSED for lack of merit.

SO ORDERED.
G.R. No. 193426 September 29, 2014

SUBIC BAY LEGEND RESORTS AND CASINOS, INC., Petitioner,

vs.
BERNARD C. FERNANDEZ, Respondent.

DECISION

DEL CASTILLO, J.:

This Petition for Review on Certiorari1 assails the April 27, 2010 Decision2 and August 24, 2010 Resolution3 of the
Court of Appeals (CA) in CA-G.R. CV No. 91758, entitled "Bernard C. Fernandez, Plaintiff-Appellee, versus Subic
Bay Legend Resorts and Casinos, Inc., Defendant-Appellant," which affirmed in toto the May 17, 2006
Decision4 of the Regional Trial Court (RTC) of Olongapo City, Branch 74, in Civil Case No. 237-0-97.

Factual Antecedents

Petitioner Subic Bay Legend Resorts ¥d Casinos, Inc., a duly organized and e)(isting corporation operating
under Philippine laws, operates the Legenda Hotel and Casino (Legenda) located in the Subic Bay Freeport
Zone in Zambales. On the other hand, respondent Bernard C. Fernandez is the plaintiff in Civil Case No. 237-0-97
prosecuted against petitioner in Olongapo RTC.

As determined by the CA, the facts of the case are as follows:

At around eleven o'clock in the evening of 6 June 1997, the appellee's 5 brother[,] Ludwin Fernandez[,] visited
the Legenda Hotel and Casino x x x owned and operated by the appellant 6 and located along the Waterfront
Road, Subic Bay Freep011 Zone. Legenda had strategically installed several closedcircuit television (CCTV)
cameras as part of security measures required by its business. The monitors revealed that Ludwin changed x x x
$5,000.00 w011h of chips into smaller denominations. Legenda admitted in its brief that its surveillance staff paid
close attention to Ludwin simply because it was "wmsual" for a Filipino to play using dollar-denominated chips.
After Ludwin won $200.00 in a game of baccarat, he redeemed the value of chips worth $7,200.00. A review of
the CCTV recordings showed that the incident was not the first time Ludwin visited the Casino, as he had also
been there on 5 June 1997.

An operation was launched by Legenda to zero-in on Ludwin whose picture was furnished its security section.
Thus, unbeknownst to him, he was already closely watched on 13 June 1997 when he went with another
brother, Deoven[,] to the casino at around the same time or at 11: 17 p.m. After playing (and losing $100.00)
only one round of baccarat, the siblings had their chips encashed at two separate windows. Since the cashiers
were apprised of a supposed irregularity, they "froze" the transaction.

Shortly thereafter, Legenda's internal security officers accosted Ludwin and Deoven and ordered them to
return the cash and they complied without ado because they were being pulled away. The two were
eventually escorted to private rooms where they were separately interrogated about the source of the chips
they brought. They were held for about seven hours w1til the wee hours of the morning, without food or sleep.
The ultimaturn was simple: they confess that the chips were given by a certain employee, Michael Cabrera, or
they would not be released from questioning. The same line of questioning confronted them when they were
later twned-over for blotter preparation to the Intelligence and Investigation Office of the Subic Bay
Metropolitan Authority (IIO SBMA). Finally, the brothers succwnbed to Legenda's instruction to execute a joint
statement implicating Cabrera as the illegal source of the chips. Due to hunger pangs and fatigue, they did
not disown the statement even when they subscribed the same before the prosecutor in whose office they
were [later] brought. On the other hand, they signed for basically the san1e reason a document purporting to
show that they were "released to [their] brother's custody in good condition." At the time, Deoven was about 21
years old, in his second year of engineering studies and was not familiar with the so-called "estafa" with which
the security personnel threatened to sue him for; although he was quite aware of the consequences of a crime
such as direct assault because he had previously been convicted thereof. About two weeks later, Deoven
exec ted a retraction in Baguio City where he took up his engineering course.7

On July 1, 1997, respondent filed Civil Case No. 237-0-97 for recovery of sum of money with damages against
petitioner, on the premise that on June 13, 1997, he went to Legenda with his brothers Ludwin and Deoven; that
he handed over Legenda casino chips worth US$6,000.00, which belonged to him, to his brothers for the latter
to use at the casino; that petitioner accosted his brothers and unduly and illegally confiscated his casino chips
equivalent to US$5,900.00; and that petitioner refused and continues to refuse to return the same to him despite
demand. His Complaint8 prayed for the return of the casino chips and an award of ₱50,000.00 moral damages,
₱50,000.00 exemplary damages, ₱30,000.00 attorney's fees, ₱20,000.00 litigation expenses, and costs.

Petitioner's Answer with Compulsory Counterclaim9 essentially alleged that right after Ludwin and Deoven's
transactions with the Legenda cashier were frozen on June 13, 1997, they voluntarily agreed to proceed to the
Legenda security office upon invitation, where Ludwin voluntarily informed security officers that it was a certain
Michael Cabrera (Cabrera) - a Legenda table inspector at the time - who gave him the casino chips for
encashment, taught him how to play baccarat and thereafter encash the chips, and rewarded him with
Pl,000.00 for every $1,000.00 he encashed; that Ludwin pointed to a picture of Cabrera in a photo album of
casino employees shown to him; that Ludwin and Deoven were then brought to the IIO SBMA, where they
reiterated their statements made at the Legenda security office; that they volunteered to testify against
Cabrera; that respondent himself admitted that it was Cabrera who gave him the casino chips; that Ludwin
and Deoven voluntarily executed a joint affidavit before the Olongapo City Prosecutor's Office, which they
subsequently recanted; that respondent had no cause of action since the confiscated casino chips worth
US$5,900.00 were stolen from it, and thus it has the right to retain them. By way of counterclaim, petitioner
sought an award of P 1 million moral damages, ₱1 million exemplary damages, and P.5 million attorney's fees
and litigation expenses.

Respondent filed his Answer10 to petitioner's counterclaim.

Ruling of the Regional Trial Court

After pre-trial and trial, the trial court rendered its May 17, 2006 Decision, which decreed as follows:

WHEREFORE, finding that the evidence preponderates in favor of the plaintiff, judgment is rendered against the
defendant ordering it to:

1) Return to plaintiff casino chips worth USD $5,900.00 or its equivalent in Philippine Peso at the rate of
₱38.00 to USD $1 in 1997.

2) Pay plaintiff attorney's fees in the amount of ₱30,000.00 3) [Pay] [c]ost of this suit.

SO DECIDED.11

In arriving at the above conclusion, the trial court held:

The primordial issue is whether or not plaintiff can be considered the lawful owner of the USD $5,900 worth of
casino chips that were confiscated.

There is no dispute that the subject chips were in the possession of the plaintiff. He claims he got hold of them
as payment for car services he rendered to a Chinese individual. Defendant however, contends that said chips
were stolen from the casino and it is the lawful owner of the same.

The onus fell on defendant to prove that the casino chips were stolen. The proof adduced however, is wanting.
The statements of Deoven and Ludwin C. Fernandez, confessing to the source of the chips were recanted
hence, have little probative value. The testimony of defendant's witnesses narrated defendant's action
responding to the suspicious movements of the Fernandez brothers based on surveillance tapes. The tapes,
however, do not show how these persons got hold of the chips. The alleged source in the person of Mike
Cabrera, a table inspector of the casino[,] was based on the recanted declarations of the brothers. No criminal
charge was shown to have been filed against him nor the plaintiff and his brothers. Neither was there an
explanation given as to how those chips came into the possession of Mike Cabrera much less that he passed
them on to the brothers for the purpose of encashing and dividing the proceeds amongst themselves. All told
therefore, there is no direct evidence to prove the theory of the defendant and the circumstantial evidence
present is, to the mind of the court, not sufficient to rebut the legal presw11ption that a person in possession of
personal property is the lawful owner of the same (Art. 559, Civil Code of the Philippines). 12

Ruling of the Court of Appeals

Petitioner appealed the May 1 7, 2006 Decision of the trial court, arguing that Ludwin and Deoven's admission
in their joint affidavit before the Olongapo City Prosecutor's Office that it was Cabrera who gave them the
casino chips strongly indicates that the chips were stolen from Legenda; that the subsequent recantation by
Ludwin and Deoven of their joint affidavit should be looked upon with disfavor, given that recanted testimony is
unreliable and recantations can be easily secured from poor and ignorant witnesses and for monetary
consideration or through intimidation; that respondent's explanation that he gave the chips to his brothers
Ludwin and Deoven for them to play in the casino is highly doubtful; that the true purpose of Ludwin and
Deoven was to encash the stolen chips; that no force or intimidation attended the treatment accorded Ludwin
and Deoven when they were accosted and asked to explain their possession of the chips; and that the trial
court erred in awarding attorney's fees and costs for the filing of a baseless suit solely aimed at unjustly
enriching respondent at petitioner's expense.

On April 27, 2010, the CA issued the assailed Decision which affirmed the trial court's May 17, 2006 Decision.
Petitioner's Motion for Reconsideration was rebuffed as well.
In deciding against petitioner, the CA held that, applying Article 559 of the Civil Code, 13 respondent had the
legal presumption of title to or ownership of the casino chips. This conclusion springs from respondent's
admission during trial that the chips represented payment by a Chinese customer for services he rendered to
the latter in his car shop. The CA added that since respondent became the owner of the chips, he could very
well have given them to Ludwin and Deoven, who likewise held them as "possessors in good faith and for value"
and with "presumptive title" derived from the respondent. On the other hand, petitioner failed to convincingly
show that the chips were stolen; for one, it did not even file a criminal case against the supposed mastermind,
Cabrera - nor did it charge Ludwin or Deoven - for the alleged theft or taking of its chips.

The CA likewise held that Ludwin' s and Deoven' s statements and admissions at the Legenda security office are
inadmissible because they were obtained in violation of their constitutional rights: they were held in duress,
denied the right to counsel and the opportunity to contact respondent, and deprived of sleep, which is one of
the "more subtler [sic] techniques of physical and psychological torture to coerce a confession." 14 It found that
the actions and methods of the Legenda security personnel in detaining and extracting confessions from
Ludwin and Deoven were illegal and in gross violation of Ludwin's and Deoven's constitutional rights. 15

Finally, the CA held that petitioner was guilty of bad faith in advancing its theory and claim against respondent
by unduly accusing him of dealing in stolen casino chips, which thus entitles respondent to the reduced award
of attorney's fees in the amount of ₱30,000.00

Issues

Petitioner raises the following issues:

a) The Honorable Court seriously erred in ruling that the recanted statements of Deoven Fernandez and
Ludwin C. Fernandez have [no] probative value;

b) The Honorable Court seriously erred in ruling that the circumstantial evidence present is not sufficient
to rebut the legal presumption that a person in possession of personal property is the lawful owner of the
same;

c) The Honorable Court seriously erred in finding that the evidence preponderates in favor of the herein
respondent; [and]

d) The Honorable Court seriously erred in awarding attorney's fees and costs of suit I favor of the
respondent.16

Petitioner's Arguments

In its Petition and Reply,17 petitioner mainly argues that the assailed dispositions are grounded entirely on
speculation, and the inferences made are manifestly mistaken and based on a misappreciation of the facts
and law; that the CA failed to consider the testimonial and documentary evidence it presented to prove the
fact that the casino chips were missing and were stolen by Cabrera, who thereafter gave them to respondent's
brothers, Ludwin and Deoven. Petitioner maintains that the presumption of title under Article 559 cannot extend
to respondent's brothers, who admitted during the investigation at the Legenda security office and in their Joint
Affidavit18 that the chips came from Cabrera, and not responcient; that the subsequent Sworn
Statement19 recanting the Joint Affidavit should not be given credence, as affidavits of recantation can easily
be secured - which thus makes them unreliable; and that no duress attended the taking of the brothers' Joint
Affidavit, which was prepared by Henry Marzo of the Intelligence and Investigation Office (IIO) of the Subic Bay
Metropolitan Authority (SBMA).

Petitioner asserts that it is unbelievable that respondent would give US$6,000.00 worth of casino chips to his
brothers with which to play at the casino; that with the attending circumstances, the true intention of
respondent's brothers was to encash the stolen chips which Cabrera handed to them, and not to play at the
casino. Petitioner thus concludes that no coercion could have attended the investigation of Ludwin and
Deoven; that their subsequent recantation should not be given weight; and that for suing on a baseless claim,
respondent is not entitled to attorney's fees and costs of litigation.

Petitioner thus prays for the reversal of the assailed dispositions and the corresponding dismissal of Civil Case
No. 237-0-97.

Respondent's Arguments

In his Comment,20 respondent generally echoes the pronouncement of the CA. He likewise notes that petitioner
has raised only questions of fact; that the Petition is being prosecuted to delay the proceedings; that the trial
and appellate courts are correct in finding that petitioner failed to prove its case and show that the casino
chips were stolen; that petitioner failed to rebut the presumption that a person in possession of personal
property is the lawful owner of the same, pursuant to Article 559 of the Civil Code; and that the ₱30,000.00
award of attorney's fees should be increased to ₱100,000.00.

Our Ruling

The Petition is denied.

Petitioner's underlying theory is that the subject casino chips were in fact stolen by its employee Cabrera, then
handed over to respondent's brothers, Ludwin and Deoven, for encashment at the casino; that Ludwin and
Deoven played at the casino only for show and to conceal their true intention, which is to encash the chips;
that respondent's claim that he owned the chips, as they were given to him in payment of services he rendered
to a Chinese client, is false. These arguments require the Court to examine in greater detail the facts involved.
However, this may not be done because the Court is not a trier of facts and does not normally undertake the
re-examination of the evidence presented during trial; the resolution of factual issues is the function of lower
courts, whose findings thereon are received with respect and are binding on the Court subject only to specific
exceptions.21 In tum, the factual findings of the Court of Appeals carry even more weight when they are
identical to those of the trial court's.22

Besides, a question of fact cannot properly be raised in a petition for review on certiorari. 23 Moreover, if
petitioner should stick to its theory that Cabrera stole the subject casino chips, then its failure to file a criminal
case against the latter -including Ludwin and Deoven for that matter - up to this point certainly does not help to
convince the Court of its position, especially considering that the supposed stolen chips represent a fairly large
amount of money. Indeed, for purposes of this proceeding, there appears to be no evidence on record - other
than mere allegations and suppositions - that Cabrera stole the casino chips in question; such conclusion came
unilaterally from petitioner, and for it to use the same as foundation to the claim that Ludwin, Deoven and
respondent are dealing in stolen chips is clearly irregular and unfair.

Thus, there should be no basis to suppose that the casino chips found in Ludwin's and Deoven's possession were
stolen; petitioner acted arbitrarily in confiscating the same without basis. Their Joint Affidavit - which was later
recanted - does not even bear such fact; it merely states that the chips came from Cabrera. If it cannot be
proved, in the first place, that Cabrera stole these chips, then there is no more reason to suppose that Ludwin
and Deoven were dealing in or possessed stolen goods; unless the independent fact that Cabrera stole the
chips can be proved, it cannot be said that they must be confiscated when found to be in Ludwin's and
Deoven's possession.

It is not even necessary to resolve whether Ludwin's and Deoven's Joint Affidavit was obtained by duress or
otherwise; the document is irrelevant to petitioner's cause, as it does not suggest at all that Cabrera stole the
subject casino chips. At most, it only shows that Cabrera gave Ludwin and Deoven casino chips, if this fact is
true at all - since such statement has since been recanted.

The fact that Ludwin and Deoven appear to be indecisive as to who gave them the casino chips does not help
petitioner at all.1âwphi1 It cannot lead to the conclusion that Cabrera stole the chips and then gave them to
the two; as earlier stated, petitioner had to prove this fact apart from Ludwin's and Deoven's claims, no matter
how incredible they may seem.

Though casino chips do not constitute legal tender,24 there is no law which prohibits their use or trade outside of
the casino which issues them. In any case, it is not unusual – nor is it unlikely – that respondent could be paid by
his Chinese client at the former' s car shop with the casino chips in question; said transaction, if not common, is
nonetheless not unlawful. These chips are paid for anyway; petitioner would not have parted with the same if
their corresponding representative equivalent - in legal tender, goodwill, or otherwise – was not received by it in
return or exchange. Given this premise - that casino chips are considered to have been exchanged with their
corresponding representative value - it is with more reason that this Court should require petitioner to prove
convincingly and persuasively that the chips it confiscated from Ludwin and Deoven were indeed stolen from
it; if so, any Tom, Dick or Harry in possession of genuine casino chips is presumed to have paid for their
representative value in exchange therefor. If petitioner cannot prove its loss, then Article 559 cannot apply; the
presumption that the chips were exchanged for value remains.

Finally, the Court sustains the award of attorney's fees. Under Article 2208 of the Civil Code,25 attorney's fees
may be recovered when the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff's
plainly valid, just and demandable claim, or in any other case where the court deems it just and equitable that
attorney's fees and expenses of litigation should be recovered. Petitioner's act of arbitrarily confiscating the
casino chips and treating Ludwin and Deoven the way it did, and in refusing to satisfy respondent's claim
despite the fact that it had no basis to withhold the chips, confirm its bad faith, and should entitle respondent
to an award.

With the foregoing view of the case, a discussion of the other issues raised is deemed irrelevant and
unnecessary.
WHEREFORE, the Petition is DENIED. The assailed April 27, 2010 Decision and August 24, 2010 Resolution of the
Court of Appeals in CA-G.R. CV No. 91758 are AFFIRMED.

SO ORDERED.
RUBEN REYNA and LLOYD SORIA, G.R. No. 167219

Petitioners,

Present:

CORONA, C.J.,
CARPIO,

CARPIO MORALES,

VELASCO, JR.,

NACHURA,*

LEONARDO-DE CASTRO,

BRION,

PERALTA,
- versus -
BERSAMIN,

DEL CASTILLO,

ABAD,

VILLARAMA, JR.,

PEREZ,

MENDOZA, and

SERENO, JJ.

Promulgated:

COMMISSION ON AUDIT,
February 8, 2011
Respondent.

x----------------------------------------------------------------------------------------- x

DECISION

PERALTA, J.:

Before this Court is a Petition for certiorari,[1] under Rule 64 of the Rules of Court, seeking to set aside
Resolution No. 2004-046,[2] dated December 7, 2004, of the Commission on Audit (COA).

The facts of the case are as follows:

The Land Bank of the Philippines (Land Bank) was engaged in a cattle-financing program wherein loans
were granted to various cooperatives. Pursuant thereto, Land Banks Ipil, Zamboanga del Sur Branch (Ipil
Branch) went into a massive information campaign offering the program to cooperatives.

Cooperatives who wish to avail of a loan under the program must fill up a Credit Facility Proposal (CFP)
which will be reviewed by the Ipil Branch. As alleged by Emmanuel B. Bartocillo, Department Manager of the
Ipil Branch, the CFP is a standard and prepared form provided by the Land Bank main office to be used in the
loan application as mandated by the Field Operations Manual.[3] One of the conditions stipulated in the CFP is
that prior to the release of the loan, a Memorandum of Agreement (MOA) between the supplier of the cattle,
Remad Livestock Corporation (REMAD), and the cooperative, shall have been signed providing the level of
inventory of stocks to be delivered, specifications as to breed, condition of health, age, color, and weight. The
MOA shall further provide for a buy-back agreement, technology, transfer, provisions for biologics requirement
and technical visits and replacement of sterile, unproductive stocks. [4] Allegedly contained in the contracts was
a stipulation that the release of the loan shall be made sixty (60) days prior to the delivery of the stocks. [5]
 The Ipil Branch approved the applications of four cooperatives. R.T. Lim Rubber Marketing Cooperative
(RT Lim RMC) and Buluan Agrarian Reform Beneficiaries MPC (BARBEMCO) were each granted two loans.
Tungawan Paglaum Multi-Purpose Cooperative (Tungawan PFMPC) and Siay Farmers Multi-Purpose
Cooperative (SIFAMCO) were each granted one loan. Pursuant to the terms of the CFP, the cooperatives
individually entered into a contract with REMAD, denominated as a Cattle-Breeding and Buy-Back Marketing
Agreement.[6]

In December 1993, the Ipil Branch granted six loans to the four cooperative borrowers in the following
amounts:

Date Name Amount Amount of Amount Paid

of of of Livestock to Cattle

Release Borrower Loan Insurance Supplier (REMAD)

12-10-93 RTLim RMC P 795,305 P 62,305 P 733,000

12-10-93 BARBEMCO 482,825 37,825 445,000

12-16-93 Tungawan PFMPC 482,825 37,825 445,000

12-22-93 SIFAMCO 983,010 77,010 906,000

12-22-93 RTLim RMC 187,705 14,705 173,000

12-22-93 BARBEMCO 448,105 35,105 413,000 TOTAL P3,375,775 264,775 3,115,000[7]

As alleged by petitioners, the terms of the CFP allowed for pre-payments or advancement of the
payments prior to the delivery of the cattle by the supplier REMAD. This Court notes, however, that copies of the
CFPs were not attached to the records of the case at bar. More importantly, the very contract entered into by
the cooperatives and REMAD, or the Cattle-Breeding and Buy-Back Marketing Agreement[8] did not contain a
provision authorizing prepayment.

Three checks were issued by the Ipil Branch to REMAD to serve as advanced payment for the
cattle. REMAD, however, failed to supply the cattle on the dates agreed upon.

In post audit, the Land Bank Auditor disallowed the amount of P3,115,000.00 under CSB No. 95-005
dated December 27, 1996 and Notices of Disallowance Nos. 96-014 to 96-019 in view of the non-delivery of the
cattle.[9] Also made as the basis of the disallowance was the fact that advanced payment was made in
violation of bank policies and COA rules and regulations. Specifically, the auditor found deficiencies in the
CFPs, to wit:

The Auditor commented that the failure of such loan projects deprived the farmer-
beneficiaries the opportunity to improve their economic condition.

From the Credit Facilities Proposals (CFP), the Auditor noted the following deficiencies.

xxxx

4. No. 1 of the loan terms and conditions allowed prepayments without taking into
consideration the interest of the Bank. Nowhere in the documents reviewed disclosed about
prepayment scheme with REMAD, the supplier/dealer.

There was no justification for the prepayment scheme. Such is a clear deviation from existing
procedures on asset financing under which the Bank will first issue a letter guarantee for the
account of the borrower. Payment thereof will only be effected upon delivery of asset,
inspection and acceptance of the same by the borrower.
 The prepayment arrangement also violates Section 88 of Presidential Decree (PD) No. 1445, to
quote:

Prohibition against advance payment on government Except with the prior

approval of the President (Prime Minister), the government shall not be obliged to
make an advance payment for services not yet rendered or for supplies and
materials not yet delivered under any contract therefor. No payment, partial or
final shall be made on any such contract except upon a certification by the
head of the agency concerned to have effect that the services or supplies and
materials have been delivered in accordance with the terms of the contract and
have been duly inspected and accepted.

Moreover, the Manual on FOG Lending Operations (page 35) provides the systems and
procedures for releasing loans, to quote:

Loan Proceeds Released Directly to the Supplier/Dealer Proceeds of loans

granted for the acquisition of farm machinery equipment; and sub-loan
components for the purchase of construction materials, farm inputs, etc. shall be
released directly to the accredited dealers/suppliers. Payment to the dealer shall
be made after presentation of reimbursement documents (delivery/ official
receipts/ purchase orders) acknowledged by the authorized LBP representative
that same has been delivered.

In cases where supplier requires Cash on Delivery (COD), the checks may be issued and
the cooperative and a LBP representative shall release the check to the supplier and then take
delivery of the object of financing.[10]

The persons found liable by the Auditor for the amount of P3,115,000.00 which was advanced to REMAD
were the following employees of the Ipil Branch:

1. Emmanuel B. Bartocillo Department Manager II

2. George G. Hebrona Chief, Loans and Discounts Division

3. Petitioner Ruben A. Reyna Senior Field Operations Specialist

4. Petitioner Lloyd V. Soria Loans and Credit Analyst II

5. Mary Jane T. Cunting[11] Cash Clerk IV

6. Leona O. Cabanatan Bookkeeper III/Acting Accountant.[12]

The same employees, including petitioners, were also made respondents in a Complaint filed by the
COA Regional Office No. IX, Zamboanga City, before the Office of the Ombudsman for Gross Negligence,
Violation of Reasonable Office Rules and Regulations, Conduct Prejudicial to the Interest of the Bank and
Giving Unwarranted Benefits to persons, causing undue injury in violation of Section 3(e) of Republic Act
(R.A.) No. 3019, otherwise known as the Anti-Graft and Corrupt Practices Act.[13]

On January 28, 1997, petitioners filed a Joint Motion for Reconsideration claiming that the issuance of
the Notice of Disallowance was premature in view of the pending case in the Office of the Ombudsman. The
Motion was denied by the Auditor. Unfazed, petitioners filed an appeal with the Director of COA Regional
Office No. IX, Zamboanga City. On August 29, 1997, the COA Regional Office issued Decision No. 97-
001 affirming the findings of the Auditor. On February 4, 1998, petitioners filed a Motion for Reconsideration,
which was denied by the Regional Office in Decision No. 98-005[14] issued on February 18, 1998.

Petitioners did not file a Petition for Review or a Notice of Appeal from the COA Regional Office
Decision as required under Section 3, Rule VI [15] of the 1997 Revised Rules of Procedure of the COA. Thus, the
Decision of the Director of COA Regional Office No. IX became final and executory pursuant to Section 51[16] of
the Government Auditing Code of the Philippines. Consequently, on April 12, 1999, the Director of the COA
Regional Office No. IX issued a Memorandum to the Auditor directing him to require the accountant of the Ipil
Branch to record in their books of account the said disallowance.[17]

On July 12, 1999, the Auditor sent a letter to the Land Bank Branch Manager requiring him to record the
disallowance in their books of account. On August 10, 1999, petitioners sent a letter [18] to COA Regional Office
No. IX, seeking to have the booking of the disallowance set aside, on the grounds that they were absolved by
the Ombudsman in a February 23, 1999 Resolution,[19] and that the Bangko Sentral ng Pilipinas had approved
the writing off of the subject loans.

The February 23, 1999 Resolution of the Ombudsman was approved by Margarito P. Gervacio, Jr. the
Deputy Ombudsman for Mindanao, the dispositive portion of which reads:

WHERFORE, premises considered, the instant complaint is hereby dismissed for lack of
sufficient evidence.

SO ORDERED.[20]

COA Regional Office No. IX endorsed to the Commission proper the matter raised by the petitioners in
their August 10, 1999 letter. This is contained in its February 28, 2000 letter/endorsement,[21] wherein the Director
of COA Regional Office No. IX maintained his stand that the time for filing of a petition for review had already
lapsed. The Regional Director affirmed the disallowance of the transactions since the same were irregular and
disadvantageous to the government, notwithstanding the Ombudsman resolution absolving petitioners from
fault.

In a Notice[22] dated June 29, 2000, the COA requested petitioners to submit a reply in response to the
letter/endorsement of the Regional Office Director. On August 10, 2000, petitioners submitted their
Compliance/ Reply[23], wherein they argued that the Ombudsman Resolution is a supervening event and is a
sufficient ground for exemption from the requirement to submit a Petition for Review or a Notice of Appeal to
the Commission proper. Petitioners also argued that by invoking the jurisdiction of the Commission proper, the
Regional Director had waived the fact that the case had already been resolved for failure to submit the
required Petition for Review.

On July 17, 2003, the COA rendered Decision No. 2003-107[24] affirming the rulings of the Auditor and the
Regional Office, to wit:

WHEREFORE, foregoing premises considered, this Commission hereby affirms both the
subject disallowance amounting to P3,115,000 and the Order of the Director, COA Regional
Office No. IX, Zamboanga City, directing the recording of subject disallowance in the LBP books
of accounts. This is, however, without prejudice to the right of herein appellants to run after the
supplier for reimbursement of the advance payment for the cattle.[25]

In denying petitioners request for the lifting of the booking of the disallowance, the COA ruled that after
a circumspect evaluation of the facts and circumstances, the dismissal by the Office of the Ombudsman of the
complaint did not affect the validity and propriety of the disallowance which had become final and
executory.[26]

On August 22, 2003, petitioners filed a Motion for Reconsideration, which was, however, denied by the
COA in a Resolution[27] dated December 7, 2004.

Hence, herein petition, with petitioners raising the following grounds in support of the petition, to wit:
 RESPONDENT COA COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF
JURISDICTION IN DECLARING THE PREPAYMENT STIPULATION IN THE CONTRACT BETWEEN THE BANK
AND REMAD PROSCRIBED BY SECTION 103 OF P.D. NO. 1445, OTHERWISE KNOWN AS THE STATE
AUDIT CODE OF THE PHILIPPINES.

RESPONDENT COA COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF

JURISDICTION FOR HOLDING THE PETITIONERS ADMINISTRATIVELY LIABLE FOR HAVING PROCESSED
THE LOANS OF THE BORROWING COOPERATIVES IN ACCORDANCE WITH THE BANKS MANUAL
(FOG) LENDING OPERATIONS.

RESPONDENT COA COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF

JURISDICTION WHEN IT HELD THE PETITIONERS LIABLE AND, THEREFORE, IN EFFECT LIKEWISE
OBLIGATED TO REFUND THE DISALLOWED AMOUNT EVEN AS AMONG OTHER THINGS THEY ACTED
IN EVIDENT GOOD FAITH. MORE SO, AS THE COLLECTIBLES HAVE BEEN ALREADY EFFECTIVELY
WRITTEN-OFF.[28]

The petition is not meritorious.

I.

Anent the first issue raised by petitioners, the same is without merit. Petitioners argue said issue on three
points: first, the COA is estopped from declaring the prepayment stipulation as invalid;[29] second, the
prepayment clause in the Land Bank-REMAD contract is valid;[30] and third, it is a matter of judicial knowledge
that is not unusual for winning bidders involving public works to enter into contracts with the government
providing for partial prepayment of the contract price in the form of mobilization funds.[31]

As to their contention that the COA is estopped from declaring the prepayment stipulation as invalid,
petitioners argue in the wise:

xxxx

The CATTLE BREEDING AND BUY BACK MARKETING AGREEMENT sample of which is attached as
Annex I was a Contract prepared by the bank and REMAD, it was agreed to by the
cooperatives. It was a standard Contract used in twenty two (22) Land Bank branches
throughout the country. It provided in part:

6.1 That the release of the loan shall be made directly to the
supplier 60 days prior to the delivery of stocks per prepayment term of REMAD
LIVESTOCK COPORATION (supplier). Inspection shall be done before the
60th day/delivery of the stocks.

Again, these Contracts were standard bank forms from Land Bank head office. None of
the Petitioners participated in the drafting of the same.[32]

In the absence of grave abuse of discretion, questions of fact cannot be raised in a petition for certiorari, under
Rule 64 of the Rules of Court. The office of the petition for certiorari is not to correct simple errors of judgment;
any resort to the said petition under Rule 64, in relation to Rule 65, of the 1997 Rules of Civil Procedure is limited
to the resolution of jurisdictional issues.[33] Accordingly, since the validity of the prepayment scheme is inherently
a question of fact, the same should no longer be looked into by this Court.
 In any case, even assuming that factual questions may be entertained, the facts do not help petitioners'
cause for the following reasons: first, the supposed Annex I does not contain a stipulation authorizing a pre-
payment scheme; and second, petitioners clearly violated the procedure of releasing loans contained in the
Bank's Manual on Field Office Guidelines on Lending Operations (Manual on Lending Operations).

A perusal of the aforementioned Annex I,[34] the Cattle-Breeding and Buy-Back Marketing Agreement,
would show that stipulation 6.1 which allegedly authorizes prepayment does not exist. To make matters
problematic is that nowhere in the records of the petition can one find a document which embodies such a
stipulation. It bears stressing that the Auditor noted in his report that, nowhere in the documents reviewed
disclosed about prepayment scheme with REMAD, the supplier/dealer.

Moreover, it is surprising that one of petitioners defense is that they processed the cooperatives'
applications in accordance with their individual job descriptions as provided in the Banks Manual on Field
Office Guidelines on Lending Operations[35] when, on the contrary, petitioners seem to be oblivious of the fact
that they clearly violated the procedure in releasing loans which is embodied in the very same Manual on
Lending Operations, to wit:

Loan Proceeds Released Directly to the Supplier/Dealer Proceeds of loans granted for the
acquisition of farm machinery equipment; and sub-loan components for the purchase of
construction materials, farm inputs, etc. shall be released directly to the accredited
dealers/suppliers. Payment to the dealer shall be made after presentation of reimbursement
documents (delivery/ official receipts/ purchase orders) acknowledged by the authorized LBP
representative that same has been delivered.[36]

However, this Court is not unmindful of the fact that petitioners contend that the Legal Department of Land
Bank supposedly passed upon the issue of application of Section 88 of PD 1445. Petitioners argue that in an
alleged August 22, 1996 Memorandum issued by the Land Bank, it opined that Section 88 of PD 1445 is not
applicable.[37] Be that as it may, this Court is again constrained by the fact that petitioners did not offer in
evidence the alleged August 22, 1996 Land Bank Memorandum. Therefore, the supposed tenor of the said
document deserves scant consideration. In any case, even assuming arguendo that petitioners are correct in
their claim, they still cannot hide from the fact that they violated the procedure in releasing loans embodied in
the Manual on Lending Operations as previously discussed.

To emphasize, the Auditor noted that nowhere in the documents reviewed disclosed about prepayment
scheme with REMAD. It is well settled that findings of fact of quasi-judicial agencies, such as the COA, are
generally accorded respect and even finality by this Court, if supported by substantial evidence, in recognition
of their expertise on the specific matters under their jurisdiction. [38] If the prepayment scheme was in fact
authorized, petitioners should have produced the document to prove such fact as alleged by them in the
present petition. However, as stated before, even this Court is at a loss as to whether the prepayment scheme
was authorized as a review of Annex I, the document to which petitioners base their authority to make
advance payments, does not contain such a stipulation or provision. Highlighted also is the fact that petitioners
clearly violated the procedure in releasing loans found in the Manual on Lending Operations which provides
that payments to the dealer shall only be made after presentation of reimbursement documents
acknowledged by the authorized LBP representative that the same has been delivered.

In addition, this Court notes that much reliance is made by petitioners on their allegation that the terms
of the CFP allowed for prepayments or advancement of the payments prior to the delivery of the cattle by the
supplier REMAD. It appears, however, that a CFP, even if admittedly a pro forma contract and emanating from
the Land Bank main office, is merely a facility proposal and not the contract of loan between Land Bank and
the cooperatives. It is in the loan contract that the parties embody the terms and conditions of a transaction. If
there is any agreement to release the loan in advance to REMAD as a form of prepayment scheme, such a
stipulation should exist in the loan contract. There is, nevertheless, no proof of such stipulation as petitioners had
failed to attach the CFPs or the loan contracts relating to the present petition.

Based on the foregoing, the COA should, therefore, not be faulted for finding that petitioners facilitated the
commission of the irregular transaction. The evidence they presented before the COA was insufficient to prove
their case. So also, even this Court is at a loss as to the truthfulness and veracity of petitioners' allegations as
they did not even present before this Court the documents that would serve as the basis for their claims.

II.
Anent the second ground raised by petitioners, the same is again without merit. Petitioners impute on the COA
grave abuse of discretion when it held petitioners administratively liable for having processed the loans of the
borrowing cooperatives. This Court stresses, however, that petitioners cannot rely on their supposed
observance of the procedure outlined in the Manual on Lending Operations when clearly the same provides
that payment to the dealer shall be made after presentation of reimbursement documents (delivery/official
receipts/purchase orders) acknowledged by the authorized LBP representative that the same has been
delivered. Petitioners have not made a case to dispute the COA's finding that they violated the foregoing
provision. Any presumption, therefore, that public officials are in the regular performance of their public
functions must necessarily fail in the presence of an explicit rule that was violated.

There is no grave abuse of discretion on the part of the COA as petitioners were given all the opportunity to
argue their case and present any supporting evidence with the COA Regional Director. Moreover, it bears to
point out that even if petitioners' period to appeal had already lapsed, the COA Commission Proper even
resolved their August 10, 1999 letter where they raised in issue the favorable ruling of the Ombudsman.

III.

Anent, the last issue raised by petitioners, the same is without merit. Petitioners contend that respondents Order,
requiring them to refund the

disallowed transaction, is functus officio, the amount having been legally written-off.[39]

A perusal of the records would show that Land Bank Vice-President Conrado B. Roxas sent a
Memorandum[40] dated August 5, 1998 to the Head of the Ipil Branch, advising them that the accounts subject
of the present petition have been written-off, to wit:

We are pleased to inform you that Bangko Sentral ng Pilipinas (BSP) in its letter dated July
20, 1998 has approved the write-off of your recommended Agrarian Reform Loan Accounts and
Commercial Loan Accounts as covered by LBP Board Resolution Nos. 98-291 and 98-292,
respectively, both dated June 18, 1998 x x x.[41]

The Schedule of Accounts for Write-Off[42] attached to the August 5, 1998 Memorandum shows that the
same covered the two loans given to BARBEMCO, the two loans given to RTLim RMC, and the only loan given
to Tungawan PFPMC. The total amount approved for write-off was P2,209,000.00.[43] Moreover, petitioners
contend that the last loan given to SIFAMCO was also the subject of a write-off in a similar advice given to the
Buug Branch. The total approved write-off in the second Memorandum[44] was for P906,000.00.

In its Comment,[45] the COA argues that the fact that the audit disallowance was allegedly written-
off is of no moment. Respondent

maintains that Section 66 of PD 1445[46] expressly granted unto it the right to compromise monetary liabilities of
the government.[47] The COA, thus, theorizes that without its approval, the alleged write-off is ineffectual. The
same argument was reiterated by the COA in its Memorandum.[48]

The COAs argument deserves scant consideration.

A write-off is a financial accounting concept that allows for the reduction in value of an asset or
earnings by the amount of an expense or loss. It is a means of removing bad debts from the financial records of
the business.

In Land Bank of the Philippines v. Commission on Audit,[49] this Court ruled that Land Bank has the power
and authority to write-off loans, to wit:
 LBP was created as a body corporate and government instrumentality to provide timely
and adequate financial support in all phases involved in the execution of needed agrarian
reform (Rep. Act No. 3844, as amended, Sec. 74). Section 75 of its Charter vests in LBP specific
powers normally exercised by banking institutions, such as the authority to grant short, medium
and long-term loans and advances against security of real estate and/or other acceptable
assets; to guarantee acceptance(s), credits, loans, transactions or obligations; and to borrow
from, or rediscount notes, bills of exchange and other commercial papers with the Central Bank.
In addition to the enumeration of specific powers granted to LBP, Section 75 of its Charter also
authorizes it:

12. To exercise the general powers mentioned in the Corporation Law and the General
Banking Act, as amended, insofar as they are not inconsistent or incompatible with this Decree.

One of the general powers mentioned in the General Banking Act is that provided for in
Section 84 thereof, reading:

xxxx

Writing-off loans and advances with an outstanding amount of one

hundred thousand pesos or more shall require the prior approval of the Monetary
Board (As amended by PD 71).

It will, thus, be seen that LBP is a unique and specialized banking institution, not an
ordinary "government agency" within the scope of Section 36 of Pres. Decree No. 1445. As a
bank, it is specifically placed under the supervision and regulation of the Central Bank of the
Philippines pursuant to its Charter (Sec. 97, Rep. Act No. 3844, as amended by Pres. Decree No.
251). In so far as loans and advances are concerned, therefore, it should be deemed primarily
governed by Central Bank Circular No. 958, Series of 1983, which vests the determination of the
frequency of writing-off loans in the Board of Directors of a bank provided that the loans written-
off do not exceed a certain aggregate amount. The pertinent portion of that Circular reads:

b. Frequency/ceiling of write-off. The frequency for writing-off loans and

advances shall be left to the discretion of the Board of Directors of the bank
concerned. Provided, that the aggregate amount of loans and advances which
may be written-off during the year, shall in no case exceed 3% of total loans and
investments; Provided, further, that charge-offs are made against allowance for
possible losses, earnings during the year and/or retained earnings.[50]

While the power to write-off is not expressly granted in the charter of the Land Bank, it can be logically
implied, however, from the Land Bank's authority to exercise the general powers vested in banking institutions
as provided in the General Banking Act (Republic Act 337). The clear intendment of its charter is for the Land
Bank to be clothed not only with the express powers granted to it, but also with those implied, incidental and
necessary for the exercise of those express powers.[51]

In the case at bar, it is thus clear that the writing-off of the loans involved was a valid act of the Land
Bank. In writing-off the loans, the only requirement for the Land Bank was that the same be in accordance with
the applicable Bangko Sentral circulars, it being under the supervision and regulation thereof. The Land Bank
recommended for write-off all six loans granted to the cooperatives, and it is worthy to note that the Bangko
Sentral granted the same. The write-offs being clearly in accordance with law, the COA should, therefore,
adhere to the same, unless under its general audit jurisdiction under PD 1445, it finds that under Section 25(1)
the fiscal responsibility that rests directly with the head of the government agency has not been properly and
effectively discharged.

On this note, the reliance of respondent on Section 66 of PD 1445 is baseless as a reading thereof would
show that the same does not pertain to the COAs power to compromise claims. Probably, what respondent
wanted to refer to was Section 36 which provides:
 Section 36. Power to compromise claims. -

1. When the interest of the government so requires, the Commission may compromise or
release in whole or in part, any claim or settled liability to any government agency not
exceeding ten thousand pesos and with the written approval of the Prime Minister,
it may likewise compromise or release any similar claim or liability not exceeding one hundred
thousand pesos, the application for relief therefrom shall be submitted, through the Commission
and the Prime Minister, with their recommendations, to the National Assembly.

2. The respective governing bodies of government-owned or controlled corporations,

and self-governing boards, commissions or agencies of the government shall have the exclusive
power to compromise or release any similar claim or liability when expressly authorized by their
charters and if in their judgment, the interest of their respective corporations or agencies so
requires. When the charters do not so provide, the power to compromise shall be exercised by
the Commission in accordance with the preceding paragraph.

x x x x[52]

Under Section 36, the use of the word may shows that the power of the COA to compromise claims is
only permissive, and not mandatory. Further, the second paragraph of Section 36 clearly states that respective
governing bodies of government-owned or controlled corporations, and self-governing boards, commissions or
agencies of the government shall have the exclusive power to compromise or release any similar claim or
liability when expressly authorized by their charters. Nowhere in Section 36 does it state that the COA must
approve a compromise made by a government agency; the only requirement is that it be authorized by its
charter. It, therefore, bears to stress that the COA does not have the exclusive prerogative to settle and
compromise liabilities to the Government.

The foregoing pronouncements notwithstanding, this Court rules that writing-off a loan does not equate to a
condonation or release of a debt by the creditor.

As an accounting strategy, the use of write-off is a task that can help a company maintain a more
accurate inventory of the worth of its current assets. In general banking practice, the write-off method is used
when an account is determined to be uncollectible and an uncollectible expense is recorded in the books of
account. If in the future, the debt appears to be collectible, as when the debtor becomes solvent, then the
books will be adjusted to reflect the amount to be collected as an asset. In turn, income will be credited by the
same amount of increase in the accounts receivable.

Write-off is not one of the legal grounds for extinguishing an obligation under the Civil Code. [53] It is not a
compromise of liability. Neither is it a condonation, since in condonation gratuity on the part of the obligee and
acceptance by the obligor are required.[54] In making the write-off, only the creditor takes action by removing
the uncollectible account from its books even without the approval or participation of the debtor.

Furthermore, write-off cannot be likened to a novation, since the obligations of both parties have not
been modified.[55] When a write-off occurs, the actual worth of the asset is reflected in the books of accounts of
the creditor, but the legal relationship between the creditor and the debtor still remains the same the debtor
continues to be liable to the creditor for the full extent of the unpaid debt.

Based on the foregoing, as creditor, Land Bank may write-off in its books of account the advance
payment released to REMAD in the interest of accounting accuracy given that the loans were already
uncollectible. Such write-off, however, as previously discussed, does not equate to a release from liability of
petitioners.

Accordingly, the Land Bank Ipil Branch must be required to record in its books of account the
Php3,115,000.00 disallowance, and petitioners, together with their four co-employees,[56] should be personally
liable for the said amount. Such liability, is, however, without prejudice to petitioners right to run after REMAD, to
whom they illegally disbursed the loan, for the full reimbursement of the advance payment for the cattle as
correctly ruled by the COA in its July 17, 2003 Decision.[57]
On a final note, it bears to point out that a cursory reading of the Ombudsman's resolution will show that the
complaint against petitioners was dismissed not because of a finding of good faith but because of a finding of
lack of sufficient evidence. While the evidence presented before the Ombudsman may not have been
sufficient to overcome the burden in criminal cases of proof beyond reasonable doubt, [58] it does not, however,
necessarily follow, that the administrative proceedings will suffer the same fate as only substantial evidence is
required, or that amount of relevant evidence which a reasonable mind might accept as adequate to justify a
conclusion.[59]

An absolution from a criminal charge is not a bar to an administrative prosecution or vice versa.[60] The
criminal case filed before the Office of the Ombudsman is distinct and separate from the proceedings on the
disallowance before the COA. So also, the dismissal by Margarito P. Gervacio, Jr., Deputy Ombudsman for
Mindanao, of the criminal charges against petitioners does not necessarily foreclose the matter of their possible
liability as warranted by the findings of the COA.

In addition, this Court notes that the Ombudsman's Resolution relied on an alleged April 6, 1992 Memorandum
of the Field Loans Review Department which supposedly authorized the Field Offices to undertake a
prepayment scheme. On the other hand, the same Ombudsman's Resolution also made reference to a
January 19, 1994 Memorandum of EVP Diaz and a May 31, 1994 Memorandum of VP FSD which tackled the
prohibition on advance payment to suppliers. All these documents, however, were again not attached to the
records of the case at bar. Particularly, the supposed April 6, 1992 Memorandum of the Field Loans Review
Department was not even mentioned nor raised by petitioners as a defense in herein petition.

The decisions and resolutions emanating from the COA did not tackle the supposed April 6, 1992
Memorandum of the Field Loans Review Department which allegedly authorized the Field Offices to undertake
a pre-payment scheme. While it is possible that such document would have shown that petitioners were in
good faith, the same should have been presented by them in the proceedings before the Commission proper -
an act which they were not able to do because of their own negligence in allowing the period to file an
appeal to lapse. The April 6, 1992 Memorandum of the Field Loans Review Department would have been the
best evidence to free petitioners from their liability. It appears, however, that they did not present the same
before the COA and it is already too late in the day for them to present such document before this Court.

Petitioners' allegation of grave abuse of discretion by the COA implies such capricious and whimsical
exercise of judgment as is equivalent to lack of jurisdiction or, in other words, the exercise of the power in an
arbitrary manner by reason of passion, prejudice, or personal hostility; and it must be so patent or gross as to
amount to an evasion of a positive duty or to a virtual refusal to perform the duty enjoined or to act at all in
contemplation of law.[61] It is imperative for petitioners to show caprice and arbitrariness on the part of the COA
whose exercise of discretion is being assailed. Proof of such grave abuse of discretion, however, is wanting in
this case.

WHEREFORE, premises considered, the petition is DENIED. Decision No. 2003-107 dated July 17, 2003 and
Resolution No. 2004-046 dated December 7, 2004, of the Commission on Audit, are hereby AFFIRMED.

SO ORDERED.
G.R. No. 205428

REPUBLIC OF THE PHILIPPINES, represented by the DEPARTMENT OF PUBLIC WORKS AND HIGHWAYS
(DPWH), Petitioners
vs
SPOUSES SENANDO F. SALVADOR and JOSEFINA R. SALVADOR, Respondents

DECISION

DEL CASTILLO, J.:

We resolve the Petition for Review on Certiorari under Rule 45 of the Rules of Court, assailing the August 23, 2012
Decision 1 and the January 10, 2013 Order 2 of the Regional Trial Court (RTC), Branch 270, Valenzuela City, in
Civil Case No. 17 5-V-11 which directed petitioner Republic of the Philippines (Republic) to pay respondents
spouses Senando F. Salvador and Josefina R. Salvador consequential damages equivalent to the value of the
capital gains tax and other taxes necessary for the transfer of the expropriated property in the Republic's
name.

The Antecedent Facts

Respondents are the registered owners of a parcel of land with a total land area of 229 square meters, located
in Kaingin Street, Barangay Parada, Valenzuela City, and covered by Transfer Certificate of Title No.V-77660. 3

On November 9, 2011, the Republic, represented by the Department of - Public Works and Highways (DPWH),
filed a verified Complaint 4 before the RTC

for the expropriation of 83 square meters of said parcel of land (subject property), as well as the improvements
thereon, for the construction of the C-5 Northern Link Road Project Phase 2 (Segment 9) from the North Luzon
Expressway (NLEX) to McArthur Highway. 5

On February 10, 2012, respondents received two checks from the DPWH representing 100% of the zonal value of
the subject property and the cost of the one-storey semi-concrete residential house erected on the property
amounting to ₱l61,850.00 6 and ₱523,449.22,7 respectively. 8 The RTC thereafter issued the corresponding Writ of
Possession in favor of the Republic. 9

On the same day, respondents signified in open court that they recognized the purpose for which their
property is being expropriated and interposed no objection thereto. 10 They also manifested that they have
already received the total sum of ₱685,349.22 from the DPWH and are therefore no longer intending to claim
any just compensation. 11

Ruling of the Regional Trial Court

In its Decision12 dated August 23, 2012, the RTC rendered judgment in favor of the Republic condemning t1Je
subject property for the purpose of implementing the construction of the C-5 Northern Link Road Project Phase
2 (Segment 9) from NLEX to McArthur Highway, Valenzuela City. 13

The RTC likewise directed the Republic to pay respondents consequential damages equivalent to the value of
the capital gains tax and other taxes necessary for the transfer of the subject property in the Republic's
name. 14

The Republic moved for partial reconsideration, 15 specifically on the issue relating to the payment of the
capital gains tax, but the RTC denied the motion in its Order16 dated January 10, 2013 for having been
belatedly filed. The RTC also found no justifiable basis to reconsider its award of Consequential damages in
favor of respondents, as the payment of capital gains tax and other transfer taxes is but a consequence of the
expropriation proceedings.17

As a result, the Republic filed the present Petition for Review on Certiorari assailing the RTC's August 23, 2012
Decision and January 10, 2013 Order.

Issues

In the present Petition, the Republic raises the following issues for the Court's resolution: first, whether the RTC
correctly denied the Republic's Motion for Partial Reconsideration for having been filed out of
time; 18 and second, whether the capital gains tax on the transfer of the expropriated property can be
considered as consequential damages that may be awarded to respondents. 19

The Court's Ruling

The Petition is impressed with merit.

"Section 3, Rule 13 of the Rules of Court provides that if a pleading is filed by registered mail, x x x the date of
mailing shall be considered as the date of filing. It does not matter when the court actually receives the mailed
pleading."20

In this case, the records show that the Republic filed its Motion for Partial Reconsideration before the RTC via
registered mail on September 28, 2012.21 Although the trial cou1treceived the Republic's motion only on
October 5, 2012,22 it should have considered the pleading to have been filed on September 28, 2012, the date
of its mailing, which is clearly within the reglementary period of 15 days to file said motion, 23 counted from
September 13, 2012, or the date of the Republic's receipt of the assailed Decision. 24

Given these circumstances, we hold that the RTC erred in denying the Republic's Motion for Partial
Reconsideration for having been filed out of time.1âwphi1

We likewise rule that the RTC committed a serious error when it directed the Republic to pay respondents
consequential damages equivalent to the value of the capital gains tax and other taxes necessary for the
transfer of the subject property.

"Just compensation [is defined as] the full and fair equivalent of the property sought to be expropriated.x x x
The measure is not the taker's gain but the owner's loss. [The compensation, to be just,] must be fair not only to
the owner but also to the taker."25

In order to determine just compensation, the trial court should first ascertain the market value of the property by
considering the cost of acquisition, the current value of like properties, its actual or potential uses, and in the
particular case of lands, their size, shape, location, and the tax declarations thereon. 26 if as a result of the
expropriation, the remaining lot suffers from an impairment or decrease in value, consequential damages may
be awarded by the trial court, provided that the consequential benefits which may arise from the expropriation
do not exceed said damages suffered by the owner of the property. 27

While it is true that "the determination of the amount of just compensation is within the court's discretion, it
should not be done arbitrarily or capriciously. [Rather,] it must [always] be based on all established rules, upon
correct legal principles and competent evidence." 28 The court cannot base its judgment on mere speculations
and surmises. 29

In the present case, the RTC deemed it "fair and just that x x x whatever is the value of the capital gains tax and
all other taxes necessary for the transfer of the subject property to the [Republic] are but consequential
damages that should be paid by the latter."30 The RTC further explained in its assailed Order that said award in
favor of respondents is but equitable, just, and fair, viz.:

As aptly pointed out by [respondents], they were merely forced by circumstances to be dispossessed of [the]
subject property owing to the exercise of the State of its sovereign power to expropriate. The payment of
capital gains tax and other transfer taxes is a consequence of the expropriation proceedings. It is in the sense
of equity, justness and fairness, and as upheld by the Supreme Court in the case of Capitol Subdivision, Inc. vs.
Province of Negros Occidental, G.R. No. L-16257, January 31, 1963 that the assailed consequential damages
was awarded by the court. 31

This is clearly an error. It is settled that the transfer of property through expropriation proceedings is a sale or·
exchange within the meaning of Sections 24(D) and 56(A) (3) of the National Internal Revenue Code, and
profit from the transaction constitutes capital gain. 32 Since capital gains tax is a tax on passive income, it is the
seller, or respondents in this case, who are liable to shoulder the tax. 33

In fact, the Bureau of Internal Revenue (BIR), in BIR Ruling No. 476-2013 dated December 18, 2013, has
constituted the DPWH as a withholding agent tasked to withhold the 6% final withholding tax in the
expropriation of real property for infrastructure projects. 11ms, as far as the government is concerned, the
capital gains tax in expropriation proceedings remains a liability of the seller, as it is a tax on the seller's gain
from the sale of real property. 34

Besides, as previously explained, consequential damages are only awarded if as a result of the expropriation,
the remaining property of the owner suffersfrom an impairment or decrease in value. 35 In this case, no
evidence was submitted to prove any impairment or decrease in value of the subject property as a result of the
expropriation. More significantly, given that the payment of capital gains tax on the transfer· of the subject
property has no effect on the increase or decrease in value of the remaining property, it can hardly be
considered as consequential damages that may be awarded to respondents.

WHEREFORE, we GRANT the Petition for Review on Certiorari. The Decision dated August 23, 2012 and the Order
dated January 10, 2013 of the Regional Trial Court, Branch 270, Valenzuela City, in Civil Case No. 175-V-11, are
hereby MODIFIED, in that the award of consequential damages is DELETED. In addition, spouses Senando F.
Salvador and Josefina R. Salvador are hereby ORDERED to pay for the capital gains tax due on the transfer of
the expropriated property.

SO ORDERED.
G.R. No. 212690*

SPOUSES ROMEO PAJARES and IDA T. PAJARES, Petitioners

vs.
REMARKABLE LAUNDRY AND DRY CLEANING, represented by ARCHEMEDES G. SOLIS, Respondent

DECISION

DEL CASTILLO, J.:

Breach of contract may give rise to an action for specific performance or rescission of contract. 1 It may also be
the cause of action in a complaint for damages filed pursuant to Art. 1170 of the Civil Code. 2 In the specific
performance and rescission of contract cases, the subject matter is incapable of pecuniary estimation, hence
jurisdiction belongs to the Regional Trial Court (RTC). In the case for damages, however, the court that has
jurisdiction depends upon the total amount of the damages claimed.

Assailed in this Petition for Review on Certiorari3 is the December 11, 2013 Decision4 of the Court of Appeals
(CA) in CA-G.R. CEB SP No. 07711 that set aside the February 19, 2013 Order 5 of the RTC, Branch 17, Cebu City
dismissing Civil Case No. CEB-39025 for lack of jurisdiction.

Factual Antecedents

On September 3, 2012, Remarkable Laundry and Dry Cleaning (respondent) filed a Complaint denominated as
"Breach of Contract and Damages"6 against spouses Romeo and Ida Pajares (petitioners) before the RTC of
Cebu City, which was docketed as Civil Case No. CEB-39025 and assigned to Branch 17 of said court.
Respondent alleged that it entered into a Remarkable Dealer Outlet Contract 7 with petitioners whereby the
latter, acting as a dealer outlet, shall accept and receive items or materials for laundry which are then picked
up and processed by the former in its main plant or laundry outlet; that petitioners violated Article IV (Standard
Required Quota & Penalties) of said contract, which required them to produce at least 200 kilos of laundry
items each week, when, on April 30, 2012, they ceased dealer outlet operations on account of lack of
personnel; that respondent made written demands upon petitioners for the payment of penalties imposed and
provided for in the contract, but the latter failed to pay; and, that petitioners' violation constitutes breach of
contract. Respondent thus prayed, as fol1ows:

WHEREFORE, premises considered, by reason of the above-mentioned breach of the subject dealer contract
agreement made by the defendant, it is most respectfully prayed of the Honorable Court to order the said
defendant to pay the following incidental and consequential damages to the plaintiff, to wit:

a) TWO HUNDRED THOUSAND PESOS (PHP200,000.00) plus legal interest as incidental and consequential [sic] for
violating Articles IV and XVI of the Remarkable Laundry Dealer Contract dated 08 September 2011.

b) Thirty Thousand Pesos (₱30,000.00) as legal expenses.

c) Thirty Thousand Pesos (₱30,000.00) as exemplary damages.

d) Twenty Thousand Pesos (₱20,000.00) as cost of suit.

e) Such other reliefs that the Honorable Court deems as just and equitable. 8 (Italics in the original)

Petitioners submitted their Answer,9 to which respondent filed its Reply.10

During pre-trial, the issue of jurisdiction was raised, and the parties were required to submit their respective
position papers.

Ruling of the Regional Trial Court

On February 19, 2013, the RTC issued an Order dismissing Civil Case No. CEB-39025 for lack of jurisdiction,
stating:

In the instant case, the plaintiffs complaint is for the recovery of damages for the alleged breach of contract.
The complaint sought the award of ₱200,000.00 as incidental and consequential damages; the amount of
₱30,000.00 as legal expenses; the amount of ₱30,000.00 as exemplary damages; and the amount of ₱20,000.00
as cost of the suit, or for the total amount of ₱280,000.00 as damages.

Under the provisions of Batas Pambansa Blg. 129 as amended by Republic Act No. 7691, the amount of
demand or claim in the complaint for the Regional Trial Courts (RTCs) to exercise exclusive original jurisdiction
shall exceed ₱300,000.00; otherwise, the action shall fall under the jurisdiction of the Municipal Trial Courts. In this
case, the total amount of demand in the complaint is only ₱280,000.00, which is less than the jurisdictional
amount of the RTCs. Hence, this Court (RTC) has no jurisdiction over the instant case.1âwphi1

WHEREFORE, premises considered, the instant case is hereby DISMISSED for lack of jurisdiction.

Notify the counsels.

SO ORDERED.11 (Emphasis in the original)

Respondent filed its Motion for Reconsideration,12 arguing that as Civil Case No. CEB-39025 is for breach of
contract, or one whose subject is incapable of pecuniary estimation, jurisdiction thus falls with the RTC.
However, in an April 29, 2013 Order,13 the RTC held its ground.

Ruling of the Court of Appeals

Respondent filed CA-G.R. CEB SP No. 07711, a Petition for Certiorari14 seeking to nullify the RTC's February 19,
2013 and April 29, 2013 Orders. It argued that the RTC acted with grave abuse of discretion in dismissing Civil
Case No. CEB-39025. According to respondent, said case is one whose subject matter is incapable of
pecuniary estimation and that the damages prayed for therein are merely incidental thereto. Hence, Civil
Case No. CEB-39025 falls within the jurisdiction of the RTC pursuant to Section 19 of Batas Pambansa Blg. 129, as
amended (BP 129).

On December 11, 2013, the CA rendered the assailed Decision setting aside the February 19, 2013 Order of the
RTC and remanding the case to the court a quo for further proceedings. It held as follows:

In determining the jurisdiction of an action whose subject is incapable of pecuniary estimation, the nature of
the principal action or remedy sought must first be ascertained. If it is primarily for the recovery of a sum of
money, the claim is considered capable of pecuniary estimation and the jurisdiction of the court depends on
the amount of the claim. But, where the primary issue is something other than the right to recover a sum of
money, where the money claim is purely incidental to, or a consequence of the principal relief sought, such are
actions whose subjects are incapable of pecuniary estimation, hence cognizable by the RTCs. 15

x x xx

Verily, what determines the nature of the action and which court has jurisdiction over it are the allegations of
the complaint and the character of the relief sought.16

In our considered view, the complaint, is one incapable of pecuniary estimation; thus, one within the RTC's
jurisdiction. x x x

x x xx

A case for breach of contract [sic] is a cause of action either for specific performance or rescission of
contracts. An action for rescission of contract, as a counterpart of an action for specific performance, is
incapable of pecuniary estimation, and therefore falls under the jurisdiction of the RTC.17

Thus, the totality of damages principle finds no application in the instant case since the same applies only when
damages is principally and primarily demanded in accordance with the specification in Administrative Circular
No. 09-94 which reads: 'in cases where the claim for damages is the main cause of action ... the amount of
such claim shall be considered in determining the jurisdiction of the court.'

Thus, the court a quo should not have dismissed the instant case.

WHEREFORE, in view of the foregoing, the Order dated February 19, 2013 of the Regional Trial Court, 7th Judicial
Region, Branch 17, Cebu City in Civil Case No. CEB-39025 for Breach of Contract and Damages is hereby
REVERSED and SET ASCDE. This case is hereby REMANDED to the RTC which is ORDERED to PROCEED with the
trial on the merits with dispatch.

SO ORDERED.18

Petitioners sought to reconsider, but were denied. Hence, the present Petition.

Issue

In a June 29, 2015 Resolution,19 this Court resolved to give due course to the Petition, which claims that the CA
erred in declaring that the RTC had jurisdiction over respondent's Complaint which, although denominated as
one for breach of contract, is essentially one for simple payment of damages.
Petitioners' Arguments

In praying that the assailed CA dispositions be set aside and that the RTC's February 19, 2013 Order dismissing
Civil Case No. CEB-39025 be reinstated, petitioners in their Petition and Reply20 espouse the original findings of
the RTC that Civil Case No. CEB-39025 is for the recovery of a sum of money in the form of damages. They
asserted that in determining jurisdiction over the subject matter, the allegations in the Complaint and the
principal relief in the prayer thereof must be considered; that since respondent merely prayed for the payment
of damages in its Complaint and not a judgment on the claim of breach of contract, then jurisdiction should
be determined based solely on the total amount of the claim or demand as alleged in the prayer; that while
breach of contract may involve a claim for specific performance or rescission, neither relief was sought in
respondent's Complaint; and, that respondent "chose to focus his [sic] primary relief on the payment of
damages,"21 which is "the true, actual, and principal relief sought, and is not merely incidental to or a
consequence of the alleged breach of contract."22Petitioners conclude that, applying the totality of claims
rule, respondent's Complaint should be dismissed as the claim stated therein is below the jurisdictional amount
of the RTC.

Respondent's Arguments

Respondent, on the other hand, counters in its Comment 23 that the CA is correct in declaring that Civil Case
No. CEB-39025 is primarily based on breach of contract, and the damages prayed for are merely incidental to
the principal action; that the Complaint itself made reference to the Remarkable Dealer Outlet Contract and
the breach committed by petitioners, which gave rise to a cause of action against the latter; and, that with the
filing of the case, the trial court was thus called upon to determine whether petitioners violated the dealer
outlet contract, and if so, the amount of damages that may be adjudged in respondent's favor.

Our Ruling

The Court grants the Petition. The RTC was correct in categorizing Civil Case No. CEB-39025 as an action for
damages seeking to recover an amount below its jurisdictional limit.

Respondent's complaint denominated

as one for "'Breach of Contract &
Damages" is neither an action for
specific performance nor a complaint
for rescission of contract.

In ruling that respondent's Complaint is incapable of pecuniary estimation and that the RTC has jurisdiction, the
CA comported itself with the following ratiocination:

A case for breach of contract [sic] is a cause of action either for specific performance or rescission of
contracts. An action for rescission of contract, as a counterpart of an action for specific performance, is
incapable of pecuniary estimation, and therefore falls under the jurisdiction of the RTC. 24

without, however, determining whether, from the four corners of the Complaint, respondent actually intended
to initiate an action for specific performance or an action for rescission of contract. Specific performance is
''[t]he remedy of requiring exact performance of a contract in the specific form in which it was made, or
according to the precise terms agreed upon. [It is t]he actual accomplishment of a contract by a party bound
to fulfill it."25 Rescission of contract under Article 1191 of the Civil Code, on the other hand, is a remedy available
to the obligee when the obligor cannot comply with what is incumbent upon him.26 It is predicated on a
breach of faith by the other party who violates the reciprocity between them. Rescission may also refer to a
remedy granted by law to the contracting parties and sometimes even to third persons in order to secure
reparation of damages caused them by a valid contract; by means of restoration of things to their condition in
which they were prior to the celebration of the contract.27

In a line of cases, this Court held that –

In determining whether an action is one the subject matter of which is not capable of pecuniary estimation this
Court has adopted the criterion of first ascertaining the nature of the principal action or remedy sought. If it is
primarily for the recovery of a sum of money, the claim is considered capable of pecuniary estimation, and
whether jurisdiction is in the municipal trial courts or in the courts of first instance would depend on the amount
of the claim. However, where the basic issue is something other than the right to recover a sum of money,
where the money claim is purely incidental to, or a consequence of, the principal relief sought, this Court has
considered such actions as cases where the subject of the litigation may not be estimated in terms of money,
and are cognizable exclusively by courts 1of first instance (now Regional Trial Courts). 28

To write finis to this controversy, therefore, it is imperative that we first determine the real nature of respondent's
principal action, as well as the relief sought in its Complaint, which we 1quote in haec verba:
 REPUBLIC OF THE PHILIPPNES
REGIONAL TRIAL COURT
BRANCH ______
CEBU CITY

Remarkable Laundry and Dry Cleaning herein Civil Case No. ______
represented by Archemedes G. Solis, Plaintiff, For: Breach of Contract
& Damages

vs.

Spouses Romeo Pajares and Ida T. Pajares,

Defendants.

----------------------------------------------------------------------------------------------------------

COMPLAINT

Plaintiff, by counsels, to the Honorable Court most respectfully states THAT:

1. Plaintiff Remarkable Laundry and Dry Cleaning Services, is a sole proprietorship business owned by
Archemedes Solis with principal office address at PREDECO CMPD AS-Ostechi Bldg. Banilad, Heman Cortes St.,
Mandaue City.

2. Defendant Ida Pajares is of legal age, Filipino, married with address at Hermag Village, Basak Mandaue City
where she can be served with summons and other processes of the Honorable Court.

3. On 08 SEP 2011, parties entered and signed a Remarkable Laundry Dealer Outlet Contract for the processing
of laundry materials, plaintiff being the owner of Remarkable Laundry and the defendant being the authorized
dealer of the said business. (Attached and marked as Annex "A" is a copy of the Remarkable Laundry Dealer
Outlet Contract.)

CAUSES OF ACTION:

4. Sometime on [sic] the second (2nd) quarter of 2012, defendant failed to follow the required standard
purchase quota mentioned in article IV of the subject dealership agreement.

5. Defendant through a letter dated April 24, 2012 said it [sic] would CEASE OPERATION. It [sic] further stated
that they [sic] would just notify or advise the office when they are [sic] ready for the business again making the
whole business endeavor totally dependent upon their [sic] whims and caprices. (Attached and marked as
Annex "B'' is a copy of letter of the defendant dated April 24, 2012.)

6. The aforementioned act of unilateral cessation of operation by the defendant constitutes a serious breach to
[sic] the contract because it totally, whimsically and grossly disregarded the Remarkable Laundry Dealer Outlet
Contract, which resulted to [sic] failure on its part in obtaining the minimum purchase or delivery of 200 kilos per
week for the entire duration of its cessation of operations.

7. Under the aforementioned Dealer Contract, specifically in Article XV of the same are classified as BREACH BY
THE OUTLETS:

'The parties agree that the happening of any of the stipulation and events by the dealer outlet is otherwise [sic]
in default of any of its obligations or violate any of the terms and condition under this agreement.

Any violation of the above-mentioned provisions shall result in the immediate termination of this agreement,
without prejudice to any of the RL Main Operators rights or remedies granted to it by law.

THE DEALER OUTLET SHALL ALSO BE LIABLE TO PAY A FINE OF TWENTY FIVE THOUSAND PESOS, (₱25,000), FOR
EVERY VIOLATION AND PHP 50,000 IF PRE-TERMINATION BY THE RL MAIN OPERATOR DUE TO BREACH OF THIS
AGREEMENT.'

8. Likewise it is provided in the said contract that:

' ... The DEALER OUTLET must have a minimum 200 kilos on a six-day or per week pick-up for the entire duration
of the contract to free the dealer outlet from being charge[d] Php 200/week on falling below required
minimum kilos per week of laundry materials. Automatic charging shall become part of the billing on the
services of the dealer outlet on cases where the minimum requirements on required kilos are not met.[']
9. The cessation of operation by the defendant, which is tantamount to gross infraction to [sic] the subject
contract, resulted to [sic] incidental damages amounting to Two Hundred Thousand Pesos (PHP200,000.00).
Defendant should have opted to comply with the Pre-termination clause in the subject contract other than its
[sic] unilateral and whimsical cessation of operations.

10. The plaintiff formally reminded the defendant of her obligations under the subject contract through
demand letters, but to no avail. The defendant purposely ignored the letters by [sic] the plaintiff. (Attached
and marked as Annex "C" to "C-2" are the Demand Letters dated May 2, 2012, June 2, 2012 and June 19, 2012
respectively.)

11. To reiterate, the defendant temporarily stopped its business operation prior to the two-year contract
duration had elapsed to the prejudice of the plaintiff, which is a clear disregard of its two-year obligation to
operate the business unless a pre-termination is called.

12. Under Article 1159 of the Civil Code of the Philippines provides [sic]:

'Obligations arising .from contracts have the force of law between the contracting parties and should be
complied with in good faith. '

13. Likewise, Article 1170 of the Civil Code of the Philippines [provides] that:

'Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in
any manner contravene the tenor thereof are liable for damages. '

14. That the above-mentioned violations by the defendant to the Remarkable Laundry Dealer Contract,
specifically Articles IV and XVI thereof constitute gross breach of contract which are unlawful and malicious
under the Civil Code of the Philippines, which caused the plaintiff to incur incidental and consequential
damages as found in the subject dealer contract in the total amount of Two Hundred Thousand Pesos
(PHP200,000.00) and incidental legal expenses to protect its rights in the amount of ₱30,000.00.

PRAYER:

WHEREFORE, premises considered, by reason of the above-mentioned breach of the subject dealer contract
agreement made by the defendant, it is most respectfully prayed of the Honorable Court to order the said
defendant to pay the following incidental and consequential damages to the plaintiff, to wit:

a) TWO HUNDRED THOUSAND PESOS (PHP200,000.00) plus legal interest as incidental and
consequential [damages] for violating Articles IV and XVI of the Remarkable Laundry Dealer Contract dated 08
SEP 2011;

b) Thirty Thousand Pesos (₱30,000.00) as legal expenses;

c) Thirty Thousand Pesos (₱30,000.00) as exemplary damages;

d) Twenty Thousand Pesos (₱20,000.00) as cost of suit;

e) Such other reliefs that the Honorable Court deems as just and equitable.

August 31, 2012, Cebu City, Philippines.29

An analysis of the factual and material allegations in the Complaint shows that there is nothing therein which
would support a conclusion that respondent's Complaint is one for specific performance or rescission of
contract. It should be recalled that the principal obligation of petitioners under the Remarkable Laundry
Dealership Contract is to act as respondent's dealer outlet. Respondent, however, neither asked the RTC to
compel petitioners to perfom1 such obligation as contemplated in said contract nor sought the rescission
thereof. The Complaint's body, heading, and relief are bereft of such allegation. In fact, neither phrase
appeared on or was used in the Complaint when, for purposes of clarity, respondent's counsels, who are
presumed to be learned in law, could and should have used any of those phrases to indicate the proper
designation of the Complaint. To the contrary, respondent's counsels designated the Complaint as one for
"Breach of Contract & Damages," which is a misnomer and inaccurate. This erroneous notion was reiterated in
respondent's Memorandum30 wherein it was stated that "the main action of CEB 39025 is one for a breach of
contract."31 There is no such thing as an "action for breach of contract." Rather, "[b]reach of contract is a cause
of action,32 but not the action or relief itself"33 Breach of contract may be the cause of action in a complaint for
specific performance or rescission of contract, both of which are incapable of pecuniary estimation and,
therefore, cognizable by the RTC. However, as will be discussed below, breach of contract may also be the
cause of action in a complaint for damages.
A complaint primarily seeking to
enforce the accessory obligation
contained in the penal clause is actually
an action for damages capable of
pecuniary estimation.

Neither can we sustain respondent's contention that its Complaint is incapable of pecuniary estimation since it
primarily seeks to enforce the penal clause contained in Article IV of the Remarkable Dealer Outlet Contract,
which reads:

Article IV: STANDARD REQUIRED QUOTA & PENALTIES

In consideration [sic] for such renewal of franchise-dealership rights, the dealer outlet must have a minimum 200
kilos on a six-day or per week pick-up for the entire duration of the contract to FREE the dealer outlet from
being charge [sic] Php200/week on falling below required minimum kilos per week of laundry materials.
Automatic charging shall become part of the billing on the services of the dealer outlet on cases where the
minimum requirements on required kilos are not met.

The RL Main Operator has the option to cancel, terminate this dealership outlet contract, at its option should
[sic] in the event that there are unpaid services equivalent to a two-week minimum required number of kilos of
laundry materials but not ₱8,000 worth of collectibles, for services performed by the RL Main Operator or its
assigned Franchise Outlet, unpaid bills on ordered and delivered support products, falling below required
monthly minimum number of kilos.

Ten [percent] (10%) interest charge per month will be collected on all unpaid obligations but should not be
more than 45 days or an additional 10% on top of uncollected amount shall be imposed and shall earn
additional 10% on the next succeeding months if it still remains unpaid. However, if the cause of default is due
to issuance of a bouncing check the amount of such check shall earn same penalty charge with additional 5%
for the first two weeks and 10% for the next two weeks and its succeeding two weeks thereafter from the date
of dishonor until fully paid without prejudice to the filling of appropriate cases before the courts of justice.
Violation of this provision if remained unsettled for two months shall be considered as violation [wherein] Article
XV of this agreement shall be applied.34

To Our mind, petitioners' responsibility under the above penal clause involves the payment of liquidated
damages because under Article 222635 of the Civil Code the amount the parties stipulated to pay in case of
breach are liquidated damages. "It is attached to an obligation in order to ensure performance and has a
double function: (1) to provide for liquidated damages, and (2) to strengthen the coercive force of the
obligation by the threat of greater responsibility in the event of breach." 36

Concomitantly, what respondent primarily seeks in its Complaint is to recover aforesaid liquidated damages
(which it termed as "incidental and consequential damages") premised on the alleged breach of contract
committed by the petitioners when they unilaterally ceased business operations. Breach of contract may also
be the cause of action in a complaint for damages filed pursuant to Article 1170 of the Civil Code. It provides:

Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those
who in any manner contravene the tenor thereof; are liable for damages. (Emphasis supplied)

In Pacmac, Inc. v. Intermediate Appellate Court, 37 this Court held that the party who unilaterally terminated the
exclusive distributorship contract without any legal justification can be held liable for damages by reason of the
breach committed pursuant to Article 1170.

In sum, after juxtaposing Article IV of the Remarkable Dealer Outlet Contract vis-a-vis the prayer sought in
respondent's Complaint, this Court is convinced that said Complaint is one for damages. True, breach of
contract may give rise to a complaint for specific performance or rescission of contract. In which case, the
subject matter is incapable of pecuniary estimation and, therefore, jurisdiction is lodged with the RTC. However,
breach of contract may also be the cause of action in a complaint for damages. Thus, it is not correct to
immediately conclude, as the CA erroneously did, that since the cause of action is breach of contract, the
case would only either be specific pe1formance or rescission of contract because it may happen, as in this
case, that the complaint is one for damages.

In an action for damages, the court

which has jurisdiction is determined by
the total amount of damages claimed.

Having thus determined the nature of respondent's principal action, the next question brought to fore is
whether it is the RTC which has jurisdiction over the subject matter of Civil Case No. CEB-39025.
Paragraph 8, Section 1938 of BP 129, as amended by Republic Act No. 7691,39 provides that where the amount
of the demand exceeds ₱100,000.00, exclusive of interest, damages of whatever kind, attorney's fees, litigation
expenses, and costs, exclusive jurisdiction is lodged with the RTC. Otherwise, jurisdiction belongs to the
Municipal Trial Court.40

The above jurisdictional amount had been increased to ₱200,000.00 on March 20, 1999 and further raised to
₱300,000.00 on February 22, 2004 pursuant to Section 5 of RA 7691.41

Then in Administrative Circular No. 09-9442 this Court declared that "where the claim for damages is the main
cause of action, or one of the causes of action, the amount of such claim shall be considered in determining
the jurisdiction of the court." In other words, where the complaint primarily seeks to recover damages, all claims
for damages should be considered in determining which court has jurisdiction over the subject matter of the
case regardless of whether they arose from a single cause of action or several causes of action.1âwphi1

Since the total amount of the damages claimed by the respondent in its Complaint filed with the RTC on
September 3, 2012 amounted only to ₱280,000.00, said court was correct in refusing to take cognizance of the
case.

WHEREFORE, the Petition is GRANTED and the December 11, 2013 Decision and March 19, 2014 Resolution of the
Court of Appeals in CA-G.R. CEB SP No. 07711 are REVERSED and SET ASIDE. The February 19, 2013 Order of the
Regional Trial Court, Branch 17, Cebu City dismissing Civil Case No. CEB-39025 for lack of jurisdiction
is REINSTATED.

SO ORDERED.
G.R. No. 207277

MALAYAN INSURANCE CO., INC., YVONNE S. YUCHENGCO, ATTY. EMMANUEL G. VILLANUEVA, SONNY
RUBIN,1 ENGR. FRANCISCO MONDELO, and MICHAEL REQUIJO,2 Petitioners.
vs.
EMMA CONCEPCION L. LIN,3 Respondent.

Forum Shopping and Res Judicata

DECISION

DEL CASTILLO, J.:

Assailed in this Petition for Review on Certiorari4 are the December 21, 2012 Decision5 of the Court of Appeals
(CA) and its May 22, 2013 Resolution6 in CA-GR. SP No. 118894, both of which found no grave abuse of
discretion in the twin Orders issued by the Regional Trial Court (RTC) of Manila, Branch 52, on September 29,
20107 and on January 25, 20118 in Civil Case No. 10-122738.

Factual Antecedents

On January 4, 2010, Emma Concepcion L. Lin (Lin) filed a Complaint 9 for Collection of Sum of Money with
Damages against Malayan Insurance Co., Inc. (Malayan), Yvonne Yuchengco (Yvonne), Atty. Emmanuel
Villanueva, Sonny Rubin, Engr. Francisco Mondelo, Michael Angelo Requijo (collectively, the petitioners), and
the Rizal Commercial and Banking Corporation (RCBC). This was docketed as Civil Case No. 10-122738 of
Branch 52 of the Manila RTC.

Lin alleged that she obtained various loans from RCBC secured by six clustered warehouses located at Plaridel,
Bulacan; that the five warehouses were insured with Malayan against fire for ₱56 million while the remaining
warehouse was insured for ₱2 million; that on February 24, 2008, the five warehouses were gutted by fire; that
on April 8, 2008 the Bureau of Fire Protection (BFP) issued a Fire Clearance Certification to her (April 8, 2008 FCC)
after having determined that the cause of fire was accidental; that despite the foregoing, her demand for
payment of her insurance claim was denied since the forensic investigators hired by Malayan claimed that the
cause of the fire was arson and not accidental; that she sought assistance from the Insurance Commission (IC)
which, after a meeting among the parties and a conduct of reinvestigation into the cause/s of the fire,
recommended that Malayan pay Lin's insurance claim and/or accord great weight to the BFP's findings; that in
defiance thereof, Malayan still denied or refused to pay her insurance claim; and that for these reasons,
Malayan's corporate officers should also be held liable for acquiescing to Malayan's unjustified refusal to pay
her insurance claim.

As against RCBC, Lin averred that notwithstanding the loss of the mortgaged properties, the bank refused to go
after Malayan and instead insisted that she herself must pay the loans to RCBC, otherwise, foreclosure
proceedings would ensue; and that to add insult to injury, RCBC has been compounding the interest on her
loans, despite RCBC's failure or refusal to go after Malayan.

Lin thus prayed in Civil Case No. 10-122738 that judgment be rendered ordering petitioners to pay her insurance
claim plus interest on the amounts due or owing her; that her loans and mortgage to RCBC be deemed
extinguished as of February 2008; that RCBC be enjoined from foreclosing the mortgage on the properties put
up as collaterals; and that petitioners he ordered to pay her ₱l,217,928.88 in the concept of filing foes, costs of
suit,₱l million as exemplary damages, and ₱500,000.00 as attorney’s fees.

Some five months later, or on June 17, 2010, Lin filed before the IC an administrative case 10 against Malayan,
represented this time by Yvonne. This was docketed as Administrative Case No. 431.

In this administrative case, Lin claimed that since it had been conclusively found that the cause of the fire was
"accidental," the only issue left to be resolved is whether Malayan should be held liable for unfair claim
settlement practice under Section 241 in relation to Section 247 of the Insurance Code due to its unjustified
refusal to settle her claim; and that in consequence of the foregoing failings, Malayan's license to operate as a
non-life insurance company should be revoked or suspended, until such time that it fully complies with the IC
Resolution ordering it to accord more weight to the BFP's findings.

On August 17, 2010, Malayan filed a motion to dismiss Civil Case No. 10-122738 based on forum shopping. It
argued that the administrative case was instituted to prompt or incite IC into ordering Malayan to pay her
insurance claim; that the elements of forum shopping are present in these two cases because there exists
identity of parties since Malayan's individual officers who were impleaded in the civil case are also involved in
the administrative case; that the same interests are shared and represented in both the civil and administrative
cases; that there is identity of causes of action and reliefs sought in the two cases since the administrative case
is merely disguised as an unfair claim settlement charge, although its real purpose is to allow Lin to recover her
insurance claim from Malayan; that Lin sought to obtain the same reliefs in the administrative case as in the civil
case; that Lin did not comply with her sworn undertaking in the Certification on Non-Forum Shopping which she
attached to the civil case, because she deliberately failed to notify the RTC about the pending administrative
case within five days from the filing thereof.

This motion to dismiss drew a Comment/Opposition, 11 which Lin filed on August 31, 2010.

Ruling of the Regional Trial Court

In its Order of September 29, 2010,12 the RTC denied the Motion to Dismiss, thus:

WHEREFORE, the MOTION TO DISMISS filed by [petitioners] is hereby DENIED for lack of merit.

Furnish the parties through their respective [counsels] with a copy each [of] the Order.

SO ORDERED.13

The RTC held that in the administrative case, Lin was seeking a relief clearly distinct from that sought in the civil
case; that while in the administrative case Lin prayed for the suspension or revocation of Malayan's license to
operate as a non-life insurance company, in the civil case Lin prayed for the collection of a sum of money with
damages; that it is abundantly clear that any judgment that would be obtained in either case would not be res
judicata to the other, hence, there is no forum shopping to speak of.

In its Order of January 25, 2011, 14 the RTC likewise denied, for lack of merit, petitioners' Motion for
Reconsideration.

Ruling of the Court of Appeals

Petitioners thereafter sued out a Petition for Certiorari and Prohibition15 before the CA. However, in a
Decision 16dated December 21, 2012, the CA upheld the RTC, and disposed as follows:

WHEREFORE absent grave abuse of discretion on the part of respondent Judge, the Petition for Certiorari and
Prohibition (with Temporary Restraining Order and Preliminary Injunction) is DISMISSED.

SO ORDERED.17

The CA, as did the RTC, found that Lin did not commit forum shopping chiefly for the reason that the issues
raised and the reliefs prayed for in the civil case were essentially different from those in the administrative case,
hence Lin had no duty at all to inform the RTC about the institution or pendency of the administrative case.

The CA ruled that forum shopping exists where the elements of litis pendentia concurred, and where a final
judgment in one case will amount to res judicata in the other. The CA held that of the three elements of forum
shopping viz., (l) identity of parties, or at least such parties as would represent the same interest in both actions,
(2) identity of rights asserted and reliefs prayed for, the relief being founded on the same facts, and (3) identity
of the two proceedings such that any judgment rendered in one action will, regardless of which party is
successful, amount to res judicata in the other action under consideration, only the first element may be
deemed present in the instant case. The CA held that there is here identity of parties in the civil and
administrative cases because Lin is the complainant in both the civil and administrative cases, and these
actions were filed against the same petitioners, the same RCBC and the same Malayan, represented by
Yvonne, respectively. It held that there is however no identity of rights asserted and reliefs prayed for because
in the civil case, it was Lin's assertion that petitioners had violated her rights to recover the full amount of her
insurance claim, which is why she prayed/demanded that petitioners pay her insurance claim plus damages;
whereas in the administrative case, Lin's assertion was that petitioners were guilty of unfair claim settlement
practice, for which reason she prayed that Malayan's license to operate as an insurance company be revoked
or suspended; that the judgment in the civil case, regardless of which party is successful, would not amount
to res judicata in the administrative case in view of the different issues involved, the dissimilarity in the quantum
of evidence required, and the distinct mode or procedure to be observed in each case.

Petitioners moved for reconsideration 18 of the CA's Decision, but this motion was denied by the CA in its
Resolution of May 22, 2013.19

Issues

Before this Court, petitioners instituted the present Petition,20 which raises the following issues:

The [CA] not only decided questions of substance contrary to law and the applicable decisions of this
Honorable Court, it also sanctioned a flagrant departure from the accepted and usual course of judicial
proceedings.
A.

The [CA] erred in not dismissing the Civil Case on the ground of willful and deliberate [forum shopping] despite
the fact that the civil case and the administrative case both seek the payment of the same fire insurance
claim.

B.

The [CA] erred in not dismissing the civil case for failure on the part of [Lin] to comply with her undertaking in her
verification and certification of non-forum shopping appended to the civil complaint.21

Petitioners' Arguments

In praying for the reversal of the CA Decision, petitioners argue that regardless of nomenclature, it is Lin and no
one else who filed the administrative case, and that she is not a mere complaining witness therein; that it is
settled that only substantial identity of parties is required for res judicata to apply; that the sharing of the same
interest is sufficient to constitute identity of parties; that Lin has not denied that the subject of both the
administrative case and the civil case involved the same fire insurance claim; that there is here identity of
causes of action, too, because the ultimate objective of both the civil case and the administrative case is to
compel Malayan to pay Lin's fire insurance claim; that although the reliefs sought in the civil case and those in
the administrative case are worded differently, Lin was actually asking for the payment of her insurance claim
in both cases; that it is well-entrenched that a party cannot escape the operation of the principle in res
judicata that a cause of action cannot be litigated twice just by varying the form of action or the method of
presenting the case; that Go v. Office of the Ombudsman22is inapplicable because the issue in that case was
whether there was unreasonable delay in withholding the insured's claims, which would warrant the revocation
or suspension of the insurers' licenses, and not whether the insurers should pay the insured's insurance claim;
that Almendras Mining Corporation v. Office of the Insurance Commission 23does not apply to this case either,
because the parties in said case agreed to submit the case for resolution on the sole issue of whether the
revocation or suspension of the insurer's license was justified; and that petitioners will suffer irreparable injury as a
consequence of having to defend themselves in a case which should have been dismissed on the ground of
forum shopping.

Respondents Arguments

Lin counters that as stressed in Go v. Office of the Ombudsman, 24 an administrative case for unfair claim
settlement practice may proceed simultaneously with, or independently of, the civil case for collection of the
insurance proceeds filed by the same claimant since a judgment in one will not amount to res judicata to the
other, and vice versa, due to the variance or differences in the issues, in the quantum of evidence, and in the
procedure to be followed in prosecuting the cases; that in this case the CA cited the teaching in Go v. Office
of the Ombudsman that there was no grave abuse of discretion in the RTC's dismissal of petitioners' motion to
dismiss; that the CA correctly held that the RTC did not commit grave abuse of discretion in denying petitioners'
motion to dismiss because the elements of forum shopping were absent; that there is here no identity of parties
because while she (respondent) is the plaintiff in the civil case, she is only a complaining witness in the
administrative case since it is the IC that is the real party in interest in the administrative case; that the cause of
action in the civil case consists of Malayan's failure or refusal to pay her insurance claim, whereas in the
administrative case, it consists of Malayan's unfair claim settlement practice; that the issue in the civil case is
whether Malayan is liable to pay Lin's insurance claim, while the issue in the administrative case is whether
Malayan's license to operate should be revoked or suspended for engaging in unfair claim settlement practice;
and that the relief sought in the civil case consists in the payment of a sum of money plus damages, while the
relief in the administrative case consists of the revocation or suspension of Malayan's license to operate as an
insurance company. According to Lin, although in the administrative case she prayed that the IC Resolution
ordering Malayan to accord weight to the BFP's findings be declared final, this did not mean that she was
therein seeking payment of her insurance claim, but rather that the IC can now impose the appropriate
administrative sanctions upon Malayan; that if Malayan felt compelled to pay Lin's insurance claim for fear that
its license to operate as an insurance firm might be suspended or revoked, then this is just a logical result of its
failure or refusal to pay the insurance claim; that the judgment in the civil case will not amount to res judicata in
the administrative case, and vice versa, pursuant to the case law ruling in Go v. Office of the
Ombudsman25and in Almendras v. Office of the Insurance Commission, 26 both of which categorically allowed
the insurance clain1ants therein to file both a civil and an administrative case against insurers; that the rule
against forum shopping was designed to serve a noble purpose, viz., to be an instrument of justice, hence, it
can in no way be interpreted to subvert such a noble purpose.

Our Ruling

We deny this Petition. We hold that the case law rulings in the Go and Almendras cases27 control and govern
the case at bench.
First off, it is elementary that "an order denying a motion to dismiss is merely interlocutory and, therefore, not
appealable, x x x to x x x avoid undue inconvenience to the appealing party by having to assail orders as they
are promulgated by the court, when all such orders may be contested in a single appeal." 28

Secondly, petitioners herein utterly failed to prove that the RTC, in issuing the assailed Orders, acted with grave
abuse of discretion amounting to lack or excess of jurisdiction. "It is well-settled that an act of a court or tribunal
may only be considered to have been done in grave abuse of discretion when the same was performed in a
capricious or whimsical exercise of judgment which is equivalent to lack or excess of jurisdiction."29 "[F]or grave
abuse of discretion to exist, the abuse of discretion must be patent and gross so as to amount to an evasion of
a positive duty or a virtual refusal to perform a duty enjoined by law, or to act at all in contemplation of law." 30

In the present case, petitioners basically insist that Lin committed willful and deliberate forum shopping which
warrants the dismissal of her civil case because it is not much different from the administrative case in terms of
the parties involved, the causes of action pleaded, and the reliefs prayed for. Petitioners also posit that another
ground warranting the dismissal of the civil case was Lin's failure to notify the RTC about the pendency of the
administrative case within five days from the filing thereof.

These arguments will not avail. The proscription against forum shopping is found in Section 5, Rule 7 of the Rules
of Court, which provides:

SEC. 5. Certification against forum shopping. --The plaintiff or principal party shall certify under oath in the
complaint or other initiatory pleading asserting a claim for relief, or in a sworn certification annexed thereto and
simultaneously filed therewith; (a) that he has not theretofore commenced any action or filed any claim
involving the same issues in any court, tribunal or quasi-judicial agency and, to the best of his knowledge, no
such other action or claim is pending therein; (b) if there is such other pending action or claim, a complete
statement of the present status thereof; and (c) if he should thereafter learn that the same or similar action or
claim has been filed or is pending, he shall report that fact within five (5) days therefrom to the court wherein his
aforesaid complaint or initiatory pleading has been filed.

Failure to comply with the foregoing requirements shall not be curable by mere amendment of the complaint
or other initiatory pleading but shall be cause for the dismissal of the case without prejudice, unless otherwise
provided, upon motion and after hearing. The submission of a false certification or non-compliance with any of
the undertakings therein shall constitute indirect contempt of court, without prejudice to the corresponding
administrative and criminal actions. If the acts of the party or his counsel clearly constitute willful and deliberate
forum shopping, the same shall be ground for summary dismissal with prejudice and shall constitute direct
contempt, as well as a cause for administrative sanctions. (n)

The above-stated rule covers the very essence of forum shopping itself, and the constitutive elements
thereof viz., the cognate concepts of litis pendentia and res judicata -

x x x [T]he essence of forum shopping is the filing of multiple suits involving the same parties for the same cause
of action, either simultaneously or successively, for the purpose of obtaining a favorable judgment. It exists
where the elements of litis pendentia are present or where a final judgment in one case will amount to res
judicata in another. On the other hand, for litis pendentia to be a ground for the dismissal of an action, the
following requisites must concur: (a) identity of parties, or at least such parties who represent the same interests
in both actions; (b) identity of rights asserted and relief prayed for, the relief being founded on the same facts;
and (c) the identity with respect to the two preceding particulars in the two cases is such that any judgment
that may be rendered in the pending case, regardless of which party is successful, would amount to res
judicata in the other case.31

Res judicata, in turn, has the following requisites: "(1) the former judgment must be final; (2) it must have been
rendered by a court having jurisdiction over the subject matter and over the parties; (3) it must be a judgment
on the merits; and (4) there must be, between the first and second actions, (a) identity of parties, (b) identity of
subject matter, and (c) identity of cause of action." 32

"The settled rule is that criminal and civil cases are altogether different from administrative matters, such that the
disposition in the first two will not inevitably govern the third and vice versa."33In the context of the case at bar,
matters handled by the IC are delineated as either regulatory or adjudicatory, both of which have distinct
characteristics, as postulated in Almendras Mining Corporation v. Office of the Insurance Commission:34

The provisions of the Insurance Code (Presidential Decree [P.D.] No. 1460), as amended, clearly indicate that
the Office of the [IC] is an administrative agency vested with regulatory power as well as
with adjudicatory authority. Among the several regulatory or non-quasi-judicial duties of the Insurance
Commissioner under the Insurance Code is the authority to issue, or refuse issuance of, a Certificate of Authority
to a person or entity desirous of engaging in insurance business in the Philippines, and to revoke or suspend
such Certificate of Authority upon a finding of the existence of statutory grounds for such revocation or
suspension. The grounds for revocation or suspension of an insurer's Certificate of Authority are set out in Section
241 and in Section 247 of the Insurance Code as amended. The general regulatory authority of the Insurance
Commissioner is described in Section 414 of the Insurance Code, as amended, in the following terms:
'Section 414. The Insurance Commissioner shall have the duty to see that all laws relating to insurance,
insurance companies and other insurance matters, mutual benefit associations, and trusts for charitable uses
are faithfully executed and to perform the duties imposed upon him by this Code, and shall, notwithstanding
any existing laws to the contrary, have sole and exclusive authority to regulate the issuance and sale of
variable contracts as defined in section two hundred thirty-two and to provide for the licensing of persons
selling such contracts, and to issue such reasonable rules and regulations governing the same.

The Commissioner may issue such rulings, instructions, circulars, orders[,] and decisions as he may deem
necessary to secure the enforcement of the provisions of this Code, subject to the approval of the Secretary of
Finance [DOF Secretary]. Except as otherwise specified, decisions made by the Commissioner shall be
appealable to the [DOF Secretary].' (Italics supplied)

which Section also specifies the authority to which a decision of the Insurance Commissioner rendered in the
exercise of its regulatory function may be appealed.

The adjudicatory authority of the Insurance Commissioner is generally described in Section 416 of the Insurance
Code, as amended, which reads as follows:

'Sec. 416. The Commissioner shall have the power to adjudicate claims and complaints involving any loss,
damage or liability for which an insurer may be answerable under any kind of policy or contract of
insurance, or for which such insurer may be liable under a contract of suretyship, or for which a reinsurer may
be sued under any contract or reinsurance it may have entered into, or for which a mutual benefit association
may be held liable under the membership certificates it has issued to its members, where the amount of any
such loss, damage or liability, excluding interests, cost and attorney’s fees, being claimed or sued upon any
kind of insurance, bond, reinsurance contract, or membership certificate does not exceed in any single claim
one hundred thousand pesos.

xxxx

The authority to adjudicate granted to the Commissioner under this section shall be concurrent with that of the
civil courts, but the filing of a complaint with the Commissioner shall preclude the civil courts from taking
cognizance of a suit involving the same subject matter.' (Italics supplied)

Continuing, Section 416 (as amended by Batas Pambansa (B.P.) Blg. 874) also specifies the authority to which
appeal may be taken from a final order or decision of the Commissioner given in the exercise of his
adjudicatory or quasi-judicial power:

'Any decision, order or ruling rendered by the Commissioner after a hearing shall have the force and effect of a
judgment. Any party may appeal from a final order, ruling or decision of the Commissioner by filing with the
Commissioner within thirty days from receipt of copy of such order, ruling or decision a notice of appeal to the
Intermediate Appellate Court (now the Court of Appeals) in the manner provided for in the Rules of Court for
appeals from the Regional Trial Court to the Intermediate Appellate Court (now the Court of Appeals)

x x x x'

It may be noted that under Section 9 (3) of B.P. Big. 129, appeals from a final decision of the Insurance
Commissioner rendered in the exercise of his adjudicatory authority now fall within the exclusive appellate
jurisdiction of the Court of Appeals.35

Go v. Office of the Ombudsman36reiterated the above-stated distinctions vis-a-vis the principles enunciating
that a civil case before the trial court involving recovery of payment of the insured's insurance claim plus
damages, can proceed simultaneously with an administrative case before the IC. 37 Expounding on the
foregoing points, this Court said -

**The findings of the trial court will not necessarily foreclose the administrative case before the [IC], or [vice
versa]. True, the parties are the same, and both actions are predicated on the same set of facts, and will
require identical evidence. But the issues to be resolved, the quantum of evidence, the procedure to be
followed[,] and the reliefs to be adjudged by these two bodies are different.

Petitioner's causes of action in Civil Case No. Q-95-23135 are predicated on the insurers' refusal to pay her fire
insurance claims despite notice, proofs of losses and other supporting documents. Thus, petitioner prays in her
complaint that the insurers be ordered to pay the full-insured value of the losses, as embodied in their
respective policies. Petitioner also sought payment of interests and damages in her favor caused by the
alleged delay and refusal of the insurers to pay her claims. The principal issue then that must be resolved by the
trial court is whether or not petitioner is entitled to the payment of her insurance claims and damages. The
matter of whether or not there is unreasonable delay or denial of the claims is merely an incident to be
resolved by the trial court, necessary to ascertain petitioner's right to claim damages, as prescribed by Section
244 of the Insurance Code.
On the other hand, the core, if not the sole bone of contention in Adm. Case No. RD-156, is the issue of whether
or not there was unreasonable delay or denial of the claims of petitioner, and if in the affirmative, whether or
not that would justify the suspension or revocation of the insurers' licenses.

Moreover, in Civil Case No. Q-95-23135, petitioner must establish her case by a preponderance of evidence, or
simply put, such evidence that is of greater weight, or more convincing than that which is offered in opposition
to it. In Adm. Case No. RD-156, the degree of proof required of petitioner to establish her claim is substantial
evidence, which has been defined as that amount of relevant evidence that a reasonable mind might accept
as adequate to justify the conclusion.

In addition, the procedure to be followed by the trial court is governed by the Rules of Court, while the [IC] has
its own set of rules and it is not bound by the rigidities of technical rules of procedure. These two bodies
conduct independent means of ascertaining the ultimate facts of their respective cases that will serve as basis
for their respective decisions.1âwphi1

If, for example, the trial court finds that there was no unreasonable delay or denial of her claims, it does not
automatically mean that there was in fact no such unreasonable delay or denial that would justify the
revocation or suspension of the licenses of the concerned insurance companies. It only means that petitioner
failed to prove by preponderance of evidence that she is entitled to damages. Such finding would not restrain
the [IC], in the exercise of its regulatory power, from making its own finding of unreasonable delay or denial as
long as it is supported by substantial evidence.

While the possibility that these two bodies will come up with conflicting resolutions on the same issue is not far-
fetched, the finding or conclusion of one would not necessarily be binding on the other given the difference in
the issues involved, the quantum of evidence required and the procedure to be followed.

Moreover, public interest and public policy demand the speedy and inexpensive disposition of administrative
cases.

Hence, Adm. Case No. RD-156 may proceed alongside Civil Case No. Q-95-23135.38

As the aforecited cases are analogous in many aspects to the present case, both in respect to their factual
backdrop and in their jurisprudential teachings, the case law ruling in the Almendras and in the Go cases must
apply with implacable force to the present case. Consistency alone demands - because justice cannot be
inconsistent - that the final authoritative mandate in the cited cases must produce an end result not much
different from the present case.

All told, we find that the CA did not err in holding that the petitioners utterly failed to prove that the RTC
exhibited grave abuse of discretion, amounting to lack or excess of jurisdiction, which would justify the issuance
of the extraordinary writ of certiorari.39

WHEREFORE, the Petition is DENIED. The December 21, 2012 Decision and the May 22, 2013 Resolution of the
Court of Appeals in CA-GR. SP No. 118894 are hereby AFFIRMED.

Costs against petitioners.

SO ORDERED.
 G.R. No. 203397, December 09, 2015

AUGUSTO ONG TRINIDAD II, AUGUSTO ONG TRINIDAD III FOR HIMSELF AND REPRESENTING LEVY ONG TRINIDAD
AND ROHMEL ONG TRINIDAD, MARY ANN NEPOMUCENO TRINIDAD FOR HERSELF AND ASSISTING HER MINOR
CHILDREN JOAQUIN GERARD N. TRINIDAD IV, JACOB GABRIEL N. TRINIDAD, AND JERED GYAN N.
TRINIDAD, Petitioners, v. SPOUSES BONIFACIO PALAD AND FELICIDAD KAUSAPIN, Respondent.

DECISION

DEL CASTILLO, J.:

This Petition for Review on Certiorari1 seeks to set aside the March 27, 2012 Decision2 and August 24,2012
Resolution3 of the Court of Appeals (CA) in CA-G.R. CV No. 92118 which granted respondents' appeal and
reversed the July 4, 2008 Decision4 of the Regional Trial Court (RTC) of Lucena City, Branch 53 (RTC) in Civil Case
No. 92-71.

Factual Antecedents

On July 23, 1985, respondents - spouses Bonifacio Palad and Felicidad Kausapin (Felicidad) - bought from
Renato Ramos (Ramos) an eight-hectare parcel of land located within Lucena City, which was later registered
as Transfer Certificate of Title No. (TCT) T-47318.5

Respondents later caused the subject property to be surveyed, and it was discovered that a two-hectare
portion thereof (the subject property) was occupied by Augusto Trinidad (Augusto), who converted the same
into a fishpond.

On May 29, 1992, respondents filed with the RTC of Lucena City a Complaint6 for recovery of possession with
damages against Augusto, which was docketed as Civil Case No. 92-71 and assigned to RTC Branch 53.

In his Answer,7 Augusto claimed that respondents were not the owners of the subject property; that Felicidad
secured her title through dubious means; that the subject property formed part of a five-hectare piece of
property that was given to him by his father, Atty. Joaquin Trinidad (Atty. Trinidad); that this five-hectare
property was acquired by his father from Genaro Kausapin (Genaro), who was his father's client; that said five-
hectare property was declared for taxation purposes by his father; that since 1980, he (Augusto) has been in
possession of the five-hectare property; that he filed criminal cases for falsification against Felicidad; and that
Felicidad was motivated by greed and bad faith in filing the case. Augusto thus prayed that the complaint be
dismissed; that Felicidad's TCT T-47318 be nullified; and that damages and attorney's fees be awarded to him.

During the proceedings, Augusto passed away and was substituted by his widow - herein petitioner Levy Ong
Trinidad - and children - petitioners Augusto Ong Trinidad II, Augusto Ong Trinidad in, Rohmel Ong Trinidad, and
Joaquin Ong Trinidad III.

Ruling of the Regional Trial Court

After trial, or on July 4,2008, the RTC rendered its Decision,8 pronouncing as follows:

This is a complaint for recovery of possession with damages filed by the spouses Bonifacio Palad and Felicidad
Kausapin against Augusto Trinidad as the original defendant. In the course of the trial Augusto C. Trinidad died
and his widow, Levy Ong Trinidad, and their children Rohmel Ong Trinidad, Augusto Ong Trinidad II, Augusto
Ong Trinidad III and Joaquin Trinidad III were substituted as defendants.

xxxx

The land subject of this case is a 2-hectare portion of the eight (8) hectares covered by Transfer Certificate of
Title No. T-47318 now registered in the names of the spouses Bonifacio Palad and Felicidad Kausapin (Exhibit
"A").

In their complaint, the plaintiffs merely emphasized the fact that as the registered owners of the parcel of land
with an area of eight (8) hectares including the 2-hectare area in dispute, they are entitled to the possession of
the disputed area which, despite their demands to the defendants to vacate, the defendants have not
vacated the area consisting of a well-developed fishpond.

xxxx

For their part, the defendants posit as follows: During the lifetime of Genaro Kausapin, the father of complainant
Felicidad Kausapin, Genaro Kausapin availed of the legal services of Atty. Joaquin Trinidad in a land dispute
involving a 12-hectare property. For Atty. Trinidad's services, Genaro Kausapin and Atty. Trinidad executed on
October 4, 1977 a document denominated Kasulatan ng Pagbabahagi whereby they partitioned between
themselves the 12-hectare property composed of Lot 13-A, Lot 13-B and Lot 13-C of the Subdivision Plan, (LRC)
PSD-254630 confirmed on December 19,1976 by the Land Registration Commission. As his share in the partition
Atty. Trinidad was given Lot 13-A (Exhibit "2").

In 1980 Atty. Trinidad gave to his son August© Trinidad the five (5) hectares given to him by Genaro Kausapin as
attorney's fee. Augusto Trinidad developed a 2-hectare portion of the five hectares into a fishpond spending
huge amount of money in the process.

xxxx

By whichever mode the plaintiffs had come to title the 8-hectare property including the 2-hectare portion in
dispute, the Court, sifting through the evidence presented by the parties, finds:

1. By virtue of the Kasulatan ng Pagbabahagi dated October 4, 1977 Genaro Kausapin and Atty.
Joaquin Trinidad partitioned between themselves the 12-hectare property composed of Lot 13-
A, Lot 13-B and Lot 13-C of the Subdivision Plan (LRC) PSD-254630, Atty. Joaquin Trinidad getting
Lot 13-A as his attorney's fee for legal services he rendered to Genaro Kausapin.

2. Atty. Joaquin Trinidad gave to his son Augusto Trinidad his 5- hectare share and Augusto
Trinidad, beginning the year 1980, developed a portion of the area into a fishpond spending a
huge amount of money in the process.

3. On July 23, 1985 the plaintiffs bought an 8-hectare property from Renato Ramos and they had
the land titled in their names on September 11,1985.

4. It was when the plaintiffs had the land they bought from Renato Ramos surveyed that they
found out that the fishpond developed by Augusto Trinidad was embraced in the area of the
[land] Renato Ramos sold to them.

5. Renato Ramos did not know that the area developed by Augusto Trinidad into a fishpond was
part of the land he (Ramos) sold to the plaintiffs. Otherwise, if Renato Ramos knew this, he would
not have allowed Augusto Trinidad to occupy and transform the area into a fishpond and,
much more, for him (Renato Ramos) to have sold the entire property to the plaintiffs for the
measly sum of P8,000.00, given the size of the area and the improvements on the area in
dispute. Likewise, it was only after the plaintiffs had caused the survey of the area they bought
that they came to know that the 2-hectare [property] developed by Augusto Trinidad into a
fishpond was within the area they bought.

From the foregoing, it is clear that when Augusto Trinidad entered the property in dispute in 1980 and began to
transform it into a fishpond, this was with the knowledge and consent of Genaro Kausapin, the father of the
plaintiff. That what Augusto Trinidad occupied was Lot 13-C when it should have been Lot 13-A becomes
immaterial when it is considered that while the lots were then designated as Lot 13-A, Lot 13-B and Lot 13-C,
obviously Genaro Kausapin and Atty. Joaquin Trinidad and Augusto Trinidad were not fully aware of the exact
metes and bounds of each lot. This was also the case when, before the area bought by the plaintiffs was
surveyed, the vendor Renato Ramos and the plaintiffs as vendees did not know that the area developed by
Augusto Trinidad as a fishpond was within the area sold to the plaintiffs.

Given that the possession by the defendants of the area in question antedates by five years the claim of the
plaintiffs to the disputed property, and given that the parties who should have questioned the entry of the
defendants into the property, namely, Genaro Kausapin or Renato Ramos, did not do so, and considering the
valuable improvements made by the defendants in the area in dispute, the defendants have a better right to
possess the disputed area, even as the area had been included in [the] title issued to the plaintiffs.

WHEREFORE, the complaint is ordered dismissed.

Defendants' counterclaim is likewise ordered dismissed.

SO ORDERED.9ChanRoblesVirtualawlibrary
Riding of the Court of Appeals

Respondents filed an appeal before the CA, docketed as CA-G.R. CV No. 92118, arguing that as registered
owners of the subject two-hectare property, they have a better right thereto; that petitioners' claim that the
subject property was part of a 12-hectare piece of property owned by respondent Felicidad's father Genaro,
five hectares of which was allegedly awarded by Genaro to petitioners' father Atty. Trinidad as the latter's
attorney's fees in a case, has no basis, as there is no evidence on record to show that Genaro even owned a
parcel of land; that in truth, Genaro was a mere tenant of the original owners of the 12-hectare property -
Juliana Navarro (Navarro), Pedro Loyola, and Ramos; that eventually, Ramos sold an eight-hectare portion of
the property to respondents, which is now the property covered by TCT T-47318 and claimed by petitioners to
the extent of two hectares; that apart from a document denominated as "Kasulatan ng Pagbabahagi"
supposedly executed by Genaro and Atty. Trinidad on October 4,1977, petitioners have not presented any title
or any other documentary proof, such as receipts showing payment of real property taxes, to prove their
alleged ownership of the subject property; that respondents cannot be bound by the supposed agreement
between Genaro and Atty. Trinidad because it is void since, being a mere tenant of the property, Genaro
cannot award the same to Atty. Trinidad; that Genaro's status as a mere tenant is known to Atty. Trinidad, since
the latter was Genaro's counsel in a claim involving the subject property docketed as CAR Case No. 585(62),
which was eventually terminated by Genaro's execution in 1963 of a "Kasunduan", wherein he acknowledged
before Ramos and Atty. Trinidad that he was a mere tenant of the Ramos family; that Augusto was a
policeman during his lifetime, and he took over the disputed property by force, and respondents -fearing
violence and bloodshed - opted to resort to court action instead; and that under the Civil Code,10 they are
protected as the registered owners, and petitioners should be considered intruders and builders in bad faith.

During the pendency of the appeal, Joaquin Ong Trinidad HI died and was substituted by his widow and
children - herein petitioners Mary Ann Nepomuceno Trinidad, Joaquin Gerard N. Trinidad IV, Jacob Gabriel N.
Trinidad and Jered Gyan N. Trinidad.

On March 27, 2012, the CA rendered the assailed judgment, declaring as follows:
In this appeal, Spouses Palad assert their Transfer Certificate of Title No. T-47318 which undoubtedly covers
appellees' two-hectare fishpond found within the former's eight-hectare lot. They argue that appellees'
predecessors-in-interest, Genaro Kausapin and Atty. Joaquin Trinidad, were never owners of the eight-hectare
lot, including the subject realty, as the property was owned by Renato Ramos who sold it to them.

On the other hand, appellees reiterate in their brief that their father possessed the fishpond long before Spouses
Palad bought the eight-hectare lot. They also posit that a certificate of title by itself alone does not vest
ownership in any person.

We grant the appeal.

Appellants are owners of the eight-hectare lot, including the two-hectare fishpond, by virtue of their Transfer
Certificate of Title No. T-47318. Spouses Esmaquel v. Coprada, explains why:
On the other hand, it is undisputed that the subject property is covered by Transfer Certificate of Title No. T-
93542, registered in the name of the petitioners. As against the respondent's unproven claim that she acquired
a portion of the property from the petitioners by virtue of an oral sale, the Torrens title of petitioners must prevail.
Petitioners' title over the subject property is evidence of their ownership thereof. It is a fundamental principle in
land registration that the certificate of title serves as evidence of an indefeasible and incontrovertible title to the
property in favor of the person whose name appears therein. Moreover, the age-old rule is that the person who
has a Torrens title over a land is entitled to possession thereof.
As a rule, a certificate of title cannot be attacked collaterally. At any rate, in Spouses Sarmiento et al. v. Court
of Appeals et al., a counterclaim assailing a certificate of title is deemed a direct attack. x x x

xxxx

The burden of proof is on appellees to establish by clear and convincing evidence the ground or grounds for
annulling a certificate of title, In Lasquite et al. v. Victory Hills:
The established legal principle in actions for annulment or reconveyance of title is that a party seeking it should
establish not merely by a preponderance of evidence but by clear and convincing evidence that the land
sought to be reconveyed is his. It is rather obvious from the foregoing disquisition that respondent failed to
dispense such burden. Indeed, the records are replete with proof that respondent declared the lots comprising
Lot No. 3050 for taxation purposes only after it had instituted the present case in court. This is not to say of
course that tax receipts are evidence of ownership, since they are not, albeit they are good indicia of
possession in the concept of owner, for no one would ordinarily be paying taxes for a property not in his actual
or at least constructive possession. x x x
Here, appellees offered no evidence, much less, clear and convincing evidence, that Spouses Palad's transfer
certificate of title should be annulled. In fact, it is on record that appellees' documents pertain to Lot 13-A, but
they occupied Lot 13-C. As the trial court determined, appellees' only basis for claiming the fishpond was their
occupation thereof, though mistakenly and the absence of the boundaries of Lots 13-A, 13-B and 13-C. But
these matters do not and cannot annul Spouses Palad's transfer certificate of title. They actually imply
admission of appellees' intrusion into Lot 13-C under Transfer Certificate of Title No. T-47318 without any right to
own or possess it. Truth to tell, the trial court correctly did not set aside the transfer certificate of title. Hence, it
remains valid and binding with all its legal effects.

ACCORDINGLY, the appeal is GRANTED. The Decision dated July 4, 2008 of the Regional Trial Court, Branch 53,
Lucena City, in Civil Case No. 92-71 is REVERSED AND SET ASIDE. Defendants-appellees Levy Ong Trinidad,
Joaquin Trinidad III, Augusto Trinidad II, Augusto Trinidad III and Rohmel Trinidad, their successors-in-interest,
privies and heirs are ordered to vacate the two-hectare fishpond occupied by them in Lot 13-C under Transfer
Certificate of Title No. T-47318. No costs.

SO ORDERED.11 (Emphasis in the original).

Petitioners filed their Motion for Reconsideration,12 which was denied in the assailed August 24, 2012 Resolution.
Hence, the instant Petition.
In a January 27, 2014 Resolution,13 this Court resolved to give due course to the Petition.

Issues

Petitioners claim that the CA erred:

1. In its ruling that the respondents have a better right of possession over the disputed 2-hectare
portion of the 8-hectare property by the mere fact that said disputed portion is covered by a
certificate of title in their names;

2. In its ruling that the petitioners offered no evidence that spouses Palad's transfer certificate of
title should be annulled, and therefore remains valid and binding with all its legal effects, as it
failed to consider evidence showing otherwise;

3. In its ruling that the petitioners should vacate the 2-hectare fishpond, as it failed to consider that
the respondents have no right or cause of action against the petitioners to seek the latter's
ejectment from the property in question.14

Petitioners'Arguments

In their Petition and Reply15 seeking reversal of the assailed CA dispositions and reinstatement of the RTC's July 4,
2008 Decision dismissing Civil Case No. 92-71, petitioners essentially argue that respondents may not claim
ownership of the subject property just because it is embraced within their title, TCT T-47318; that TCT T-47318 is
null and void since it is the result of a June 5, 1985 deed of extrajudicial settlement 16 and September 9, 1985
segregation agreement17 and not a sale between respondents and Ramos; that since respondent Felicidad
was not an heir of one of the original owners of the property - Navarro - as erroneously stated in the deeds of
extrajudicial settlement and segregation agreement, said documents are therefore null and void, and could
not be the bases for the issuance of TCT T-47318; that the subject property was not included in the July 23, 1985
sale between respondents and Ramos because its inclusion in TCT T-47318 was discovered only after a survey
was conducted after the sale; that since respondents are not the owners of the subject property, they have no
cause of action against petitioners; and that in their answer with counterclaim, they sought to annul TCT T-
47318, claiming that respondents secured same through Felicidad's claim that she is an heir of Navarro - thus,
said allegation made through a valid counterclaim constitutes a direct attack upon the validity of TCT T-47318
which is allowed by law.

Respondents' Arguments

In their Comment18 seeking denial of the Petition, respondents argue that the CA correctly held that TCT T-
47318 serves as incontrovertible proof of their indefeasible title to the subject property, as well as their right to
possession thereof; that petitioners' claim that their title is void as it arose out of void agreements constitutes a
prohibited collateral attack on TCT T-47318; that the issue of validity or nullity of TCT T-47318 cannot be raised, as
said issue was not touched upon by the RTC; that TCT T-47318 may not be annulled because petitioners'
supposed claim of ownership specifically refers to Lot 13-A, while they wrongly occupied Lot 13-C, which is the
subject of TCT T-47318; and that with the finding on record that petitioners wrongly occupied Lot 13-C, they
must be ordered to vacate the same and surrender possession to respondents who are the registered owners

Our Ruling

The Court denies the Petition.

The fact is undisputed that the subject two-hectare property lies within Lot 13-C which is registered in the name
of respondents as TCT T-47318.

The evidence on record also suggests that contrary to petitioners' claim, the subject property constitutes a
portion of an eight-hectare parcel of land acquired by respondents from Ramos by purchase in 1985, and was
not the result of a June 5, 1985 deed of extrajudicial settlement and September 9, 1985 segregation agreement
between the original owners and respondent Felicidad. This is a finding of fact arrived at by both the RTC and
the CA - and this is admitted by petitioners in their Petition, which specifically adopted the findings of fact of
the RTC on this score.19

By adopting the findings of fact of the trial court, petitioners are precluded from further arguing that TCT T-47318
is void on the ground that it was obtained through a simulated extrajudicial settlement agreement; and as far
as this Court is concerned, the fact is settled that respondents acquired the property covered by TCT T-47318 by
purchase from Ramos. If indeed Felicidad was an heir of any of the original owners of the property, then there
would have been no need for her to purchase the same. Besides, the evidence further points to the fact that
Felicidad's father Genaro was a mere tenant of the Ramos family and could not have owned the property in
question; and this is precisely why, to own it, she had to purchase the same from Ramos.

The CA is therefore correct in its pronouncement - citing Spouses Esmaquel and Sordevilla v. Coprada20 - that
TCT T-47318 constitutes evidence of respondents' ownership over the subject property, which lies within the area
covered by said title; that TCT T-47318 serves as evidence of indefeasible and incontrovertible title to the
property in favor of respondents, whose names appear therein; and that as registered owners, they are entitled
to possession of the subject property. As against possession claimed by the petitioners, respondents' certificate
of title prevails. "[M]ere possession cannot defeat the title of a holder of a registered [T]orrens title x x x." 21

On the other hand, petitioners' claim - their main defense in the suit - is that their predecessor Augusto was the
owner of the subject property. But such claim rests on very shaky ground. First, they claim that the subject
property was awarded as attorney's fees in 1977 to Augusto by Genaro. However, in seeking the annulment of
respondents' title, they claim at the same time that the property was acquired by Felicidad through inheritance
from Navarro, who happens to be the grandmother of Ramos.22 And yet, at the appeal stage before the CA,
they adopt without question the RTC's finding that the subject property was purchased by Felicidad from
Ramos. Such a conflicting and flip-flopping stance deserves no serious consideration. Genaro may not dispose
of the property which does not belong to him although he may have executed a document awarding the
same to Augusto. No one can give that which he does not own - nemo dat quod non habet. Finally, petitioners
acknowledge that what Genaro supposedly gave Augusto as the latter's attorney's fees was Lot 13-A, while it
turned out that what Augusto occupied was Lot 13-C, which is registered in respondents' favor as TCT T-47318.
Evidently, Augusto had no right over Lot 13-C which he wrongly occupied; consequently, petitioners, as
Augusto's successors-in-interest, have no viable defense to respondents' claim in Civil Case No. 92-71.

Indeed, the only reason why petitioners won their case in the RTC is that in the court's July 4, 2008 Decision it
assumed and concluded that Genaro was the owner of the subject property which he awarded to Augusto
via the supposed October 4, 1977 "Kasulatan ng Pagbabahagi" between Genaro and Augusto - when the
evidence points to the fact that the property was acquired by respondents through purchase from its original
owner, Ramos.

Thus, as the CA correctly held, petitioners are mere intruders with respect to the subject property; they have no
right to own or possess the same. On the other hand, as registered owners of the subject property, respondents
have the right to exercise all attributes of ownership including possession which they cannot do while petitioners
remain there.

WHEREFORE, the Petition is DENIED. The March 27, 2012 Decision and August 24, 2012 Resolution of the Court of
Appeals in CA-G.R. CV No. 92118 are AFFIRMED IN TOTO. Petitioners and their heirs, successors-in-interest and
privies are ordered to VACATE the two-hectare fishpond as well as any other portion of the property covered
by Transfer Certificate of Title No. T-47318.

SO ORDERED.chanroblesvirtuallawlibrary

G.R. No. 187543

WERR CORPORATION INTERNATIONAL, Petitioner

vs.
HIGHLANDS PRIME INC., Respondent

x-----------------------x

G.R. No. 187580

HIGHLANDS PRIME, INC., Petitioner,

vs.
WERR CORPORATION INTERNATIONAL, Respondent.

DECISION

JARDELEZA, J.:

These are consolidated petitions1 seeking to nullify the Court of Appeals' (CA) February 9, 2009 Decision 2 and
April 16, 2009 Resolution3 in CA-G.R. SP No. 105013. The CA modified the August 11, 2008 Decision4 of the
Construction Industry Arbitration Commission (CIAC) in CIAC Case No. 09-2008, viz.:

WHEREFORE, premises considered, the instant petition for review is PARTLY GRANTED. The assailed Decision
dated August 11, 2008 of the Construction Industry Arbitration Commission in CIAC Case No. 09-2008 is
hereby MODIFIED as follows:

1) Respondent Werr Corporation International shall pay petitioner Highlands Prime, Inc. liquidated damages in
the amount of ₱8,969,330.70;
2) Petitioner Highlands Prime, Inc. shall return to respondent Werr Corporation International the balance of its
retention money in the amount of ₱10,955,899.80 with the right to offset the award for liquidated damages in
the aforesaid amount of ₱8,969,330.70; and

3) The cost of arbitration shall be shared equally by the parties.

The rest of the decision stands.

SO ORDERED.5

Facts

Highlands Prime, Inc. (HPI) and Werr Corporation International (Werr) are domestic corporations engaged in
property development and construction, respectively. For the construction of 54 residential units contained in
three clusters of five-storey condominium structures, known as "The Horizon-Westridge Project," in Tagaytay
Midlands Complex, Talisay, Batangas, the project owner, HPI, issued a Notice of Award/Notice to Proceed 6 to
its chosen contractor, Werr, on July 22, 2005. Thereafter, the parties executed a General Building
Agreement7 (Agreement) on November 17, 2005.8

Under the Agreement, Werr had the obligation to complete the project within 210 calendar days from receipt
of the Notice of Award/Notice to Proceed on July 22, 2005, or until February 19, 2006.9 For the completion of the
project, HPI undertook to pay Werr a lump sum contract price of ₱271,797,900.00 inclusive of applicable taxes,
supply and transportation of materials, and labor.10 It was agreed that this contract price shall be subject to the
following payment scheme: (1) HPI shall pay 20% of the contract price upon the execution of the agreement
and the presentation of the necessary bonds and insurance required under the contract, and shall pay the
balance on installments progress billing subject to recoupment of downpayment and retention money; 11 (2) HPI
shall retain 10% of the contract price in the form of retention bond provided by Werr; 12 (3) HPI may deduct or
set off any sum against monies due Werr, including expenses for the rectification of defects in the construction
project;13 and (4) HPI has the right to liquidated damages in the event of delay in the construction of the
project equivalent to 1/10 of 1% of the contract price for every day of delay.14

Upon HPI's payment of the stipulated 20% downpayment in the amount of ₱54,359,580.00, Werr commenced
with the construction of the project. The contract price was paid and the retention money was deducted, both
in the progress billings. The project, however, was not completed on the initial completion date of February 19,
2006, which led HPI to grant several extensions and a final extension until October 15, 2006. On May 8, 2006, W
err sought the assistance of HPI to pay its obligations with its suppliers under a "Direct Payment Scheme" totaling
₱24,503,500.08, which the latter approved only up to the amount of ₱18,762,541.67. The amount is to be
charged against the accumulated retention money. As of the last billing on October 25, 2006, HPI had already
paid the amount of ₱232,940,265.85 corresponding to 93.18% accomplishment rate of the project and retained
the amount of ₱25,738,258.01 as retention bond.15

The project was not completed on the last extension given. Thus, HPI terminated its contract with Werr on
November 28, 2006, which the latter accepted on November 30, 2006.16 No progress billing was adduced for
the period October 28, 2006 until the termination of the contract.17

On October 3, 2007, Werr demanded from HPI payment of the balance of the contract price as reflected in its
financial status report which showed a conditional net payable amount of ₱36,078,652.90.18 On January 24,
2007, HPI informed Werr that based on their records, the amount due to the latter as of December 31, 2006 is
₱14,834,926.71.19 This amount was confirmed by Werr.20 Not having received any payment, Werr filed a
Complaint21 for arbitration against HPI before the CIAC to recover the ₱14,834,926.71 representing the balance
of its retention money.

In its Answer,22 HPI countered that it does not owe Werr because the balance of the retention money answered
for the payments made to suppliers and for the additional costs and expenses incurred after termination of the
contract. From the retention money of ₱25,738,258.0l, it deducted (1) ₱18,762,541.67 as payment to the
suppliers under the Direct Payment Scheme, and (2) ₱7,548,729.15 as additional costs and expenses further
broken down as follows: (a) ₱3,336,526.91 representing the unrecouped portion of the 20% downpayment; (b)
₱542,500.00 representing the remainder of Werr's unpaid advances; (c) ₱629,702.24 for the waterproofing works
done by Dubbel Philippines; and (d) ₱3,040,000.00 for the rectification works performed by A.A. Manahan
Construction after the termination of the contract. Deducting the foregoing from the accumulated retention
money resulted in a deficiency of ₱573,012.81 in its favor.23 By way of counterclaim, HPI prayed for the payment
of liquidated damages in the amount of ₱11,959,107.60 for the 44-day delay in the completion of the project
reckoned from October 15, 2006 up to the termination of the Agreement on November 28, 2006; for actual
damages in the sum of ₱573,012.81; and for attorney's fees of ₱500,000.00 and litigation expenses of
₱100,000.00.24

CIAC's Ruling
After due proceedings, the CIAC rendered its Decision25 on August 11, 2008 where it granted Werr's claim for
the balance of the retention money in the amount of ₱10,955,899.79 and arbitration costs. It also granted HPI's
claim for liquidated damages in the amount of ₱2,535,059.0l equivalent to 9.327 days of delay,26 but denied its
counterclaim for damages, attorney's fees, and litigation expenses.

From the claims of HPI, the CIAC only deducted the amounts of (1) ₱10,903,331.30 representing the direct
payments made from September 26, 2006 until December 31, 2006,27 (2) ₱3,336,526.91 representing the
unrecouped retention money, and (3) P542,500.00 representing the unpaid cash advances from the
₱25,738,258.0l retention money. It disallowed the direct payments charged by HPI in 2007 and 2008 for having
been supplied after the termination of the project, for not corresponding to the list of suppliers submitted, and
for HPI failing to show that Werr requested it to continue payments even after termination of the Agreement. It
also disallowed the amount of ₱629,702.24 for the waterproofing works done by Dubbel Philippines for being
works done after the termination of the contract. The ₱3,040,000.00 for the rectification works performed after
the termination of the contract was also disallowed because while HPI presented its contract with A.A.
Manahan Construction for rectification and completion works, it failed to present proof of how much was
specifically paid for rectification works only, as well as the proof of its payment. Moreover, prior notice of such
defective works was not shown to have been given to Werr as required under the Agreement, and even noted
that HPI's project manager approved of the quality of the works up to almost 94%.28

The CIAC further ruled that Werr incurred only 9.327 days of delay. Citing Article 1376 29 of the Civil Code and
considering the failure of the Agreement to state otherwise, it applied the industry practice in the construction
industry that liquidated damages do not accrue after achieving substantial compliance. It held that delay
should be counted from October 27, 2006 until the projected date of substantial completion. Since the last
admitted accomplishment is 93.18% on October 27, 2006, the period it will take Werr to perform the remaining
1.82% is the period of delay. Based on the past billings, since it took Werr 5 .128 days 30 to achieve 1%
accomplishment, it will therefore take it 9.327 days to achieve substantial completion. Thus, the CIAC
concluded that the period of delay until substantial completion of the project is 9.327 days. The liquidated
damages under the Agreement being 1/10 of 1% of the ₱271,797,900.00 or ₱271,797.90 per day of delay, Werr is
liable for liquidated damages in the amount of ₱2,535,048.95.31

Since the liquidated damages did not exhaust the balance of the retention money, the CIAC likewise denied
the claim for actual damages.32

Thereafter, HPI filed its petition for review 33 under Rule 43 with the CA on August 28, 2008.1âwphi1

CA's Ruling

The CA rendered the assailed decision, affirming the CIAC's findings on the allowable charges against the
retention money, and on the attorney's fees and litigation expenses. It, however, disagreed with the CIAC
decision as to the amount of liquidated damages and arbitration costs. According to the CA, delay should be
computed from October 27, 2006 until termination of the contract on November 28, 2006, or 33 days, since the
contract prevails over the industry practice. Thus, the total liquidated damages is ₱8,969,330.70. As to the
arbitration costs, it ruled that it is more equitable that it be borne equally by the parties since the claims of both
were considered and partially granted. 34

Hence, these consolidated petitions.

Arguments

Werr argues that the CA erred in modifying the CIAC decision on the amount of liquidated damages and
arbitration costs. It insists that the appellate court disregarded Articles 1234, 1235, and 1376 of the Civil Code
and the industry practice (as evidenced by Clause 52.1 of the Construction Industry Authority of the Philippines
[CIAP] Document No. 101 or the "General Conditions of Contract for Government Construction" and Article
20.11 of CIAP Document No. 102 or the "Uniform General Conditions of Contract for Private Construction") when
it did not apply the construction industry practice in computing liquidated damages only until substantial
completion of the project, and not until the termination of the contract.35 Werr further emphasizes that the
CIAC, being an administrative agency, has expertise on the subject matter, and thus, its findings prevail over
the appellate court's findings.36

On the other hand, HPI argues that Werr was unjustly enriched when the CA disallowed HPI' s recovery of the
amounts it paid to suppliers. HPI claims that: (1) payments made to suppliers identified in the Direct Payment
Scheme even after the termination of the contract should be charged against the balance of the retention
money, the same having been made pursuant to Werr's express instructions; (2) the payments to Dubbel
Philippines and the cost of the contract with A.A. Manahan Construction are chargeable to the retention
money, pursuant to the terms of the Agreement; and (3) the expenses incurred in excess of the retention
money should be paid by Werr as actual damages. These payments, while made after the termination of the
contract, were for prior incurred obligations.37 HPI also argues that it is not liable for arbitration costs, and
reiterates its claims for actual damages, and payment of attorney's fees and litigation expenses. 38
Issues

I. Whether the payments made to suppliers and contractors after the termination of the contract are
chargeable against the retention money.

II. Whether the industry practice of computing liquidated damages only up to substantial completion of the
project applies in the computation of liquidated damages. Consequently, whether delay should be computed
until termination of the contract or until substantial completion of the project.

III. Whether the cost of arbitration should be shouldered by both parties.

IV. Whether HPI is entitled to attorney's fees and litigation expenses.

Our Ruling

We deny the consolidated petitions.

I. Charges against the Retention Money

Anent the first issue, we emphasize that what is before us is a petition for review under Rule 45 where only
questions of law may be raised.39 Factual issues, which involve a review of the probative value of the evidence
presented, such as the credibility of witnesses, or the existence or relevance of surrounding circumstances and
their relation to each other, may not be raised unless it is shown that the case falls under recognized
exceptions.40

In cases of arbitral awards rendered by the CIAC, adherence to this rule is all the more compelling. 41 Executive
Order No. 1008,42 which vests upon the CIAC original and exclusive jurisdiction over disputes arising from, or
connected with, contracts entered into by parties involved in construction in the Philippines, clearly provides
that the arbitral award shall be binding upon the parties and that it shall be final and inappealable except on
questions of law which shall be appealable to the Supreme Court.43 This rule on the finality of an arbitral award
is anchored on the premise that an impartial body, freely chosen by the parties and to which they have
confidence, has settled the dispute after due proceedings:

Voluntary arbitration involves the reference of a dispute to an impartial body, the members of which are
chosen by the parties themselves, which parties freely consent in advance to abide by the arbitral award
issued after proceedings where both parties had the opportunity to be heard. The basic objective is to provide
a speedy and inexpensive method of settling disputes by allowing the parties to avoid the formalities, delay,
expense and aggravation which commonly accompany ordinary litigation, especially litigation which goes
through the entire hierarchy of courts. Executive Order No. 1008 created an arbitration facility to which the
construction industry in the Philippines can have recourse. The Executive Order was enacted to encourage the
early and expeditious settlement of disputes in the construction industry, a public policy the implementation of
which is necessary and important for the realization of national development goals.

Aware of the objective of voluntary arbitration in the labor field, in the construction industry, and in any other
area for that matter, the Court will not assist one or the other or even both parties in any effort to subvert or
defeat that objective for their private purposes. The Court will not review the factual findings of an arbitral
tribunal upon the artful allegation that such body had "misapprehended the facts" and will not pass upon issues
which are, at bottom, issues of fact, no matter how cleverly disguised they might be as "legal questions." The
parties here had recourse to arbitration and chose the arbitrators themselves; they must have had confidence
in such arbitrators. The Court will not, therefore, permit the parties to relitigate before it the issues of facts
previously presented and argued before the Arbitral Tribunal, save only where a very clear showing is made
that, in reaching its factual conclusions, the Arbitral Tribunal committed an error so egregious and hurtful to one
party as to constitute a grave abuse of discretion resulting in lack or loss of jurisdiction. Prototypical examples
would be factual conclusions of the Tribunal which resulted in deprivation of one or the other party of a fair
opportunity to present its position before the Arbitral Tribunal, and an award obtained through fraud or the
corruption of arbitrators. Any other, more relaxed, rule would result in setting at naught the basic objective of a
voluntary arbitration and would reduce arbitration to a largely inutile institution. 44

In this case, the issues of whether HPI was able to prove that payments made to suppliers and to third party
contractors are prior incurred obligations that should be charged against the retention money, and whether
HPI incurred expenses above the retention money that warrants actual damages, are issues of facts beyond
the review of the Court under Rule 45.

Moreover, even if we consider such factual issues, we are bound by the findings of fact of the CIAC especially
when affirmed by the CA.45 Factual findings by a quasi-judicial body like the CIAC, which has acquired
expertise because its jurisdiction is confined to specific matters, are accorded not only with respect but even
finality if they are supported by substantial evidence.46 We recognize that certain cases require the expertise,
specialized skills, and knowledge of the proper administrative bodies because technical matters or intricate
questions of facts are involved.47

We nevertheless note that factual findings of the construction arbitrators are not beyond review, such as when
the petitioner affirmatively proves the following: (1) the award was procured by corruption, fraud, or other
undue means; (2) there was evident partiality or corruption of the arbitrators or any of them; (3) the arbitrators
were guilty of misconduct in refusing to hear evidence pertinent and material to the controversy; (4) one or
more of the arbitrators were disqualified to act as such under Section 1048 of Republic Act No. 87649 and willfully
refrained from disclosing such disqualifications or of any other misbehavior by which the rights of any party
have been materially prejudiced; (5) the arbitrators exceeded their powers, or so imperfectly executed them,
that a mutual, final, and definite award upon the subject matter submitted to them was not made; (6) when
there is a very clear showing of grave abuse of discretion resulting in lack or loss of jurisdiction as when a party
was deprived of a fair opportunity to present its position before the arbitral tribunal or when an award is
obtained through fraud or the corruption of arbitrators; (7) when the findings of the CA are contrary to those of
the CIAC; or (8) when a party is deprived of administrative due process.50 However, we do not find that HPI was
able to show any of the exceptions that should warrant a review and reversal of the findings made by the CIAC
and the CA.

Thus, we affirm the CIAC and CA's findings that direct payments charged by HPI in 2007 and 2008 were for
materials supplied after the termination of the project and did not correspond to the list of suppliers submitted;
that the waterproofing works done by Dubbel Philippines in the amount of ₱629,702.24 were for works done
after the termination of the contract that were for the account of the new contractor; and that the
rectification works performed after the termination of the contract worth ₱3,040,000.00 were not proven to
have been paid, that it was for rectification works only, and that prior notice of such defective works as
required under the Agreement was not proven. Accordingly, we affirm that the balance of the retention
money is ₱10,955,899.79.

II. Delay in computing Liquidated Damages

On the other hand, the question on how liquidated damages should be computed based on the Agreement
and prevailing jurisprudence is a question of law that we may review.

The pertinent provision on liquidated damages is found in clause 41.5 of the Agreement, viz.:

41.5. Considering the importance of the timely completion of the WORKS on the OWNER'S commitments to its
clients, the CONTRACTOR agrees to pay the OWNER liquidated damages in the amount of 1/10th of 1% of the
amount of the Contract price for every day of delay (inclusive of Sundays and holidays).51

Werr, as contractor, urges us to apply the construction industry practice that liquidated damages do not
accrue after the date of substantial completion of the project, as evidenced in CIAP Document No. 102, which
provides that:

20.11 SUBSTANTIAL COMPLETION AND ITS EFFECT:

A. [a] There is substantial completion when the Contractor completes 95% of the Work, provided that the
remaining work and the performance of the work necessary to complete the Work shall not prevent the normal
use of the completed portion.

xxx

D. [a] No liquidated damages for delay beyond the Completion Time shall accrue after the date of substantial
completion of the Work.

We reject this claim of Werr and find that while this industry practice may supplement the Agreement, Werr
cannot benefit from it.

At the outset, we do not agree with the CA that industry practice be rejected because liquidated damages is
provided in the Agreement, autonomy of contracts prevails, and industry practice is completely set aside.
Contracting parties are free to stipulate as to the terms and conditions of the contract for as long as they are
not contrary to law, morals, good customs, public order or public policy.52 Corollary to this rule is that laws are
deemed written in every contract.53

Deemed incorporated into every contract are the general provisions on obligations and interpretation of
contracts found in the Civil Code. The Civil Code provides:

Art. 1234. If the obligation has been substantially performed in good faith, the obligor may recover as though
there had been a strict and complete fulfillment, less damages suffered by the obligee.
Art. 1376. The usage or custom of the place shall be borne in mind in the interpretation of the ambiguities of a
contract, and shall fill the omission of stipulations which are ordinarily established.

In previous cases, we applied these provisions in construction agreements to determine whether the project
owner is entitled to liquidated damages. We held that substantial completion of the project equates to
achievement of 95% project completion which excuses the contractor from the payment of liquidated
damages.

In Diesel Construction Co., Inc. v. UPSI Property Holdings, Inc.,54 we applied Article 1234 of the Civil Code. In
determining what is considered substantial compliance, we used the CIAP Document No. 102 as evidence of
the construction industry practice that substantial compliance is equivalent to 95% accomplishment rate. In
that case, the construction agreement requires the contractor "to pay the owner liquidated damages in the
amount equivalent to one-fifth (1/5) of one (1) percent of the total Project cost for each calendar day of
delay."55 We declared that the contractor cannot be liable for liquidated damages because it already
accomplished 97.56% of the project.56 We reiterated this in Transcept Construction and Management
Professionals, Inc. v. Aguilar57 where we ruled that since the contractor accomplished 98.16% of the project, the
project owner is not entitled to the 10% liquidated damages.58

Considering the foregoing, it: was error for the CA to immediately dismiss the application of industry practice on
the sole ground that there is an existing agreement as to liquidated damages. As expressly stated under Articles
1234 and 1376, and in jurisprudence, the construction industry's prevailing practice may supplement any
ambiguities or omissions in the stipulations of the contract.

Notably, CIAP Document N0. 102, by itself, was intended to have suppletory effect on private construction
contracts.1âwphi1 This is evident in CIAP Board Resolution No. 1-98,59 which states:

Sec. 9. Policy-Making Body, - The [CIAP], through the CIAP Executive Office and its various Implementing
Agencies, shall continuously monitor and study the operations of the construction industry, both domestic and
overseas operations, to identify its needs, problems and opportunities, in order to provide for the pertinent
policies and/or executive action and/or legislative agenda necessary to implement plans, programs and
measures required to support the sustainable development of the construction industry, such as but not limited
to the following:

xxx

9.05 The promulgation and adoption of Standard Conditions of Contract for the public construction and
private construction sector which shall have suppletory effect in cases where there is a conflict in the internal
documents of a construction contract or in the absence of the general conditions of a construction
agreement[.]

As the standard conditions for contract for private construction adopted and promulgated by the CIAP, CIAP
Document No. 102 applies suppletorily to private construction contracts to remedy the conflict in the internal
documents of, or to fill in the omissions in, the construction agreement.

In this case, clause 41.5 of the Agreement is undoubtedly a valid stipulation. However, while clause 41.5 requires
payment of liquidated damages if there is delay, it is silent as to the period until when liquidated damages shall
run. The Agreement does not state that liquidated damages is due until termination of the project; neither does
it completely reject that it is only due until substantial completion of the project. This omission in the Agreement
may be supplemented by the provisions of the Civil Code, industry practice, and the CIAP Document No. 102.
Hence, the industry practice that substantial compliance excuses the contractor from payment of liquidated
damages applies to the Agreement.

Nonetheless, we find that Werr cannot benefit from the effects of substantial compliance.

Paragraph A.[a.], Article 20.11 of CIAP Document No. 102 requires that the contractor completes 95% of the
work for there to be substantial completion of the project. Also, in those cases where we applied the industry
practice to supplement the contracts and excused payment from liquidated damages under Article 1234, the
contractors there actually achieved 95% completion of the project. Neither the CIAC nor the courts assumed
as to when substantial compliance will be achieved by the contractor, but the contractors offered substantial
evidence that they actually achieved at least 95% completion of the project. Thus, the effects of substantial
completion only operate to relieve the contractor from the burden of paying liquidated damages when it has,
in reality, achieved substantial completion of the project.

While the case before us presents a different scenario, as the contractor here does not demand total release
from payment of liquidated damages, we find that in order to benefit from the effects of the substantial
completion of a project, the condition precedent must first be met-the contractor must successfully prove by
substantial evidence that it actually achieved 95% completion rate of the project. As such, it is incumbent upon
Werr to show that it had achieved an accomplishment rate of 95% before or at the time of the termination of
the contract.

Here, there is no dispute that Werr failed to prove that it completed 95% of the project before or at the time of
the termination of the contract. As found by CIAC, it failed to present evidence as to what accomplishment it
achieved from the time of the last billing until the termination of the contract.60 What was admitted as
accomplishment at the last billing is 93.18%. For this reason, even if we adopt the rule that no liquidated
damages shall run after the date of substantial completion of the project, Werr cannot claim benefit for it failed
to meet the condition precedent, i.e., the contractor has successfully proven that it actually achieved 95%
completion rate.

More importantly, Werr failed to show that it is the construction industry's practice to project the date of
substantial completion of a project, and to compute the period of delay based on the rate in past progress
billings just as what the CIAC has done. Consequently, the CIAC erred when it assumed that Werr continued to
perform works, and if it did, that it performed them at the rate of accomplishment of the previous works in the
absence of evidence.

That the effects of substantial completion will only apply when actual substantial completion is reached is
apparent when we consider the reason behind the rules on substantial completion of the project found in
Section 20.1l[E] of the CIAP Document No. 102, viz.:

E. The purpose of this Article [ART. 20, WORK; 20.11: SUBSTANTIAL COMPLETION AND ITS EFFECT] is to ensure that
the Contractor is paid for Work completed and for the Owner to retain such portion of the Contract Price
which, together with the Performance Bond, is sufficient to complete the Work without additional cost to the
Owner.

The rules are intended to balance the allocation and burden of costs between the contractor and the project
owner so that the contractor still achieves a return for its completed work, and the project owner will not incur
further costs. To compute the period of delay when substantial compliance is not yet achieved but merely on
the assumption that it will eventually be achieved would result in an iniquitous situation where the project
owner will bear the risks and additional costs for the period excused from liquidated damages.

From the foregoing, we affirm the CA' s conclusion that the period of delay in computing liquidated damages
should be reckoned from October 27, 2006 until the termination of the contract or for 33 days, and not only until
the projected substantial completion date. Consistent with the CA's ruling that liquidated damages did not
exceed the retention money, we therefore affirm that HPI did not suffer actual damages in the amount of
₱573,012.81.

III. Arbitration Costs, Attorney's Fees, and Litigation Costs

Courts are allowed to adjudge which party may bear the cost of the suit depending on the circumstances of
the case.61 Considering the CA's findings that both parties were able to recover their claims, and neither was
guilty of bad faith, we do not find that the CA erred in dividing the arbitration costs between the parties.

We also do not find the need to disturb the findings as to attorney's fees and expenses of litigation, both the
CIAC and the CA having found that there is no basis for the award of attorney's fees and litigation expenses. 62
WHEREFORE, the petitions are DENIED. The Court of Appeals' February 9, 2009 Decision and April 16, 2009
Resolution are AFFIRMED. The net award in favor of Werr Corporation International shall earn interest at the rate
of 6% per annum from date of demand on October 3, 2007 until finality of this Decision. Thereafter, the total
amount shall earn interest from finality of this Decision until fully paid.

SO ORDERED.
LAND BANK OF THE PHILIPPINES, G.R. No. 190755
Petitioner,
Present:

CORONA, C.J., Chairperson,

- versus - VELASCO, JR.,
LEONARDO-DE CASTRO,
PERALTA,* and
PEREZ, JJ.
ALFREDO ONG,
Respondent. Promulgated:
November 24, 2010
x----------------------------------------------------------------------------------------- x

DECISION

VELASCO, JR., J.:

This is an appeal from the October 20, 2009 Decision of the Court of Appeals (CA) in CA-G.R. CR-CV No. 84445
entitled Alfredo Ong v. Land Bank of the Philippines, which affirmed the Decision of the Regional Trial Court
(RTC), Branch 17 in Tabaco City.

The Facts

On March 18, 1996, spouses Johnson and Evangeline Sy secured a loan from Land Bank Legazpi City in
the amount of PhP 16 million. The loan was secured by three (3) residential lots, five (5) cargo trucks, and a
warehouse. Under the loan agreement, PhP 6 million of the loan would be short-term and would mature on
February 28, 1997, while the balance of PhP 10 million would be payable in seven (7) years. The Notice of
Loan Approval dated February 22, 1996 contained an acceleration clause wherein any default in payment
of amortizations or other charges would accelerate the maturity of the loan.[1]

Subsequently, however, the Spouses Sy found they could no longer pay their loan. On December 9,
1996, they sold three (3) of their mortgaged parcels of land for PhP 150,000 to Angelina Gloria Ong,
Evangelines mother, under a Deed of Sale with Assumption of Mortgage. The relevant portion of the
document[2] is quoted as follows:

WHEREAS, we are no longer in a position to settle our obligation with the bank;
NOW THEREFORE, for and in consideration of the sum of ONE HUNDRED FIFTY THOUSAND
PESOS (P150,000.00) Philippine Currency, we hereby these presents SELL, CEDE, TRANSFER and
CONVEY, by way of sale unto ANGELINA GLORIA ONG, also of legal age, Filipino citizen, married
to Alfredo Ong, and also a resident of Tabaco, Albay, Philippines, their heirs and assigns, the
above-mentioned debt with the said LAND BANK OF THE PHILIPPINES, and by reason hereof they
can make the necessary representation with the bank for the proper restructuring of the loan with
the said bank in their favor;

That as soon as our obligation has been duly settled, the bank is authorized to release the
mortgage in favor of the vendees and for this purpose VENDEES can register this instrument with
the Register of Deeds for the issuance of the titles already in their names.

IN WITNESS WHEREOF, we have hereunto affixed our signatures this 9th day of December
1996 at Tabaco, Albay, Philippines.

(signed) (signed)
EVANGELINE O. SY JOHNSON B. SY
Vendor Vendor

Evangelines father, petitioner Alfredo Ong, later went to Land Bank to inform it about the sale and
assumption of mortgage.[3] Atty. Edna Hingco, the Legazpi City Land Bank Branch Head, told Alfredo and his
counsel Atty. Ireneo de Lumen that there was nothing wrong with the agreement with the Spouses Sy but
provided them with requirements for the assumption of mortgage. They were also told that Alfredo should
pay part of the principal which was computed at PhP 750,000 and to update due or accrued interests on the
promissory notes so that Atty. Hingco could easily approve the assumption of mortgage. Two weeks later,
Alfredo issued a check for PhP 750,000 and personally gave it to Atty. Hingco. A receipt was issued for his
payment. He also submitted the other documents required by Land Bank, such as financial statements for
1994 and 1995. Atty. Hingco then informed Alfredo that the certificate of title of the Spouses Sy would be
transferred in his name but this never materialized. No notice of transfer was sent to him.[4]
 Alfredo later found out that his application for assumption of mortgage was not approved by Land
Bank. The bank learned from its credit investigation report that the Ongs had a real estate mortgage in the
amount of PhP 18,300,000 with another bank that was past due. Alfredo claimed that this was fully paid later
on. Nonetheless, Land Bank foreclosed the mortgage of the Spouses Sy after several months. Alfredo only
learned of the foreclosure when he saw the subject mortgage properties included in a Notice of Foreclosure
of Mortgage and Auction Sale at the RTC in Tabaco, Albay. Alfredos other counsel, Atty. Madrilejos,
subsequently talked to Land Banks lawyer and was told that the PhP 750,000 he paid would be returned to
him.[5]

On December 12, 1997, Alfredo initiated an action for recovery of sum of money with damages
against Land Bank in Civil Case No. T-1941, as Alfredos payment was not returned by Land Bank. Alfredo
maintained that Land Banks foreclosure without informing him of the denial of his assumption of the
mortgage was done in bad faith. He argued that he was lured into believing that his payment of PhP 750,000
would cause Land Bank to approve his assumption of the loan of the Spouses Sy and the transfer of the
mortgaged properties in his and his wifes name.[6] He also claimed incurring expenses for attorneys fees of
PhP 150,000, filing fee of PhP 15,000, and PhP 250,000 in moral damages.[7]

Testifying for Land Bank, Atty. Hingco claimed during trial that as branch manager she had no authority to
approve loans and could not assure anybody that their assumption of mortgage would be approved. She
testified that the breakdown of Alfredos payment was as follows:

PhP 101,409.59 applied to principal

216,246.56 accrued interests receivable
396,571.77 interests
18,766.10 penalties
16,805.98 accounts receivable
----------------
Total: 750,000.00

According to Atty. Hingco, the bank processes an assumption of mortgage as a new loan, since the new
borrower is considered a new client. They used character, capacity, capital, collateral, and conditions in
determining who can qualify to assume a loan. Alfredos proposal to assume the loan, she explained, was
referred to a separate office, the Lending Center. [8]
During cross-examination, Atty. Hingco testified that several months after Alfredo made the tender of payment,
she received word that the Lending Center rejected Alfredos loan application. She stated that it was the
Lending Center and not her that should have informed Alfredo about the denial of his and his wifes assumption
of mortgage. She added that although she told Alfredo that the agreement between the spouses Sy and
Alfredo was valid between them and that the bank would accept payments from him, Alfredo did not pay any
further amount so the foreclosure of the loan collaterals ensued. She admitted that Alfredo demanded the
return of the PhP 750,000 but said that there was no written demand before the case against the bank was filed
in court. She said that Alfredo had made the payment of PhP 750,000 even before he applied for the
assumption of mortgage and that the bank received the said amount because the subject account was past
due and demandable; and the Deed of Assumption of Mortgage was not used as the basis for the payment. [9]

The Ruling of the Trial Court

The RTC held that the contract approving the assumption of mortgage was not perfected as a result of the
credit investigation conducted on Alfredo. It noted that Alfredo was not even informed of the disapproval of
the assumption of mortgage but was just told that the accounts of the spouses Sy had matured and gone
unpaid. It ruled that under the principle of equity and justice, the bank should return the amount Alfredo had
paid with interest at 12% per annum computed from the filing of the complaint. The RTC further held that
Alfredo was entitled to attorneys fees and litigation expenses for being compelled to litigate.[10]

The dispositive portion of the RTC Decision reads:

WHEREFORE, premises considered, a decision is rendered, ordering defendant bank to

pay plaintiff, Alfredo Ong the amount of P750,000.00 with interest at 12% per annum computed
from Dec. 12, 1997 and attorneys fees and litigation expenses of P50,000.00.

Costs against defendant bank.

SO ORDERED.[11]

The Ruling of the Appellate Court

On appeal, Land Bank faulted the trial court for (1) holding that the payment of PhP 750,000 made by Ong
was one of the requirements for the approval of his proposal to assume the mortgage of the Sy spouses; (2)
erroneously ordering Land Bank to return the amount of PhP 750,000 to Ong on the ground of its failure to
effect novation; and (3) erroneously affirming the award of PhP 50,000 to Ong as attorneys fees and litigation
expenses.

The CA affirmed the RTC Decision.[12] It held that Alfredos recourse is not against the Sy spouses. According to
the appellate court, the payment of PhP 750,000 was for the approval of his assumption of mortgage and not
for payment of arrears incurred by the Sy spouses. As such, it ruled that it would be incorrect to consider Alfredo
a third person with no interest in the fulfillment of the obligation under Article 1236 of the Civil Code. Although
Land Bank was not bound by the Deed between Alfredo and the Spouses Sy, the appellate court found that
Alfredo and Land Banks active preparations for Alfredos assumption of mortgage essentially novated the
agreement.

On January 5, 2010, the CA denied Land Banks motion for reconsideration for lack of merit. Hence, Land Bank
appealed to us.

The Issues

Whether the Court of Appeals erred in holding that Art. 1236 of the Civil Code does not apply
and in finding that there is no novation.

II

Whether the Court of Appeals misconstrued the evidence and the law when it affirmed the trial
court decisions ordering Land Bank to pay Ong the amount of Php750,000.00 with interest at 12%
annum.

III

Whether the Court of Appeals committed reversible error when it affirmed the award of
Php50,000.00 to Ong as attorneys fees and expenses of litigation.

The Ruling of this Court

We affirm with modification the appealed decision.

Recourse is against Land Bank

Land Bank contends that Art. 1236 of the Civil Code backs their claim that Alfredo should have sought recourse
against the Spouses Sy instead of Land Bank. Art. 1236 provides:

The creditor is not bound to accept payment or performance by a third person who has no
interest in the fulfillment of the obligation, unless there is a stipulation to the contrary.

Whoever pays for another may demand from the debtor what he has paid, except that if he
paid without the knowledge or against the will of the debtor, he can recover only insofar as the
payment has been beneficial to the debtor.

We agree with Land Bank on this point as to the first part of paragraph 1 of Art. 1236. Land Bank was
not bound to accept Alfredos payment, since as far as the former was concerned, he did not have an interest
in the payment of the loan of the Spouses Sy. However, in the context of the second part of said paragraph,
Alfredo was not making payment to fulfill the obligation of the Spouses Sy. Alfredo made a conditional
payment so that the properties subject of the Deed of Sale with Assumption of Mortgage would be titled in his
name. It is clear from the records that Land Bank required Alfredo to make payment before his assumption of
mortgage would be approved. He was informed that the certificate of title would be transferred
accordingly. He, thus, made payment not as a debtor but as a prospective mortgagor. But the trial court
stated:

[T]he contract was not perfected or consummated because of the adverse finding in the
credit investigation which led to the disapproval of the proposed assumption. There was no
evidence presented that plaintiff was informed of the disapproval. What he received was a
letter dated May 22, 1997 informing him that the account of spouses Sy had matured but there
[were] no payments. This was sent even before the conduct of the credit investigation on June
20, 1997 which led to the disapproval of the proposed assumption of the loans of spouses Sy. [13]

Alfredo, as a third person, did not, therefore, have an interest in the fulfillment of the obligation of the Spouses
Sy, since his interest hinged on Land Banks approval of his application, which was denied. The circumstances of
the instant case show that the second paragraph of Art. 1236 does not apply. As Alfredo made the payment
for his own interest and not on behalf of the Spouses Sy, recourse is not against the latter. And as Alfredo was
not paying for another, he cannot demand from the debtors, the Spouses Sy, what he has paid.

Novation of the loan agreement

Land Bank also faults the CA for finding that novation applies to the instant case. It reasons that a
substitution of debtors was made without its consent; thus, it was not bound to recognize the substitution under
the rules on novation.

On the matter of novation, Spouses Benjamin and Agrifina Lim v. M.B. Finance Corporation [14] provides
the following discussion:

Novation, in its broad concept, may either be extinctive or modificatory. It is extinctive

when an old obligation is terminated by the creation of a new obligation that takes the place of
the former; it is merely modificatory when the old obligation subsists to the extent it remains
compatible with the amendatory agreement. An extinctive novation results either by changing
the object or principal conditions (objective or real), or by substituting the person of the debtor
or subrogating a third person in the rights of the creditor (subjective or personal). Under this
mode, novation would have dual functions ─ one to extinguish an existing obligation, the other
to substitute a new one in its place ─ requiring a conflux of four essential requisites: (1) a previous
valid obligation; (2) an agreement of all parties concerned to a new contract; (3) the
extinguishment of the old obligation; and (4) the birth of a valid new obligation. x x x

In order that an obligation may be extinguished by another which substitutes the same, it
is imperative that it be so declared in unequivocal terms, or that the old and the new obligations
be on every point incompatible with each other. The test of incompatibility is whether or not the
two obligations can stand together, each one having its independent existence. x x x (Emphasis
supplied.)

Furthermore, Art. 1293 of the Civil Code states:

Novation which consists in substituting a new debtor in the place of the original one, may be
made even without the knowledge or against the will of the latter, but not without the consent
of the creditor. Payment by the new debtor gives him rights mentioned in articles 1236 and 1237.

We do not agree, then, with the CA in holding that there was a novation in the contract between the parties.
Not all the elements of novation were present. Novation must be expressly consented to. Moreover, the
conflicting intention and acts of the parties underscore the absence of any express disclosure or circumstances
with which to deduce a clear and unequivocal intent by the parties to novate the old agreement.[15] Land
Bank is thus correct when it argues that there was no novation in the following:

[W]hether or not Alfredo Ong has an interest in the obligation and payment was made
with the knowledge or consent of Spouses Sy, he may still pay the obligation for the reason that
even before he paid the amount of P750,000.00 on January 31, 1997, the substitution of debtors
was already perfected by and between Spouses Sy and Spouses Ong as evidenced by a Deed
of Sale with Assumption of Mortgage executed by them on December 9, 1996. And since the
substitution of debtors was made without the consent of Land Bank a requirement which is
indispensable in order to effect a novation of the obligation, it is therefore not bound to recognize
the substitution of debtors. Land Bank did not intervene in the contract between Spouses Sy and
Spouses Ong and did not expressly give its consent to this substitution.[16]

Unjust enrichment

Land Bank maintains that the trial court erroneously applied the principle of equity and justice in
ordering it to return the PhP 750,000 paid by Alfredo. Alfredo was allegedly in bad faith and in estoppel. Land
Bank contends that it enjoyed the presumption of regularity and was in good faith when it accepted Alfredos
tender of PhP 750,000. It reasons that it did not unduly enrich itself at Alfredos expense during the foreclosure of
the mortgaged properties, since it tendered its bid by subtracting PhP 750,000 from the Spouses Sys outstanding
loan obligation. Alfredos recourse then, according to Land Bank, is to have his payment reimbursed by the
Spouses Sy.

We rule that Land Bank is still liable for the return of the PhP 750,000 based on the principle of unjust
enrichment. Land Bank is correct in arguing that it has no obligation as creditor to recognize Alfredo as a
person with interest in the fulfillment of the obligation. But while Land Bank is not bound to accept the
substitution of debtors in the subject real estate mortgage, it is estopped by its action of accepting Alfredos
payment from arguing that it does not have to recognize Alfredo as the new debtor. The elements of estoppel
are:

First, the actor who usually must have knowledge, notice or suspicion of the true facts,
communicates something to another in a misleading way, either by words, conduct or silence;
second, the other in fact relies, and relies reasonably or justifiably, upon that communication;
third, the other would be harmed materially if the actor is later permitted to assert any claim
inconsistent with his earlier conduct; and fourth, the actor knows, expects or foresees that the
other would act upon the information given or that a reasonable person in the actors position
would expect or foresee such action.[17]

By accepting Alfredos payment and keeping silent on the status of Alfredos application, Land Bank
misled Alfredo to believe that he had for all intents and purposes stepped into the shoes of the Spouses Sy.

The defense of Land Bank Legazpi City Branch Manager Atty. Hingco that it was the banks Lending
Center that should have notified Alfredo of his assumption of mortgage disapproval is unavailing. The Lending
Centers lack of notice of disapproval, the Tabaco Branchs silence on the disapproval, and the banks
subsequent actions show a failure of the bank as a whole, first, to notify Alfredo that he is not a recognized
debtor in the eyes of the bank; and second, to apprise him of how and when he could collect on the payment
that the bank no longer had a right to keep.
We turn then on the principle upon which Land Bank must return Alfredos payment. Unjust enrichment
exists when a person unjustly retains a benefit to the loss of another, or when a person retains money or
property of another against the fundamental principles of justice, equity and good conscience. [18] There is
unjust enrichment under Art. 22 of the Civil Code when (1) a person is unjustly benefited, and (2) such benefit is
derived at the expense of or with damages to another.[19]

Additionally, unjust enrichment has been applied to actions called accion in rem verso. In order that
the accion in rem verso may prosper, the following conditions must concur: (1) that the defendant has been
enriched; (2) that the plaintiff has suffered a loss; (3) that the enrichment of the defendant is without just or
legal ground; and (4) that the plaintiff has no other action based on contract, quasi-contract, crime, or quasi-
delict.[20] The principle of unjust enrichment essentially contemplates payment when there is no duty to pay,
and the person who receives the payment has no right to receive it.[21]

The principle applies to the parties in the instant case, as, Alfredo, having been deemed disqualified
from assuming the loan, had no duty to pay petitioner bank and the latter had no right to receive it.

Moreover, the Civil Code likewise requires under Art. 19 that [e]very person must, in the exercise of his rights and
in the performance of his duties, act with justice, give everyone his due, and observe honesty and good
faith. Land Bank, however, did not even bother to inform Alfredo that it was no longer approving his assumption
of the Spouses Sys mortgage. Yet it acknowledged his interest in the loan when the branch head of the bank
wrote to tell him that his daughters loan had not been paid. [22] Land Bank made Alfredo believe that with the
payment of PhP 750,000, he would be able to assume the mortgage of the Spouses Sy. The act of receiving
payment without returning it when demanded is contrary to the adage of giving someone what is due to him.
The outcome of the application would have been different had Land Bank first conducted the credit
investigation before accepting Alfredos payment. He would have been notified that his assumption of
mortgage had been disapproved; and he would not have taken the futile action of paying PhP 750,000. The
procedure Land Bank took in acting on Alfredos application cannot be said to have been fair and proper.

As to the claim that the trial court erred in applying equity to Alfredos case, we hold that Alfredo had no other
remedy to recover from Land Bank and the lower court properly exercised its equity jurisdiction in resolving the
collection suit. As we have held in one case:

Equity, as the complement of legal jurisdiction, seeks to reach and complete justice where
courts of law, through the inflexibility of their rules and want of power to adapt their judgments
to the special circumstances of cases, are incompetent to do so. Equity regards the spirit and
not the letter, the intent and not the form, the substance rather than the circumstance, as it is
variously expressed by different courts.[23]

Another claim made by Land Bank is the presumption of regularity it enjoys and that it was in good faith
when it accepted Alfredos tender of PhP 750,000.

The defense of good faith fails to convince given Land Banks actions. Alfredo was not treated as a mere
prospective borrower. After he had paid PhP 750,000, he was made to sign bank documents including a
promissory note and real estate mortgage. He was assured by Atty. Hingco that the titles to the properties
covered by the Spouses Sys real estate mortgage would be transferred in his name, and upon payment of the
PhP 750,000, the account would be considered current and renewed in his name. [24]
 Land Bank posits as a defense that it did not unduly enrich itself at Alfredos expense during the
foreclosure of the mortgaged properties, since it tendered its bid by subtracting PhP 750,000 from the Spouses
Sys outstanding loan obligation. It is observed that this is the first time Land Bank is revealing this defense.
However, issues, arguments, theories, and causes not raised below may no longer be posed on appeal. [25] Land
Banks contention, thus, cannot be entertained at this point.

Land Bank further questions the lower courts decision on the basis of the inconsistencies made by
Alfredo on the witness stand. It argues that Alfredo was not a credible witness and his testimony failed to
overcome the presumption of regularity in the performance of regular duties on the part of Land Bank.

This claim, however, touches on factual findings by the trial court, and we defer to these findings of the trial
court as sustained by the appellate court. These are generally binding on us. While there are exceptions to this
rule, Land Bank has not satisfactorily shown that any of them is applicable to this issue.[26] Hence, the rule that
the trial court is in a unique position to observe the demeanor of witnesses should be applied and
respected[27] in the instant case.

In sum, we hold that Land Bank may not keep the PhP 750,000 paid by Alfredo as it had already foreclosed on
the mortgaged lands.

Interest and attorneys fees

As to the applicable interest rate, we reiterate the guidelines found in Eastern Shipping Lines, Inc. v.
Court of Appeals:[28]

II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as
follows:

1. When the obligation is breached, and it consists in the payment of a sum of money,
i.e., a loan or forbearance of money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is
judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum
to be computed from default, i.e., from judicial or extrajudicial demand under and subject to
the provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an

interest on the amount of damages awarded may be imposed at the discretion of the court at
the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or
damages except when or until the demand can be established with reasonable
certainty. Accordingly, where the demand is established with reasonable certainty, the interest
shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil
Code) but when such certainty cannot be so reasonably established at the time the demand is
made, the interest shall begin to run only from the date the judgment of the court is made (at
which time the quantification of damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal interest shall, in any case, be on the
amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2,
above, shall be 12% per annum from such finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of credit.

No evidence was presented by Alfredo that he had sent a written demand to Land Bank before he filed the
collection suit. Only the verbal agreement between the lawyers of the parties on the return of the payment was
mentioned.[29] Consequently, the obligation of Land Bank to return the payment made by Alfredo upon the
formers denial of the latters application for assumption of mortgage must be reckoned from the date of judicial
demand on December 12, 1997, as correctly determined by the trial court and affirmed by the appellate court.

The next question is the propriety of the imposition of interest and the proper imposable rate of
applicable interest. The RTC granted the rate of 12% per annum which was affirmed by the CA. From the
above-quoted guidelines, however, the proper imposable interest rate is 6% per annum pursuant to Art. 2209 of
the Civil Code. Sunga-Chan v. Court of Appeals is illuminating in this regard:

In Reformina v. Tomol, Jr., the Court held that the legal interest at 12% per annum under
Central Bank (CB) Circular No. 416 shall be adjudged only in cases involving the loan or
forbearance of money. And for transactions involving payment of indemnities in the concept of
damages arising from default in the performance of obligations in general and/or for money
 judgment not involving a loan or forbearance of money, goods, or credit, the governing provision
is Art. 2209 of the Civil Code prescribing a yearly 6% interest. Art. 2209 pertinently provides:

Art. 2209. If the obligation consists in the payment of a sum of money, and the
debtor incurs in delay, the indemnity for damages, there being no stipulation to the
contrary, shall be the payment of the interest agreed upon, and in the absence of
stipulation, the legal interest, which is six per cent per annum.

The term forbearance, within the context of usury law, has been described as a
contractual obligation of a lender or creditor to refrain, during a given period of time, from
requiring the borrower or debtor to repay the loan or debt then due and payable.

Eastern Shipping Lines, Inc. synthesized the rules on the imposition of interest, if proper, and
the applicable rate, as follows: The 12% per annum rate under CB Circular No. 416 shall apply only
to loans or forbearance of money, goods, or credits, as well as to judgments involving such loan
or forbearance of money, goods, or credit, while the 6% per annum under Art. 2209 of the Civil
Code applies when the transaction involves the payment of indemnities in the concept of
damage arising from the breach or a delay in the performance of obligations in general, with the
application of both rates reckoned from the time the complaint was filed until the [adjudged]
amount is fully paid. In either instance, the reckoning period for the commencement of the
running of the legal interest shall be subject to the condition that the courts are vested with
discretion, depending on the equities of each case, on the award of interest. [30](Emphasis
supplied.)

Based on our ruling above, forbearance of money refers to the contractual obligation of the lender or creditor
to desist for a fixed period from requiring the borrower or debtor to repay the loan or debt then due and for
which 12% per annum is imposed as interest in the absence of a stipulated rate. In the instant case, Alfredos
conditional payment to Land Bank does not constitute forbearance of money, since there was no agreement
or obligation for Alfredo to pay Land Bank the amount of PhP 750,000, and the obligation of Land Bank to
return what Alfredo has conditionally paid is still in dispute and has not yet been determined. Thus, it cannot be
said that Land Banks alleged obligation has become a forbearance of money.

On the award of attorneys fees, attorneys fees and expenses of litigation were awarded because
Alfredo was compelled to litigate due to the unjust refusal of Land Bank to refund the amount he paid. There
are instances when it is just and equitable to award attorneys fees and expenses of litigation. [31] Art. 2208 of the
Civil Code pertinently states:

In the absence of stipulation, attorneys fees and expenses of litigation, other than
judicial costs, cannot be recovered, except:

xxxx

(2) When the defendants act or omission has compelled the plaintiff to litigate with third
persons or to incur expenses to protect his interest.

Given that Alfredo was indeed compelled to litigate against Land Bank and incur expenses to protect
his interest, we find that the award falls under the exception above and is, thus, proper given the
circumstances.

On a final note. The instant case would not have been litigated had Land Bank been more circumspect in
dealing with Alfredo. The bank chose to accept payment from Alfredo even before a credit investigation was
underway, a procedure worsened by the failure to even inform him of his credit standings impact on his
assumption of mortgage. It was, therefore, negligent to a certain degree in handling the transaction with
Alfredo. It should be remembered that the business of a bank is affected with public interest and it should
observe a higher standard of diligence when dealing with the public.[32]

WHEREFORE, the appeal is DENIED. The CA Decision in CA-G.R. CR-CV No. 84445
is AFFIRMED with MODIFICATION in that the amount of PhP 750,000 will earn interest at 6% per annum reckoned
from December 12, 1997, and the total aggregate monetary awards will in turn earn 12% per annum from the
finality of this Decision until fully paid.

SO ORDERED.
G.R. No. 191555 January 20, 2014

UNION BANK OF THE PHILIPPINES, Petitioner,

vs.
DEVELOPMENT BANK OF THE PHILIPPINES, Respondent.

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on Certiorari1 are the Decision2 dated November 3, 2009 and
Resolution3 dated February 26, 2010 of the Court of Appeals (CA) in CA-G.R. SP No. 93833 which affirmed the
Orders4 dated November 9, 2005 and January 30, 2006 of the Regional Trial Court of Makati, Branch 585 (RTC) in
Civil Case No. 7648 denying the motion to affirm legal compensation 6 filed by petitioner Union Bank of the
Philippines (Union Bank) against respondent Development Bank of the Philippines (DBP).

The Facts

Foodmasters, Inc. (FI) had outstanding loan obligations to both Union Bank’s predecessor-in-interest, Bancom
Development Corporation (Bancom), and to DBP.

On May 21, 1979, FI and DBP, among others, entered into a Deed of Cession of Property In Payment of
Debt7(dacion en pago) whereby the former ceded in favor of the latter certain properties (including a
processing plant in Marilao, Bulacan [processing plant]) in consideration of the following: (a) the full and
complete satisfaction of FI’s loan obligations to DBP; and (b) the direct assumption by DBP of FI’s obligations to
Bancom in the amount of ₱17,000,000.00 (assumed obligations).8

On the same day, DBP, as the new owner of the processing plant, leased back9 for 20 years the said property
to FI (Lease Agreement) which was, in turn, obliged to pay monthly rentals to be shared by DBP and Bancom.

DBP also entered into a separate agreement 10 with Bancom (Assumption Agreement) whereby the former: (a)
confirmed its assumption of FI’s obligations to Bancom; and (b) undertook to remit up to 30% of any and all
rentals due from FI to Bancom (subject rentals) which would serve as payment of the assumed obligations, to
be paid in monthly installments. The pertinent portions of the Assumption Agreement reads as follows:

WHEREAS, DBP has agreed and firmly committed in favor of Bancom that the above obligations to Bancom
which DBP has assumed shall be settled, paid and/or liquidated by DBP out of a portion of the lease rentals or
part of the proceeds of sale of those properties of the Assignors conveyed to DBP pursuant to the [Deed of
Cession of Property in Payment of Debt dated May 21, 1979] and which are the subject of [the Lease
Agreement] made and executed by and between DBP and [FI], the last hereafter referred to as the "Lessee" to
be effective as of July 31, 1978.

xxxx

4. DBP hereby covenants and undertakes that the amount up to 30% of any and all rentals due from the Lessee
pursuant to the Lease Agreement shall be remitted by DBP to Bancom at the latter’s offices at Pasay Road,
Makati, Metro Manila within five (5) days from due dates thereof, and applied in payment of the Assumed
Obligations. Likewise, the amount up to 30% of the proceeds from any sale of the Leased Properties shall within
the same period above, be remitted by DBP to Bancom and applied in payment or prepayment of the
Assumed Obligations. x x x.

Any balance of the Assumed Obligations after application of the entire rentals and or the entire sales proceeds
actually received by Bancom on the Leased Properties shall be paid by DBP to Bancom not later than
December 29, 1998. (Emphases supplied)

Meanwhile, on May 23, 1979, FI assigned its leasehold rights under the Lease Agreement to Foodmasters
Worldwide, Inc. (FW);11 while on May 9, 1984, Bancom conveyed all its receivables, including, among others,
DBP’s assumed obligations, to Union Bank.12

Claiming that the subject rentals have not been duly remitted despite its repeated demands, Union Bank filed,
on June 20, 1984, a collection case against DBP before the RTC, docketed as Civil Case No. 7648.13 In
opposition, DBP countered, among others, that the obligations it assumed were payable only out of the rental
payments made by FI. Thus, since FI had yet to pay the same, DBP’s obligation to Union Bank had not
arisen.14 In addition, DBP sought to implead FW as third party-defendant in its capacity as FI’s assignee and,
thus, should be held liable to Union Bank.15
In the interim, or on May 6, 1988, DBP filed a motion to dismiss on the ground that it had ceased to be a real-
party-in-interest due to the supervening transfer of its rights, title and interests over the subject matter to the
Asset Privatization Trust (APT). Said motion was, however, denied by the RTC in an Order dated May 27, 1988. 16

The RTC Ruling in Civil Case No. 7648

Finding the complaint to be meritorious, the RTC, in a Decision 17 dated May 8, 1990, ordered: (a) DBP to pay
Union Bank the sum of ₱4,019,033.59, representing the amount of the subject rentals (which, again, constitutes
30% of FI’s [now FW’s] total rental debt), including interest until fully paid; and (b) FW, as third-party defendant,
to indemnify DBP, as third- party plaintiff, for its payments of the subject rentals to Union Bank. It ruled that there
lies no evidence which would show that DBP’s receipt of the rental payments from FW is a condition precedent
to the former’s obligation to remit the subject rentals under the Lease Agreement. Thus, when DBP failed to
remit the subject rentals to Union Bank, it defaulted on its assumed obligations.18 DBP then elevated the case on
appeal before the CA, docketed as CA-G.R. CV No. 35866.

The CA Ruling in CA-G.R. CV No. 35866

In a Decision19 dated May 27, 1994 (May 27, 1994 Decision), the CA set aside the RTC’s ruling, and consequently
ordered: (a) FW to pay DBP the amount of ₱32,441,401.85 representing the total rental debt incurred under the
Lease Agreement, including ₱10,000.00 as attorney’s fees; and (b) DBP, after having been paid by FW its
unpaid rentals, to remit 30% thereof (i.e., the subject rentals) to Union Bank. 20

It rejected Union Bank’s claim that DBP has the direct obligation to remit the subject rentals not only from FW’s
rental payments but also out of its own resources since said claim contravened the "plain meaning" of the
Assumption Agreement which specifies that the payment of the assumed obligations shall be made "out of the
portion of the lease rentals or part of the proceeds of the sale of those properties of [FI] conveyed to DBP." 21 It
also construed the phrase under the Assumption Agreement that DBP is obligated to "pay any balance of the
Assumed Obligations after application of the entire rentals and/or the entire sales proceeds actually received
by [Union Bank] on the Leased Properties . . . not later than December 29, 1998" to mean that the lease rentals
must first be applied to the payment of the assumed obligations in the amount of ₱17,000,000.00, and that DBP
would have to pay out of its own money only in case the lease rentals were insufficient, having only until
December 29, 1998 to do so. Nevertheless, the monthly installments in satisfaction of the assumed obligations
would still have to be first sourced from said lease rentals as stipulated in the assumption agreement.22 In view
of the foregoing, the CA ruled that DBP did not default in its obligations to remit the subject rentals to Union
Bank precisely because it had yet to receive the rental payments of FW.23

Separately, the CA upheld the RTC’s denial of DBP’s motion to dismiss for the reason that the transfer of its
rights, title and interests over the subject matter to the APT occurred pendente lite, and, as such, the
substitution of parties is largely discretionary on the part of the court.

At odds with the CA’s ruling, Union Bank and DBP filed separate petitions for review on certiorari before the
Court, respectively docketed as G.R. Nos. 115963 and 119112, which were thereafter consolidated.

The Court’s Ruling in G.R. Nos. 115963 & 119112

The Court denied both petitions in a Resolution24 dated December 13, 1995. First, it upheld the CA’s finding that
while DBP directly assumed FI’s obligations to Union Bank, DBP was only obliged to remit to the latter 30% of the
lease rentals collected from FW, from which any deficiency was to be settled by DBP not later than December
29, 1998.25 Similarly, the Court agreed with the CA that the denial of DBP’s motion to dismiss was proper since
substitution of parties, in case of transfers pendente lite, is merely discretionary on the part of the court, adding
further that the proposed substitution of APT will amount to a novation of debtor which cannot be done without
the consent of the creditor.26

On August 2, 2000, the Court’s resolution became final and executory.27

The RTC Execution Proceedings

On May 16, 2001, Union Bank filed a motion for execution 28 before the RTC, praying that DBP be directed to
pay the amount of ₱9,732,420.555 which represents the amount of the subject rentals (i.e., 30% of the FW’s total
rental debt in the amount of ₱32,441,401.85). DBP opposed29 Union Bank’s motion, contending that it sought to
effectively vary the dispositive portion of the CA’s May 27, 1994 Decision in CA-G.R. CV No. 35866. Also, on
September 12, 2001, DBP filed its own motion for execution against FW, citing the same CA decision as its basis.

In a Consolidated Order30 dated October 15, 2001 (Order of Execution), the RTC granted both motions for
execution. Anent Union Bank’s motion, the RTC opined that the CA’s ruling that DBP’s payment to Union Bank
shall be demandable only upon payment of FW must be viewed in light of the date when the same was
rendered. It noted that the CA decision was promulgated only on May 27, 1994, which was before the
December 29, 1998 due date within which DBP had to fully pay its obligation to Union Bank under the
Assumption Agreement. Since the latter period had already lapsed, "[i]t would, thus, be too strained to argue
that payment by DBP of its assumed obligation[s] shall be dependent on [FW’s] ability, if not availability, to
pay."31 In similar regard, the RTC granted DBP’s motion for execution against FW since its liability to Union Bank
and DBP remained undisputed.

As a result, a writ of execution32 dated October 15, 2001 (October 15, 2001 Writ of Execution) and, thereafter, a
notice of garnishment33 against DBP were issued. Records, however, do not show that the same writ was
implemented against FW.

DBP filed a motion for reconsideration34 from the Execution Order, averring that the latter issuance varied the
import of the CA’s May 27, 1994 Decision in CA-G.R. CV No. 35866 in that it prematurely ordered DBP to pay the
assumed obligations to Union Bank before FW’s payment. The motion was, however, denied on December 5,
2001.35 Thus, DBP’s deposits were eventually garnished.36 Aggrieved, DBP filed a petition for certiorari37 before
the CA, docketed as CA-G.R. SP No. 68300.

The CA Ruling in CA-G.R. SP No. 68300

In a Decision38 dated July 26, 2002, the CA dismissed DBP’s petition, finding that the RTC did not abuse its
discretion when it issued the October 15, 2001 Writ of Execution. It upheld the RTC’s observation that there was
"nothing wrong in the manner how [said writ] was implemented," as well as "in the zealousness and promptitude
exhibited by Union Bank" in moving for the same. DBP appealed the CA’s ruling before the Court, which was
docketed as G.R. No. 155838.

The Court’s Ruling in G.R. No. 155838

In a Decision39 dated January 13, 2004 (January 13, 2004 Decision), the Court granted DBP’s appeal, and
thereby reversed and set aside the CA’s ruling in CA-G.R. SP No. 68300. It found significant points of variance
between the CA’s May 27, 1994 Decision in CA-G.R. CV No. 35866, and the RTC’s Order of Execution/October
15, 2001 Writ of Execution. It ruled that both the body and the dispositive portion of the same decision
acknowledged that DBP’s obligation to Union Bank for remittance of the lease payments is contingent on FW’s
prior payment to DBP, and that any deficiency DBP had to pay by December 29, 1998 as per the Assumption
Agreement cannot be determined until after the satisfaction of FW’s own rental obligations to DBP.
Accordingly, the Court: (a) nullified the October 15, 2001 Writ of Execution and all related issuances thereto;
and (b) ordered Union Bank to return to DBP the amounts it received pursuant to the said writ.40 Dissatisfied,
Union Bank moved for reconsideration which was, however, denied by the Court in a Resolution dated March
24, 2004 with finality. Thus, the January 13, 2004 Decision attained finality on April 30, 2004. 41 Thereafter, DBP
moved for the execution of the said decision before the RTC. After numerous efforts on the part of Union Bank
proved futile, the RTC issued a writ of execution (September 6, 2005 Writ of Execution), ordering Union Bank to
return to DBP all funds it received pursuant to the October 15, 2001 Writ of Execution.42

Union Bank’s Motion to Affirm Legal Compensation

On September 13, 2005, Union Bank filed a Manifestation and Motion to Affirm Legal Compensation,43 praying
that the RTC apply legal compensation between itself and DBP in order to offset the return of the funds it
previously received from DBP. Union Bank anchored its motion on two grounds which were allegedly not in
existence prior to or during trial, namely: (a) on December 29, 1998, DBP’s assumed obligations became due
and demandable;44 and (b) considering that FWI became non-operational and non-existent, DBP became
primarily liable to the balance of its assumed obligation, which as of Union Bank’s computation after its claimed
set-off, amounted to ₱1,849,391.87.45

On November 9, 2005, the RTC issued an Order46 denying the above-mentioned motion for lack of merit,
holding that Union Bank’s stated grounds were already addressed by the Court in the January 13, 2004 Decision
in G.R. No. 155838. With Union Bank’s motion for reconsideration therefrom having been denied, it filed a
petition for certiorari47 with the CA, docketed as CA-G.R. SP No. 93833.

Pending resolution, Union Bank issued Manager’s Check 48 No. 099-0003192363 dated April 21, 2006 amounting
to ₱52,427,250.00 in favor of DBP, in satisfaction of the Writ of Execution dated September 6, 2005 Writ of
Execution. DBP, however, averred that Union Bank still has a balance of ₱756,372.39 representing a portion of
the garnished funds of DBP,49 which means that said obligation had not been completely extinguished.

The CA Ruling in CA-G.R. SP No. 93833

In a Decision50 dated November 3, 2009, the CA dismissed Union Bank’s petition, finding no grave abuse of
discretion on the RTC’s part. It affirmed the denial of its motion to affirm legal compensation considering that:
(a) the RTC only implemented the Court’s January 13, 2004 Decision in G.R. No. 155838 which by then had
already attained finality; (b) DBP is not a debtor of Union Bank; and (c) there is neither a demandable nor
liquidated debt from DBP to Union Bank.51
Undaunted, Union Bank moved for reconsideration which was, however, denied in a Resolution 52 dated
February 26, 2010; hence, the instant petition.

The Issue Before the Court

The sole issue for the Court’s resolution is whether or not the CA correctly upheld the denial of Union Bank’s
motion to affirm legal compensation.

The Court’s Ruling

The petition is bereft of merit. Compensation is defined as a mode of extinguishing obligations whereby two
persons in their capacity as principals are mutual debtors and creditors of each other with respect to equally
liquidated and demandable obligations to which no retention or controversy has been timely commenced
and communicated by third parties.53 The requisites therefor are provided under Article 1279 of the Civil Code
which reads as follows:

Art. 1279. In order that compensation may be proper, it is necessary:

(1) That each one of the obligors be bound principally, and that he be at the same time a principal
creditor of the other;

(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same
kind, and also of the same quality if the latter has been stated;

(3) That the two debts be due;

(4) That they be liquidated and demandable;

(5) That over neither of them there be any retention or controversy, commenced by third persons and
communicated in due time to the debtor.1awp++i1 (Emphases and underscoring supplied)

The rule on legal54 compensation is stated in Article 1290 of the Civil Code which provides that "[w]hen all the
requisites mentioned in Article 1279 are present, compensation takes effect by operation of law, and
extinguishes both debts to the concurrent amount, even though the creditors and debtors are not aware of the
compensation."

In this case, Union Bank filed a motion to seek affirmation that legal compensation had taken place in order to
effectively offset (a) its own obligation to return the funds it previously received from DBP as directed under the
September 6, 2005 Writ of Execution with (b) DBP’s assumed obligations under the Assumption Agreement.
However, legal compensation could not have taken place between these debts for the apparent reason that
requisites 3 and 4 under Article 1279 of the Civil Code are not present. Since DBP’s assumed obligations to Union
Bank for remittance of the lease payments are – in the Court’s words in its Decision dated January 13, 2004 in
G.R. No. 155838 – " contingent on the prior payment thereof by [FW] to DBP," it cannot be said that both debts
are due (requisite 3 of Article 1279 of the Civil Code). Also, in the same ruling, the Court observed that any
deficiency that DBP had to make up (by December 29, 1998 as per the Assumption Agreement) for the full
satisfaction of the assumed obligations " cannot be determined until after the satisfaction of Foodmasters’
obligation to DBP." In this regard, it cannot be concluded that the same debt had already been liquidated,
and thereby became demandable (requisite 4 of Article 1279 of the Civil Code).

The aforementioned Court decision had already attained finality on April 30, 2004 55 and, hence, pursuant to
the doctrine of conclusiveness of judgment, the facts and issues actually and directly resolved therein may not
be raised in any future case between the same parties, even if the latter suit may involve a different cause of
action.56 Its pertinent portions are hereunder quoted for ready reference:57

Both the body and the dispositive portion of the [CA’s May 27, 1994 Decision in CA-G.R. CV No. 35866] correctly
construed the nature of DBP’s liability for the lease payments under the various contracts, to wit:

x x x Construing these three contracts, especially the "Agreement" x x x between DBP and Bancom as providing
for the payment of DBP’s assumed obligation out of the rentals to be paid to it does not mean negating DBP’s
assumption "for its own account" of the ₱17.0 million debt x x x. It only means that they provide a mechanism for
discharging [DBP’s] liability. This liability subsists, since under the "Agreement" x x x, DBP is obligated to pay "any
balance of the Assumed Obligations after application of the entire rentals and or the entire sales proceeds
actually received by [Union Bank] on the Leased Properties … not later than December 29, 1998." x x x It only
means that the lease rentals must first be applied to the payment of the ₱17 million debt and that [DBP] would
have to pay out of its money only in case of insufficiency of the lease rentals having until December 29, 1998 to
do so. In this sense, it is correct to say that the means of repayment of the assumed obligation is not limited to
the lease rentals. The monthly installments, however, would still have to come from the lease rentals since this
was stipulated in the "Agreement."
 xxxx

Since, as already stated, the monthly installments for the payment of the ₱17 million debt are to be funded
from the lease rentals, it follows that if the lease rentals are not paid, there is nothing for DBP to remit to [Union
Bank], and thus [DBP] should not be considered in default. It is noteworthy that, as stated in the appealed
decision, "as regards plaintiff’s claim for damages against defendant for its alleged negligence in failing and
refusing to enforce a lessor’s remedies against Foodmasters Worldwide, Inc., the Court finds no competent and
reliable evidence of such claim."

xxxx

WHEREFORE, the decision appealed from is SET ASIDE and another one is RENDERED,

(i) Ordering third-party defendant-appellee Foodmasters Worldwide, Inc. to pay defendant and third-
party plaintiff-appellant Development Bank of the Philippines the sum of ₱32,441,401.85, representing
the unpaid rentals from August 1981 to June 30, 1987, as well as ₱10,000.00 for attorney’s fees; and

(ii) Ordering defendant and third-party plaintiff-appellant Development Bank of the Philippines after
having been paid by third-party defendant-appellee the sum of ₱32,441,401.85, to remit 30% thereof to
plaintiff-appellee Union Bank of the Philippines.

SO ORDERED.

In other words, both the body and the dispositive portion of the aforequoted decision acknowledged that
DBP’s obligation to Union Bank for remittance of the lease payments is contingent on the prior payment thereof
by Foodmasters to DBP.

A careful reading of the decision shows that the Court of Appeals, which was affirmed by the Supreme Court,
found that only the balance or the deficiency of the ₱17 million principal obligation, if any, would be due and
demandable as of December 29, 1998. Naturally, this deficiency cannot be determined until after the
satisfaction of Foodmasters obligation to DBP, for remittance to Union Bank in the proportion set out in the 1994
Decision. (Emphases and underscoring supplied; citations omitted)

xxxx

In fine, since requisites 3 and 4 of Article 1279 of the Civil Code have not concurred in this case, no legal
compensation could have taken place between the above-stated debts pursuant to Article 1290 of the Civil
Code. Perforce, the petition must be denied, and the denial of Union Bank s motion to affirm legal
compensation sustained.

WHEREFORE, the petition is DENIED. The Decision dated November 3, 2009 and Resolution dated February 26,
2010 of the Court of Appeals in CA-G.R. SP No. 93833 are hereby AFFIRMED.

SO ORDERED.
 Republic of the Philippines
Supreme Court
Manila

SECOND DIVISION

CRESENCIO C. MILLA, G.R. No. 188726

Petitioner,

Present:

CARPIO, J.,

- versus - Chairperson,

PEREZ,

SERENO,

REYES, and

PERLAS-BERNABE,* JJ.

PEOPLE OF THE PHILIPPINES and MARKET Promulgated:

PURSUITS, INC. represented by CARLO V.
LOPEZ,

Respondents. January 25, 2012

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

SERENO, J.:

This is a Petition for Certiorari assailing the 22 April 2009 Decision [1] and 8 July 2009 Resolution[2] of the
Court of Appeals, affirming the Decision of the trial court finding petitioner Cresencio C. Milla (Milla) guilty of
two counts of estafa through falsification of public documents.

Respondent Carlo Lopez (Lopez) was the Financial Officer of private respondent, Market Pursuits, Inc. (MPI). In
March 2003, Milla represented himself as a real estate developer from Ines Anderson Development
Corporation, which was engaged in selling business properties in Makati, and offered to sell MPI a property
therein located. For this purpose, he
showed Lopez a photocopy of Transfer Certificate of Title (TCT) No. 216445 registered in the name of spouses
Farley and Jocelyn Handog (Sps. Handog), as well as a Special Power of Attorney purportedly executed by the
spouses in favor of Milla.[3] Lopez verified with the Registry of Deeds of Makati and confirmed that the property
was indeed registered under the names of Sps. Handog. Since Lopez was convinced by Millas authority, MPI
purchased the property for P2 million, issuing Security Bank and Trust Co. (SBTC) Check No. 154670 in the
amount of P1.6 million. After receiving the check, Milla gave Lopez (1) a notarized Deed of Absolute Sale dated
25 March 2003 executed by Sps. Handog in favor of MPI and (2) an original Owners Duplicate Copy of TCT No.
216445.[4]

Milla then gave Regino Acosta (Acosta), Lopezs partner, a copy of the new Certificate of Title to the
property, TCT No. 218777, registered in the name of MPI. Thereafter, it tendered in favor of Milla SBTC Check No.
15467111 in the amount of P400,000 as payment for the balance.[5]

Milla turned over TCT No. 218777 to Acosta, but did not furnish the latter with the receipts for the transfer
taxes and other costs incurred in the transfer of the property. This failure to turn over the receipts prompted
Lopez to check with the Register of Deeds, where he discovered that (1) the Certificate of Title given to them
by Milla could not be found therein; (2) there was no transfer of the property from Sps. Handog to MPI; and (3)
TCT No. 218777 was registered in the name of a certain Matilde M. Tolentino.[6]

Consequently, Lopez demanded the return of the amount of P2 million from Milla, who then issued
Equitable PCI Check Nos. 188954 and 188955 dated 20 and 23 May 2003, respectively, in the amount of P1
million each. However, these checks were dishonored for having been drawn against insufficient funds. When
Milla ignored the demand letter sent by Lopez, the latter, by virtue of the authority vested in him by the MPI
Board of Directors, filed a Complaint against the former on 4 August 2003. On 27 and 29 October 2003, two
Informations for Estafa Thru Falsification of Public Documents were filed against Milla and were raffled to the
Regional Trial Court, National Capital Judicial Region, Makati City, Branch 146 (RTC Br. 146).[7] Milla was
accused of having committed estafa through the falsification of the notarized Deed of Absolute Sale and TCT
No. 218777 purportedly issued by the Register of Deeds of Makati, viz:

CRIMINAL CASE NO. 034167

That on or about the 25th day of March 2003, in the City of Makati, Philippines and within
the jurisdiction of this Honorable Court, the above-named accused, a private individual, did
then and there, wilfully, unlawfully and feloniously falsify a document denomindated as Deed of
Absolute Sale, duly notarized by Atty. Lope M. Velasco, a Notary Public for and in the City of
Makati, denominated as Doc. No. 297, Page No. 61, Book No. 69, Series of 2003 in his Notarial
Register, hence, a public document, by causing it to appear that the registered owners of the
property covered by TCT No. 216445 have sold their land to complainant Market Pursuits, Inc.
when in truth and in fact the said Deed of Absolute Sale was not executed by the owners
thereof and after the document was falsified, accused, with intent to defraud complainant
Market Pursuits, Inc. presented the falsified Deed of Sale to complainant, herein represented by
Carlo V. Lopez, and complainant believing in the genuineness of the Deed of Absolute Sale
paid accused the amount of P1,600,000.00 as partial payment for the property, to the damage
and prejudice of complainant in the aforementioned amount of P1,600,000.00

CONTRARY TO LAW.

CRIMINAL CASE NO. 034168

That on or about the 3rd day of April 2003, in the City of Makati, Philippines and within the
jurisdiction of this Honorable Court, the above-named accused, a private individual, did then
and there wilfully, unlawfully and feloniously falsify a document denominated as Transfer
Certificate of Title No. 218777 purportedly issued by the Register of Deeds of Makati City, hence,
a public document, by causing it to appear that the lot covered by TCT No. 218777 was already
registered in the name of complainant Market Pursuits, Inc., herein represented by Carlo V.
Lopez, when in truth and in fact, as said accused well knew that the Register of Deeds of Makati
did not issue TCT No. 218777 in the name of Market Pursuits Inc., and after the document was
falsified, accused with
intent to defraud complainant and complainant believing in the genuineness of Transfer
Certificate of Title No. 218777 paid accused the amount of P400,000.00, to the damage and
prejudice of complainant in the aforementioned amount of P4000,000.00 (sic).

CONTRARY TO LAW.[8]

After the prosecution rested its case, Milla filed, with leave of court, his Demurrer to Evidence. [9] In its
Order dated 26 January 2006, RTC Br. 146 denied the demurrer and ordered him to present evidence, but he
failed to do so despite having been granted ample opportunity.[10] Though the court considered his right to
present evidence to have been consequently waived, it nevertheless allowed him to file a memorandum. [11]

In its Joint Decision dated 28 November 2006,[12] RTC Br. 146 found Milla guilty beyond reasonable doubt
of two counts of estafa through falsification of public documents, thus:

WHEREFORE, judgment is rendered finding the accused Cresencio Milla guilty beyond
reasonable doubt of two (2) counts of estafa through falsification of public documents. Applying
the indeterminate sentence law and considering that the amount involved is more than
P22,000,00 this Court should apply the provision that an additional one (1) year should be
imposed for every ten thousand (P10,000.00) pesos in excess of P22,000.00, thus, this Court is
constrained to impose the Indeterminate (sic) penalty of four (4) years, two (2) months one (1)
day of prision correccional as minimum to twenty (20) years of reclusion temporal as maximum
for each count.

Accused is adjudged to be civilly liable to the private complainant and is ordered pay
(sic) complainant the total amount of TWO MILLION (P2,000,000.00) PESOS with legal rate of
interest from the filing of the Information until the same is fully paid and to pay the costs. He is
 further ordered to pay attorneys fees equivalent to ten (10%) of the total amount due as and for
attorneys fees. A lien on the monetary award is constituted in favor of the government, the
private complainant not having paid the required docket fee prior to the filing of the
Information.

SO ORDERED.[13]

On appeal, the Court of Appeals, in the assailed Decision dated 22 April 2009, affirmed the findings of
the trial court.[14] In its assailed Resolution dated 8 July 2009, it also denied Millas subsequent Motion for
Reconsideration.[15]

In the instant Petition, Milla alleges that the Decision and the Resolution of the Court of Appeals were
not in accordance with law and jurisprudence. He raises the following issues:

I. Whether the case should be reopened on the ground of negligence of counsel;

II. Whether the principle of novation is applicable;

III. Whether the principle of simple loan is applicable;

IV. Whether the Secretarys Certificate presented by the prosecution is admissible in evidence;

V. Whether the supposed inconsistent statements of prosecution witnesses cast a doubt on the
guilt of petitioner.[16]

In its Comment, MPI argues that (1) Milla was not deprived of due process on the ground of gross negligence of
counsel; (2) under the Revised Penal Code, novation is not one of the grounds for the extinction of criminal
liability for estafa; and (3) factual findings of the trial court, when affirmed by the Court of Appeals, are final
and conclusive.[17]

On the other hand, in its Comment, the Office of the Solicitor General contends that (1) Milla was accorded
due process of law; (2) the elements of the crime charged against him were established during trial; (3)
novation is not a ground for extinction of criminal liability for estafa; (4) the money received by Milla from Lopez
was not in the nature of a simple loan or cash advance; and (5) Lopez was duly authorized by MPI to institute
the action.[18]

In his Consolidated Reply, Milla reiterates that the negligence of his former counsel warrants a reopening of the
case, wherein he can present evidence to prove that his transaction with MPI was in the nature of a simple
loan.[19]

In the disposition of this case, the following issues must be resolved:

I. Whether the negligence of counsel deprived Milla of due process of law

II. Whether the principle of novation can exculpate Milla from criminal liability

III. Whether the factual findings of the trial court, as affirmed by the appellate court, should be
reviewed on appeal

We resolve to deny the Petition.

Milla was not deprived of due process.

Milla argues that the negligence of his former counsel, Atty. Manuel V. Mendoza (Atty. Mendoza), deprived him
of due process. Specifically, he states that after the prosecution had rested its case, Atty. Mendoza filed a
Demurrer to Evidence, and that the former was never advised by the latter of the demurrer. Thus, Milla was
purportedly surprised to discover that RTC Br. 146 had already rendered judgment finding him guilty, and that it
had issued a warrant for his arrest. Atty. Mendoza filed an Omnibus Motion for Leave to File Motion for New Trial,
which Milla claims to have been denied by the trial court for being an inappropriate remedy, thus,
demonstrating his counsels negligence. These contentions cannot be given any merit.

The general rule is that the mistake of a counsel binds the client, and it is only in instances wherein the
negligence is so gross or palpable that courts must step in to grant relief to the aggrieved client.[20] In this case,
Milla was able to file a Demurrer to Evidence, and upon the trial courts denial thereof, was allowed to present
evidence.[21] Because of his failure to do so, RTC Br. 146 was justified in considering that he had waived his right
thereto. Nevertheless, the trial court still allowed him to submit a memorandum in the interest of justice. Further,
contrary to his assertion that RTC Br. 146 denied the Motion to Recall Warrant of Arrest thereafter filed by his
former counsel, a reading of the 2 August 2007 Order of RTC Br. 146 reveals that it partially denied the Omnibus
Motion for New Trial and Recall of Warrant of Arrest, but granted the Motion for Leave of Court to Avail of
Remedies under the Rules of Court, allowing him to file an appeal and lifting his warrant of arrest.[22]

It can be gleaned from the foregoing circumstances that Milla was given opportunities to defend his case and
was granted concomitant reliefs. Thus, it cannot be said that the mistake and negligence of his former counsel
were so gross and palpable to have deprived him of due process.

The principle of novation cannot be applied to the case at bar.

Milla contends that his issuance of Equitable PCI Check Nos. 188954 and 188955 before the institution of the
criminal complaint against him novated his obligation to MPI, thereby enabling him to avoid any incipient
criminal liability and converting his obligation into a purely civil one. This argument does not persuade.

The principles of novation cannot apply to the present case as to extinguish his criminal liability. Milla
cites People v. Nery[23] to support his

contention that his issuance of the Equitable PCI checks prior to the filing of the criminal complaint averted his
incipient criminal liability. However, it must be clarified that mere payment of an obligation before the institution
of a criminal complaint does not, on its own, constitute novation that may prevent criminal liability. This Courts
ruling in Nery in fact warned:

It may be observed in this regard that novation is not one of the means recognized by
the Penal Code whereby criminal liability can be extinguished; hence, the role of novation may
only be to either prevent the rise of criminal liability or to cast doubt on the true nature of the
original petition, whether or not it was such that its breach would not give rise to penal
responsibility, as when money loaned is made to appear as a deposit, or other similar disguise is
resorted to (cf. Abeto vs. People, 90 Phil. 581; Villareal, 27 Phil. 481).

Even in Civil Law the acceptance of partial payments, without further change in the
original relation between the complainant and the accused, can not produce novation. For the
latter to exist, there must be proof of intent to extinguish the original relationship, and such intent
can not be inferred from the mere acceptance of payments on account of what is totally
due. Much less can it be said that the acceptance of partial satisfaction can effect the
nullification of a criminal liability that is fully matured, and already in the process of enforcement.
Thus, this Court has ruled that the offended partys acceptance of a promissory note for all or part
of the amount misapplied does not obliterate the criminal offense(Camus vs. Court of Appeals,
48 Off. Gaz. 3898).[24] (Emphasis supplied.)

Further, in Quinto v. People,[25] this Court exhaustively explained the concept of novation in relation to incipient
criminal liability, viz:

Novation is never presumed, and the animus novandi, whether totally or partially, must
appear by express agreement of the parties, or by their acts that are too clear and unequivocal
to be mistaken.

The extinguishment of the old obligation by the new one is a necessary element of
novation which may be effected either expressly or impliedly. The term expressly means that the
contracting parties incontrovertibly disclose that their object in executing the new contract is to
extinguish the old one. Upon the other hand, no specific form is required for an implied
novation, and all that is prescribed by law would be an incompatibility between the two
contracts. While there is really no hard and fast rule to determine what might constitute to be a
sufficient change that can bring about novation, the touchstone for contrariety, however, would
be an irreconcilable incompatibility between the old and the new obligations.

There are two ways which could indicate, in fine, the presence of novation and thereby
produce the effect of extinguishing an obligation by another which substitutes the same. The first
is when novation has been explicitly stated and declared in unequivocal terms. The second is
when the old and the new obligations are incompatible on every point. The test of
incompatibility is whether or not the two obligations can stand together, each one having its
independent existence. If they cannot, they are incompatible and the latter obligation novates
the first. Corollarily, changes that breed incompatibility must be essential in nature and not
merely accidental. The incompatibility must take place in any of the essential elements of the
obligation, such as its object, cause or principal conditions thereof; otherwise, the change would
be merely modificatory in nature and insufficient to extinguish the original obligation.
 The changes alluded to by petitioner consists only in the manner of payment. There was
really no substitution of debtors since private complainant merely acquiesced to the payment
but did not give her consent to enter into a new contract. The appellate court observed:
xxx xxx xxx

The acceptance by complainant of partial payment tendered by the

buyer, Leonor Camacho, does not evince the intention of the complainant to
have their agreement novated. It was simply necessitated by the fact that, at that
time, Camacho had substantial accounts payable to complainant, and because
of the fact that appellant made herself scarce to complainant. (TSN, April 15,
1981, 31-32) Thus, to obviate the situation where complainant would end up with
nothing, she was forced to receive the tender of Camacho. Moreover, it is to be
noted that the aforesaid payment was for the purchase, not of the jewelry
subject of this case, but of some other jewelry subject of a previous transaction.
(Ibid. June 8, 1981, 10-11)

xxx xxx xxx

Art. 315 of the Revised Penal Code defines estafa and penalizes any person who shall
defraud another by misappropriating or converting, to the prejudice of another, money, goods,
or any other personal property received by the offender in trust or on commission, or for
administration, or under any other obligation involving the duty to make delivery of or to return
the same, even though such obligation be totally or partially guaranteed by a bond; or by
denying having received such money, goods, or other property. It is axiomatic that the
gravamen of the offense is the appropriation or conversion of money or property received to
the prejudice of the owner. The terms convert and misappropriate have been held to connote
an act of using or disposing of anothers property as if it were ones own or devoting it to a
purpose or use different from that agreed upon. The phrase, to misappropriate to ones own use
has been said to include not only conversion to ones personal advantage, but also every
attempt to dispose of the property of another without right. Verily, the sale of the pieces of
jewelry on installments (sic) in contravention of the explicit terms of the authority granted to her
in Exhibit A (supra) is deemed to be one of conversion. Thus, neither the theory of delay in the
fulfillment of commission nor that of novation posed by petitioner, can avoid the incipient
criminal liability. In People vs. Nery, this Court held:

xxx xxx xxx

The criminal liability for estafa already committed is then not affected by the subsequent
novation of contract, for it is a public offense which must be prosecuted and punished by the
State in its own conation. (Emphasis supplied.)[26]

In the case at bar, the acceptance by MPI of the Equitable PCI checks tendered by Milla could not have
novated the original transaction, as the checks were only intended to secure the return of the P2 million the
former had already given him. Even then, these checks bounced and were thus unable to satisfy his liability.
Moreover, the estafa involved here was not for simple misappropriation or conversion, but was committed
through Millas falsification of public documents, the liability for which cannot be extinguished by mere
novation.

The Court of Appeals was correct in affirming the trial courts finding
of guilt.

Finally, Milla assails the factual findings of the trial court. Suffice it to say that factual findings of the trial court,
especially when affirmed by the appellate court, are binding on and accorded great respect by this Court.[27]

There was no reversible error on the part of the Court of Appeals when it affirmed the finding of the trial court that
Milla was guilty beyond reasonable doubt of the offense of estafathrough falsification of public documents. The
prosecution was able to prove the existence of all the elements of the crime charged. The relevant provisions of
the Revised Penal Code read:

Art. 172. Falsification by private individual and use of falsified documents. The penalty
of prision correccional in its medium and maximum periods and a fine of not more than 5,000 shall
be imposed upon:
 1. Any private individual who shall commit any of the falsification enumerated in
the next preceding article in any public or official document or letter of exchange or any other
kind of commercial document

xxx xxx xxx

Art. 315. Swindling (estafa). Any person who shall defraud another by any of the means
mentioned hereinbelow shall be punished by:

xxx xxx xxx

2. By means of any of the following false pretenses or fraudulent acts executed prior to or
simultaneously with the commission of the fraud:

(a) By using a fictitious name, or falsely pretending to possess power, influence,

qualifications, property, credit, agency, business or imaginary transactions; or by means of other
similar deceits.

xxx xxx xxx

It was proven during trial that Milla misrepresented himself to have the authority to sell the subject property, and it
was precisely this misrepresentation that prompted MPI to purchase it. Because of its reliance on his authority and
on the falsified Deed of Absolute Sale and TCT No. 218777, MPI parted with its money in the amount of P2 million,
which has not been returned until now despite Millas allegation of novation. Clearly, he is guilty beyond
reasonable doubt of estafa through falsification of public documents.

WHEREFORE, we resolve to DENY the Petition. The assailed Decision and Resolution of the Court of
Appeals are hereby AFFIRMED.

SO ORDERED.