oblicon cases

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Republic of the PhilippinesSUPREME COURT

Baguio City

EN BANC

G.R. No. 178902 April 21, 2010

MANUEL O. FUENTES and LETICIA L. FUENTES, Petitioners, vs.CONRADO G. ROCA, ANNABELLE R. JOSON, ROSE MARIE R. CRISTOBAL and PILAR MALCAMPO, Respondents.

D E C I S I O N

ABAD, J.:

This case is about a husband’s sale of conjugal real property, employing a challenged affidavit of consent from an estranged wife. The buyers claim valid consent, loss of right to declare nullity of sale, and prescription.

The Facts and the Case

Sabina Tarroza owned a titled 358-square meter lot in Canelar, Zamboanga City. On October 11, 1982 she sold it to her son, Tarciano T. Roca (Tarciano) under a deed of absolute sale.1 But Tarciano did not for the meantime have the registered title transferred to his name.

Six years later in 1988, Tarciano offered to sell the lot to petitioners Manuel and Leticia Fuentes (the Fuentes spouses). They arranged to meet at the office of Atty. Romulo D. Plagata whom they asked to prepare the documents of sale. They later signed an agreement to sell that Atty. Plagata prepared2 dated April 29, 1988, which agreement expressly stated that it was to take effect in six months.

The agreement required the Fuentes spouses to pay Tarciano a down payment of P60,000.00 for the transfer of the lot’s title to him. And, within six months, Tarciano was to clear the lot of structures and occupants and secure the

consent of his estranged wife, Rosario Gabriel Roca (Rosario), to the sale. Upon Tarciano’s compliance with these conditions, the Fuentes spouses were to take possession of the lot and pay him an additional P140,000.00 or P160,000.00, depending on whether or not he succeeded in demolishing the house standing on it. If Tarciano was unable to comply with these conditions, the Fuentes spouses would become owners of the lot without any further formality and payment.

The parties left their signed agreement with Atty. Plagata who then worked on the other requirements of the sale. According to the lawyer, he went to see Rosario in one of his trips to Manila and had her sign an affidavit of consent.3 As soon as Tarciano met the other conditions, Atty. Plagata notarized Rosario’s affidavit in Zamboanga City. On January 11, 1989 Tarciano executed a deed of absolute sale4 in favor of the Fuentes spouses. They then paid him the additional P140,000.00 mentioned in their agreement. A new title was issued in the name of the spouses5 who immediately constructed a building on the lot. On January 28, 1990 Tarciano passed away, followed by his wife Rosario who died nine months afterwards.

Eight years later in 1997, the children of Tarciano and Rosario, namely, respondents Conrado G. Roca, Annabelle R. Joson, and Rose Marie R. Cristobal, together with Tarciano’s sister, Pilar R. Malcampo, represented by her son, John Paul M. Trinidad (collectively, the Rocas), filed an action for annulment of sale and reconveyance of the land against the Fuentes spouses before the Regional Trial Court (RTC) of Zamboanga City in Civil Case 4707. The Rocas claimed that the sale to the spouses was void since Tarciano’s wife, Rosario, did not give her consent to it. Her signature on the affidavit of consent had been forged. They thus prayed that the property be reconveyed to them upon reimbursement of the price that the Fuentes spouses paid Tarciano.6

The spouses denied the Rocas’ allegations. They presented Atty. Plagata who testified that he personally saw Rosario sign the affidavit at her residence in Paco, Manila, on September 15, 1988. He admitted, however, that he notarized the document in Zamboanga City four months later on January 11, 1989.7 All the same, the Fuentes spouses pointed out that the claim of forgery was personal to Rosario and she alone could invoke it. Besides, the four-year prescriptive period for nullifying the sale on ground of fraud had already lapsed.

Both the Rocas and the Fuentes spouses presented handwriting experts at the trial. Comparing Rosario’s standard signature on the affidavit with those on various documents she signed, the Rocas’ expert testified that the signatures were not written by the same person. Making the same comparison, the spouses’ expert concluded that they were.8

On February 1, 2005 the RTC rendered judgment, dismissing the case. It ruled that the action had already prescribed since the ground cited by the Rocas for annulling the sale, forgery or fraud, already prescribed under Article 1391 of the Civil Code four years after its discovery. In this case, the Rocas may be deemed to have notice of the fraud from the date the deed of sale was registered with the Registry of Deeds and the new title was issued. Here, the Rocas filed their action in 1997, almost nine years after the title was issued to the Fuentes spouses on January 18, 1989.9

Moreover, the Rocas failed to present clear and convincing evidence of the fraud. Mere variance in the signatures of Rosario was not conclusive proof of forgery.10 The RTC ruled that, although the Rocas presented a handwriting expert, the trial court could not be bound by his opinion since the opposing expert witness contradicted the same. Atty. Plagata’s testimony remained technically unrebutted.11

Finally, the RTC noted that Atty. Plagata’s defective notarization of the affidavit of consent did not invalidate the sale. The law does not require spousal consent to be on the deed of sale to be valid. Neither does the irregularity vitiate Rosario’s consent. She personally signed the affidavit in the presence of Atty. Plagata.12

On appeal, the Court of Appeals (CA) reversed the RTC decision. The CA found sufficient evidence of forgery and did not give credence to Atty. Plagata’s testimony that he saw Rosario sign the document in Quezon City. Its jurat said differently. Also, upon comparing the questioned signature with the specimen signatures, the CA noted significant variance between them. That Tarciano and Rosario had been living separately for 30 years since 1958 also reinforced the conclusion that her signature had been forged.

Since Tarciano and Rosario were married in 1950, the CA concluded that their property relations were governed by the Civil Code under which an action for annulment of sale on the ground of lack of spousal consent may be brought by the wife during the marriage within 10 years from the transaction. Consequently, the action that the Rocas, her heirs, brought in 1997 fell within 10 years of the January 11, 1989 sale.

Considering, however, that the sale between the Fuentes spouses and Tarciano was merely voidable, the CA held that its annulment entitled the spouses to reimbursement of what they paid him plus legal interest computed from the filing of the complaint until actual payment. Since the Fuentes spouses were also builders in good faith, they were entitled under Article 448 of the Civil Code to payment of the value of the improvements they introduced on the lot. The CA did not award damages in favor of the Rocas and deleted the award of attorney’s fees to the Fuentes spouses.13

Unsatisfied with the CA decision, the Fuentes spouses came to this court by petition for review.14

The Issues Presented

The case presents the following issues:

1. Whether or not Rosario’s signature on the document of consent to her husband Tarciano’s sale of their conjugal land to the Fuentes spouses was forged;

2. Whether or not the Rocas’ action for the declaration of nullity of that sale to the spouses already prescribed; and

3. Whether or not only Rosario, the wife whose consent was not had, could bring the action to annul that sale.

The Court’s Rulings

First. The key issue in this case is whether or not Rosario’s signature on the document of consent had been forged. For, if the signature were genuine, the fact that she gave

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her consent to her husband’s sale of the conjugal land would render the other issues merely academic.

The CA found that Rosario’s signature had been forged. The CA observed a marked difference between her signature on the affidavit of consent15 and her specimen signatures.16 The CA gave no weight to Atty. Plagata’s testimony that he saw Rosario sign the document in Manila on September 15, 1988 since this clashed with his declaration in the jurat that Rosario signed the affidavit in Zamboanga City on January 11, 1989.

The Court agrees with the CA’s observation that Rosario’s signature strokes on the affidavit appears heavy, deliberate, and forced. Her specimen signatures, on the other hand, are consistently of a lighter stroke and more fluid. The way the letters "R" and "s" were written is also remarkably different. The variance is obvious even to the untrained eye.

Significantly, Rosario’s specimen signatures were made at about the time that she signed the supposed affidavit of consent. They were, therefore, reliable standards for comparison. The Fuentes spouses presented no evidence that Rosario suffered from any illness or disease that accounted for the variance in her signature when she signed the affidavit of consent. Notably, Rosario had been living separately from Tarciano for 30 years since 1958. And she resided so far away in Manila. It would have been quite tempting for Tarciano to just forge her signature and avoid the risk that she would not give her consent to the sale or demand a stiff price for it.

What is more, Atty. Plagata admittedly falsified the jurat of the affidavit of consent. That jurat declared that Rosario swore to the document and signed it in Zamboanga City on January 11, 1989 when, as Atty. Plagata testified, she supposedly signed it about four months earlier at her residence in Paco, Manila on September 15, 1988. While a defective notarization will merely strip the document of its public character and reduce it to a private instrument, that falsified jurat, taken together with the marks of forgery in the signature, dooms such document as proof of Rosario’s consent to the sale of the land. That the Fuentes spouses honestly relied on the notarized affidavit as proof of Rosario’s consent does not matter. The sale is still void without an authentic consent.

Second. Contrary to the ruling of the Court of Appeals, the law that applies to this case is the Family Code, not the Civil Code. Although Tarciano and Rosario got married in 1950, Tarciano sold the conjugal property to the Fuentes spouses on January 11, 1989, a few months after the Family Code took effect on August 3, 1988.

When Tarciano married Rosario, the Civil Code put in place the system of conjugal partnership of gains on their property relations. While its Article 165 made Tarciano the sole administrator of the conjugal partnership, Article 16617 prohibited him from selling commonly owned real property without his wife’s consent. Still, if he sold the same without his wife’s consent, the sale is not void but merely voidable. Article 173 gave Rosario the right to have the sale annulled during the marriage within ten years from the date of the sale. Failing in that, she or her heirs may demand, after dissolution of the marriage, only the value of the property that Tarciano fraudulently sold. Thus:

Art. 173. The wife may, during the marriage, and within ten years from the transaction questioned, ask the courts for the annulment of any contract of the husband entered into without her consent, when such consent is required, or any act or contract of the husband which tends to defraud her or impair her interest in the conjugal partnership property. Should the wife fail to exercise this right, she or her heirs, after the dissolution of the marriage, may demand the value of property fraudulently alienated by the husband.

But, as already stated, the Family Code took effect on August 3, 1988. Its Chapter 4 on Conjugal Partnership of Gains expressly superseded Title VI, Book I of the Civil Code on Property Relations Between Husband and Wife.18 Further, the Family Code provisions were also made to apply to already existing conjugal partnerships without prejudice to vested rights.19 Thus:

Art. 105. x x x The provisions of this Chapter shall also apply to conjugal partnerships of gains already established between spouses before the effectivity of this Code, without prejudice to vested rights already acquired in accordance with the Civil Code or other laws, as provided in Article 256. (n)

Consequently, when Tarciano sold the conjugal lot to the Fuentes spouses on January 11, 1989, the law that governed the disposal of that lot was already the Family Code.

In contrast to Article 173 of the Civil Code, Article 124 of the Family Code does not provide a period within which the wife who gave no consent may assail her husband’s sale of the real property. It simply provides that without the other spouse’s written consent or a court order allowing the sale, the same would be void. Article 124 thus provides:

Art. 124. x x x In the event that one spouse is incapacitated or otherwise unable to participate in the administration of the conjugal properties, the other spouse may assume sole powers of administration. These powers do not include the powers of disposition or encumbrance which must have the authority of the court or the written consent of the other spouse. In the absence of such authority or consent, the disposition or encumbrance shall be void. x x x

Under the provisions of the Civil Code governing contracts, a void or inexistent contract has no force and effect from the very beginning. And this rule applies to contracts that are declared void by positive provision of law,20 as in the case of a sale of conjugal property without the other spouse’s written consent. A void contract is equivalent to nothing and is absolutely wanting in civil effects. It cannot be validated either by ratification or prescription.21

But, although a void contract has no legal effects even if no action is taken to set it aside, when any of its terms have been performed, an action to declare its inexistence is necessary to allow restitution of what has been given under it.22 This action, according to Article 1410 of the Civil Code does not prescribe. Thus:

Art. 1410. The action or defense for the declaration of the inexistence of a contract does not prescribe.

Here, the Rocas filed an action against the Fuentes spouses in 1997 for annulment of sale and reconveyance of the real property that Tarciano sold without their mother’s (his wife’s) written consent. The passage of time did not erode the right to bring such an action.

Besides, even assuming that it is the Civil Code that applies to the transaction as the CA held, Article 173 provides that the wife may bring an action for annulment of sale on the ground of lack of spousal consent during the marriage within 10 years from the transaction. Consequently, the action that the Rocas, her heirs, brought in 1997 fell within 10 years of the January 11, 1989 sale. It did not yet prescribe.

The Fuentes spouses of course argue that the RTC nullified the sale to them based on fraud and that, therefore, the applicable prescriptive period should be that which applies to fraudulent transactions, namely, four years from its discovery. Since notice of the sale may be deemed given to the Rocas when it was registered with the Registry of Deeds in 1989, their right of action already prescribed in 1993.

But, if there had been a victim of fraud in this case, it would be the Fuentes spouses in that they appeared to have agreed to buy the property upon an honest belief that Rosario’s written consent to the sale was genuine. They had four years then from the time they learned that her signature had been forged within which to file an action to annul the sale and get back their money plus damages. They never exercised the right.

If, on the other hand, Rosario had agreed to sign the document of consent upon a false representation that the property would go to their children, not to strangers, and it turned out that this was not the case, then she would have four years from the time she discovered the fraud within which to file an action to declare the sale void. But that is not the case here. Rosario was not a victim of fraud or misrepresentation. Her consent was simply not obtained at all. She lost nothing since the sale without her written consent was void. Ultimately, the Rocas ground for annulment is not forgery but the lack of written consent of their mother to the sale. The forgery is merely evidence of lack of consent.

Third. The Fuentes spouses point out that it was to Rosario, whose consent was not obtained, that the law gave the right to bring an action to declare void her husband’s sale of conjugal land. But here, Rosario died in 1990, the year after the sale. Does this mean that the right to have the sale declared void is forever lost?

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The answer is no. As stated above, that sale was void from the beginning. Consequently, the land remained the property of Tarciano and Rosario despite that sale. When the two died, they passed on the ownership of the property to their heirs, namely, the Rocas.23 As lawful owners, the Rocas had the right, under Article 429 of the Civil Code, to exclude any person from its enjoyment and disposal.1avvphi1

In fairness to the Fuentes spouses, however, they should be entitled, among other things, to recover from Tarciano’s heirs, the Rocas, the P200,000.00 that they paid him, with legal interest until fully paid, chargeable against his estate.

Further, the Fuentes spouses appear to have acted in good faith in entering the land and building improvements on it. Atty. Plagata, whom the parties mutually entrusted with closing and documenting the transaction, represented that he got Rosario’s signature on the affidavit of consent. The Fuentes spouses had no reason to believe that the lawyer had violated his commission and his oath. They had no way of knowing that Rosario did not come to Zamboanga to give her consent. There is no evidence that they had a premonition that the requirement of consent presented some difficulty. Indeed, they willingly made a 30 percent down payment on the selling price months earlier on the assurance that it was forthcoming.

Further, the notarized document appears to have comforted the Fuentes spouses that everything was already in order when Tarciano executed a deed of absolute sale in their favor on January 11, 1989. In fact, they paid the balance due him. And, acting on the documents submitted to it, the Register of Deeds of Zamboanga City issued a new title in the names of the Fuentes spouses. It was only after all these had passed that the spouses entered the property and built on it. He is deemed a possessor in good faith, said Article 526 of the Civil Code, who is not aware that there exists in his title or mode of acquisition any flaw which invalidates it.

As possessor in good faith, the Fuentes spouses were under no obligation to pay for their stay on the property prior to its legal interruption by a final judgment against them.24 What is more, they are entitled under Article 448 to indemnity for the improvements they introduced into the property with a right of retention until the reimbursement is made. Thus:

Art. 448. The owner of the land on which anything has been built, sown or planted in good faith, shall have the right to appropriate as his own the works, sowing or planting, after payment of the indemnity provided for in Articles 546 and 548, or to oblige the one who built or planted to pay the price of the land, and the one who sowed, the proper rent. However, the builder or planter cannot be obliged to buy the land if its value is considerably more than that of the building or trees. In such case, he shall pay reasonable rent, if the owner of the land does not choose to appropriate the building or trees after proper indemnity. The parties shall agree upon the terms of the lease and in case of disagreement, the court shall fix the terms thereof. (361a)

The Rocas shall of course have the option, pursuant to Article 546 of the Civil Code,25 of indemnifying the Fuentes spouses for the costs of the improvements or paying the increase in value which the property may have acquired by reason of such improvements.

WHEREFORE, the Court DENIES the petition and AFFIRMS WITH MODIFICATION the decision of the Court of Appeals in CA-G.R. CV 00531 dated February 27, 2007 as follows:

1. The deed of sale dated January 11, 1989 that Tarciano T. Roca executed in favor of Manuel O. Fuentes, married to Leticia L. Fuentes, as well as the Transfer Certificate of Title T-90,981 that the Register of Deeds of Zamboanga City issued in the names of the latter spouses pursuant to that deed of sale are DECLARED void;

2. The Register of Deeds of Zamboanga City is DIRECTED to reinstate Transfer Certificate of Title 3533 in the name of Tarciano T. Roca, married to Rosario Gabriel;

3. Respondents Gonzalo G. Roca, Annabelle R. Joson, Rose Marie R. Cristobal, and Pilar Malcampo are ORDERED to pay petitioner spouses Manuel and Leticia Fuentes the P200,000.00 that the latter paid Tarciano T. Roca, with legal interest from January 11, 1989 until fully paid, chargeable against his estate;

4. Respondents Gonzalo G. Roca, Annabelle R. Joson, Rose Marie R. Cristobal, and Pilar Malcampo are further ORDERED, at their option, to indemnify petitioner spouses Manuel and Leticia Fuentes with their expenses for introducing useful improvements on the subject land or pay the increase in value which it may have acquired by reason of those improvements, with the spouses entitled to the right of retention of the land until the indemnity is made; and

5. The RTC of Zamboanga City from which this case originated is DIRECTED to receive evidence and determine the amount of indemnity to which petitioner spouses Manuel and Leticia Fuentes are entitled.

SO ORDERED.

ROBERTO A. ABADAssociate Justice

WE CONCUR:

REYNATO S. PUNOChief Justice

ANTONIO T. CARPIO

Associate Justice

RENATO C. CORONA

Associate Justice

CONCHITA CARPIO

MORALESAssociate Justice

(On Leave)PRESBITERO J. VELASCO, JR.Associate Justice

ANTONIO EDUARDO B.

NACHURAAssociate Justice

TERESITA J. LEONARDO-DE

CASTROAssociate Justice

ARTURO D. BRION DIOSDADO M.

Associate JusticePERALTA

Associate Justice

LUCAS P. BERSAMIN

Associate Justice

MARIANO C. DEL CASTILLO

Associate Justice

MARTIN S. VILLARAMA, JR.

Associate Justice

JOSE PORTUGAL PEREZ

Associate Justice

JOSE CATRAL MENDOZAAssociate Justice

C E R T I F I C A T I O N

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



Baguio City

FIRST DIVISION

G.R. No. 183628 April 7, 2010

DANIEL T. SO, Petitioner, vs.FOOD FEST LAND, INC. Respondent

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

G.R. No. 183670

FOOD FEST LAND, INC., Petitioner, vs.DANIEL T. SO, Respondent.

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D E C I S I O N

CARPIO MORALES, J.:

Food Fest Land Inc. (Food Fest) entered into a September 14, 1999 Contract of Lease1 with Daniel T. So (So) over a commercial space in San Antonio Village, Makati City for a period of three years (1999-2002) on which Food Fest intended to operate a Kentucky Fried Chicken carry out branch.

Before forging the lease contract, the parties entered into a preliminary agreement dated July 1, 1999, the pertinent portion of which stated:

The lease shall not become binding upon us unless and until the government agencies concerned shall authorize, permit or license us to open and maintain our business at the proposed Lease Premises. We shall promptly make an application for permits, licenses and authority for our business and shall exercise due diligence to obtain it, provided, however, that you shall assist us by submitting such documents and papers and comply with such other requirements as the governmental agencies may impose. We shall give notice to you when the permits, license and authorities have been obtained. We shall also notify you if any of the required permits, licenses and authorities shall not be be (sic) given or granted within fifteen days (15) from your conform (sic)hereto. In such case, the agreement may be canceled and all rights and obligations hereunder shall cease.2 (underscoring supplied)

While Food Fest was able to secure the necessary licenses and permits for the year 1999, it failed to commence business operations. For the year 2000, Food Fest’s application for renewal of barangay business clearance was "held in abeyance until further study of [its] kitchen facilities."31avvphi1

As the barangay business clearance is a prerequisite to the processing of other permits, licenses and authority by the city government, Food Fest was unable to operate. Fearing further business losses, Food Fest, by its claim, communicated its intent to terminate the lease contract to So who, however, did not accede and instead offered to help Food Fest secure authorization from the barangay. On

So’s advice, Food Fest wrote requests addressed to city officials for assistance to facilitate renewal.

In August 2000, Food Fest, for the second time, purportedly informed So of its intent to terminate the lease, and it in fact stopped paying rent.

So later sent a November 22, 2000 demand letter to Food Fest for the payment of rental arrearages and reiterated his offer to help it secure clearance from the barangay. Thus So wrote: "With regard to securing permits from the barangay & the City Hall, [with] which I am trying to help you, some form of representation, maybe not in cash, would definitely help in forging a longer term relationship."4 Food Fest demurred to the offer.1avvphi1

By letter of March 26, 2001,5 So again demanded payment of rentals from Food Fest from September 2000 to March 2001 amounting to P123,200.00. Food Fest denied any liability, however, and started to remove its fixtures and equipment from the premises.

On April 2, 2001, So sent Food Fest a Final Notice of Termination with demand to pay and to vacate.6

On April 26, 2001, So filed a complaint for ejectment and damages against Food Fest before the Metropolitan Trial Court (MeTC) of Makati City.

Branch 64 of the MeTC, by Decision of July 4, 2005,7 rendered judgment in favor of So, disposing as follows:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against defendant, Food Fest Land, Inc., as follows:

a. Ordering the defendant to pay the unpaid rentals from August 2000 until March 2001 with penalties accrued thereon. The security deposit in the sum of Sixty Four Thousand Pesos (Php64,000.00) is forfeited in favor of the plaintiff;

b. Ordering the defendant to pay liquidated damages in a sum equivalent to 25% of the total sum due and demandable;

c. Ordering the defendant to pay the plaintiff a sum equivalent to 25% of the total claim as and for attorney’s fees; and

d. The costs of suit.

SO ORDERED.8

On appeal, Branch 143 of the Regional Trial Court (RTC), by Decision of November 30, 2006,9 reversed the MeTC Decision, disposing as follows:

WHEREFORE, premises considered, the judgment of the lower court dated 04 July 2005 is hereby REVERSED and SET ASIDE, ordering plaintiff Daniel T. So to pay defendant Food Fest the amount of Thirty Two Thousand Pesos (P32,000.00) as reimbursement for rentals paid for the months of July and August 2000; Twenty Thousand Pesos (P20,000.00) as exemplary damages; Twenty Thousand Pesos (P20,000.00) as attorney’s fees and costs of suit.

SO ORDERED.10

In reversing the MeTC, the RTC found that Food Fest already vacated the leased premises before So filed the complaint for ejectment; and whereas possession is the only issue for resolution in an ejectment case, So’s cause of action only pertained to collection of the rental arrears.

As to So’s claim for payment of arrears, the RTC noted that since the claim exceeded the jurisdictional amount over which it can cognize, the RTC, applying Sec. 8, Rule 40 of the Rules of Court,11 treated the case as if it was originally filed with it.

On the merits, the RTC held that Food Fest’s failure to secure the authority to commence business operations resulted in the termination of its contractual obligations to So, including the obligation to pay rent.

On petition for review, the Court of Appeals, by Decision of April 18, 2008,12 upheld the RTC’s jurisdiction over the complaint. It, however, declared that Food Fest’s obligation to pay rent was not extinguished upon its failure to secure permits to operate. Thus, it disposed:

WHEREFORE, premises considered, the assailed decision dated November 30, 2006 of the RTC, Branch 143, Makati City is hereby REVERSED and SET ASIDE, ordering respondent FFLI to pay petitioner Daniel T. So the following:

1. Unpaid rentals from August 2000 until March 31, 2001 with penalties accrued thereon. The security deposit is forfeited in favor of petitioner So;

2. Temperate damages in the amount of P50,000.00;

3. P20,000.00 as attorney’s fees; and

4. Costs of suit.

SO ORDERED.13

The parties’ respective motions for reconsideration having been denied, they filed their respective petitions before this Court which, by Resolution of October 6, 2008, resolved to consolidate G.R. No. 183628 (Daniel T. So vs. Food Fest Land, Inc.) with G.R. No. 183670 (Food Fest Land, Inc. vs. Daniel T. So).

So maintains that the MeTC had jurisdiction over his complaint for ejectment. For, So contends, Food Fest did not vacate the leased premises before his filing (on April 26, 2001) of the complaint.

So admitted in his Complaint, however, that Food Fest started pulling out equipment and other machineries from the premises even before the final notice was received by it on April 2, 2001.

13. In or the last few days of March 2001 , defendant FOOD FEST LAND, INC. started to remove and pull out its equipment, appliances, fittings, furnishings, movable articles and other accessories and facilities that it had earlier placed and installed in the leased premises, but due to its wanton lack of care in doing so, so much damage and destruction was caused to the leased premises, resulting in the breakage of and damage to the concrete walls and partition in the building as well as the steel gate

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leading to the leased premises and other parts of the building and its premises.14 (emphasis and underscoring supplied)

Two elements are paramount in possession – there must be occupancy, apprehension or taking, and there must be intent to possess.15 In the present case, given the immediately quoted allegation-admission of So, intent to possess was not present on Food Fest’s part.

In another vein, So claims that Food Fest did not exercise care in removing the installations and fixtures, thereby causing destruction to the premises to thus entitle him to damages, as well as to damages corresponding to unrealized profits (lucrum cessans) to answer for the period during which the unit was not rented out.

Unrealized profits fall under the category of actual or compensatory damages. If there exists a basis for a reasonable expectation that profits would have continued to be generated had there been no breach of contract, indemnification for damages based on such expected profits is proper. This is, however, subject to the rule that a party is entitled to an adequate compensation only for such pecuniary loss suffered by him as he has duly proved.16

Other than the photographs evincing damage to the premises, no evidence was proffered to show So’s entitlement to unrealized profits. That the leased unit was not subsequently leased is not solely attributable to Food Fest. As borne by the records, no renovation was undertaken by So for almost three years following Food Fest’s vacation of the premises in 2001. The quotations issued by construction companies for purposes of renovation were issued only in 2004.

So is not without recourse under the lease contract, however. Thus the pertinent provisions of the lease contract provide:

7. LIABILITY OF LESSEE FOR DAMAGES- LESSEE hereby agrees that any damage to the leased premises or its appurtenances caused by said LESSEE or its agents, employees, customers, guests or any other person without the fault of LESSOR shall be LESSEE’s sole responsibility and liability, which damage shall, upon demand by LESSOR be repaired promptly at its expense.

16. TERMINATION OF THE LEASE- LESSEE agrees to return and surrender the leased premises at the expiration of the term of this lease in as good condition as reasonable wear and tear will permit and without delay whatsoever, devoid of all occupants, furniture, machinery, equipment and signages, articles and effects of any kind, other than such alterations or improvements which cannot be removed without damaging the leased premises.

23. PENALTY CLAUSE – Any and all accounts payable by LESSEE under this Contract of Lease and other charges which may be claimed against LESSEE, but not paid by LESSEE to LESSOR within fifteen (15) days from due date shall be subject to penalty charges of ONE PERCENT (1%) per month from due date until the account is paid in full.

23.1. Should LESSOR be compelled to seek judicial relief against LESSEE the latter shall, in addition to any other claim for damages pay as liquidated damages to LESSOR an amount equivalent to twenty-five percent (25%) of the amount due, but in no case less than P500.00: and an attorney’s fee in the amount equivalent to 25% of the amount claimed but in no case less than P3,000.00 as well as all expenses of litigation.17

Respecting So’s claim for renovation expenses, the same must be denied absent proof as to the actual cost of renovation. Only firm offers or quotations from construction companies are in the records. Following Article 2224 of the Civil Code,18 however, the appellate court’s award of temperate damages is in order.

This Court notes that the appellate court did not award liquidated damages in contravention of the contract. As for the appellate court’s award of P20,000.00 as attorney’s fees, the contractual stipulation should prevail.

As for Food Fest’s invocation of the principle of rebus sic stantibus as enunciated in Article 1267 of the Civil Code to render the lease contract functus officio, and consequently release it from responsibility to pay rentals, the Court is not persuaded. Article 1267 provides:

Article 1267. When the service has become so difficult as to be manifestly beyond the contemplation of the parties,

the obligor may also be released therefrom, in whole or in part.

This article, which enunciates the doctrine of unforeseen events, is not, however, an absolute application of the principle of rebus sic stantibus, which would endanger the security of contractual relations. The parties to the contract must be presumed to have assumed the risks of unfavorable developments. It is, therefore, only in absolutely exceptional changes of circumstances that equity demands assistance for the debtor.19

Food Fest claims that its failure to secure the necessary business permits and licenses rendered the impossibility and non-materialization of its purpose in entering into the contract of lease, in support of which it cites the earlier-quoted portion of the preliminary agreement dated July 1, 1999 of the parties.20

The cause or essential purpose in a contract of lease is the use or enjoyment of a thing.21 A party’s motive or particular purpose in entering into a contract does not affect the validity or existence of the contract; an exception is when the realization of such motive or particular purpose has been made a condition upon which the contract is made to depend. The exception does not apply here.

It is clear that the condition set forth in the preliminary agreement pertains to the initial application of Food Fest for the permits, licenses and authority to operate. It should not be construed to apply to Food Fest’s subsequent applications. Consider the following qualification in the preliminary agreement:

xxx We shall also notify you if any of the required permits, licenses and authorities shall not be be (sic) given or granted within fifteen days (15) from your conform (sic) hereto. In such case, the agreement may be canceled and all rights and obligations hereunder shall cease.22 (underscoring supplied)

Food Fest was able to secure the permits, licenses and authority to operate when the lease contract was executed. Its failure to renew these permits, licenses and authority for the succeeding year, does not, however, suffice to declare the lease functus officio, nor can it be construed as

an unforeseen event to warrant the application of Article 1267.

Contracts, once perfected, are binding between the contracting parties. Obligations arising therefrom have the force of law and should be complied with in good faith. Food Fest cannot renege from the obligations it has freely assumed when it signed the lease contract.

WHEREFORE, the Court of Appeals Decision of April 18, 2008 is AFFIRMED with MODIFICATION.

Food Fest is ORDERED to pay So liquidated damages in the amount equivalent to 25% of the total sum due and demandable. Further, So is ORDERED to pay attorney’s fees in the amount equivalent to 25% of the total sum due and demandable. In all other respects, the decision is AFFIRMED.

SO ORDERED.

CONCHITA CARPIO MORALESAssociate Justice

WE CONCUR:

REYNATO S. PUNOChief JusticeChairperson



LUCAS P. BERSAMINAssociate Justice

MARTIN S. VILLARAMA, JR.Associate Justice


Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

6



Manila

THIRD DIVISION

G.R. No. 168289 March 22, 2010

THE MUNICIPALITY OF HAGONOY, BULACAN, represented by the HON. FELIX V. OPLE, Municipal Mayor, and FELIX V. OPLE, in his personal capacity, Petitioners, vs.HON. SIMEON P. DUMDUM, JR., in his capacity as the Presiding Judge of the REGIONAL TRIAL COURT, BRANCH 7, CEBU CITY; HON. CLERK OF COURT & EX-OFFICIO SHERIFF of the REGIONAL TRIAL COURT of CEBU CITY; HON. CLERK OF COURT & EX-OFFICIO SHERIFF of the REGIONAL TRIAL COURT of BULACAN and his DEPUTIES; and EMILY ROSE GO KO LIM CHAO, doing business under the name and style KD SURPLUS, Respondents.

D E C I S I O N

PERALTA, J.:

This is a Joint Petition1 under Rule 45 of the Rules of Court brought by the Municipality of Hagonoy, Bulacan and its former chief executive, Mayor Felix V. Ople in his official and personal capacity, from the January 31, 2005 Decision2 and the May 23, 2005 Resolution3 of the Court of Appeals in CA-G.R. SP No. 81888. The assailed decision affirmed the October 20, 2003 Order4 issued by the Regional Trial Court of Cebu City, Branch 7 in Civil Case No. CEB-28587 denying petitioners’ motion to dismiss and motion to discharge/dissolve the writ of preliminary attachment previously issued in the case. The assailed resolution denied reconsideration.

The case stems from a Complaint5 filed by herein private respondent Emily Rose Go Ko Lim Chao against herein

petitioners, the Municipality of Hagonoy, Bulacan and its chief executive, Felix V. Ople (Ople) for collection of a sum of money and damages. It was alleged that sometime in the middle of the year 2000, respondent, doing business as KD Surplus and as such engaged in buying and selling surplus trucks, heavy equipment, machinery, spare parts and related supplies, was contacted by petitioner Ople. Respondent had entered into an agreement with petitioner municipality through Ople for the delivery of motor vehicles, which supposedly were needed to carry out certain developmental undertakings in the municipality. Respondent claimed that because of Ople’s earnest representation that funds had already been allocated for the project, she agreed to deliver from her principal place of business in Cebu City twenty-one motor vehicles whose value totaled P5,820,000.00. To prove this, she attached to the complaint copies of the bills of lading showing that the items were consigned, delivered to and received by petitioner municipality on different dates.6 However, despite having made several deliveries, Ople allegedly did not heed respondent’s claim for payment. As of the filing of the complaint, the total obligation of petitioner had already totaled P10,026,060.13 exclusive of penalties and damages. Thus, respondent prayed for full payment of the said amount, with interest at not less than 2% per month, plus P500,000.00 as damages for business losses, P500,000.00 as exemplary damages, attorney’s fees of P100,000.00 and the costs of the suit.

On February 13, 2003, the trial court issued an Order7 granting respondent’s prayer for a writ of preliminary attachment conditioned upon the posting of a bond equivalent to the amount of the claim. On March 20, 2003, the trial court issued the Writ of Preliminary Attachment8 directing the sheriff "to attach the estate, real and personal properties" of petitioners.

Instead of addressing private respondent’s allegations, petitioners filed a Motion to Dismiss9 on the ground that the claim on which the action had been brought was unenforceable under the statute of frauds, pointing out that there was no written contract or document that would evince the supposed agreement they entered into with respondent. They averred that contracts of this nature, before being undertaken by the municipality, would ordinarily be subject to several preconditions such as a public bidding and prior approval of the municipal council which, in this case, did not obtain. From this, petitioners impress upon us the notion that no contract was ever

entered into by the local government with respondent.10 To address the claim that respondent had made the deliveries under the agreement, they advanced that the bills of lading attached to the complaint were hardly probative, inasmuch as these documents had been accomplished and handled exclusively by respondent herself as well as by her employees and agents.11

Petitioners also filed a Motion to Dissolve and/or Discharge the Writ of Preliminary Attachment Already Issued,12 invoking immunity of the state from suit, unenforceability of the contract, and failure to substantiate the allegation of fraud.13

On October 20, 2003, the trial court issued an Order14 denying the two motions. Petitioners moved for reconsideration, but they were denied in an Order15 dated December 29, 2003.

Believing that the trial court had committed grave abuse of discretion in issuing the two orders, petitioners elevated the matter to the Court of Appeals via a petition for certiorari under Rule 65. In it, they faulted the trial court for not dismissing the complaint despite the fact that the alleged contract was unenforceable under the statute of frauds, as well as for ordering the filing of an answer and in effect allowing private respondent to prove that she did make several deliveries of the subject motor vehicles. Additionally, it was likewise asserted that the trial court committed grave abuse of discretion in not discharging/dissolving the writ of preliminary attachment, as prayed for in the motion, and in effect disregarding the rule that the local government is immune from suit.

On January 31, 2005, following assessment of the parties’ arguments, the Court of Appeals, finding no merit in the petition, upheld private respondent’s claim and affirmed the trial court’s order.16 Petitioners moved for reconsideration, but the same was likewise denied for lack of merit and for being a mere scrap of paper for having been filed by an unauthorized counsel.17 Hence, this petition.

In their present recourse, which raises no matter different from those passed upon by the Court of Appeals, petitioners ascribe error to the Court of Appeals for dismissing their challenge against the trial court’s October 20 and December 29, 2003 Orders. Again, they reason that

the complaint should have been dismissed at the first instance based on unenforceability and that the motion to dissolve/discharge the preliminary attachment should have been granted.18

Commenting on the petition, private respondent notes that with respect to the Court of Appeals’ denial of the certiorari petition, the same was rightly done, as the fact of delivery may be properly and adequately addressed at the trial of the case on the merits; and that the dissolution of the writ of preliminary attachment was not proper under the premises inasmuch as the application for the writ sufficiently alleged fraud on the part of petitioners. In the same breath, respondent laments that the denial of petitioners’ motion for reconsideration was rightly done by the Court of Appeals, because it raised no new matter that had not yet been addressed.19

After the filing of the parties’ respective memoranda, the case was deemed submitted for decision.

We now rule on the petition.

To begin with, the Statute of Frauds found in paragraph (2), Article 1403 of the Civil Code,20 requires for enforceability certain contracts enumerated therein to be evidenced by some note or memorandum. The term "Statute of Frauds" is descriptive of statutes that require certain classes of contracts to be in writing; and that do not deprive the parties of the right to contract with respect to the matters therein involved, but merely regulate the formalities of the contract necessary to render it enforceable.21

In other words, the Statute of Frauds only lays down the method by which the enumerated contracts may be proved. But it does not declare them invalid because they are not reduced to writing inasmuch as, by law, contracts are obligatory in whatever form they may have been entered into, provided all the essential requisites for their validity are present.22 The object is to prevent fraud and perjury in the enforcement of obligations depending, for evidence thereof, on the unassisted memory of witnesses by requiring certain enumerated contracts and transactions to be evidenced by a writing signed by the party to be charged.23 The effect of noncompliance with this requirement is simply that no action can be enforced under the given contracts.24 If an action is nevertheless filed in

7

court, it shall warrant a dismissal under Section 1(i),25 Rule 16 of the Rules of Court, unless there has been, among others, total or partial performance of the obligation on the part of either party.26

It has been private respondent’s consistent stand, since the inception of the instant case that she has entered into a contract with petitioners. As far as she is concerned, she has already performed her part of the obligation under the agreement by undertaking the delivery of the 21 motor vehicles contracted for by Ople in the name of petitioner municipality. This claim is well substantiated — at least for the initial purpose of setting out a valid cause of action against petitioners — by copies of the bills of lading attached to the complaint, naming petitioner municipality as consignee of the shipment. Petitioners have not at any time expressly denied this allegation and, hence, the same is binding on the trial court for the purpose of ruling on the motion to dismiss. In other words, since there exists an indication by way of allegation that there has been performance of the obligation on the part of respondent, the case is excluded from the coverage of the rule on dismissals based on unenforceability under the statute of frauds, and either party may then enforce its claims against the other.

No other principle in remedial law is more settled than that when a motion to dismiss is filed, the material allegations of the complaint are deemed to be hypothetically admitted.27 This hypothetical admission, according to Viewmaster Construction Corporation v. Roxas28 and Navoa v. Court of Appeals,29 extends not only to the relevant and material facts well pleaded in the complaint, but also to inferences that may be fairly deduced from them. Thus, where it appears that the allegations in the complaint furnish sufficient basis on which the complaint can be maintained, the same should not be dismissed regardless of the defenses that may be raised by the defendants.30 Stated differently, where the motion to dismiss is predicated on grounds that are not indubitable, the better policy is to deny the motion without prejudice to taking such measures as may be proper to assure that the ends of justice may be served.31

It is interesting to note at this point that in their bid to have the case dismissed, petitioners theorize that there could not have been a contract by which the municipality agreed to be bound, because it was not shown that there had been compliance with the required bidding or that the municipal

council had approved the contract. The argument is flawed. By invoking unenforceability under the Statute of Frauds, petitioners are in effect acknowledging the existence of a contract between them and private respondent — only, the said contract cannot be enforced by action for being non-compliant with the legal requisite that it be reduced into writing. Suffice it to say that while this assertion might be a viable defense against respondent’s claim, it is principally a matter of evidence that may be properly ventilated at the trial of the case on the merits.

Verily, no grave abuse of discretion has been committed by the trial court in denying petitioners’ motion to dismiss this case. The Court of Appeals is thus correct in affirming the same.

We now address the question of whether there is a valid reason to deny petitioners’ motion to discharge the writ of preliminary attachment.

Petitioners, advocating a negative stance on this issue, posit that as a municipal corporation, the Municipality of Hagonoy is immune from suit, and that its properties are by law exempt from execution and garnishment. Hence, they submit that not only was there an error committed by the trial court in denying their motion to dissolve the writ of preliminary attachment; they also advance that it should not have been issued in the first place. Nevertheless, they believe that respondent has not been able to substantiate her allegations of fraud necessary for the issuance of the writ.32

Private respondent, for her part, counters that, contrary to petitioners’ claim, she has amply discussed the basis for the issuance of the writ of preliminary attachment in her affidavit; and that petitioners’ claim of immunity from suit is negated by Section 22 of the Local Government Code, which vests municipal corporations with the power to sue and be sued. Further, she contends that the arguments offered by petitioners against the writ of preliminary attachment clearly touch on matters that when ruled upon in the hearing for the motion to discharge, would amount to a trial of the case on the merits.33

The general rule spelled out in Section 3, Article XVI of the Constitution is that the state and its political subdivisions may not be sued without their consent.

Otherwise put, they are open to suit but only when they consent to it. Consent is implied when the government enters into a business contract, as it then descends to the level of the other contracting party; or it may be embodied in a general or special law34 such as that found in Book I, Title I, Chapter 2, Section 22 of the Local Government Code of 1991, which vests local government units with certain corporate powers —one of them is the power to sue and be sued.

Be that as it may, a difference lies between suability and liability. As held in City of Caloocan v. Allarde,35 where the suability of the state is conceded and by which liability is ascertained judicially, the state is at liberty to determine for itself whether to satisfy the judgment or not. Execution may not issue upon such judgment, because statutes waiving non-suability do not authorize the seizure of property to satisfy judgments recovered from the action. These statutes only convey an implication that the legislature will recognize such judgment as final and make provisions for its full satisfaction. Thus, where consent to be sued is given by general or special law, the implication thereof is limited only to the resultant verdict on the action before execution of the judgment.36

Traders Royal Bank v. Intermediate Appellate Court,37 citing Commissioner of Public Highways v. San Diego,38 is instructive on this point. In that case which involved a suit on a contract entered into by an entity supervised by the Office of the President, the Court held that while the said entity opened itself to suit by entering into the subject contract with a private entity; still, the trial court was in error in ordering the garnishment of its funds, which were public in nature and, hence, beyond the reach of garnishment and attachment proceedings. Accordingly, the Court ordered that the writ of preliminary attachment issued in that case be lifted, and that the parties be allowed to prove their respective claims at the trial on the merits. There, the Court highlighted the reason for the rule, to wit:

The universal rule that where the State gives its consent to be sued by private parties either by general or special law, it may limit claimant’s action "only up to the completion of proceedings anterior to the stage of execution" and that the power of the Courts ends when the judgment is rendered, since government funds and properties may not be seized under writs of execution or garnishment to satisfy such judgments, is based on obvious considerations of public policy. Disbursements of public funds must be

covered by the corresponding appropriations as required by law. The functions and public services rendered by the State cannot be allowed to be paralyzed or disrupted by the diversion of public funds from their legitimate and specific objects. x x x39

With this in mind, the Court holds that the writ of preliminary attachment must be dissolved and, indeed, it must not have been issued in the very first place. While there is merit in private respondent’s position that she, by affidavit, was able to substantiate the allegation of fraud in the same way that the fraud attributable to petitioners was sufficiently alleged in the complaint and, hence, the issuance of the writ would have been justified. Still, the writ of attachment in this case would only prove to be useless and unnecessary under the premises, since the property of the municipality may not, in the event that respondent’s claim is validated, be subjected to writs of execution and garnishment — unless, of course, there has been a corresponding appropriation provided by law.401avvphi1

Anent the other issues raised by petitioners relative to the denial of their motion to dissolve the writ of attachment, i.e., unenforceability of the contract and the veracity of private respondent’s allegation of fraud, suffice it to say that these pertain to the merits of the main action. Hence, these issues are not to be taken up in resolving the motion to discharge, lest we run the risk of deciding or prejudging the main case and force a trial on the merits at this stage of the proceedings.41

There is one final concern raised by petitioners relative to the denial of their motion for reconsideration. They complain that it was an error for the Court of Appeals to have denied the motion on the ground that the same was filed by an unauthorized counsel and, hence, must be treated as a mere scrap of paper.42

8

It can be derived from the records that petitioner Ople, in his personal capacity, filed his Rule 65 petition with the Court of Appeals through the representation of the law firm Chan Robles & Associates. Later on, municipal legal officer Joselito Reyes, counsel for petitioner Ople, in his official capacity and for petitioner municipality, filed with the Court of Appeals a Manifestation with Entry of Appearance43 to the effect that he, as counsel, was "adopting all the pleadings filed for and in behalf of [Ople’s personal representation] relative to this case."44

It appears, however, that after the issuance of the Court of Appeals’ decision, only Ople’s personal representation signed the motion for reconsideration. There is no showing that the municipal legal officer made the same manifestation, as he previously did upon the filing of the petition.45 From this, the Court of Appeals concluded that it was as if petitioner municipality and petitioner Ople, in his official capacity, had never moved for reconsideration of the assailed decision, and adverts to the ruling in Ramos v. Court of Appeals46 and Municipality of Pililla, Rizal v. Court of Appeals47 that only under well-defined exceptions may a private counsel be engaged in lawsuits involving a municipality, none of which exceptions obtains in this case.48

The Court of Appeals is mistaken. As can be seen from the manner in which the Manifestation with Entry of Appearance is worded, it is clear that petitioner municipality’s legal officer was intent on adopting, for both the municipality and Mayor Ople, not only the certiorari petition filed with the Court of Appeals, but also all other pleadings that may be filed thereafter by Ople’s personal representation, including the motion for reconsideration subject of this case. In any event, however, the said motion for reconsideration would warrant a denial, because there seems to be no matter raised therein that has not yet been previously addressed in the assailed decision of the Court of Appeals as well as in the proceedings below, and that would have otherwise warranted a different treatment of the issues involved.

WHEREFORE, the Petition is GRANTED IN PART. The January 31, 2005 Decision of the Court of Appeals in CA-G.R. SP No. 81888 is AFFIRMED insofar as it affirmed the October 20, 2003 Decision of the Regional Trial Court of Cebu City, Branch 7 denying petitioners’ motion to dismiss in Civil Case No. CEB-28587. The assailed decision is REVERSED insofar as it affirmed the

said trial court’s denial of petitioners’ motion to discharge the writ of preliminary attachment issued in that case. Accordingly, the August 4, 2003 Writ of Preliminary Attachment issued in Civil Case No. CEB-28587 is ordered lifted.

SO ORDERED.

DIOSDADO M. PERALTAAssociate Justice

WE CONCUR:

RENATO C. CORONAAssociate Justice

Chairperson

PRESBITERO J. VELASCO, JR.Associate Justice

ANTONIO EDUARDO B. NACHURA

Associate Justice


A T T E S T A T I O N

I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

RENATO C. CORONAAssociate JusticeThird Division, Chairperson


Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson’s Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.



Manila

THIRD DIVISION

G.R. No. 161074 March 22, 2010

MANUEL T. DE GUIA, for himself and as Attorney-in-Fact of FE DAVIS MARAMBA, RENATO DAVIS, FLORDELIZA D. YEH, JOCELYN D. QUEBLATIN and BETTY DAVIS, Petitioners, vs.HON. PRESIDING JUDGE, REGIONAL TRIAL COURT, BRANCH 12, MALOLOS, BULACAN; SPOUSES TEOFILO R. MORTE, ANGELINA C. VILLARICO; SPOUSES RUPERTO and MILAGROS VILLARICO; AND DEPUTY SHERIFF BENJAMIN C. HAO, Respondents.

D E C I S I O N

PERALTA, J.:

Before us is a petition for review on certiorari which assails the Decision1 dated August 30, 2002 and the Resolution2 dated November 28, 2003 of the Court of Appeals (CA) in CA-G.R. CV No. 38031.

Petitioners Fe Davis Maramba, Renato Davis, Flordeliza D. Yeh, Jocelyn D. Queblatin and Betty Davis are the heirs of the late Primitiva Lejano Davis (Primitiva), the owner of the ½ undivided portion (subject property) of two parcels of land (fishpond), situated in Meycauayan, Bulacan, covered by TCT No. T-6358 of the Register of Deeds of Bulacan. Petitioner Manuel T. de Guia alleged to be the owner of the subject property, having acquired the same from his co-petitioners.

The antecedents, as borne by the records, are as follows:

On August 8, 1973, Primitiva executed a document denominated as Kasulatan ng Sanglaan (Exhibit "J"),3 a deed of mortgage, in favor of respondents spouses Teofilo R. Morte and Angelina C. Villarico (respondents Spouses

Morte) over the subject property in consideration of Primitiva's loan in the amount of P20,000.00.

On February 15, 1974, Primitiva executed another document, Kasunduan ng Bilihang Tuluyan (Exhibit "F"),4

a deed of sale, over the same subject property in favor of spouses Ruperto C. Villarico and Milagros D. Barretto (respondents Spouses Villarico) for and in consideration of the amount of P33,000.00.

On February 14, 1977, respondents Spouses Villarico executed a document denominated as Kasunduan ng Bilihang Tuluyan (Exhibit "G"),5 a deed of sale, wherein they sold back the subject property to Primitiva for the same amount of P33,000.00.

On March 26, 1977, Primitiva executed another document, Kasunduan ng Bilihang Tuluyan (Exhibit"H"),6 a deed of sale, wherein she again sold the subject property to respondents Spouses Villarico for the amount of P180,000.00.

On March 28, 1977, Primitiva executed a Kasulatan ng Sanglaan (Exhibit "I"),7 a deed of mortgage, over the subject property in favor of respondents Spouses Morte in consideration of a loan in the amount of P180,000.00.

Except for Exhibit "H," all documents were duly notarized and petitioner Renato was one of the instrumental witnesses in all these documents.

On November 10, 1979, Primitiva, respondents Spouses Villarico and Spouses Morte executed before Notary Public Mamerto A. Abaño the following five (5) documents, each of which was signed by petitioner Renato as an instrumental witness, to wit:

1. Kasulatan ng Sanglaan (Exhibit "A")8 - executed by Primitiva mortgaging the subject property to respondent Spouses Morte in consideration of a loan in the amount of P500,000.00 payable in one (1) year from date of contract at 12% interest;

2. General Power of Attorney (Exhibit "B")9 - executed by Primitiva appointing respondent

9

Spouses Villarico as her attorney-in-fact in the exercise of general control and supervision over the subject property with full authority to act as her representative and agent, to lease, mortgage or sell said share, among other things, for and in her behalf;

3. Kasulatan ng Pagpapabuwis ng Palaisdaan (Exhibit "C")10 - executed between Primitiva, as lessor, and respondent Spouses Villarico, as lessees, over the same subject property at P10,000.00 per year as rental. Primitiva also acknowledged in the same document the receipt of P150,000.00 as advance payment of the yearly rentals for a period of fifteen (15) years ;

4. Pagpapawalang Saysay ng Kasulatan ng Sanglaan (Exhibit "D")11 - executed by respondent spouses Morte canceling and rendering without any valid force and effect the "Kasulatan ng Sanglaan" (Exhibit "I") dated March 28, 1977 for a loan of P180,000.00;

5. Kasulatan ng Pagpapawalang Saysay at Pagpapawalang Bisa ng mga Kasulatan (Exhibit "E")12 - executed by Primitiva and respondent Spouses Villarico canceling the following documents:

a) Kasunduan ng Bilihang Tuluyan (Exhibit "F") dated February 15, 1974;

b) Kasunduan ng Bilihang Tuluyan (Exhibit "G") dated February 14, 1977; and

c) Kasunduan ng Bilihang Tuluyan (Exhibit "H") dated March 26, 1977;

because the amounts stated in those deeds had already been returned by Primitiva to respondent Spouses Villarico.

Primitiva failed to pay her loan in the amount of P500,000.00 to respondents Spouses Morte as secured by a real estate mortgage on the subject property (Exhibit "A") executed on November 10, 1979. Thus, the latter filed with the Office of the Provincial Sheriff of Bulacan, a petition for extrajudicial foreclosure of real estate mortgage. On January 16, 1986, a Notice of Sheriffs’ Sale of the property was published.

On February 17, 1986, petitioner De Guia, for himself and as attorney-in-fact of the other co-petitioners, filed with the Regional Trial Court (RTC) of Malolos, Bulacan, an Amended Complaint for annulment of real estate mortgage and contract of lease with preliminary injunction against respondents Spouses Morte, Spouses Villarico, and Deputy Sheriff Benjamin C. Hao. Petitioners sought to annul the Kasulatan ng Sanglaan (Exhibit "A") and Kasulatan ng Pagbubuwis ng Palaisdaan (Exhibit "C"), both executed by Primitiva in favor of respondents Spouses on November 10, 1979, contending that the documents were null and void, since Primitiva signed them under threat of immediate foreclosure of mortgage on the subject property and without any valuable consideration; and that respondent Sheriff Hao had scheduled the auction sale of the subject property which would cause great and irreparable injury to petitioners. Thus, they prayed that the public auction be enjoined.

In their Answer, respondents Spouses argued that these documents were executed for valuable consideration, and that petitioner Renato was one of the instrumental witnesses in these documents; that Atty. Mamerto Abaño, the Notary Public who notarized the questioned documents, was then Primitiva's lawyer and not of respondents. Respondents clarified that the documents Pagpapawalang Saysay ng Kasulatan ng Sanglaan (Exhibit "D") and the Pagpapawalang Saysay at Pagpapawalang Bisa ng Mga Kasulatan (Exhibit "E"), both dated November 10, 1979, which made the earlier documents, to wit: Exhibits "F," "G," "H" and "I," executed between Primitiva and the respondents Spouses of no force and effect, were executed to avoid confusion and to show that the latest documents dated November 10, 1979 represented the actual and subsisting transactions between the parties. In their Counterclaim, respondents Spouses Villarico claimed that they should have been in possession of the fishpond since 1979 if not for the unwarranted refusal of petitioner De Guia to vacate the fishpond despite demands.

On March 6, 1986, the RTC issued an Order granting petitioners' application for the issuance of a writ of preliminary injunction upon the filing of an injunction bond. A writ of preliminary injunction was, subsequently, issued and was served on Sheriff Hao and respondents Spouses.

Thereafter, trial ensued.

On February 28, 2002, the RTC rendered its Decision,13 the dispositive portion of which reads:

WHEREFORE, the evidence having shown the plaintiffs, particularly Manuel de Guia, their successor-in-interest, not entitled upon the facts and the law to the relief prayed for in the amended complaint, the same is hereby DISMISSED with costs against said plaintiff. Instead as prayed for by defendants, judgment is hereby rendered :

1. Declaring the "Kasulatan ng Sanglaan (Exhs. "A" & "1") dated November 10, 1979, and the "Kasulatan ng Pagpapabuwis ng Palaisdaan (Exhs. "C" & "3") also dated November 10, 1979, as valid for all legal intents and purposes;

2. Ordering the Ex-Officio Sheriff, RTC, Bulacan, to proceed with the extrajudicial foreclosure of the subject real estate mortgage; and

3. Ordering plaintiffs to pay defendants attorney's fees in the amount of P20,000.00

SO ORDERED.14

The RTC found that petitioner Renato, Primitiva's son and an instrumental witness to all the questioned documents, did not deny the outstanding obligations of his mother to respondents; that he explicitly declared that his mother had to execute Exhibit "A" to restructure her indebtedness to respondents Spouses Morte, so as to avoid the foreclosure of the mortgage over the subject property; that there was no other force or intimidation used by respondents Spouses upon him or his mother. The RTC ruled that if respondents Spouses Morte threatened to foreclose the mortgage because of Primitiva's failure to pay her

indebtedness to them, they were only exercising their right as mortgagees and it was within their right to file a petition for extrajudicial foreclosure of the real estate mortgage. The RTC also found that Primitiva executed the questioned documents for valuable consideration as established by petitioner Renato's testimony that his mother executed the documents to restructure her outstanding obligation with respondents. And it was also established by Atty. Abaño, a former lawyer of Primitiva, that in his presence, certain amounts of money were given or paid by respondents Spouses to Primitiva.

Petitioners filed their appeal with the CA. On August 30, 2002, the CA issued its assailed Decision, the dispositive portion of which reads:

UPON THE VIEW WE TAKE OF THIS CASE, THUS, the judgment appealed from must be, as it hereby is AFFIRMED. Costs shall be taxed against appellants.15

Petitioners' motion for reconsideration was denied in a Resolution dated November 28, 2003.

Hence, petitioners filed a petition for review raising the following issues, to wit:

A. WHETHER OR NOT THE COURT OF APPEALS ERRED IN DECLARING THAT THE "TRANSACTIONS" EXECUTED ON SAME DATE, NOVEMBER 10, 1979, ARE NOT VOID AND SIMULATED;

B. ASSUMING ARGUENDO, WHETHER OR NOT THE COURT OF APPEALS ERRED IN NOT DECLARING THE SAID REAL ESTATE MORTGAGE FOR P500,000.00 AND THE LEASE CONTRACT AS VOID WHEN BOTH AGREEMENTS WERE NOT REGISTERED AND THEREFORE NOT BINDING TO THIRD PERSONS, TO INCLUDE PETITIONER DE GUIA;

C. THE INSTANT PETITION INVOLVES A QUESTION OF LAW WELL WITHIN THE POWER OF REVIEW BY THIS HONORABLE TRIBUNAL.16

10

The issue for resolution of whether the CA committed a reversible error when it upheld the RTC judgment declaring the Kasulatan ng Sanglaan (Exhibit "A") and the Kasulatan ng Pagpapabuwis ng Palaisdaan (Exhibit "C"), both dated November 10, 1979, as valid, is a factual issue.

In petitions for review on certiorari as a mode of appeal under Rule 45 of the Rules of Court, the petitioner can raise only questions of law – the Supreme Court is not the proper venue to consider a factual issue as it is not a trier of facts.17 A departure from the general rule may be warranted where the findings of fact of the Court of Appeals are contrary to the findings and conclusions of the trial court, or when the same is unsupported by the evidence on record,18 which we found not obtaining in this case.

Petitioners' claim that Exhibit "A" was simulated, since the signatures of Primitiva and petitioner Renato, as one of the instrumental witnesses, were obtained under threat of an immediate foreclosure of the subject property, is devoid of merit.

The CA affirmed the RTC's finding that petitioner Renato admitted his mother's outstanding obligations to respondents Spouses Morte when he testified that his mother had to execute Exhibit "A" to restructure her indebtedness to respondents Spouses Morte to avoid the foreclosure of the mortgage on the subject property; that other than the threat of foreclosure, petitioner Renato declared that there was no other force or intimidation exerted on them by respondents Spouses Morte to execute Exhibit "A"; and that a threat to enforce one's just and legal claim through a competent authority did not vitiate Primitiva and petitioner Renato's consent.

We agree. Records show that petitioner Renato indeed admitted that his mother Primitiva was not able to pay her loan in the amount of P180,000.00, plus interest, as agreed upon in the earlier Deed of Mortgage dated March 28, 1977 executed between his mother and respondents Spouses Morte. Consequently, Primitiva approached the Spouses Morte for the restructuring of her loan and, thus, she executed Exhibit "A" in order that the subject property will not be foreclosed. Petitioner Renato's testimony on cross-examination stated:

ATTY. PUNO:

x x x x

Q. Tell us, Mr. Davis, what was your participation in that mortgage for P180,000.00?

A. I signed as witness to the document, sir.

Q. And I supposed that your mother signed as the mortgagor, is it not?

A. Yes, sir.

x x x x

Q. Now after this document or mortgage for P180,000.000 was executed by your mother, what happened to that mortgage?

A. The same was not paid also, sir.

Q. It was not paid by your mother?

A. Yes, sir.

Q. And so what happened?

A. Because of that the interest on the same loan was added to that making it bigger than the previously P180,000.00, sir.

Q. How long was the period for that mortgage for P180,000.00.

A. I could not recall how much but (interrupted).

Q. How long a period? The period?

A. It was also for another year at 12%.

Q. Interest?

A. Yes, sir.

Q. And so your mother was not able to pay that and naturally the interest accumulated?

A. Yes, sir.

Q. What happened after that?

A. After the interest accumulated and since we cannot pay we have to execute another mortgage in order not to foreclose the property, sir.

Q. Which mortgage are you referring to now, Mr. Davis?

A. We executed another mortgage for P500,000.00, sir.

Q. Do you recall what document was that?

A. It was a mortgage for P500,000.00 regarding the same property

Q. You are referring to Exh. "A."

ATTY. PUNO:

Q. Could you recall , Mr. Davis, when was the due date of that mortgage for P180.000.00 which was signed by your mother and attested by you as an instrumental witness thereon?

A. Actually, it was intended for only one (1) year, sir.

Q. What year was that?

A. About 1977, sir.

Q. Now is this Exhibit "A" one of the documents which you said you signed in the office of Notary Public Mamerto Abaño?

A. Yes, sir.

Q. Now when you read – Before you signed this document as an instrumental witness you read its contents, Mr. Davis?

A. Yes, sir.

Q. You understood its contents?

A. Yes, sir.

Q. Do you know what it meant ?

A. Yes, sir.

Q. And after that you signed as a witness?

A. Yes, sir.

Q. Your mother also signed this document "Kasulatan ng Sanglaan"?

A. Yes, sir.19

Petitioner Renato's claim that he and his mother were threatened of foreclosure of the subject property if his mother would not sign Exhibit "A," thus, their consent were vitiated, does not persuade us. As correctly ruled by the lower courts, the last paragraph of Article 1335 of the New Civil Code was applicable in this case, which provides that a threat to enforce one's claim through competent authority, if the claim is just or legal, does not vitiate consent. It has been held that foreclosure of mortgaged properties in case of default in payment of a debtor is a legal remedy afforded by law to a creditor. Hence, a threat to foreclose the mortgage would not per se vitiate consent.20

11

We, likewise, find no merit in petitioners' contention that Exhibit "C," executed between Primitiva and the Spouses Villarico, was also simulated. As correctly found by the CA, petitioners failed to adduce any evidence in support of such claim. It had been established that petitioner Renato, an instrumental witness to this document, admitted that he read and understood and was satisfied with the explanation of Notary Public Abaño regarding the contents of the same, before he and his mother affixed their signatures on the documents. Thus, we find no reason to deviate from the findings of both the trial and appellate courts that the assailed documents were validly executed by Primitiva in favor of the respondents Spouses.1avvphi1

Petitioners' argument that both documents were executed without valuable consideration deserves scant consideration. Notably, petitioner Renato admitted that Exhibit "A" was executed by his mother to restructure his mother's outstanding loan obligation to respondents Spouses Morte, which had not been paid. Moreover, respondent Teofilo Morte had also given P200,000.00 to Primitiva when Exhibit "A" was executed, thus, increasing the loaned amount to P500.000.00.21 In fact, Notary Public Abaño categorically declared that on the day the documents were executed, he saw respondents, the Spouses Morte and the Spouses Villarico, give money to Primitiva and his son petitioner Renato. Thus, it had been established that there was sufficient consideration for the execution of the assailed documents.

Petitioners tried to show the fraudulent character of the assailed documents by alleging that several documents had earlier been executed between Primitiva and the respondents Spouses involving the subject property, to wit: Deed of Sale dated February 15, 1974 (Exhibit "F"), where Primitiva sold the subject property to the Spouses Villarico for P33,000.00; Deed of Sale dated February 14, 1977 (Exhibit "G") where the subject property was sold back to Primitiva for the same amount of P33,000.00; and Deed of Sale dated March 26, 1977 (Exhibit "H"), where Primitiva sold the subject property to the Spouses Villarico for P180,000.00. Petitioners contend that Primitiva could no longer mortgage the subject property to respondents Spouses Morte on March 28, 1977, since the same was earlier sold by Primitiva to respondents Spouses Villarico on March 26, 1977 (Exhibit "H").

We are not persuaded.

Respondent Milagros Villarico provided the explanation for the execution of Exhibits "F," "G" and "H." She testified that she, her husband Ruperto and Primitiva executed Exhibit "F." However, when they went to the house of Judge Teofilo Abejo, the co-owner of the other ½ undivided portion of the property covered by TCT No. T-6358, (the other half is the subject property) to ask his consent to the sale, the latter did not give his consent thereto as he wanted to buy the subject property.22 Thus, they (respondents Spouses Villarico) had to execute Exhibit "G" selling back the subject property to Primitiva. However, Primitiva executed Exhibit "H," selling the subject property again to respondents Spouses Villarico. Again, Judge Abejo did not give his consent to such sale, thus, the sale did not push through, and in fact, the deed was not notarized.23

Notably, Milagros's testimony was corroborated by the fact that Primitiva executed on November 10, 1979, a document denominated as Pagpapawalang Saysay at Pagpapawalang Bisa ng mga Kasulatan (Exhibit "E"), wherein she declared Exhibits "F, "G" and "H," of no force and effect. It bears stressing that petitioner Renato was one of the instrumental witnesses in the execution of Exhibit "E" and he testified that Notary Public Abaño had explained to him the reason why Exhibit "E" was executed, together with the other documents, including the assailed documents, i.e., the documents executed on November 10, 1979 which were the latest transactions between the parties, were intended to show the nullity of the previously signed documents. As petitioner Renato was satisfied with such explanation, coupled with the fact that he read and understood the document, he and his mother then affixed their signatures on Exhibit "E."

Finally, petitioner De Guia's claim that he was an innocent purchaser for value, who bought the subject property without notice of the mortgage on the subject property, was not raised in the trial court. As a rule, no question will be entertained on appeal unless it has been raised in the court below. Points of law, theories, issues and arguments not brought to the attention of the lower court need not be, and ordinarily will not be, considered by a reviewing court, as they cannot be raised for the first time at that late stage. Basic considerations of due process impel this rule.24

WHEREFORE, the Petition is hereby DENIED. The assailed Decision of the Court of Appeals, dated August 30, 2002 in CA-G.R. CV No. 38031, is AFFIRMED.

SO ORDERED.


WE CONCUR:


Chairperson



Associate Justice









Manila

SECOND DIVISION

G.R. No. 169975 March 18, 2010

PAN PACIFIC SERVICE CONTRACTORS, INC. and RICARDO F. DEL ROSARIO, Petitioners, vs.EQUITABLE PCI BANK (formerly THE PHILIPPINE COMMERCIAL INTERNATIONAL BANK), Respondent.

D E C I S I O N

CARPIO, J.:

The Case

Pan Pacific Service Contractors, Inc. and Ricardo F. Del Rosario (petitioners) filed this Petition for Review1 assailing the Court of Appeals’ (CA) Decision2 dated 30 June 2005 in CA-G.R. CV No. 63966 as well as the Resolution3 dated 5 October 2005 denying the Motion for Reconsideration. In the assailed decision, the CA modified the 12 April 1999 Decision4 of the Regional Trial Court of Makati City, Branch 59 (RTC) by ordering Equitable PCI Bank5 (respondent) to pay petitioners P1,516,015.07 with interest at the legal rate of 12% per annum starting 6 May 1994 until the amount is fully paid.

The Facts

Pan Pacific Service Contractors, Inc. (Pan Pacific) is engaged in contracting mechanical works on airconditioning system. On 24 November 1989, Pan Pacific, through its President, Ricardo F. Del Rosario (Del Rosario), entered into a contract of mechanical works (Contract) with respondent for P20,688,800. Pan Pacific and respondent also agreed on nine change orders for P2,622,610.30. Thus, the total consideration for the whole project was P23,311,410.30.6 The Contract stipulated, among others, that Pan Pacific shall be entitled to a price adjustment in case of increase in labor costs and prices of

12

materials under paragraphs 70.17 and 70.28 of the "General Conditions for the Construction of PCIB Tower II Extension" (the escalation clause).9

Pursuant to the contract, Pan Pacific commenced the mechanical works in the project site, the PCIB Tower II extension building in Makati City. The project was completed in June 1992. Respondent accepted the project on 9 July 1992.10

In 1990, labor costs and prices of materials escalated. On 5 April 1991, in accordance with the escalation clause, Pan Pacific claimed a price adjustment of P5,165,945.52. Respondent’s appointed project engineer, TCGI Engineers, asked for a reduction in the price adjustment. To show goodwill, Pan Pacific reduced the price adjustment to P4,858,548.67.11

On 28 April 1992, TCGI Engineers recommended to respondent that the price adjustment should be pegged at P3,730,957.07. TCGI Engineers based their evaluation of the price adjustment on the following factors:

1. Labor Indices of the Department of Labor and Employment.

2. Price Index of the National Statistics Office.

PD 1594 and its Implementing Rules and Regulations as amended, 15 March 1991.

Shipping Documents submitted by PPSCI.

Sub-clause 70.1 of the General Conditions of the Contract Documents.12

Pan Pacific contended that with this recommendation, respondent was already estopped from disclaiming liability of at least P3,730,957.07 in accordance with the escalation clause.13

Due to the extraordinary increases in the costs of labor and materials, Pan Pacific’s operational capital was becoming inadequate for the project. However, respondent withheld the payment of the price adjustment under the escalation

clause despite Pan Pacific’s repeated demands.14 Instead, respondent offered Pan Pacific a loan of P1.8 million. Against its will and on the strength of respondent’s promise that the price adjustment would be released soon, Pan Pacific, through Del Rosario, was constrained to execute a promissory note in the amount of P1.8 million as a requirement for the loan. Pan Pacific also posted a surety bond. The P1.8 million was released directly to laborers and suppliers and not a single centavo was given to Pan Pacific.15

Pan Pacific made several demands for payment on the price adjustment but respondent merely kept on promising to release the same. Meanwhile, the P1.8 million loan matured and respondent demanded payment plus interest and penalty. Pan Pacific refused to pay the loan. Pan Pacific insisted that it would not have incurred the loan if respondent released the price adjustment on time. Pan Pacific alleged that the promissory note did not express the true agreement of the parties. Pan Pacific maintained that the P1.8 million was to be considered as an advance payment on the price adjustment. Therefore, there was really no consideration for the promissory note; hence, it is null and void from the beginning.16

Respondent stood firm that it would not release any amount of the price adjustment to Pan Pacific but it would offset the price adjustment with Pan Pacific’s outstanding balance of P3,226,186.01, representing the loan, interests, penalties and collection charges.17

Pan Pacific refused the offsetting but agreed to receive the reduced amount of P3,730,957.07 as recommended by the TCGI Engineers for the purpose of extrajudicial settlement, less P1.8 million and P414,942 as advance payments.18

On 6 May 1994, petitioners filed a complaint for declaration of nullity/annulment of the promissory note, sum of money, and damages against the respondent with the RTC of Makati City, Branch 59. On 12 April 1999, the RTC rendered its decision, the dispositive portion of which reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs and against the defendant as follows:

1. Declaring the promissory note (Exhibit "B") null and void;

Ordering the defendant to pay the plaintiffs the following amounts:

a. P1,389,111.10 representing unpaid balance of the adjustment price, with interest thereon at the legal rate of twelve (12%) percent per annum starting May 6, 1994, the date when the complaint was filed, until the amount is fully paid;

P100,000.00 representing moral damages;

P50,000.00 representing exemplary damages; and

P50,000.00 as and for attorney’s fees.

2. Dismissing defendant’s counterclaim, for lack of merit; and

With costs against the defendant.

SO ORDERED.19

On 23 May 1999, petitioners partially appealed the RTC Decision to the CA. On 26 May 1999, respondent appealed the entire RTC Decision for being contrary to law and evidence. In sum, the appeals of the parties with the CA are as follows:

1. With respect to the petitioners, whether the RTC erred in deducting the amount of P126,903.97 from the balance of the adjusted price and in awarding only 12% annual interest on the amount due, instead of the bank loan rate of 18% compounded annually beginning September 1992.

2. With respect to respondent, whether the RTC erred in declaring the promissory note void and in awarding moral and exemplary damages and attorney’s fees in favor of petitioners and in dismissing its counterclaim.

In its decision dated 30 June 2005, the CA modified the RTC decision, with respect to the principal amount due to petitioners. The CA removed the deduction of P126,903.97 because it represented the final payment on the basic contract price. Hence, the CA ordered respondent to pay P1,516,015.07 to petitioners, with interest at the legal rate of 12% per annum starting 6 May 1994.20

On 26 July 2005, petitioners filed a Motion for Partial Reconsideration seeking a reconsideration of the CA’s Decision imposing the legal rate of 12%. Petitioners claimed that the interest rate applicable should be the 18% bank lending rate. Respondent likewise filed a Motion for Reconsideration of the CA’s decision. In a Resolution dated 5 October 2005, the CA denied both motions.

Aggrieved by the CA’s Decision, petitioners elevated the case before this Court.

The Issue

Petitioners submit this sole issue for our consideration: Whether the CA, in awarding the unpaid balance of the price adjustment, erred in fixing the interest rate at 12% instead of the 18% bank lending rate.

Ruling of the Court

We grant the petition.

This Court notes that respondent did not appeal the decision of the CA. Hence, there is no longer any issue as to the principal amount of the unpaid balance on the price adjustment, which the CA correctly computed at P1,516,015.07. The only remaining issue is the interest rate applicable for respondent’s delay in the payment of the balance of the price adjustment.

13

The CA denied petitioners’ claim for the application of the bank lending rate of 18% compounded annually reasoning, to wit:

Anent the 18% interest rate compounded annually, while it is true that the contract provides for an interest at the current bank lending rate in case of delay in payment by the Owner, and the promissory note charged an interest of 18%, the said proviso does not authorize plaintiffs to unilaterally raise the interest rate without the other party’s consent. Unlike their request for price adjustment on the basic contract price, plaintiffs never informed nor sought the approval of defendant for the imposition of 18% interest on the adjusted price. To unilaterally increase the interest rate of the adjusted price would be violative of the principle of mutuality of contracts. Thus, the Court maintains the legal rate of twelve percent per annum starting from the date of judicial demand. Although the contract provides for the period when the recommendation of the TCGI Engineers as to the price adjustment would be binding on the parties, it was established, however, that part of the adjusted price demanded by plaintiffs was already disbursed as early as 28 February 1992 by defendant bank to their suppliers and laborers for their account.21

In this appeal, petitioners allege that the contract between the parties consists of two parts, the Agreement22 and the General Conditions,23 both of which provide for interest at the bank lending rate on any unpaid amount due under the contract. Petitioners further claim that there is nothing in the contract which requires the consent of the respondent to be given in order that petitioners can charge the bank lending rate.24 Specifically, petitioners invoke Section 2.5 of the Agreement and Section 60.10 of the General Conditions as follows:

Agreement

2.5 If any payment is delayed, the CONTRACTOR may charge interest thereon at the current bank lending rates, without prejudice to OWNER’S recourse to any other remedy available under existing law.25

General Conditions

60.10 Time for payment

The amount due to the Contractor under any interim certificate issued by the Engineer pursuant to this Clause, or to any term of the Contract, shall, subject to clause 47, be paid by the Owner to the Contractor within 28 days after such interim certificate has been delivered to the Owner, or, in the case of the Final Certificate referred to in Sub-Clause 60.8, within 56 days, after such Final Certificate has been delivered to the Owner. In the event of the failure of the Owner to make payment within the times stated, the Owner shall pay to the Contractor interest at the rate based on banking loan rates prevailing at the time of the signing of the contract upon all sums unpaid from the date by which the same should have been paid. The provisions of this Sub-Clause are without prejudice to the Contractor’s entitlement under Clause 69.26 (Emphasis supplied)

Petitioners thus submit that it is automatically entitled to the bank lending rate of interest from the time an amount is determined to be due thereto, which respondent should have paid. Therefore, as petitioners have already proven their entitlement to the price adjustment, it necessarily follows that the bank lending interest rate of 18% shall be applied.27

On the other hand, respondent insists that under the provisions of 70.1 and 70.2 of the General Conditions, it is stipulated that any additional cost shall be determined by the Engineer and shall be added to the contract price after due consultation with the Owner, herein respondent. Hence, there being no prior consultation with the respondent regarding the additional cost to the basic contract price, it naturally follows that respondent was never consulted or informed of the imposition of 18% interest rate compounded annually on the adjusted price.28

A perusal of the assailed decision shows that the CA made a distinction between the consent given by the owner of the project for the liability for the price adjustments, and the consent for the imposition of the bank lending rate. Thus, while the CA held that petitioners consulted respondent for price adjustment on the basic contract price, petitioners, nonetheless, are not entitled to the imposition of 18% interest on the adjusted price, as petitioners never informed or sought the approval of respondent for such imposition.29

We disagree.

It is settled that the agreement or the contract between the parties is the formal expression of the parties’ rights, duties, and obligations. It is the best evidence of the intention of the parties. Thus, when the terms of an agreement have been reduced to writing, it is considered as containing all the terms agreed upon and there can be, between the parties and their successors in interest, no evidence of such terms other than the contents of the written agreement.30

The escalation clause of the contract provides:

CHANGES IN COST AND LEGISLATION

70.1 Increase or Decrease of Cost

There shall be added to or deducted from the Contract Price such sums in respect of rise or fall in the cost of labor and/or materials or any other matters affecting the cost of the execution of the Works as may be determined.

70.2 Subsequent Legislation

If, after the date 28 days prior to the latest date of submission of tenders for the Contract there occur in the country in which the Works are being or are to be executed changes to any National or State Statute, Ordinance, Decree or other Law or any regulation or bye-law (sic) of any local or other duly constituted authority, or the introduction of any such State Statute, Ordinance, Decree, Law, regulation or bye-law (sic) which causes additional or reduced cost to the contractor, other than under Sub-Clause 70.1, in the execution of the Contract, such additional or reduced cost shall, after due consultation with the Owner and Contractor, be determined by the Engineer and shall be added to or deducted from the Contract Price and the Engineer shall notify the Contractor accordingly, with a copy to the Owner.31

In this case, the CA already settled that petitioners consulted respondent on the imposition of the price adjustment, and held respondent liable for the balance of P1,516,015.07. Respondent did not appeal from the decision of the CA; hence, respondent is estopped from contesting such fact.

However, the CA went beyond the intent of the parties by requiring respondent to give its consent to the imposition of interest before petitioners can hold respondent liable for interest at the current bank lending rate. This is erroneous. A review of Section 2.6 of the Agreement and Section 60.10 of the General Conditions shows that the consent of the respondent is not needed for the imposition of interest at the current bank lending rate, which occurs upon any delay in payment.

When the terms of a contract are clear and leave no doubt as to the intention of the contracting parties, the literal meaning of its stipulations governs. In these cases, courts have no authority to alter a contract by construction or to make a new contract for the parties. The Court’s duty is confined to the interpretation of the contract which the parties have made for themselves without regard to its wisdom or folly as the court cannot supply material stipulations or read into the contract words which it does not contain. It is only when the contract is vague and ambiguous that courts are permitted to resort to construction of its terms and determine the intention of the parties.32

The escalation clause must be read in conjunction with Section 2.5 of the Agreement and Section 60.10 of the General Conditions which pertain to the time of payment. Once the parties agree on the price adjustment after due consultation in compliance with the provisions of the escalation clause, the agreement is in effect an amendment to the original contract, and gives rise to the liability of respondent to pay the adjusted costs. Under Section 60.10 of the General Conditions, the respondent shall pay such liability to the petitioner within 28 days from issuance of the interim certificate. Upon respondent’s failure to pay within the time provided (28 days), then it shall be liable to pay the stipulated interest.1avvphi1

This is the logical interpretation of the agreement of the parties on the imposition of interest. To provide a contrary interpretation, as one requiring a separate consent for the imposition of the stipulated interest, would render the intentions of the parties nugatory.

Article 1956 of the Civil Code, which refers to monetary interest, specifically mandates that no interest shall be due unless it has been expressly stipulated in writing.

14

Therefore, payment of monetary interest is allowed only if:

(1) there was an express stipulation for the payment of interest; and

(2) the agreement for the payment of interest was reduced in writing. The concurrence of the two conditions is required for the payment of monetary interest.33

We agree with petitioners’ interpretation that in case of default, the consent of the respondent is not needed in order to impose interest at the current bank lending rate.

Applicable Interest Rate

Under Article 2209 of the Civil Code, the appropriate measure for damages in case of delay in discharging an obligation consisting of the payment of a sum of money is the payment of penalty interest at the rate agreed upon in the contract of the parties. In the absence of a stipulation of a particular rate of penalty interest, payment of additional interest at a rate equal to the regular monetary interest becomes due and payable. Finally, if no regular interest had been agreed upon by the contracting parties, then the damages payable will consist of payment of legal interest which is 6%, or in the case of loans or forbearances of money, 12% per annum.34 It is only when the parties to a contract have failed to fix the rate of interest or when such amount is unwarranted that the Court will apply the 12% interest per annum on a loan or forbearance of money.35

The written agreement entered into between petitioners and respondent provides for an interest at the current bank lending rate in case of delay in payment and the promissory note charged an interest of 18%.

To prove petitioners’ entitlement to the 18% bank lending rate of interest, petitioners presented the promissory note36 prepared by respondent bank itself. This promissory note, although declared void by the lower courts because it did not express the real intention of the parties, is substantial proof that the bank lending rate at the time of default was 18% per annum. Absent any evidence of fraud, undue influence or any vice of consent exercised by petitioners

against the respondent, the interest rate agreed upon is binding on them.37

WHEREFORE, we GRANT the petition. We SET ASIDE the Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 63966. We ORDER respondent to pay petitioners P1,516,015.07 with interest at the bank lending rate of 18% per annum starting 6 May 1994 until the amount is fully paid.

SO ORDERED.

ANTONIO T. CARPIOAssociate Justice

WE CONCUR:

ARTURO D. BRIONAssociate Justice


Associate Justice


JOSE PORTUGAL PEREZAssociate Justice



ANTONIO T. CARPIOAssociate JusticeChairperson


Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.



Manila

SECOND DIVISION

G.R. No. 169900 March 18, 2010

MARIO SIOCHI, Petitioner, vs.ALFREDO GOZON, WINIFRED GOZON, GIL TABIJE, INTER-DIMENSIONAL REALTY, INC., and ELVIRA GOZON, Respondents.

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

G.R. No. 169977

INTER-DIMENSIONAL REALTY, INC., Petitioner, vs.MARIO SIOCHI, ELVIRA GOZON, ALFREDO GOZON, and WINIFRED GOZON, Respondents.

R E S O L U T I O N

CARPIO, J.:

This is a consolidation of two separate petitions for review,1 assailing the 7 July 2005 Decision2 and the 30 September 2005 Resolution3 of the Court of Appeals in CA-G.R. CV No. 74447.

This case involves a 30,000 sq.m. parcel of land (property) covered by TCT No. 5357.4 The property is situated in Malabon, Metro Manila and is registered in the name of "Alfredo Gozon (Alfredo), married to Elvira Gozon (Elvira)."

On 23 December 1991, Elvira filed with the Cavite City Regional Trial Court (Cavite RTC) a petition for legal separation against her husband Alfredo. On 2 January

1992, Elvira filed a notice of lis pendens, which was then annotated on TCT No. 5357.

On 31 August 1993, while the legal separation case was still pending, Alfredo and Mario Siochi (Mario) entered into an Agreement to Buy and Sell5 (Agreement) involving the property for the price of P18 million. Among the stipulations in the Agreement were that Alfredo would: (1) secure an Affidavit from Elvira that the property is Alfredo’s exclusive property and to annotate the Agreement at the back of TCT No. 5357; (2) secure the approval of the Cavite RTC to exclude the property from the legal separation case; and (3) secure the removal of the notice of lis pendens pertaining to the said case and annotated on TCT No. 5357. However, despite repeated demands from Mario, Alfredo failed to comply with these stipulations. After paying the P5 million earnest money as partial payment of the purchase price, Mario took possession of the property in September 1993. On 6 September 1993, the Agreement was annotated on TCT No. 5357.

Meanwhile, on 29 June 1994, the Cavite RTC rendered a decision6 in the legal separation case, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered decreeing the legal separation between petitioner and respondent. Accordingly, petitioner Elvira Robles Gozon is entitled to live separately from respondent Alfredo Gozon without dissolution of their marriage bond. The conjugal partnership of gains of the spouses is hereby declared DISSOLVED and LIQUIDATED. Being the offending spouse, respondent is deprived of his share in the net profits and the same is awarded to their child Winifred R. Gozon whose custody is awarded to petitioner.

Furthermore, said parties are required to mutually support their child Winifred R. Gozon as her needs arises.

SO ORDERED.7

As regards the property, the Cavite RTC held that it is deemed conjugal property.

On 22 August 1994, Alfredo executed a Deed of Donation over the property in favor of their daughter, Winifred

15

Gozon (Winifred). The Register of Deeds of Malabon, Gil Tabije, cancelled TCT No. 5357 and issued TCT No. M-105088 in the name of Winifred, without annotating the Agreement and the notice of lis pendens on TCT No. M-10508.

On 26 October 1994, Alfredo, by virtue of a Special Power of Attorney9 executed in his favor by Winifred, sold the property to Inter-Dimensional Realty, Inc. (IDRI) for P18 million.10 IDRI paid Alfredo P18 million, representing full payment for the property.11 Subsequently, the Register of Deeds of Malabon cancelled TCT No. M-10508 and issued TCT No. M-1097612 to IDRI.

Mario then filed with the Malabon Regional Trial Court (Malabon RTC) a complaint for Specific Performance and Damages, Annulment of Donation and Sale, with Preliminary Mandatory and Prohibitory Injunction and/or Temporary Restraining Order.

On 3 April 2001, the Malabon RTC rendered a decision,13 the dispositive portion of which reads:

WHEREFORE, premises considered, judgment is hereby rendered as follows:

01. On the preliminary mandatory and prohibitory injunction:

1.1 The same is hereby made permanent by:

1.1.1 Enjoining defendants Alfredo Gozon, Winifred Gozon, Inter-Dimensional Realty, Inc. and Gil Tabije, their agents, representatives and all persons acting in their behalf from any attempt of commission or continuance of their wrongful acts of further alienating or disposing of the subject property;

1.1.2. Enjoining defendant Inter-Dimensional Realty, Inc. from entering and fencing the property;

1.1.3. Enjoining defendants Alfredo Gozon, Winifred Gozon, Inter-Dimensional Realty, Inc. to respect plaintiff’s possession of the property.

02. The Agreement to Buy and Sell dated 31 August 1993, between plaintiff and defendant Alfredo Gozon is hereby approved, excluding the property and rights of defendant Elvira Robles-Gozon to the undivided one-half share in the conjugal property subject of this case.

03. The Deed of Donation dated 22 August 1994, entered into by and between defendants Alfredo Gozon and Winifred Gozon is hereby nullified and voided.

04. The Deed of Absolute Sale dated 26 October 1994, executed by defendant Winifred Gozon, through defendant Alfredo Gozon, in favor of defendant Inter-Dimensional Realty, Inc. is hereby nullified and voided.

05. Defendant Inter-Dimensional Realty, Inc. is hereby ordered to deliver its Transfer Certificate of Title No. M-10976 to the Register of Deeds of Malabon, Metro Manila.

06. The Register of Deeds of Malabon, Metro Manila is hereby ordered to cancel Certificate of Title Nos. 10508 "in the name of Winifred Gozon" and M-10976 "in the name of Inter-Dimensional Realty, Inc.," and to restore Transfer Certificate of Title No. 5357 "in the name of Alfredo Gozon, married to Elvira Robles" with the Agreement to Buy and Sell dated 31 August 1993 fully annotated therein is hereby ordered.

07. Defendant Alfredo Gozon is hereby ordered to deliver a Deed of Absolute Sale in favor of plaintiff over his one-half undivided share in the subject property and to comply with all the requirements for registering such deed.

08. Ordering defendant Elvira Robles-Gozon to sit with plaintiff to agree on the selling price of her undivided one-half share in the subject property, thereafter, to execute and deliver a Deed of Absolute Sale over the same in favor of the plaintiff and to comply with all the requirements for registering such deed, within fifteen (15) days from the receipt of this DECISION.

09. Thereafter, plaintiff is hereby ordered to pay defendant Alfredo Gozon the balance of Four Million Pesos (P4,000,000.00) in his one-half undivided share in the property to be set off by the award of damages in plaintiff’s favor.

10. Plaintiff is hereby ordered to pay the defendant Elvira Robles-Gozon the price they had agreed upon for the sale of her one-half undivided share in the subject property.

11. Defendants Alfredo Gozon, Winifred Gozon and Gil Tabije are hereby ordered to pay the plaintiff, jointly and severally, the following:

11.1 Two Million Pesos (P2,000,000.00) as actual and compensatory damages;

11.2 One Million Pesos (P1,000,000.00) as moral damages;

11.3 Five Hundred Thousand Pesos (P500,000.00) as exemplary damages;

11.4 Four Hundred Thousand Pesos (P400,000.00) as attorney’s fees; and

11.5 One Hundred Thousand Pesos (P100,000.00) as litigation expenses.

11.6 The above awards are subject to set off of plaintiff’s obligation in paragraph 9 hereof.

12. Defendants Alfredo Gozon and Winifred Gozon are hereby ordered to pay Inter-Dimensional Realty, Inc. jointly and severally the following:

12.1 Eighteen Million Pesos (P18,000,000.00) which constitute the amount the former received from the latter pursuant to their Deed of Absolute Sale dated 26 October 1994, with legal interest therefrom;

12.2 One Million Pesos (P1,000,000.00) as moral damages;

12.3 Five Hundred Thousand Pesos (P500,000.00) as exemplary damages; and

12.4 One Hundred Thousand Pesos (P100,000.00) as attorney’s fees.

13. Defendants Alfredo Gozon and Winifred Gozon are hereby ordered to pay costs of suit.

SO ORDERED.14

On appeal, the Court of Appeals affirmed the Malabon RTC’s decision with modification. The dispositive portion of the Court of Appeals’ Decision dated 7 July 2005 reads:

16

WHEREFORE, premises considered, the assailed decision dated April 3, 2001 of the RTC, Branch 74, Malabon is hereby AFFIRMED with MODIFICATIONS, as follows:

1. The sale of the subject land by defendant Alfredo Gozon to plaintiff-appellant Siochi is declared null and void for the following reasons:

a) The conveyance was done without the consent of defendant-appellee Elvira Gozon;

b) Defendant Alfredo Gozon’s one-half (½) undivided share has been forfeited in favor of his daughter, defendant Winifred Gozon, by virtue of the decision in the legal separation case rendered by the RTC, Branch 16, Cavite;

2. Defendant Alfredo Gozon shall return/deliver to plaintiff-appellant Siochi the amount of P5 Million which the latter paid as earnest money in consideration for the sale of the subject land;

3. Defendants Alfredo Gozon, Winifred Gozon and Gil Tabije are hereby ordered to pay plaintiff-appellant Siochi jointly and severally, the following:

a) P100,000.00 as moral damages;

b) P100,000.00 as exemplary damages;

c) P50,000.00 as attorney’s fees;

d) P20,000.00 as litigation expenses; and

e) The awards of actual and compensatory damages are hereby ordered deleted for lack of basis.

4. Defendants Alfredo Gozon and Winifred Gozon are hereby ordered to pay defendant-appellant IDRI jointly and severally the following:

a) P100,000.00 as moral damages;

b) P100,000.00 as exemplary damages; and

c) P50,000.00 as attorney’s fees.

Defendant Winifred Gozon, whom the undivided one-half share of defendant Alfredo Gozon was awarded, is hereby given the option whether or not to dispose of her undivided share in the subject land.

The rest of the decision not inconsistent with this ruling stands.

SO ORDERED.15

Only Mario and IDRI appealed the decision of the Court of Appeals. In his petition, Mario alleges that the Agreement should be treated as a continuing offer which may be perfected by the acceptance of the other spouse before the offer is withdrawn. Since Elvira’s conduct signified her acquiescence to the sale, Mario prays for the Court to direct Alfredo and Elvira to execute a Deed of Absolute Sale over the property upon his payment of P9 million to Elvira.

On the other hand, IDRI alleges that it is a buyer in good faith and for value. Thus, IDRI prays that the Court should uphold the validity of IDRI’s TCT No. M-10976 over the property.

We find the petitions without merit.

This case involves the conjugal property of Alfredo and Elvira. Since the disposition of the property occurred after the effectivity of the Family Code, the applicable law is the Family Code. Article 124 of the Family Code provides:

Art. 124. The administration and enjoyment of the conjugal partnership property shall belong to both spouses jointly. In case of disagreement, the husband’s decision shall prevail, subject to the recourse to the court by the wife for a proper remedy, which must be availed of within five years from the date of the contract implementing such decision.

In the event that one spouse is incapacitated or otherwise unable to participate in the administration of the conjugal properties, the other spouse may assume sole powers of administration. These powers do not include the powers of disposition or encumbrance which must have the authority of the court or the written consent of the other spouse. In the absence of such authority or consent, the disposition or encumbrance shall be void. However, the transaction shall be construed as a continuing offer on the part of the consenting spouse and the third person, and may be perfected as a binding contract upon the acceptance by the other spouse or authorization by the court before the offer is withdrawn by either or both offerors. (Emphasis supplied)

In this case, Alfredo was the sole administrator of the property because Elvira, with whom Alfredo was separated in fact, was unable to participate in the administration of the conjugal property. However, as sole administrator of the property, Alfredo still cannot sell the property without the written consent of Elvira or the authority of the court. Without such consent or authority, the sale is void.16 The absence of the consent of one of the spouse renders the entire sale void, including the portion of the conjugal property pertaining to the spouse who contracted the sale.17 Even if the other spouse actively participated in negotiating for the sale of the property, that other spouse’s written consent to the sale is still required by law for its validity.18 The Agreement entered into by Alfredo and Mario was without the written consent of Elvira. Thus, the Agreement is entirely void. As regards Mario’s contention that the Agreement is a continuing offer which may be perfected by Elvira’s acceptance before the offer is withdrawn, the fact that the property was subsequently donated by Alfredo to Winifred and then sold to IDRI clearly indicates that the offer was already withdrawn.

However, we disagree with the finding of the Court of Appeals that the one-half undivided share of Alfredo in the property was already forfeited in favor of his daughter

Winifred, based on the ruling of the Cavite RTC in the legal separation case. The Court of Appeals misconstrued the ruling of the Cavite RTC that Alfredo, being the offending spouse, is deprived of his share in the net profits and the same is awarded to Winifred.

The Cavite RTC ruling finds support in the following provisions of the Family Code:

Art. 63. The decree of legal separation shall have the following effects:

(1) The spouses shall be entitled to live separately from each other, but the marriage bonds shall not be severed;

(2) The absolute community or the conjugal partnership shall be dissolved and liquidated but the offending spouse shall have no right to any share of the net profits earned by the absolute community or the conjugal partnership, which shall be forfeited in accordance with the provisions of Article 43(2);

(3) The custody of the minor children shall be awarded to the innocent spouse, subject to the provisions of Article 213 of this Code; and

The offending spouse shall be disqualified from inheriting from the innocent spouse by intestate succession. Moreover, provisions in favor of the offending spouse made in the will of the innocent spouse shall be revoked by operation of law.

Art. 43. The termination of the subsequent marriage referred to in the preceding Article shall produce the following effects:

x x x

(2) The absolute community of property or the conjugal partnership, as the case may be, shall be dissolved and liquidated, but if either spouse contracted said marriage in bad faith, his or her share of the net profits of the community property or conjugal partnership property shall

17

be forfeited in favor of the common children or, if there are none, the children of the guilty spouse by a previous marriage or, in default of children, the innocent spouse; (Emphasis supplied)

Thus, among the effects of the decree of legal separation is that the conjugal partnership is dissolved and liquidated and the offending spouse would have no right to any share of the net profits earned by the conjugal partnership. It is only Alfredo’s share in the net profits which is forfeited in favor of Winifred. Article 102(4) of the Family Code provides that "[f]or purposes of computing the net profits subject to forfeiture in accordance with Article 43, No. (2) and 63, No. (2), the said profits shall be the increase in value between the market value of the community property at the time of the celebration of the marriage and the market value at the time of its dissolution." Clearly, what is forfeited in favor of Winifred is not Alfredo’s share in the conjugal partnership property but merely in the net profits of the conjugal partnership property.

With regard to IDRI, we agree with the Court of Appeals in holding that IDRI is not a buyer in good faith. As found by the RTC Malabon and the Court of Appeals, IDRI had actual knowledge of facts and circumstances which should impel a reasonably cautious person to make further inquiries about the vendor’s title to the property. The representative of IDRI testified that he knew about the existence of the notice of lis pendens on TCT No. 5357 and the legal separation case filed before the Cavite RTC. Thus, IDRI could not feign ignorance of the Cavite RTC decision declaring the property as conjugal.

Furthermore, if IDRI made further inquiries, it would have known that the cancellation of the notice of lis pendens was highly irregular. Under Section 77 of Presidential Decree No. 1529,19 the notice of lis pendens may be cancelled (a) upon order of the court, or (b) by the Register of Deeds upon verified petition of the party who caused the registration of the lis pendens. In this case, the lis pendens was cancelled by the Register of Deeds upon the request of Alfredo. There was no court order for the cancellation of the lis pendens. Neither did Elvira, the party who caused the registration of the lis pendens, file a verified petition for its cancellation.

Besides, had IDRI been more prudent before buying the property, it would have discovered that Alfredo’s donation

of the property to Winifred was without the consent of Elvira. Under Article 12520 of the Family Code, a conjugal property cannot be donated by one spouse without the consent of the other spouse. Clearly, IDRI was not a buyer in good faith.1avvphi1

Nevertheless, we find it proper to reinstate the order of the Malabon RTC for the reimbursement of the P18 million paid by IDRI for the property, which was inadvertently omitted in the dispositive portion of the Court of Appeals’ decision.

WHEREFORE, we DENY the petitions. We AFFIRM the 7 July 2005 Decision of the Court of Appeals in CA-G.R. CV No. 74447 with the following MODIFICATIONS:

(1) We DELETE the portions regarding the forfeiture of Alfredo Gozon’s one-half undivided share in favor of Winifred Gozon and the grant of option to Winifred Gozon whether or not to dispose of her undivided share in the property; and

(2) We ORDER Alfredo Gozon and Winifred Gozon to pay Inter-Dimensional Realty, Inc. jointly and severally the Eighteen Million Pesos (P18,000,000) which was the amount paid by Inter-Dimensional Realty, Inc. for the property, with legal interest computed from the finality of this Decision.

SO ORDERED.


WE CONCUR:



Associate Justice


JOSE PORTUGAL PEREZ Associate Justice


I attest that the conclusions in the above Resolution had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.



Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s Attestation, I certify that the conclusions in the above Resolution had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.



Manila

FIRST DIVISION

G.R. No. 183612 March 15, 2010

POLYTECHNIC UNIVERSITY OF THE PHILIPPINES, Petitioner, vs.GOLDEN HORIZON REALTY CORPORATION, Respondent.

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

G.R. No. 184260

NATIONAL DEVELOPMENT COMPANY, Petitioner,

vs.GOLDEN HORIZON REALTY CORPORATION, Respondent.

D E C I S I O N

VILLARAMA, JR., J.:

The above-titled consolidated petitions filed under Rule 45 of the 1997 Rules of Civil Procedure, as amended, seek to reverse the Decision1 dated June 25, 2008 and Resolution dated August 22, 2008 of the Court of Appeals (CA) in CA-G.R. CV No. 84399 which affirmed the Decision2 dated November 25, 2004 of the Regional Trial Court (RTC) of Makati City, Branch 144 in Civil Case No. 88-2238.

The undisputed facts are as follows:

Petitioner National Development Company (NDC) is a government- owned and controlled corporation, created under Commonwealth Act No. 182, as amended by Com. Act No. 311 and Presidential Decree (P.D.) No. 668. Petitioner Polytechnic University of the Philippines (PUP) is a public, non-sectarian, non-profit educational institution created in 1978 by virtue of P.D. No. 1341.

In the early sixties, NDC had in its disposal a ten (10)-hectare property located along Pureza St., Sta. Mesa, Manila. The estate was popularly known as the NDC Compound and covered by Transfer Certificate of Title Nos. 92885, 110301 and 145470.

On September 7, 1977, NDC entered into a Contract of Lease (C-33-77) with Golden Horizon Realty Corporation (GHRC) over a portion of the property, with an area of 2,407 square meters for a period of ten (10) years, renewable for another ten (10) years with mutual consent of the parties.3

On May 4, 1978, a second Contract of Lease (C-12-78) was executed between NDC and GHRC covering 3,222.80 square meters, also renewable upon mutual consent after the expiration of the ten (10)-year lease period. In addition, GHRC as lessee was granted the "option to purchase the area leased, the price to be negotiated and

18

determined at the time the option to purchase is exercised."4

Under the lease agreements, GHRC was obliged to construct at its own expense buildings of strong material at no less than the stipulated cost, and other improvements which shall automatically belong to the NDC as lessor upon the expiration of the lease period. Accordingly, GHRC introduced permanent improvements and structures as required by the terms of the contract. After the completion of the industrial complex project, for which GHRC spent P5 million, it was leased to various manufacturers, industrialists and other businessmen thereby generating hundreds of jobs.5

On June 13, 1988, before the expiration of the ten (10)-year period under the second lease contract, GHRC wrote a letter to NDC indicating its exercise of the option to renew the lease for another ten (10) years. As no response was received from NDC, GHRC sent another letter on August 12, 1988, reiterating its desire to renew the contract and also requesting for priority to negotiate for its purchase should NDC opt to sell the leased premises.6 NDC still did not reply but continued to accept rental payments from GHRC and allowed the latter to remain in possession of the property.

Sometime after September 1988, GHRC discovered that NDC had decided to secretly dispose the property to a third party. On October 21, 1988, GHRC filed in the RTC a complaint for specific performance, damages with preliminary injunction and temporary restraining order.7

In the meantime, then President Corazon C. Aquino issued Memorandum Order No. 214 dated January 6, 1989, ordering the transfer of the whole NDC Compound to the National Government, which in turn would convey the said property in favor of PUP at acquisition cost. The memorandum order cited the serious need of PUP, considered the "Poor Man’s University," to expand its campus, which adjoins the NDC Compound, to accommodate its growing student population, and the willingness of PUP to buy and of NDC to sell its property. The order of conveyance of the 10.31-hectare property would automatically result in the cancellation of NDC’s total obligation in favor of the National Government in the amount of P57,193,201.64.8

On February 20, 1989, the RTC issued a writ of preliminary injunction enjoining NDC and its attorneys, representatives, agents and any other persons assisting it from proceeding with the sale and disposition of the leased premises.9

On February 23, 1989, PUP filed a motion to intervene as party defendant, claiming that as a purchaser pendente lite of a property subject of litigation it is entitled to intervene in the proceedings. The RTC granted the said motion and directed PUP to file its Answer-in-Intervention.10

PUP also demanded that GHRC vacate the premises, insisting that the latter’s lease contract had already expired. Its demand letter unheeded by GHRC, PUP filed an ejectment case (Civil Case No. 134416) before the Metropolitan Trial Court (MeTC) of Manila on January 14, 1991.11

Due to this development, GHRC filed an Amended and/or Supplemental Complaint to include as additional defendants PUP, Honorable Executive Secretary Oscar Orbos and Judge Ernesto A. Reyes of the Manila MeTC, and to enjoin the afore-mentioned defendants from prosecuting Civil Case No. 134416 for ejectment. A temporary restraining order was subsequently issued by the RTC enjoining PUP from prosecuting and Judge Francisco Brillantes, Jr. from proceeding with the ejectment case.12

In its Second Amended and/or Supplemental Complaint, GHRC argued that Memorandum Order No. 214 is a nullity, for being violative of the writ of injunction issued by the trial court, apart from being an infringement of the Constitutional prohibition against impairment of obligation of contracts, an encroachment on legislative functions and a bill of attainder. In the alternative, should the trial court adjudge the memorandum order as valid, GHRC contended that its existing right must still be respected by allowing it to purchase the leased premises.13

Pre-trial was set but was suspended upon agreement of the parties to await the final resolution of a similar case involving NDC, PUP and another lessee of NDC, Firestone Ceramics, Inc. (Firestone), then pending before the RTC of Pasay City.14

On November 14, 2001, this Court rendered a decision in G.R. Nos. 143513 (Polytechnic University of the Philippines v. Court of Appeals) and 143590 (National Development Corporation v. Firestone Ceramics, Inc.),15 which declared that the sale to PUP by NDC of the portion leased by Firestone pursuant to Memorandum Order No. 214 violated the right of first refusal granted to Firestone under its third lease contract with NDC. We thus decreed:

WHEREFORE, the petitions in G.R. No. 143513 and G.R. No. 143590 are DENIED. Inasmuch as the first contract of lease fixed the area of the leased premises at 2.90118 hectares while the second contract placed it at 2.60 hectares, let a ground survey of the leased premises be immediately conducted by a duly licensed, registered surveyor at the expense of private respondent FIRESTONE CERAMICS, INC., within two (2) months from the finality of the judgment in this case. Thereafter, private respondent FIRESTONE CERAMICS, INC., shall have six (6) months from receipt of the approved survey within which to exercise its right to purchase the leased property at P1,500.00 per square meter, and petitioner Polytechnic University of the Philippines is ordered to reconvey the property to FIRESTONE CERAMICS, INC., in the exercise of its right of first refusal upon payment of the purchase price thereof.

SO ORDERED.16

The RTC resumed the proceedings and when mediation and pre-trial failed to settle the case amicably, trial on the merits ensued.17

On November 25, 2004, the RTC rendered its decision upholding the right of first refusal granted to GHRC under its lease contract with NDC and ordering PUP to reconvey the said portion of the property in favor of GHRC. The dispositive portion reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the defendants ordering the plaintiff to cause immediate ground survey of the premises subject of the leased contract under Lease Contract No. C-33-77 and C-12-78 measuring 2,407 and 3,222.8 square meters respectively, by a duly licensed and registered surveyor at the expense of the plaintiff within two months from receipt of this Decision and thereafter, the plaintiff shall have six (6)

months from receipt of the approved survey within which to exercise its right to purchase the leased property at P554.74 per square meter. And finally, the defendant PUP, in whose name the property is titled, is hereby ordered to reconvey the aforesaid property to the plaintiff in the exercise of its right of its option to buy or first refusal upon payment of the purchase price thereof.

The defendant NDC is hereby further ordered to pay the plaintiff attorney’s fees in the amount of P100,000.00.

The case against defendant Executive Secretary is dismissed and this decision shall bind defendant Metropolitan Trial Court, Branch 20 of Manila.

With costs against defendants NDC and PUP.

SO ORDERED.18

NDC and PUP separately appealed the decision to the CA.19 By Decision of June 25, 2008, the CA affirmed in toto the decision of the RTC.20

Both the RTC and the CA applied this Court’s ruling in Polytechnic University of the Philippines v. Court of Appeals (supra), considering that GHRC is similarly situated as a lessee of NDC whose right of first refusal under the lease contract was violated by the sale of the property to PUP without NDC having first offered to sell the same to GHRC despite the latter’s request for the renewal of the lease and/or to purchase the leased premises prior to the expiration of the second lease contract. The CA further agreed with the RTC’s finding that there was an implied renewal of the lease upon the failure of NDC to act on GHRC’s repeated requests for renewal of the lease contract, both verbal and written, and continuing to accept monthly rental payments from GHRC which was allowed to continue in possession of the leased premises.

The CA also rejected the argument of NDC and PUP that even assuming that GHRC had the right of first refusal, said right pertained only to the second lease contract, C-12-78 covering 3,222.80 square meters, and not to the first lease contract, C-33-77 covering 2,407 square meters, which had already expired. It sustained the RTC’s finding that the two (2) lease contracts were interrelated because each formed part of GHRC’s industrial complex, such that

19

business operations would be rendered useless and inoperative if the first contract were to be detached from the other, as similarly held in the afore-mentioned case of Polytechnic University of the Philippines v. Court of Appeals.

Petitioner PUP argues that respondent’s right to exercise the option to purchase had expired with the termination of the original contract of lease and was not carried over to the subsequent implied new lease between respondent and petitioner NDC. As testified to by their witnesses Leticia Cabantog and Atty. Rhoel Mabazza, there was no agreement or document to the effect that respondent’s request for extension or renewal of the subject contracts of lease for another ten (10) years was approved by NDC. Hence, respondent can no longer exercise the option to purchase the leased premises when the same were conveyed to PUP pursuant to Memorandum Order No. 214 dated January 6, 1989, long after the expiration of C-33-77 and C-12-78 in September 1988.21

Petitioner PUP further contends that while it is conceded that there was an implied new lease between respondent and petitioner NDC after the expiration of the lease contracts, the same did not include the right of first refusal originally granted to respondent. The CA should have applied the ruling in Dizon v. Magsaysay22 that the lessee cannot any more exercise its option to purchase after the lapse of the one (1)-year period of the lease contract. With the implicit renewal of the lease on a monthly basis, the other terms of the original contract of lease which are revived in the implied new lease under Article 1670 of the Civil Code are only those terms which are germane to the lessee’s right of continued enjoyment of the property leased. The provision entitling the lessee the option to purchase the leased premises is not deemed incorporated in the impliedly renewed contract because it is alien to the possession of the lessee. Consequently, as in this case, respondent’s right of option to purchase the leased premises was not violated despite the impliedly renewed contract of lease with NDC. Respondent cannot favorably invoke the decision in G.R. Nos. 143513 and 143590 (Polytechnic University of the Philippines v. Court of Appeals) for the simple reason, among others, that unlike in said cases, the contracts of lease of respondent with NDC were not mutually extended or renewed for another ten (10) years. Thus, when the leased premises were conveyed to PUP, respondent did not any more have any

right of first refusal, which incidentally appears only in the second lease contract and not in the first lease contract.23

On its part, petitioner NDC assails the CA in holding that the contracts of lease were impliedly renewed for another ten (10)-year period. The provisions of C-33-77 and C-12-78 clearly state that the lessee is granted the option "to renew for another ten (10) years with the mutual consent of both parties." As regards the continued receipt of rentals by NDC and possession by the respondent of the leased premises, the impliedly renewed lease was only month-to-month and not ten (10) years since the rentals are being paid on a monthly basis, as held in Dizon v. Magsaysay.24

Petitioner NDC further faults the CA in sustaining the RTC’s decision which erroneously granted respondent the option to purchase the leased premises at the rate of P554.74 per square meter, the same rate for which NDC sold the property to petitioner PUP and/or the National Government, which is the mere acquisition cost thereof. It must be noted that such consideration or rate was imposed by Memorandum Order No. 214 under the premise that it shall, in effect, be a sale and/or purchase from one (1) government agency to another. It was intended merely as a transfer of one (1) user of the National Government to another, with the beneficiary, PUP in this case, merely returning to the petitioner/transferor the cost of acquisition thereof, as appearing on its accounting books. It does not in any way reflect the true and fair market value of the property, nor was it a price a "willing seller" would demand and accept for parting with his real property. Such benefit, therefore, cannot be extended to respondent as a private entity, as the latter does not share the same pocket, so to speak, with the National Government.25

The issue to be resolved is whether or not our ruling in Polytechnic University of the Philippines v. Court of Appeals applies in this case involving another lessee of NDC who claimed that the option to purchase the portion leased to it was similarly violated by the sale of the NDC Compound in favor of PUP pursuant to Memorandum Order No. 214.

We rule in the affirmative.

The second lease contract contained the following provision:

III. It is mutually agreed by the parties that this Contract of Lease shall be in full force and effect for a period of ten (10) years counted from the effectivity of the payment of rental as provided under sub-paragraph (b) of Article I, with option to renew for another ten (10) years with the mutual consent of both parties. In no case should the rentals be increased by more than 100% of the original amount fixed.

Lessee shall also have the option to purchase the area leased, the price to be negotiated and determined at the time the option to purchase is exercised. [emphasis supplied]

An option is a contract by which the owner of the property agrees with another person that the latter shall have the right to buy the former’s property at a fixed price within a certain time. It is a condition offered or contract by which the owner stipulates with another that the latter shall have the right to buy the property at a fixed price within a certain time, or under, or in compliance with certain terms and conditions; or which gives to the owner of the property the right to sell or demand a sale.26 It binds the party, who has given the option, not to enter into the principal contract with any other person during the period designated, and, within that period, to enter into such contract with the one to whom the option was granted, if the latter should decide to use the option.271avvphi1

Upon the other hand, a right of first refusal is a contractual grant, not of the sale of a property, but of the first priority to buy the property in the event the owner sells the same.28 As distinguished from an option contract, in a right of first refusal, while the object might be made determinate, the exercise of the right of first refusal would be dependent not only on the owner’s eventual intention to enter into a binding juridical relation with another but also on terms, including the price, that are yet to be firmed up.29

As the option to purchase clause in the second lease contract has no definite period within which the leased premises will be offered for sale to respondent lessee and the price is made subject to negotiation and determined only at the time the option to buy is exercised, it is obviously a mere right of refusal, usually inserted in lease contracts to give the lessee the first crack to buy the property in case the lessor decides to sell the same. That respondent was granted a right of first refusal under the

second lease contract appears not to have been disputed by petitioners. What petitioners assail is the CA’s erroneous conclusion that such right of refusal subsisted even after the expiration of the original lease period, when respondent was allowed to continue staying in the leased premises under an implied renewal of the lease and without the right of refusal carried over to such month-to-month lease. Petitioners thus maintain that no right of refusal was violated by the sale of the property in favor of PUP pursuant to Memorandum Order No. 214.

Petitioners’ position is untenable.

When a lease contract contains a right of first refusal, the lessor has the legal duty to the lessee not to sell the leased property to anyone at any price until after the lessor has made an offer to sell the property to the lessee and the lessee has failed to accept it. Only after the lessee has failed to exercise his right of first priority could the lessor sell the property to other buyers under the same terms and conditions offered to the lessee, or under terms and conditions more favorable to the lessor.30

Records showed that during the hearing on the application for a writ of preliminary injunction, respondent adduced in evidence a letter of Antonio A. Henson dated 15 July 1988 addressed to Mr. Jake C. Lagonera, Director and Special Assistant to Executive Secretary Catalino Macaraeg, reviewing a proposed memorandum order submitted to President Corazon C. Aquino transferring the whole NDC Compound, including the premises leased by respondent, in favor of petitioner PUP. This letter was offered in evidence by respondent to prove the existence of documents as of that date and even prior to the expiration of the second lease contract or the lapse of the ten (10)-year period counted from the effectivity of the rental payment -- that is, one hundred and fifty (150) days from the signing of the contract (May 4, 1978), as provided in Art. I, paragraph (b) of C-12-78, or on October 1, 1988.

Respondent thus timely exercised its option to purchase on August 12, 1988. However, considering that NDC had been negotiating through the National Government for the sale of the property in favor of PUP as early as July 15, 1988 without first offering to sell it to respondent and even when respondent communicated its desire to exercise the option to purchase granted to it under the lease contract, it is clear that NDC violated respondent’s right of first

20

refusal. Under the premises, the matter of the right of refusal not having been carried over to the impliedly renewed month-to-month lease after the expiration of the second lease contract on October 21, 1988 becomes irrelevant since at the time of the negotiations of the sale to a third party, petitioner PUP, respondent’s right of first refusal was still subsisting.

Petitioner NDC in its memorandum contended that the CA erred in applying the ruling in Polytechnic University of the Philippines v. Court of Appeals pointing out that the case of lessee Firestone Ceramics, Inc. is different because the lease contract therein had not yet expired while in this case respondent’s lease contracts have already expired and never renewed. The date of the expiration of the lease contract in said case is December 31, 1989 which is prior to the issuance of Memorandum Order No. 214 on January 6, 1989. In contrast, respondent’s lease contracts had already expired (September 1988) at the time said memorandum order was issued.31

Such contention does not hold water. As already mentioned, the reckoning point of the offer of sale to a third party was not the issuance of Memorandum Order No. 214 on January 6, 1989 but the commencement of such negotiations as early as July 1988 when respondent’s right of first refusal was still subsisting and the lease contracts still in force. Petitioner NDC did not bother to respond to respondent’s letter of June 13, 1988 informing it of respondent’s exercise of the option to renew and requesting to discuss further the matter with NDC, nor to the subsequent letter of August 12, 1988 reiterating the request for renewing the lease for another ten (10) years and also the exercise of the option to purchase under the lease contract. Petitioner NDC had dismissed these letters as "mere informative in nature, and a request at its best."32

Perusal of the letter dated August 12, 1988, however, belies such claim of petitioner NDC that it was merely informative, thus:

August 12, 1988

HON. ANTONIO HENSONGeneral Manager

NATIONAL DEVELOPMENT COMPANY377 Se(n). Gil J. Puyat AvenueMakati, Metro Manila

REF: Contract of LeaseNos. C-33-77 & C-12-78

Dear Sir:

This is further to our earlier letter dated June 13, 1988 formally advising your goodselves of our intention to exercise our option for another ten (10) years. Should the National Development Company opt to sell the property covered by said leases, we also request for priority to negotiate for its purchase at terms and/or conditions mutually acceptable.

As a backgrounder, we wish to inform you that since the start of our lease, we have improved on the property by constructing bodega-type buildings which presently house all legitimate trading and manufacturing concerns. These business are substantial taxpayers, employ not less than 300 employees and contribute even foreign earnings.

It is in this context that we are requesting for the extension of the lease contract to prevent serious economic disruption and dislocation of the business concerns, as well as provide ourselves, the lessee, an opportunity to recoup our investments and obtain a fair return thereof.

Your favorable consideration on our request will be very much appreciated.

very truly yours,

TIU HAN TENGPresident33

As to petitioners’ argument that respondent’s right of first refusal can be invoked only with respect to the second lease contract which expressly provided for the option to purchase by the lessee, and not in the first lease contract which contained no such clause, we sustain the RTC and CA in finding that the second contract, covering an area of 3,222.80 square meters, is interrelated to and inseparable

from the first contract over 2,407 square meters. The structures built on the leased premises, which are adjacent to each other, form part of an integrated system of a commercial complex leased out to manufacturers, fabricators and other businesses. Petitioners submitted a sketch plan and pictures taken of the driveways, in an effort to show that the leased premises can be used separately by respondent, and that the two (2) lease contracts are distinct from each other.34 Such was a desperate attempt to downplay the commercial purpose of respondent’s substantial improvements which greatly contributed to the increased value of the leased premises. To prove that petitioner NDC had considered the leased premises as a single unit, respondent submitted evidence showing that NDC issued only one (1) receipt for the rental payments for the two portions.35 Respondent further presented the blueprint plan prepared by its witness, Engr. Alejandro E. Tinio, who supervised the construction of the structures on the leased premises, to show the building concept as a one-stop industrial site and integrated commercial complex.36

In fine, the CA was correct in declaring that there exists no justifiable reason not to apply the same rationale in Polytechnic University of the Philippines v. Court of Appeals in the case of respondent who was similarly prejudiced by petitioner NDC’s sale of the property to PUP, as to entitle the respondent to exercise its option to purchase until October 1988 inasmuch as the May 4, 1978 contract embodied the option to renew the lease for another ten (10) years upon mutual consent and giving respondent the option to purchase the leased premises for a price to be negotiated and determined at the time such option was exercised by respondent. It is to be noted that Memorandum Order No. 214 itself declared that the transfer is "subject to such liens/leases existing [on the subject property]." Thus:

...we now proceed to determine whether FIRESTONE should be allowed to exercise its right of first refusal over the property. Such right was expressly stated by NDC and FIRESTONE in par. XV of their third contract denominated as A-10-78 executed on 22 December 1978 which, as found by the courts a quo, was interrelated to and inseparable from their first contract denominated as C-30-65 executed on 24 August 1965 and their second contract denominated as C-26-68 executed on 8 January 1969. Thus -

Should the LESSOR desire to sell the leased premises during the term of this Agreement, or any extension thereof, the LESSOR shall first give to the LESSEE, which shall have the right of first option to purchase the leased premises subject to mutual agreement of both parties.

In the instant case, the right of first refusal is an integral and indivisible part of the contract of lease and is inseparable from the whole contract. The consideration for the right is built into the reciprocal obligations of the parties. Thus, it is not correct for petitioners to insist that there was no consideration paid by FIRESTONE to entitle it to the exercise of the right, inasmuch as the stipulation is part and parcel of the contract of lease making the consideration for the lease the same as that for the option.

It is a settled principle in civil law that when a lease contract contains a right of first refusal, the lessor is under a legal duty to the lessee not to sell to anybody at any price until after he has made an offer to sell to the latter at a certain price and the lessee has failed to accept it. The lessee has a right that the lessor’s first offer shall be in his favor.

The option in this case was incorporated in the contracts of lease by NDC for the benefit of FIRESTONE which, in view of the total amount of its investments in the property, wanted to be assured that it would be given the first opportunity to buy the property at a price for which it would be offered. Consistent with their agreement, it was then implicit for NDC to have first offered the leased premises of 2.60 hectares to FIRESTONE prior to the sale in favor of PUP. Only if FIRESTONE failed to exercise its right of first priority could NDC lawfully sell the property to petitioner PUP.37 [emphasis supplied]

As we further ruled in the afore-cited case, the contractual grant of a right of first refusal is enforceable, and following an earlier ruling in Equatorial Realty Development, Inc. v. Mayfair Theater, Inc.,38 the execution of such right consists in directing the grantor to comply with his obligation according to the terms at which he should have offered the property in favor of the grantee and at that price when the offer should have been made. We then determined the proper rate at which the leased portion should be reconveyed to respondent by PUP, to

21

whom the lessor NDC sold it in violation of respondent lessee’s right of first refusal, as follows:

It now becomes apropos to ask whether the courts a quo were correct in fixing the proper consideration of the sale at P1,500.00 per square meter. In contracts of sale, the basis of the right of first refusal must be the current offer of the seller to sell or the offer to purchase of the prospective buyer. Only after the lessee-grantee fails to exercise its right under the same terms and within the period contemplated can the owner validly offer to sell the property to a third person, again, under the same terms as offered to the grantee. It appearing that the whole NDC compound was sold to PUP for P554.74 per square meter, it would have been more proper for the courts below to have ordered the sale of the property also at the same price. However, since FIRESTONE never raised this as an issue, while on the other hand it admitted that the value of the property stood at P1,500.00 per square meter, then we see no compelling reason to modify the holdings of the courts a quo that the leased premises be sold at that price.39 [emphasis supplied]

In the light of the foregoing, we hold that respondent, which did not offer any amount to petitioner NDC, and neither disputed the P1,500.00 per square meter actual value of NDC’s property at that time it was sold to PUP at P554.74 per square meter, as duly considered by this Court in the Firestone case, should be bound by such determination. Accordingly, the price at which the leased premises should be sold to respondent in the exercise of its right of first refusal under the lease contract with petitioner NDC, which was pegged by the RTC at P554.74 per square meter, should be adjusted to P1,500.00 per square meter, which more accurately reflects its true value at that time of the sale in favor of petitioner PUP.

Indeed, basic is the rule that a party to a contract cannot unilaterally withdraw a right of first refusal that stands upon valuable consideration.40 We have categorically ruled that it is not correct to say that there is no consideration for the grant of the right of first refusal if such grant is embodied in the same contract of lease. Since the stipulation forms part of the entire lease contract, the consideration for the lease includes the consideration for the grant of the right of first refusal. In entering into the contract, the lessee is in effect stating that it consents to lease the premises and to pay the price agreed upon provided the lessor also consents that, should it sell the

leased property, then, the lessee shall be given the right to match the offered purchase price and to buy the property at that price.41

We have further stressed that not even the avowed public welfare or the constitutional priority accorded to education, invoked by petitioner PUP in the Firestone case, would serve as license for us, and any party for that matter, to destroy the sanctity of binding obligations. While education may be prioritized for legislative and budgetary purposes, it is doubtful if such importance can be used to confiscate private property such as the right of first refusal granted to a lessee of petitioner NDC.42 Clearly, no reversible error was committed by the CA in sustaining respondent’s contractual right of first refusal and ordering the reconveyance of the leased portion of petitioner NDC’s property in its favor.

WHEREFORE, the petitions are DENIED. The Decision dated November 25, 2004 of the Regional Trial Court of Makati City, Branch 144 in Civil Case No. 88-2238, as affirmed by the Court of Appeals in its Decision dated June 25, 2008 in CA-G.R. CV No. 84399, is hereby AFFIRMED with MODIFICATION in that the price to be paid by respondent Golden Horizon Realty Corporation for the leased portion of the NDC Compound under Lease Contract Nos. C-33-77 and C-12-78 is hereby increased to P1,500.00 per square meter.

No pronouncement as to costs.

SO ORDERED.


WE CONCUR:

REYNATO S. PUNOChief JusticeChairperson

CONCHITA CARPIO MORALES

Associate Justice





Pursuant to Section 13, Article VIII of the 1987 Constitution, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.



Manila

SECOND DIVISION

G.R. No. 167750 March 15, 2010

BANK OF THE PHILIPPINE ISLANDS, Petitioner, vs.REYNALD R. SUAREZ, Respondent.

D E C I S I O N

CARPIO, J.:

The Case

This petition for review1 assails the Decision dated 30 November 20042 and Resolution dated 11 April 2005 of the Court of Appeals in CA-G.R. CV No. 76988, affirming the trial court's decision of 18 October 2002 and denying reconsideration.

The Facts

Respondent Reynald R. Suarez (Suarez) is a lawyer who used to maintain both savings and current accounts with petitioner Bank of the Philippine Islands’ (BPI) Ermita Branch from 1988 to 1997.

Sometime in 1997, Suarez had a client who planned to purchase several parcels of land in Tagaytay City, but preferred not to deal directly with the land owners. In accordance with his client’s instruction, Suarez transacted with the owners of the Tagaytay properties, making it appear that he was the buyer of the lots. As regards the payment of the purchase money, Suarez and his client made an arrangement such that Suarez’s client would deposit the money in Suarez’s BPI account and then, Suarez would issue checks to the sellers. Hence, on 16 June 1997, Suarez’s client deposited a Rizal Commercial Banking Corporation (RCBC) check with a face value of P19,129,100, representing the total consideration of the sales, in BPI Pasong Tamo Branch to be credited to Suarez’s current account in BPI Ermita Branch.

Aware of the banking system’s 3-day check clearing policy,3 Suarez instructed his secretary, Petronila Garaygay (Garaygay), to confirm from BPI whether the face value of the RCBC check was already credited to his account that same day of 16 June 1997. According to Garaygay, BPI allegedly confirmed the same-day crediting of the RCBC check. Relying on this confirmation, Suarez issued on the same day five checks of different amounts totaling P19,129,100 for the purchase of the Tagaytay properties.4

The next day, Suarez left for the United States (U.S.) for a vacation. While Suarez was in the U.S., Garaygay informed him that the five checks he issued were all dishonored by BPI due to insufficiency of funds and that his current account had been debited a total of P57,200 as penalty for the dishonor. Suarez’s secretary further told him that the checks were dishonored despite an assurance from RCBC, the drawee bank for the sum of P19,129,100, that this amount had already been debited from the account of the drawer on 16 June 1997 and the RCBC check was fully funded.

On 19 June 1997, the payees of the five BPI checks that Suarez issued on 16 June 1997 presented the checks again. Since the RCBC check (which Suarez’s client issued) had already been cleared by that time, rendering Suarez’s available funds sufficient, the checks were honored by BPI.

Subsequently, Suarez sent a letter to BPI demanding an apology and the reversal of the charges debited from his

22

account. Suarez received a call from Fe Gregorius, then manager of the BPI Ermita Branch, who requested a meeting with him to explain BPI’s side. However, the meeting did not transpire.

Suarez sent another letter to BPI addressed to its president, Xavier Loinaz. Consequently, BPI representatives asked another meeting with Suarez. During the meeting, the BPI officers handed Suarez a letter, the relevant text of which reads:

Dear Atty. Suarez:

Your letter to our President, Xavier P. Loinaz dated 02 July 1997 was referred to us for investigation and reply.

Our investigation discloses that when the checks you issued against your account were received for clearing, the checks you deposited were not yet cleared. Hence, the dishonor of the your checks.

We do not see much in your allegation that you have suffered damages just because the reason for the return was "DAIF" and not "DAUD". In both instances, there is a dishonor nonetheless.5

Upon Suarez’s request, BPI delivered to him the five checks which he issued on 16 June 1997. Suarez claimed that the checks were tampered with, specifically the reason for the dishonor, prompting him to send another letter informing BPI of its act of falsification by making it appear that it marked the checks with "drawn against uncollected deposit (DAUD) and not "drawn against insufficient fund" (DAIF). In reply, BPI offered to reverse the penalty charges which were debited from his account, but denied Suarez’s claim for damages. Suarez rejected BPI’s offer.

Claiming that BPI mishandled his account through negligence, Suarez filed with the Regional Trial Court a complaint for damages, docketed as Civil Case No. 98-574.

The Regional Trial Court, Makati City, Branch 136 rendered judgment in favor of Suarez, thus:

WHEREFORE, judgment is hereby rendered ordering defendant bank to pay the following amounts:

1. The amount of P57,200.00, with interest from date of first demand until full payment as actual damages;

2. The sum of P3,000,000.00 by way of moral damages;

3. The amount of P1,000,000.00 as and for exemplary damages;

4. The sum of P1.00 as attorney’s fees, and

The costs of litigation.

SO ORDERED.6

BPI appealed to the Court of Appeals, which affirmed the trial court’s decision. The dispositive portion of the 30 November 2004 Decision of the Court of Appeals reads:

WHEREFORE, premises considered, the instant appeal is DISMISSED. The decision dated 18 October 2002 of the Regional Trial Court, Branch 136, of Makati is AFFIRMED in toto.

SO ORDERED.7

The Court of Appeals denied BPI’s motion for reconsideration in its 11 April 2005 Resolution.

Hence, this petition.

The Court of Appeals’ Ruling

In affirming the trial court’s decision, the Court of Appeals ruled as follows:

Contrary to its contention, plaintiff-appellee’s evidence convincingly established the latter’s entitlement to damages, which was the direct result of defendant-

appellant’s negligence in handling his account. It was duly proven that after his client deposited a check in the amount of P19,129,100.00 on 16 June 1997, it was confirmed through plaintiff-appellee’s secretary by an employee of defendant-appellant bank that the aforesaid amount was, on the same day, already credited to his account. It was on the basis of this confirmation which made plaintiff-appellee issue five (5) checks in the amount of P19,129,100.00 to different payees. And despite RCBC’s assurance that the aforementioned amount had already been debited from the account of the drawer bank, defendant-appellant bank still dishonored the five (5) checks for DAIF as reason when the various payees presented them for payment on 17 June 1997.

It was also proven that defendant-appellant bank through its employee inadvertently marked the dorsal sides of the checks as DAIF instead of DAUD. A closer look at the checks would indicate that intercalations were made marking the acronym DAIF thereon to appear as DAUD. Although the intercalation was obvious in the P12 million check, still the fact that there was intercalation made in the said check cannot be denied. It bears to stress that there lies a big difference between a check dishonored for reasons of DAUD and a check dishonored for DAIF. A check dishonored for reasons of DAIF would unduly expose herein plaintiff-appellee to criminal prosecution for violation of B.P. 22 while a check dishonored for reasons of DAUD would not. Thus, it was erroneous on the part of defendant-appellant bank to surmise that plaintiff-appellee would not suffer damages anyway for the dishonored checks for reasons of DAUD or DAIF because there was dishonor nonetheless.

While plaintiff-appellee had been spared from any criminal prosecution, his reputation, however, was sullied on account of the dishonored checks by reason of DAIF. His transaction with the would be sellers of the property in Tagaytay was aborted because the latter doubted his capacity to fulfill his obligation as buyer of their [properties.] As the agent of the true buyers, he had a lot of explaining to do with his client. In short, he suffered humiliation.

Defendant-appellant bank also contends that plaintiff-appellee is liable to pay the charges mandated by the Philippine Clearing House Rules and Regulations (PCHRR).

If truly these charges were mandated by the PCHRR, defendant-appellant bank should not have attempted to renege on its act of debiting the charges to plaintiff-appellee’s account. In its letter dated 28 July 1997 addressed to plaintiff-appellee, the former has offered to reverse these charges in order to mitigate the effects of the returned checks on the latter. This, to the mind of the court, is tantamount to an admission on their (defendant-appellant bank’s employees) part that they have committed a blunder in handling plaintiff-appellee’s account. Perforce, defendant-appellant bank should return the amount of the service charges debited to plaintiff-appellee. It is basic in the law governing human relations that "no one shall be unjustly enriched at the expense of others."8

The Issues

In its Memorandum, BPI raised the following issues:

A. WHETHER [BPI] WAS NEGLIGENT IN HANDLING THE ACCOUNT OF [SUAREZ];

B. WHETHER [SUAREZ] IS LIABLE TO PAY THE SERVICE CHARGES IMPOSED BY THE PHILIPPINE CLEARING HOUSE CORPORATION; and

C. WHETHER [BPI] IS LIABLE TO PAY [SUAREZ] MORAL AND EXEMPLARY DAMAGES, ATTORNEY’S FEES AND COSTS OF LITIGATION.9

The Court’s Ruling

The petition is partly meritorious.

As a rule, this Court is not a trier of facts. However, there are well- recognized exceptions to this rule, one of which is when certain relevant facts were overlooked by the lower court, which facts, if properly appreciated, would justify a different conclusion from the one reached in the assailed decision.10 Reviewing the records, we find that the lower courts misappreciated the evidence in this case.

Suarez insists that BPI was negligent in handling his account when BPI dishonored the checks he issued to

23

various payees on 16 June 1997, despite the RCBC check deposit made to his account on the same day to cover the total amount of the BPI checks.

Negligence is defined as "the omission to do something which a reasonable man, guided upon those considerations which ordinarily regulate the conduct of human affairs, would do, or the doing of something which a prudent man and reasonable man could not do."11 The question concerning BPI's negligence, however, depends on whether BPI indeed confirmed the same-day crediting of the RCBC check’s face value to Suarez’s BPI account.

In essence, Suarez impresses upon this Court that BPI is estopped12 from dishonoring his checks since BPI confirmed the same-day crediting of the RCBC check deposit and assured the adequacy of funds in his account. Suarez points out that he relied on this confirmation for the issuance of his checks to the owners of the Tagaytay properties. In other words, Suarez claims that BPI made a representation that he had sufficient available funds to cover the total value of his checks.

Suarez is mistaken.

Based on the records, there is no sufficient evidence to show that BPI conclusively confirmed the same-day crediting of the RCBC check which Suarez’s client deposited late on 16 June 1997.13 Suarez’s secretary, Garaygay, testified that she was able to talk to a BPI male employee about the same-day crediting of the RCBC check.14 However, Garaygay failed to (1) identify and name the alleged BPI employee, and (2) establish that this particular male employee was authorized by BPI either to disclose any information regarding a depositor’s bank account to a person other than the depositor over the telephone, or to assure Garaygay that Suarez could issue checks totaling the face value of the RCBC check. Moreover, a same-day clearing of a P19,129,100 check requires approval of designated bank official or officials, and not any bank official can grant such approval. Clearly, Suarez failed to prove that BPI confirmed the same-day crediting of the RCBC check, or that BPI assured Suarez that he had sufficient available funds in his account. Accordingly, BPI was not estopped from dishonoring the checks for inadequacy of available funds in Suarez’s account since the RCBC check remained uncleared at that time.

While BPI had the discretion to undertake the same-day crediting of the RCBC check,15 and disregard the banking industry’s 3-day check clearing policy, Suarez failed to convincingly show his entitlement to such privilege. As BPI pointed out, Suarez had no credit or bill purchase line with BPI which would qualify him to the exceptions to the 3-day check clearing policy.161awph!1

Considering that there was no binding representation on BPI’s part as regards the same-day crediting of the RCBC check, no negligence can be ascribed to BPI’s dishonor of the checks precisely because BPI was justified in dishonoring the checks for lack of available funds in Suarez’s account.17

However, BPI mistakenly marked the dishonored checks with "drawn against insufficient funds (DAIF), " instead of "drawn against uncollected deposit (DAUD)." DAUD means that the account has, on its face, sufficient funds but not yet available to the drawer because the deposit, usually a check, had not yet been cleared.18 DAIF, on the other hand, is a condition in which a depositor’s balance is inadequate for the bank to pay a check.19 In other words, in the case of DAUD, the depositor has, on its face, sufficient funds in his account, although it is not available yet at the time the check was drawn, whereas in DAIF, the depositor lacks sufficient funds in his account to pay the check. Moreover, DAUD does not expose the drawer to possible prosecution for estafa and violation of BP 22, while DAIF subjects the depositor to liability for such offenses.20 It is clear therefore that, contrary to BPI’s contention, DAIF differs from DAUD. Now, does the erroneous marking of DAIF, instead of DAUD, give rise to BPI’s liability for damages?

The following are the conditions for the award of moral damages: (1) there is an injury — whether physical, mental or psychological — clearly sustained by the claimant; (2) the culpable act or omission is factually established; (3) the wrongful act or omission of the defendant is the proximate cause of the injury sustained by the claimant; and (4) the award of damages is predicated on any of the cases stated in Article 221921 of the Civil Code.22

In the present case, Suarez failed to establish that his claimed injury was proximately caused by the erroneous marking of DAIF on the checks. Proximate cause has been

defined as "any cause which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the result complained of and without which would not have occurred."23 There is nothing in Suarez’s testimony which convincingly shows that the erroneous marking of DAIF on the checks proximately caused his alleged psychological or social injuries. Suarez merely testified that he suffered humiliation and that the prospective consolidation of the titles to the Tagaytay properties did not materialize due to the dishonor of his checks,24 not due to the erroneous marking of DAIF on his checks. Hence, Suarez had only himself to blame for his hurt feelings and the unsuccessful transaction with his client as these were directly caused by the justified dishonor of the checks. In short, Suarez cannot recover compensatory damages for his own negligence.25

While the erroneous marking of DAIF, which BPI belatedly rectified, was not the proximate cause of Suarez’s claimed injury, the Court reminds BPI that its business is affected with public interest. It must at all times maintain a high level of meticulousness and should guard against injury attributable to negligence or bad faith on its part.26 Suarez had a right to expect such high level of care and diligence from BPI. Since BPI failed to exercise such diligence, Suarez is entitled to nominal damages27 to vindicate Suarez’s right to such high degree of care and diligence. Thus, we award Suarez P75,000.00 nominal damages.

On the award of actual damages, we find the same without any basis. Considering that BPI legally dishonored the checks for being drawn against uncollected deposit, BPI was justified in debiting the penalty charges against Suarez’s account, pursuant to the Rules of the Philippine Clearing House Corporation,28 to wit:

Sec. 27. PENALTY CHARGES ON RETURNED ITEMS

27.1 A service charge of P600.00 for each check shall be levied against the DRAWER of any check or checks returned for any reason, except for the following:

a) Account Closed

b) No Account

c) Under Garnishment

d) Spurious Check

e) Documentary Stamps Missing (for foreign checks/drafts only)

f) Post-Dated/Stale-Dated

g) Validity Restricted

h) Miscleared Items

I) Deceased Depositor

j) Violation of Clearing Rules and/or Procedures

k) Lost by Presenting Bank while in transit to clearing

as well as other exceptions which may be defined/circulated by PCHC from time to time.29

In view of the foregoing, the Court deems it unnecessary to resolve the other issues raised in this case.

WHEREFORE, the Court GRANTS the petition in part. The Court SETS ASIDE the 30 November 2004 Decision and 11 April 2005 Resolution of the Court of Appeals in CA-G.R. CV No. 76988, and deletes the award of all damages and fees. The Court awards to respondent Reynald R. Suarez nominal damages in the sum of P75,000.00.

SO ORDERED.


WE CONCUR:

24



Associate Justice







Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.



Manila

THIRD DIVISION

G.R. No. 160972 March 9, 2010

LEIGHTON CONTRACTORS PHILIPPINES, INC., Petitioner, vs.CNP INDUSTRIES, INC., Respondent.

D E C I S I O N

CORONA, J.:

This petition for review on certiorari1 assails the May 31, 2000 decision2 and November 20, 2003 resolution3 of the Court of Appeals (CA) in CA-G.R. SP No. 52090.

In 1997, Hardie Jardin, Inc. (HJI) awarded the contract for site preparation, building foundation and structural steel works of its fibre cement plant project in Barangay Tatalon in San Isidro, Cabuyao, Laguna to petitioner Leighton Contractors Philippines, Inc.4

On July 5, 1997, respondent CNP Industries, Inc. submitted to petitioner a proposal to undertake, as subcontractor, the construction of the structural steelworks5 of HJI’s fibre cement plant project. It estimated the project to require 885,009 kgs. of steel costing P44,223,909.6

On July 15, 1997, petitioner accepted respondent’s proposal specifying that the project cost was for the fixed lump sum price of P44,223,909.7 Respondent agreed and petitioner instructed it to commence work.

Meanwhile, petitioner revised the fabrication drawings of several of the structure’s columns necessitating adjustments in the designs of roof ridge ventilation8 and crane beams.9 Petitioner communicated the said revisions to respondent on July 16, 1997. Respondent estimated that the said revisions required an additional 8,132 kgs. of steel costing P13,442,882. However, it did not re-negotiate the fixed lump-sum price with petitioner.

On July 28, 1997, petitioner and respondent signed a sub-contract10 providing:

(B) Subcontract works.

To carry out complete structural steelworks11 outlined in the Sub-contract Lump Sum Price [of P44,223,909]12 in accordance with the Main Drawing13 and Technical Specifications14 and in accordance with the Main Contract, all of which are available on Site.

(c) Special Conditions of the Sub-Contract.

x x x x x x x x x

2. Notwithstanding the provisions of Clause 11(4)15 of the General Conditions of the Sub-contract, this Sub-contract is on a Fixed Lump Sum basis and is not subject to re-measurement. It is the responsibility of [respondent] to derive his own quantities for the purpose of the Lump Sum Sub-contract price. No additional payments will be made to [respondent] for any errors in quantities that may be revealed during the Sub-contract period. (emphasis supplied) 16

x x x x x x x x x

Moreover, the contract required respondent to finish the project within 20 weeks from the time petitioner was allowed access to the site on June 20, 1997,17 that is, on or before November 6, 1997.

On July 29, 1997, petitioner paid respondent 10% of the project cost amounting to P4,422,390.90.18

Thereafter, in a letter dated July 31, 1997, respondent informed petitioner that, due to the revisions in the designs of the roof ridge ventilation and crane beams, it incurred "additional costs" amounting to P13,442,882.

Respondent submitted its weekly progress report including the progress billing. Petitioner, on the other hand, paid the billings.

In its August 12, 1997 progress report,19 respondent reiterated that the roof ridge ventilation and crane beams were not included in the scope of work and consequently were not part of the sub-contract price. It likewise presented the cost estimates in the progress report.

Because respondent was unable to meet the project schedule, petitioner took over the project on April 27, 1998. At the time of the takeover, respondent had already accomplished 86% of the project20 for which petitioner paid P42,008,343.69.21

Thereafter, respondent again asked petitioner to settle the "outstanding balance" of P12,364,993.94, asserting that the roof ridge ventilation and crane beams were excluded from the project cost. Petitioner refused to pay as the July 28, 1997 subcontract clearly stated that the sub-contract price was a fixed lump sum.

The parties submitted the matter to the Construction Industry Arbitration Commission (CIAC) for arbitration.22 The principal issue submitted thereto was whether the cost of the additional steel used for the roof ridge ventilation and crane beams was included in the fixed lump-sum price.

Respondent argued that the proposal it submitted (accepted by petitioner on July 15, 1997) excluded the roof ridge ventilation and crane beams as the fabrications drawings were "clouded" or had not been finalized when the subcontract was executed on July 28, 1997. Furthermore, respondent claimed that petitioner approved the cost estimates when Simon Bennett, petitioner’s quantity surveyor, signed the August 12, 1997 progress report. This proved that the said portions were "additional works" excluded from the fixed lump-sum price.

Petitioner, on the other hand, asserted that the subcontract explicitly included the aforementioned works in the scope of work. Furthermore, it was not liable for the "additional costs" incurred by respondent as the subcontract clearly provided that the project was for the fixed lump-sum price of P44,223,909. It likewise denied approving respondent’s additional cost estimates as Bennett signed the August 12, 1997 progress report only to acknowledge its receipt.

The CIAC found that the subcontract was perfected when petitioner accepted respondent’s proposal on July 15, 2009. Thus, because the fabrication drawings for the roof ridge ventilation and crane beams had not yet been finalized then, the same were deemed "additional works" not included in the lump-sum price. In a decision dated March 19, 1999,23 the CIAC rendered judgment in favor of respondent and ordered petitioner to pay the balance of the contract price plus additional works, the cost of arbitration and attorney’s fees.

Aggrieved, petitioner assailed the CIAC decision via a petition for review in the CA.24 Aside from disputing the CIAC’s interpretation of the sub-contract, petitioner

25

likewise argued that the arbitral body disregarded Article 1724 of the Civil Code.25

In a decision dated May 31, 2000, the CA dismissed the petition and affirmed the CIAC decision in toto.26 Petitioner moved for reconsideration but it was denied in resolution dated November 20, 2003.27

Hence, this recourse.

Petitioner insists that it was not liable to pay for the increase in cost due to the adjustments in the design of the roof ridge ventilation and crane beams. The subcontract clearly defined the scope of work as the construction of the structural steel works and stated that it was for a fixed lump-sum price. Furthermore, assuming arguendo that the said adjustments were indeed additional works, petitioner was not liable to pay for incremental cost since respondent did not observe the procedure mandated by Article 1724 of the Civil Code.

The petition is meritorious.

The parties entered into a contract for a piece of work28 whereby petitioner engaged respondent as contractor to build and provide the necessary materials for the construction of the structural steel works of HJI’s fiber cement plant for a fixed lump-sum price of P44,223,909.

The parol evidence rule, embodied in Section 9, Rule 130 of the Rules of Court29 holds that when the terms of an agreement have been reduced into writing, it is considered as containing all the terms agreed upon and there can be, between the parties and their successors in interest, no evidence of such terms other than the contents of the written agreement.30 It, however, admits of exceptions such as when the parties subsequently modify the terms of their original agreement.

The scope of work was defined in the subcontract as the completion of the structural steel works according to the main drawing, technical specifications and the main contract.31 Thus, to determine whether the roof ridge ventilation and crane beams were included in the scope of work, reference to the main drawing, technical specifications and main contract is necessary. The main contract32 stated that the structural steel works included

Drawing Nos. P302-6200-S-405 and P302-6200-S-402.33 This, according to petitioner and respondent,34 referred to the roof ridge ventilation and crane beams. Hence, the said works were clearly included in the sub-contract works.

Nevertheless, respondent contends that when Bennett signed the August 12, 1997 progress report, petitioner approved the additional cost estimates, in effect modifying the original agreement in the subcontract. Respondent therefore claims an exception to the parole evidence rule.

In contracts for a stipulated price like fixed lump-sum contracts, the recovery of additional costs is governed by Article 1724 of the Civil Code.35 Settled is the rule that a claim for the cost of additional work arising from changes in the scope of work can only be allowed upon the:

(1) written authority from the developer or project owner ordering or allowing the written changes in work and

(2) written agreement of parties with regard to the increase in price or cost due to the change in work or design modification.

Furthermore, compliance with the two requisites of Article 1724, a specific provision governing additional works, is a condition precedent for the recovery. The absence of one or the other condition bars the recovery of additional costs. Neither the authority for the changes made nor the additional price to be paid therefor may be proved by any other evidence.36

Respondent, in this instance, presented the August 12, 1997 progress report signed by Bennett. However, respondent knew that Bennett was not authorized to order any changes in the scope of works or to approve the cost thereof. It addressed all correspondences relating to the project to (petitioner’s) project manager Michael Dent, not Bennett.37 Moreover, Bennett did not sign the subcontract for and in behalf of respondent but only as a witness.38 Respondent was therefore aware of Bennett’s lack of authority.

In this respect, aside from respondent’s failure to present the documents required by Article 1724 of the Civil Code, we find that the sub-contract was never modified.

Petitioner therefore cannot be liable for the additional costs incurred by respondent.1avvphi1

In a fixed lump-sum contract, the project owner agrees to pay the contractor a specified amount for completing a scope of work involving a variety of unspecified items of work without requiring a cost breakdown.39 The contractor estimates the project cost based on the scope of work and schedule and considers probable errors in measurement and changes in the price of materials.40

By entering into a fixed lump-sum contract, respondent undertook the risk of incurring a loss due to errors in measurement. The sub-contract explicitly stated that the stipulated price was not subject to remeasurement. Since the roof ridge ventilation and crane beams were included in the scope of work, respondent was presumed to have estimated the quantity of steel (the minimum and maximum amount) needed on the said portions when it made its formal offer on July 5, 1997. Concomitantly, by the very nature of a fixed lump-sum contract, petitioner was only liable to pay the stipulated subcontract price.41

WHEREFORE, the May 31, 2000 decision and November 20, 2003 resolution of the Court of Appeals in CA-G.R. SP No. 52090 affirming the March 19, 1999 decision of the Construction and Industry Arbitration Commission are hereby REVERSED and SET ASIDE. New judgment is hereby entered declaring that petitioner Leighton Contractors Philippines, Inc. is not liable for the additional costs incurred by respondent CNP Industries, Inc.

SO ORDERED.

RENATO C. CORONAAssociate JusticeChairperson

WE CONCUR:


ANTONIO EDUARDO B.


DIOSDADO M. PERALTA

Associate Justice

JOSE CATRAL MENDOZA

Associate Justice





Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.



Manila

SECOND DIVISION

G.R. No. 160545 March 9, 2010

PRISMA CONSTRUCTION & DEVELOPMENT CORPORATION and ROGELIO S. PANTALEON, Petitioners, vs.ARTHUR F. MENCHAVEZ, Respondent.

D E C I S I O N

BRION, J.:

26

We resolve in this Decision the petition for review on certiorari1 filed by petitioners Prisma Construction & Development Corporation (PRISMA) and Rogelio S. Pantaleon (Pantaleon) (collectively, petitioners) who seek to reverse and set aside the Decision2 dated May 5, 2003 and the Resolution3 dated October 22, 2003 of the Former Ninth Division of the Court of Appeals (CA) in CA-G.R. CV No. 69627. The assailed CA Decision affirmed the Decision of the Regional Trial Court (RTC), Branch 73, Antipolo City in Civil Case No. 97-4552 that held the petitioners liable for payment of P3,526,117.00 to respondent Arthur F. Menchavez (respondent), but modified the interest rate from 4% per month to 12% per annum, computed from the filing of the complaint to full payment. The assailed CA Resolution denied the petitioners’ Motion for Reconsideration.

FACTUAL BACKGROUND

The facts of the case, gathered from the records, are briefly summarized below.

On December 8, 1993, Pantaleon, the President and Chairman of the Board of PRISMA, obtained a P1,000,000.004 loan from the respondent, with a monthly interest of P40,000.00 payable for six months, or a total obligation of P1,240,000.00 to be paid within six (6) months,5 under the following schedule of payments:

January 8, 1994 ………………….

P40,000.00

February 8, 1994 ………………...

P40,000.00

March 8, 1994 …………………...

P40,000.00

April 8, 1994 …………………….

P40,000.00

May 8, 1994 ……………………..

P40,000.00

June 8, 1994 ………………… P1,040,000.006

Total P1,240,000.00

To secure the payment of the loan, Pantaleon issued a promissory note7 that states:

I, Rogelio S. Pantaleon, hereby acknowledge the receipt of ONE MILLION TWO HUNDRED FORTY THOUSAND PESOS (P1,240,000), Philippine Currency, from Mr. Arthur F. Menchavez, representing a six-month loan payable according to the following schedule:

January 8, 1994 ………………….

P40,000.00

February 8, 1994 ………………...

P40,000.00

March 8, 1994 …………………...

P40,000.00

April 8, 1994 …………………….

P40,000.00

May 8, 1994 ……………………..

P40,000.00

June 8, 1994 ………………… P1,040,000.00

The checks corresponding to the above amounts are hereby acknowledged.8

and six (6) postdated checks corresponding to the schedule of payments. Pantaleon signed the promissory note in his personal capacity,9 and as duly authorized by the Board of Directors of PRISMA.10 The petitioners failed to completely pay the loan within the stipulated six (6)-month period.

From September 8, 1994 to January 4, 1997, the petitioners paid the following amounts to the respondent:

September 8, 1994 ………………

P320,000.00

October 8, 1995………………….

P600,000.00

November 8, 1995……………. P158,772.00

January 4, 1997 ………………….

P30,000.0011

As of January 4, 1997, the petitioners had already paid a total of P1,108,772.00. However, the respondent found that the petitioners still had an outstanding balance of P1,364,151.00 as of January 4, 1997, to which it applied a 4% monthly interest.12 Thus, on August 28, 1997, the respondent filed a complaint for sum of money with the RTC to enforce the unpaid balance, plus 4% monthly interest, P30,000.00 in attorney’s fees, P1,000.00 per court appearance and costs of suit.13

In their Answer dated October 6, 1998, the petitioners admitted the loan of P1,240,000.00, but denied the stipulation on the 4% monthly interest, arguing that the interest was not provided in the promissory note. Pantaleon also denied that he made himself personally liable and that he made representations that the loan would be repaid within six (6) months.14

THE RTC RULING

The RTC rendered a Decision on October 27, 2000 finding that the respondent issued a check for P1,000,000.00 in favor of the petitioners for a loan that would earn an interest of 4% or P40,000.00 per month, or a total of P240,000.00 for a 6-month period. It noted that the petitioners made several payments amounting to P1,228,772.00, but they were still indebted to the respondent for P3,526,117.00 as of February 11,15 1999 after considering the 4% monthly interest. The RTC observed that PRISMA was a one-man corporation of Pantaleon and used this circumstance to justify the piercing of the veil of corporate fiction. Thus, the RTC ordered the petitioners to jointly and severally pay the respondent the amount of P3,526,117.00 plus 4% per month interest from February 11, 1999 until fully paid.16

The petitioners elevated the case to the CA via an ordinary appeal under Rule 41 of the Rules of Court, insisting that there was no express stipulation on the 4% monthly interest.

THE CA RULING

The CA decided the appeal on May 5, 2003. The CA found that the parties agreed to a 4% monthly interest principally based on the board resolution that authorized Pantaleon to transact a loan with an approved interest of

not more than 4% per month. The appellate court, however, noted that the interest of 4% per month, or 48% per annum, was unreasonable and should be reduced to 12% per annum. The CA affirmed the RTC’s finding that PRISMA was a mere instrumentality of Pantaleon that justified the piercing of the veil of corporate fiction. Thus, the CA modified the RTC Decision by imposing a 12% per annum interest, computed from the filing of the complaint until finality of judgment, and thereafter, 12% from finality until fully paid.17

After the CA's denial18 of their motion for reconsideration,19 the petitioners filed the present petition for review on certiorari under Rule 45 of the Rules of Court.

THE PETITION

The petitioners submit that the CA mistakenly relied on their board resolution to conclude that the parties agreed to a 4% monthly interest because the board resolution was not an evidence of a loan or forbearance of money, but merely an authorization for Pantaleon to perform certain acts, including the power to enter into a contract of loan. The expressed mandate of Article 1956 of the Civil Code is that interest due should be stipulated in writing, and no such stipulation exists. Even assuming that the loan is subject to 4% monthly interest, the interest covers the six (6)-month period only and cannot be interpreted to apply beyond it. The petitioners also point out the glaring inconsistency in the CA Decision, which reduced the interest from 4% per month or 48% per annum to 12% per annum, but failed to consider that the amount of P3,526,117.00 that the RTC ordered them to pay includes the compounded 4% monthly interest.

THE CASE FOR THE RESPONDENT

The respondent counters that the CA correctly ruled that the loan is subject to a 4% monthly interest because the board resolution is attached to, and an integral part of, the promissory note based on which the petitioners obtained the loan. The respondent further contends that the petitioners are estopped from assailing the 4% monthly interest, since they agreed to pay the 4% monthly interest on the principal amount under the promissory note and the board resolution.

27

THE ISSUE

The core issue boils down to whether the parties agreed to the 4% monthly interest on the loan. If so, does the rate of interest apply to the 6-month payment period only or until full payment of the loan?

OUR RULING

We find the petition meritorious.

Interest due should be stipulated in writing; otherwise, 12% per annum

Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith.20 When the terms of a contract are clear and leave no doubt as to the intention of the contracting parties, the literal meaning of its stipulations governs.21 In such cases, courts have no authority to alter the contract by construction or to make a new contract for the parties; a court's duty is confined to the interpretation of the contract the parties made for themselves without regard to its wisdom or folly, as the court cannot supply material stipulations or read into the contract words the contract does not contain.22 It is only when the contract is vague and ambiguous that courts are permitted to resort to the interpretation of its terms to determine the parties’ intent.

In the present case, the respondent issued a check for P1,000,000.00.23 In turn, Pantaleon, in his personal capacity and as authorized by the Board, executed the promissory note quoted above. Thus, the P1,000,000.00 loan shall be payable within six (6) months, or from January 8, 1994 up to June 8, 1994. During this period, the loan shall earn an interest of P40,000.00 per month, for a total obligation of P1,240,000.00 for the six-month period. We note that this agreed sum can be computed at 4% interest per month, but no such rate of interest was stipulated in the promissory note; rather a fixed sum equivalent to this rate was agreed upon.

Article 1956 of the Civil Code specifically mandates that "no interest shall be due unless it has been expressly stipulated in writing." Under this provision, the payment of interest in loans or forbearance of money is allowed only if: (1) there was an express stipulation for the

payment of interest; and (2) the agreement for the payment of interest was reduced in writing. The concurrence of the two conditions is required for the payment of interest at a stipulated rate. Thus, we held in Tan v. Valdehueza24 and Ching v. Nicdao25 that collection of interest without any stipulation in writing is prohibited by law.1avvphi1

Applying this provision, we find that the interest of P40,000.00 per month corresponds only to the six (6)-month period of the loan, or from January 8, 1994 to June 8, 1994, as agreed upon by the parties in the promissory note. Thereafter, the interest on the loan should be at the legal interest rate of 12% per annum, consistent with our ruling in Eastern Shipping Lines, Inc. v. Court of Appeals:26

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." (Emphasis supplied)

We reiterated this ruling in Security Bank and Trust Co. v. RTC-Makati, Br. 61,27 Sulit v. Court of Appeals,28 Crismina Garments, Inc. v. Court of Appeals, 29 Eastern Assurance and Surety Corporation v. Court of Appeals, 30 Sps. Catungal v. Hao, 31 Yong v. Tiu,32 and Sps. Barrera v. Sps. Lorenzo.33 Thus, the RTC and the CA misappreciated the facts of the case; they erred in finding that the parties agreed to a 4% interest, compounded by the application of this interest beyond the promissory note’s six (6)-month period. The facts show that the parties agreed to the payment of a specific sum of money of P40,000.00 per month for six months, not to a 4% rate of interest payable within a six (6)-month period.

Medel v. Court of Appeals not applicable

The CA misapplied Medel v. Court of Appeals34 in finding that a 4% interest per month was unconscionable.

In Medel, the debtors in a P500,000.00 loan were required to pay an interest of 5.5% per month, a service charge of 2% per annum, and a penalty charge of 1% per month, plus attorney’s fee equivalent to 25% of the amount due, until the loan is fully paid. Taken in conjunction with the stipulated service charge and penalty, we found the interest rate of 5.5% to be excessive, iniquitous, unconscionable, exorbitant and hence, contrary to morals, thereby rendering the stipulation null and void.

Applying Medel, we invalidated and reduced the stipulated interest in Spouses Solangon v. Salazar35 of 6% per month or 72% per annum interest on a P60,000.00 loan; in Ruiz v. Court of Appeals,36 of 3% per month or 36% per annum interest on a P3,000,000.00 loan; in Imperial v. Jaucian,37 of 16% per month or 192% per annum interest on a P320,000.00 loan; in Arrofo v. Quiño,38 of 7% interest per month or 84% per annum interest on a P15,000.00 loan; in Bulos, Jr. v. Yasuma,39 of 4% per month or 48% per annum interest on a P2,500,000.00 loan; and in Chua v. Timan,40 of 7% and 5% per month for loans totalling P964,000.00. We note that in all these cases, the terms of the loans were open-ended; the stipulated interest rates were applied for an indefinite period.

Medel finds no application in the present case where no other stipulation exists for the payment of any extra amount except a specific sum of P40,000.00 per month on the principal of a loan payable within six months. Additionally, no issue on the excessiveness of the stipulated amount of P40,000.00 per month was ever put in issue by the petitioners;41 they only assailed the application of a 4% interest rate, since it was not agreed upon.

It is a familiar doctrine in obligations and contracts that the parties are bound by the stipulations, clauses, terms and conditions they have agreed to, which is the law between them, the only limitation being that these stipulations, clauses, terms and conditions are not contrary to law, morals, public order or public policy.42 The payment of the specific sum of money of P40,000.00 per month was voluntarily agreed upon by the petitioners and the respondent. There is nothing from the records and, in fact, there is no allegation showing that petitioners were victims of fraud when they entered into the agreement with the respondent.

Therefore, as agreed by the parties, the loan of P1,000,000.00 shall earn P40,000.00 per month for a period of six (6) months, or from December 8, 1993 to June 8, 1994, for a total principal and interest amount of P1,240,000.00. Thereafter, interest at the rate of 12% per annum shall apply. The amounts already paid by the petitioners during the pendency of the suit, amounting to P1,228,772.00 as of February 12, 1999,43 should be deducted from the total amount due, computed as indicated above. We remand the case to the trial court for the actual computation of the total amount due.

Doctrine of Estoppel not applicable

The respondent submits that the petitioners are estopped from disputing the 4% monthly interest beyond the six-month stipulated period, since they agreed to pay this interest on the principal amount under the promissory note and the board resolution.

We disagree with the respondent’s contention.

We cannot apply the doctrine of estoppel in the present case since the facts and circumstances, as established by the record, negate its application. Under the promissory note,44 what the petitioners agreed to was the payment of a specific sum of P40,000.00 per month for six months – not a 4% rate of interest per month for six (6) months – on a loan whose principal is P1,000,000.00, for the total amount of P1,240,000.00. Thus, no reason exists to place the petitioners in estoppel, barring them from raising their present defenses against a 4% per month interest after the six-month period of the agreement. The board resolution,45

on the other hand, simply authorizes Pantaleon to contract for a loan with a monthly interest of not more than 4%. This resolution merely embodies the extent of Pantaleon’s authority to contract and does not create any right or obligation except as between Pantaleon and the board. Again, no cause exists to place the petitioners in estoppel.

Piercing the corporate veil unfounded

We find it unfounded and unwarranted for the lower courts to pierce the corporate veil of PRISMA.

The doctrine of piercing the corporate veil applies only in three (3) basic instances, namely: a) when the separate and

28

distinct corporate personality defeats public convenience, as when the corporate fiction is used as a vehicle for the evasion of an existing obligation; b) in fraud cases, or when the corporate entity is used to justify a wrong, protect a fraud, or defend a crime; or c) is used in alter ego cases, i.e., where a corporation is essentially a farce, since it is a mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation.46 In the absence of malice, bad faith, or a specific provision of law making a corporate officer liable, such corporate officer cannot be made personally liable for corporate liabilities.47

In the present case, we see no competent and convincing evidence of any wrongful, fraudulent or unlawful act on the part of PRISMA to justify piercing its corporate veil. While Pantaleon denied personal liability in his Answer, he made himself accountable in the promissory note "in his personal capacity and as authorized by the Board Resolution" of PRISMA.48 With this statement of personal liability and in the absence of any representation on the part of PRISMA that the obligation is all its own because of its separate corporate identity, we see no occasion to consider piercing the corporate veil as material to the case.

WHEREFORE, in light of all the foregoing, we hereby REVERSE and SET ASIDE the Decision dated May 5, 2003 of the Court of Appeals in CA-G.R. CV No. 69627. The petitioners’ loan of P1,000,000.00 shall bear interest of P40,000.00 per month for six (6) months from December 8, 1993 as indicated in the promissory note. Any portion of this loan, unpaid as of the end of the six-month payment period, shall thereafter bear interest at 12% per annum. The total amount due and unpaid, including accrued interests, shall bear interest at 12% per annum from the finality of this Decision. Let this case be REMANDED to the Regional Trial Court, Branch 73, Antipolo City for the proper computation of the amount due as herein directed, with due regard to the payments the petitioners have already remitted. Costs against the respondent.

SO ORDERED.

ARTURO D. BRIONAssociate JusticeActing Chairperson

WE CONCUR:

ANTONIO EDUARDO B. NACHURA*

Associate Justice


Associate Justice





ARTURO D. BRIONAssociate JusticeActing Chairperson


Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s Attestation, it is hereby certified that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.



Manila

SECOND DIVISION

G.R. No. 182720 March 2, 2010

G.G. SPORTSWEAR MFG. CORP., Petitioner, vs.WORLD CLASS PROPERTIES, INC., Respondent.

D E C I S I O N

BRION, J.:

Through its petition for review on certiorari, the petitioner G.G. Sportswear Mfg. Corp. (GG Sportswear) seeks to reverse the December 19, 2007 decision1 and the January 2, 2008 resolution2 of the Court of Appeals (CA) denying: (1) the rescission of its Reservation Agreement with the respondent, World Class Properties, Inc. (World Class) and (2) a refund of the payments made pursuant to this Agreement.

The facts, as culled from the records, are briefly summarized below.

World Class is the owner/developer of Global Business Tower (now Antel Global Corporate Center), an office condominium project located on Julia Vargas Avenue and Jade Drive, Ortigas Center, Pasig City slated for completion on December 15, 1998.

GG Sportswear, a domestic corporation, offered to purchase the 38th floor penthouse unit and 16 parking slots for 32 cars in World Class's condominium project for the discounted, pre-selling price of P89,624,272.82. After GG Sportswear paid the P500,000.00 reservation fee, the parties, on May 15, 1996, signed a Reservation Agreement (Agreement)3 that provides for the schedule of payments, including the stipulated monthly installments on the down payment and the balance on the purchase price, as follows:4

Item Amount to be paid

20% Down Payment P 17,924,854.56less: 500,000.00(Reservation Fee)

P 17,424,854.56

60% Payment 53,774,563.69 1,792,485.45

20% Final Payment 17,924,854.56 Upon turn-over

TOTAL PRICE P 89,624,272.82

Based on the Agreement, the contract to sell pertaining to the entire 38th floor Penthouse unit and the parking slots would be executed upon the payment of thirty percent (30%) of the total purchase price.5 It also stipulated that all its provisions would be deemed incorporated in the contract to sell and other documents to be executed by the parties thereafter. The Agreement also specified that the failure of the buyer to pay any of the installments on the stipulated date would give the developer the right either to: (1) charge 3% interest per month on all unpaid receivables, or (2) rescind and cancel the Agreement without the need of any court action and, upon cancellation, automatically forfeit the reservation fee and other payments made by the buyer.6

From May to December 1996, GG Sportswear timely paid the installments due; the eight monthly installment payments amounted to a total of P19,717,339.50, or 21% of the total contract price.

In a letter dated January 30, 1997,7 GG Sportswear requested the return of the outstanding postdated checks it previously delivered to World Class because it (GG Sportswear) intended to replace these old checks with new ones from the corporation’s new bank. World Class acceded, but suggested the execution of a new Reservation Agreement to reflect the arrangement involving the replacement checks, with the retention of the other terms and conditions of the old Agreement.8 GG Sportswear did not object to the execution of a new Reservation Agreement, but requested that World Class defer the deposit of the replacement checks for 90 days.9 World Class denied this request, contending that a deferment would delay the subsequent monthly installment payments.10 It likewise demanded that GG Sportswear immediately pay its overdue January 1997 installment to avoid the penalties11 provided in the Agreement.12

On March 5, 1997, GG Sportswear delivered the replacement checks and paid the January 1997 installment payment which had been delayed by two

29

months. World Class in turn issued a second Reservation Agreement, which it transmitted to GG Sportswear for the latter’s conformity. World Class also sent GG Sportswear a provisional Contract to Sell,13 which stated that the condominium project would be ready for turnover to the buyer not later than December 15, 1998.

GG Sportswear did not sign the second Reservation Agreement. Instead, it sent a letter14 to World Class, requesting that its check dated April 24, 1997 be deposited on May 15, 1997 because it was experiencing financial difficulties. When World Class rejected GG Sportswear’s request, GG Sportswear sent another letter informing World Class that the second Reservation Agreement was incomplete because it did not expressly provide the time of completion of the condominium unit.15 World Class countered that the provisional Contract to Sell it previously submitted to GG Sportswear expressly provided for the completion date (December 15, 1998) and insisted that GG Sportswear pay its overdue account.16

On June 10, 1997, GG Sportswear filed a Complaint17 with the Housing and Land Use Regulatory Board (HLURB) claiming a refund of the installment payments made to World Class because it was dissatisfied with the completion date found in the Contract to Sell.

In its Answer,18 World Class countered that: (1) it is not guilty of breach of contract since it is the petitioner that committed a breach; (2) the complaint is an afterthought since GG Sportswear is suffering from financial difficulties; (3) the petitioner’s dissatisfaction with the expected date of completion of the unit as indicated in the proposed Contract to Sell is not a valid and sufficient ground for refund; (4) a refund is justified only in cases where the owner/developer fails to develop the project within the specified period of time under Presidential Decree (P.D.) No. 957,19 which period has not yet arrived; and (5) the petitioner was already in default when it filed the complaint and therefore came to court with unclean hands.

On September 12, 2005, HLURB Arbiter Atty. Dunstan T. San Vicente (Arbiter) rendered a decision20 rescinding the Agreement, after finding that World Class violated Sections 4 and 5 of P.D. No. 957 by entering into the Agreement without the required Certificate of Registration and License to Sell (CR/LS).21 He also implied that a

refund is proper in this case under Article 1416 of the Civil Code. As a consequence, he ordered World Class to refund the amount of P19,717,339.50 paid by GG Sportswear with 6% legal interest thereon, and to pay 10% of the principal amount as attorney’s fees. He likewise found World Class administratively liable and ordered it to pay a fine of P10,000.00.

World Class appealed to the HLURB Board of Commissioners (Board). On January 31, 2006, the Board modified the Arbiter’s decision by ruling that the Agreement could no longer be rescinded for lack of a CR/LS because World Class had already been issued a License to Sell on August 1, 1996, or before the complaint was filed.22 Notwithstanding this pronouncement, the Board still awarded a refund in GG Sportswear’s favor. The Board reasoned that World Class had only until August 1998 to complete the project under its first License to Sell. However, World Class, by its own actions, impliedly admitted that it would be incapable of completing its project by this time; it repackaged the project and had applied for and been issued a new License to Sell, which granted World Class until December 1999 to complete the project.23 In essence, the Board equated World Class’s "incapability" to finish the project within the time specified in its first License to Sell with a developer’s "failure to develop" a condominium project – an omission sanctioned under P.D. No. 957 and entitled a buyer to a refund of all payments made.24

In its decision25 of September 11, 2006, the Office of the President (OP) denied World Class’s appeal by quoting extensively from the Arbiter’s decision. The OP subsequently denied World Class’s motion for reconsideration in its November 13, 2006 order.26

In its petition for review27 before the CA, World Class essentially argued that the OP committed a grave abuse of discretion when it upheld the Board’s ruling that GG Sportswear was entitled to a refund.

The CA, in its decision28 of December 19, 2007, reversed the OP decision and denied GG Sportswear’s prayers for rescission of the Agreement and refund of the payments made. It explained that the OP should have given weight to the Board’s modified finding that "the absence of the certificate of registration and license to sell no longer existed at the time of the filing of the complaint and could

no longer be used as basis to demand rescission." Since GG Sportswear never appealed this finding, it had already attained finality and must bind the OP.

On the awarded refund, the CA held that the OP erroneously based GG Sportswear’s right to recovery of payments on Article 1416 of the Civil Code (as what the Arbiter’s decision29 suggested), which entitles a plaintiff to recover the amounts paid under a contract that violates mandatory or prohibitory laws. Since World Class already had a CR/LS when GG Sportswear filed its complaint, GG Sportswear could no longer demand rescission and refund under Sections 4 and 5 of P.D. No. 957.

The appellate court also found no merit in GG Sportswear’s argument that it was entitled to rescind the Agreement and demand a refund because World Class failed to provide a Contract to Sell for the subject units. Under the Agreement, the Contract to Sell would be executed only upon payment of thirty (30%) of the total value of the sale; since GG Sportswear had only paid 21% of the total contract price, it could not demand the execution of the Contract to Sell. The CA likewise denied GG Sportswear’s motion for reconsideration.30

Hence, GG Sportswear filed with this Court the present petition for review on certiorari,31 claiming that the CA erred when: (1) it relied heavily on the Board’s finding that the Agreement could no longer be rescinded because the CR/LS had already been issued at the time the complaint was filed, which was a mere obiter dictum; and (2) it held that GG Sportswear was not entitled to the execution of a Contract to Sell because it had not yet paid 30% of the total value of the sale.

THE RULING OF THE COURT

We find the petition devoid of merit.

The Board ruling that the Agreement could not be rescinded based on lack of a CR/LS had already attained finality.

We explained the concept of an obiter dictum in Villanueva v. Court of Appeals32 by saying:

It has been held that an adjudication on any point within the issues presented by the case cannot be considered as obiter dictum, and this rule applies to all pertinent questions, although only incidentally involved, which are presented and decided in the regular course of the consideration of the case, and led up to the final conclusion, and to any statement as to matter on which the decision is predicated. Accordingly, a point expressly decided does not lose its value as a precedent because the disposition of the case is, or might have been, made on some other ground, or even though, by reason of other points in the case, the result reached might have been the same if the court had held, on the particular point, otherwise than it did. A decision which the case could have turned on is not regarded as obiter dictum merely because, owing to the disposal of the contention, it was necessary to consider another question, nor can an additional reason in a decision, brought forward after the case has been disposed of on one ground, be regarded as dicta. So, also, where a case presents two (2) or more points, any one of which is sufficient to determine the ultimate issue, but the court actually decides all such points, the case as an authoritative precedent as to every point decided, and none of such points can be regarded as having the status of a dictum, and one point should not be denied authority merely because another point was more dwelt on and more fully argued and considered, nor does a decision on one proposition make statements of the court regarding other propositions dicta.33 [emphasis supplied.]

The Board’s pronouncement in its January 31, 2006 decision – that the Agreement could no longer be rescinded because the CR/LS had already been issued at the time the complaint was filed – cannot be considered a mere obiter dictum because it touched upon a matter squarely raised by World Class in its petition for review, specifically, the issue of whether GG Sportswear was entitled to a refund on the ground that it did not have a CR/LS at the time the parties entered into the Agreement.

With this ruling, the Board reversed the Arbiter’s ruling on this particular issue, expressly stating that "the absence of the certificate of registration and license to sell no longer existed at the time of the filing of the complaint and could no longer be used as basis to demand rescission." This ruling became final when GG Sportswear chose not to file an appeal with the OP. Thus, even if the Board ultimately awarded a refund to GG Sportswear based entirely on

30

another ground, the Board’s ruling on the non-rescissible character of the Agreement is binding on the parties.

Consequently, the OP had no jurisdiction to revert to the Arbiter’s earlier declaration that the Agreement was void due to World Class’s lack of a CR/LS, a finding that clearly contradicted the Board’s final and executory ruling.

There was no breach on the part of World Class to justify the rescission and refund.

GG Sportswear likewise has no legal basis to demand either the rescission of the Agreement or the refund of payments it made to World Class under the Agreement.

Unless the parties stipulated it, rescission is allowed only when the breach of the contract is substantial and fundamental to the fulfillment of the obligation.34 Whether the breach is slight or substantial is largely determined by the attendant circumstances.35

GG Sportswear anchors its claim for rescission on two grounds: (a) its dissatisfaction with the completion date; and (b) the lack of a Contract to Sell. As to the first ground, World Class makes much of the fact that the completion date is not indicated in the Agreement, maintaining that this lack of detail renders the Agreement void on the ground that the intention of the parties cannot be ascertained. We disagree with this contention.

In the first place, GG Sportswear cannot claim that it did not know the time-frame for the project’s completion when it entered into the Agreement with World Class. As World Class points out, it is absurd and unbelievable that Mr. Gidwani, the president of GG Sportswear and an experienced businessman, did not have an idea of the expected completion date of the condominium project before he bought the condominium units for P89,624,272.82. Even assuming that GG Sportswear was not aware of the exact completion date, we note that GG Sportswear signed the Agreement despite the Agreement’s omission to expressly state a specific completion date. This directly implies that a specific completion date was not a material consideration for GG Sportswear when it executed the Agreement. Thus, even if we believe GG Sportswear’s contention that it was dissatisfied with the completion date subsequently indicated in the provisional

Contract to Sell, we cannot consider this dissatisfaction a breach so substantial as to render the Agreement rescissible. The grant, too, to World Class of a first License to Sell up to August 1998 and a second License to Sell up to December 1999, to our mind, served as a clear notice of when the project was to be completed. As we discussed above, the initial lack of a License to Sell is not a basis to cancel the Agreement and has in fact effectively been cured even if it may be considered an initial defect.

Moreover, the provisional Contract to Sell that accompanied the second Reservation Agreement explicitly provided that the condominium project would be ready for turnover no later than December 15, 1998, a clear expression of the project’s completion date. While GG Sportswear claims dissatisfaction with this completion date, it never alleged that the given December 15, 1998 completion date violates the completion date previously agreed upon by the parties. In fact, nowhere does GG Sportswear allege that the parties ever agreed upon an earlier completion date. We therefore find no reason for GG Sportswear to be dissatisfied with the indicated completion date. Even if it had been unhappy with the completion date, this ground, standing alone, is not sufficient basis to rescind the Agreement; unhappiness is a state of mind, not a defect available in law as a basis to rescind a contract.

As a last point on this topic, we cannot help but view with suspicion GG Sportswear’s decision to question the second Reservation Agreement’s lack of an express completion date as this question only came up after World Class had rejected GG Sportswear’s request to defer the deposit of its check in light of the financial difficulties it was then encountering. Also by this time, GG Sportswear had already defaulted on its monthly installment payments to World Class. Under these circumstances, we are more inclined to believe World Class’s contention that GG Sportswear’s complaint was simply an attempt to evade its obligations to World Class under the Agreement. This is a ploy we cannot accept.

On the second ground, we note that the Agreement expressly provides that GG Sportswear shall be entitled to a Contract to Sell only upon its payment of at least 30% of the total contract price.36 Since GG Sportswear had only paid 21% of the total contract price, World Class’s obligation to execute a Contract to Sell had not yet arisen.

Accordingly, GG Sportswear had no basis to claim that World Class breached this obligation.

Even if we apply Article 1191 of the Civil Code, which provides:

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

no reason still exists to rescind the contract. Under the Agreement, World Class’s obligation was to finish the project and turn over the purchased units to GG Sportswear on or before the completion date. Notably, at the time GG Sportswear filed its complaint on June 10, 1997, the agreed completion date of December 15, 1998, or even August 1998, the date appearing on World Class’s first License to Sell, was still a long way out. In other words, when GG Sportswear filed its complaint, World Class had not yet breached its obligation, and rescission under this provision of the Civil Code was premature.

Rescission of contracts of sale of commercial condominium units on installment is governed by P.D. No. 957.

Neither can GG Sportswear find recourse through P.D. No. 957, or the "Subdivision and Condominium Buyers’ Protective Decree." This law covers all sales and purchases of subdivision or condominium units, and provides that the buyer’s installment payments shall not be forfeited in favor of the developer or owner if the latter fails to develop the subdivision or condominium project. Section 23 of P.D. No. 957 provides:

Section 23. Non-Forfeiture of Payments. No installment payment made by a buyer in a subdivision or condominium project for the lot or unit he contracted to buy shall be forfeited in favor of the owner or developer when the buyer, after due notice to the owner or developer, desists from further payment due to the failure of the owner or developer to develop the subdivision or condominium project according to the approved plans and within the time limit for complying with the same. Such buyer may, at his option, be reimbursed the total amount paid including amortization interests but excluding

delinquency interests, with interest thereon at the legal rate. [Emphasis supplied.]

Upon the developer’s failure to develop, the buyer may choose either: (1) to continue with the contract but suspend payments until the developer complies with its obligation to finish the project; or (2) to cancel the contract and demand a refund of all payments made, excluding delinquency interests. Notably, a buyer’s cause of action against a developer for failure to develop ripens only when the developer fails to complete the project on the lapse of the completion period stated on the sale contract or the developer’s License to Sell.

To recall, the completion date of the Antel Global Corporate Center was either in August 1998 (based on World Class's first License to Sell), on December 15, 1998 (based on the provisional Contract to Sell), or on December 1999 (based on World Class’s second License to Sell). At the time GG Sportswear filed its complaint against World Class on June 10, 1997, the Antel Global Corporate Center was still in the course of development37 and none of these projected completion dates had arrived. Hence, any complaint for refund was premature.

Significantly, World Class completed the project in August 1999, or within the time period granted by the HLURB for the completion of the condominium project under the second License to Sell. This completion, undertaken while the case was pending before the Arbiter, rendered the issue of World Class’s failure to develop the condominium project moot and academic.1avvphi1

As a side note, we observe that GG Sportswear, not World Class, substantially breached its obligations under the Agreement when it was remiss in the timely payment of its obligations, such that its January 1997 installment was paid only in March 1997, or two months after due date. GG Sportswear did not pay the succeeding installment dated April 1997 (presumably for February 1997) until it had filed its complaint in June 1997. A substantial breach of a reciprocal obligation, like failure to pay the price in the manner prescribed by the contract, entitles the injured party to rescind the obligation.38 Under this contractual term, it was World Class, not GG Sportswear, which had the ground to demand the rescission of the Agreement, as well as the prerogative to secure the forfeiture of all the payments already made by GG Sportswear. However,

31

whether the Agreement between World Class and Sportswear should now be rescinded is a question we do not decide, as this is not a matter before us.

The lack of a Certificate of Registration/License to Sell merely subjects the developer to administrative sanctions.

On a final note, we choose to reiterate, for the benefit of the HLURB, our ruling in Co Chien v. Sta. Lucia Realty & Development, Inc.,39 that the requirements of Sections 4 and 5 of P.D. No. 957 are intended merely for administrative convenience in order to allow for a more effective regulation of the industry and do not go into the validity of the contract such that the absence thereof would automatically render the contract null and void. We said:

A review of the relevant provisions of P.D. 957 reveals that while the law penalizes the selling of subdivision lots and condominium units without prior issuance of a Certificate of Registration and License to Sell by the HLURB, it does not provide that the absence thereof will automatically render a contract, otherwise validly entered, void. The penalty imposed by the decree is the general penalty provided for the violation of any of its provisions. It is well-settled in this jurisdiction that the clear language of the law shall prevail. This principle particularly enjoins strict compliance with provisions of law which are penal in nature, or when a penalty is provided for the violation thereof. With regard to P.D. 957, nothing therein provides for the nullification of a contract to sell in the event that the seller, at the time the contract was entered into, did not possess a certificate of registration and license to sell. Absent any specific sanction pertaining to the violation of the questioned provisions (Sections 4 and 5), the general penalties provided in the law shall be applied. The general penalties for the violation of any provisions in P.D. 957 are provided for in Sections 38 and 39. As can clearly be seen in the cited provisions, the same do not include the nullification of contracts that are otherwise validly entered.

x x x x

The lack of certificate and registration, without more, while penalized under the law, is not in and of itself sufficient to render a contract void.40 (Emphasis supplied.)

We see no reason to depart from this ruling, and so hold that the Arbiter erred in declaring the Agreement void due to the absence of a CR/LS at the time the Agreement was executed.

WHEREFORE, we DENY the present petition for review on certiorari and AFFIRM the assailed CA Decision and Resolution dated December 19, 2007 and January 2, 2008, respectively. Accordingly, the complaint of G.G. Sportswear Mfg. Corp. is DISMISSED. Costs against petitioner G.G. Sportswear Mfg. Corp.

SO ORDERED.


WE CONCUR:


Chairperson


Associate Justice







Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s Attestation, it is hereby

certified that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.



Manila

SECOND DIVISION

G.R. No. 190078 March 5, 2010

SPOUSES NORMAN K. CERTEZA, JR. and MA. ROSANILA V. CERTEZA, AND AMADA P. VILLAMAYOR and HERMINIO VILLAMAYOR, JR., Petitioners, vs.PHILIPPINE SAVINGS BANK, Respondent.

R E S O L U T I O N

DEL CASTILLO, J.:

In this Petition for Review on Certiorari,1 petitioners contend that the auction sale conducted by virtue of the extrajudicial foreclosure of the mortgage should be declared null and void for failure to comply with the two-bidder rule.

Factual Antecedents

Petitioners obtained a P1,255,000.00 loan from respondent Philippine Savings Bank (PS Bank),2 secured by two parcels of land, with all the buildings and improvements existing thereon, covered by Transfer Certificate of Title Nos. N-208706 and N-208770.3

Petitioners failed to pay their outstanding obligation despite demands hence PS Bank instituted on May 8, 2002, an action for Extrajudicial Foreclosure of the Real Estate Mortgage pursuant to Act No. 3135,4 as amended.

During the auction sale conducted on February 18, 2003, PS Bank emerged as the sole and highest bidder.5 A corresponding Certificate of Sale dated February 20, 2003 was issued in favor of PS Bank, which was registered with the Registry of Deeds of Quezon City on March 25, 2003.6

During the period of redemption, on December 1, 2003, PS Bank filed an Ex-parte Petition7 for Writ of Possession with the Regional Trial Court (RTC) of Quezon City, which was granted in an Order8 dated September 21, 2004, after the period of redemption for the foreclosed property had already expired.

On January 20, 2005, petitioners filed an Omnibus Motion for Leave to Intervene and to Stay Issuance or Implementation of Writ of Possession,9 attaching therein their Petition-in-Intervention10 pursuant to Sec. 8 of Act No. 3135. They sought the nullification of the extrajudicial foreclosure sale for allegedly having been conducted in contravention of the procedural requirements prescribed in A.M. No. 99-10-05-0 (Re: Procedure in Extrajudicial Foreclosure of Real Estate Mortgages) and in violation of herein petitioners’ right to due process.

PS Bank opposed11 the motion citing Manalo v. Court of Appeals12 where we held that "(T)he issuance of an order granting the writ of possession is in essence a rendition of judgment within the purview of Section 2, Rule 19 of the Rules of Court." PS Bank also argued that with the issuance of the trial court’s Order on September 21, 2004, the Motion for Leave to Intervene can no longer be entertained.13

The petitioners filed their Reply14 arguing that the filing of their petition before the court where possession was requested was pursuant to Sec. 8 of Act No. 3135.

Ruling of the Regional Trial Court

On March 3, 2005, the RTC of Quezon City, Branch 217, issued an Order15 denying the motion for intervention and to stay the implementation of the writ, to wit:16

The issuance of writ of possession being ministerial in character, the implementation of such writ by the sheriff is likewise ministerial. In PNB vs. Adil, 118 SCRA 116 (1982), the Supreme Court held that "once the writ of

32

possession has been issued, the trial court has no alternative but to enforce the writ without delay." The Court found it gross error for the judge to have suspended the implementation of the writ of possession on a very dubious ground as "humanitarian reason."

WHEREFORE, premises considered, the motion to intervene and to stay the implementation of the writ of possession is hereby denied.

Petitioners filed a motion for reconsideration17 but the motion was denied in the Order dated May 9, 2005.

Ruling of the Court of Appeals

Petitioners filed a Petition for Certiorari with the Court of Appeals (CA) on June 8, 2005 imputing grave abuse of discretion amounting to lack or excess of jurisdiction on the part of the trial court in denying their motion to intervene and to stay the implementation of the writ.18 The CA, in its Decision19 dated May 8, 2009, found that (1) the issuance of a writ of possession is a ministerial function; (2) there was no irregularity in the foreclosure sale; (3) the denial of the motion to intervene is proper; and (4) certiorari is not the proper remedy. The dispositive portion of the said Decision reads:20

IN VIEW OF ALL THE FOREGOING, the petition is ordered DISMISSED. The Orders dated March 3, 2005 and May 9, 2005 in LR Case No. Q-17376 (03) are affirmed.

Petitioners filed a timely Motion for Reconsideration, which was denied by the CA in its Resolution dated October 20, 2009.21

Hence, this petition.

Issues

Petitioners advance the following issues:

I. whether x x x the court of appeals erred in ruling that certiorari is not the proper remedy of a party in a writ of possession case.

II. whether x x x the court of appeals erred in ruling that the denial of petitioners’ motion to intervene is proper.

III. whether x x x the court of appeals erred in ruling that there may be only one bidder in a foreclosure sale.

Petitioners allege that the contents of their Omnibus Motion together with the Petition-in-Intervention, although entitled as such, sought the nullification of the February 18, 2003 extrajudicial foreclosure sale and the cancellation of both the certificate of sale and the writ of possession issued in favor of PS Bank.22 They further submit that the writ of possession is null and void because of patent irregularities in the conduct of the foreclosure sale.23 In support of their contention, petitioners argue that A.M. No. 99-10-05-0 which took effect on January 15, 2000, requires that there must be at least two participating bidders in an auction sale.24 Thus:

5. No auction sale shall be held unless there are at least two (2) participating bidders, otherwise the sale shall be postponed to another date. If on the new date set for the sale there shall not be at least two bidders, the sale shall then proceed. The names of the bidders shall be reported by the sheriff or the notary public who conducted the sale to the Clerk of Court before the issuance of the certificate of sale.

Our Ruling

The petition lacks merit.

The law governing cases of extrajudicial foreclosure of mortgage is Act No. 3135. It provides:

Section 1. When a sale is made under a special power inserted in or attached to any real estate mortgage hereafter made as security for the payment of money or the fulfillment of any other obligation, the provisions of the following sections shall govern as to the manner in which the sale and redemption shall be effected, whether or not provision for the same is made in the power.

x x x x

Sec. 4. The sale shall be made at public auction, between the hours of nine in the morning and four in the afternoon; and shall be under the direction of the sheriff of the province, the justice or auxiliary justice of peace of the municipality in which such sale has to be made, or a notary public of said municipality, who shall be entitled to collect a fee of five pesos for each day of actual work performed, in addition to his expenses.

Sec. 5. At any sale, the creditor, trustee, or other person authorized to act for the creditor, may participate in the bidding and purchase under the same conditions as any other bidder, unless the contrary has been expressly provided in the mortgage or trust deed under which the sale is made.

Sec. 6. In all cases in which an extrajudicial sale is made under the special power hereinbefore referred to, the debtor, his successors in interest or any judicial creditor or judgment creditor of said debtor, or any person having a lien on the property subsequent to the mortgage or deed of trust under which the property is sold, may redeem the same at any time within the term of one year from and after the date of sale; and such redemption shall be governed by the provisions of sections four hundred and sixty-four to four hundred and sixty-six, inclusive, of the Code of Civil Procedure,25 in so far as these are not inconsistent with the provisions of this Act.

The requirement for at least two participating bidders provided in the original version of paragraph 5 of A.M. No. 99-10-05-0 is not found in Act No. 3135. Hence, in the Resolution26 of the Supreme Court en banc dated January 30, 2001, we made the following pronouncements:

It is contended that this requirement is now found in Act No. 3135 and that it is impractical and burdensome, considering that not all auction sales are commercially attractive to prospective bidders.

The observation is well taken. Neither Act No. 3135 nor the previous circulars issued by the Court governing extrajudicial foreclosures provide for a similar requirement. The two-bidder rule is provided under P.D. No. 1594 and its implementing rules with respect to contracts for government infrastructure projects because of the public interest involved. Although there is a public

interest in the regularity of extrajudicial foreclosure of mortgages, the private interest is predominant. The reason, therefore, for the requirement that there must be at least two bidders is not as exigent as in the case of contracts for government infrastructure projects.

On the other hand, the new requirement will necessitate republication of the notice of auction sale in case only one bidder appears at the scheduled auction sale. This is not only costly but, more importantly, it would render naught the binding effect of the publication of the originally scheduled sale. x x x

Thus, as amended by the January 30, 2001 Resolution, paragraph 5 of A.M. No. 99-10-05-0 now reads:

5. The name/s of the bidder/s shall be reported by the sheriff or the notary public who conducted the sale to the Clerk of Court before the issuance of the certificate of sale.27

Hence, the CA correctly ruled that it is no longer required to have at least two bidders in an extrajudicial foreclosure of mortgage.281avvphi1

Subsequently, on August 7, 2001, we further resolved other matters relating to A.M. No. 99-10-05-0, specifically on: (1) period of redemption of properties with respect to the change introduced by Republic Act No. 8791 (The General Banking Law of 2000) to Act No. 3135; (2) ceiling on sheriff’s fees; and (3) payment of filing fees prescribed in the Rules of Court in addition to sheriff’s fees.29

Pursuant to A.M. No. 99-10-05-0, as amended by the Resolutions of January 30, 2001 and August 7, 2001, the then Court Administrator (now Associate Justice of this Court) Presbitero J. Velasco, Jr., issued Circular No. 7-200230 dated January 22, 2002 which became effective on April 22, 2002.31 Section 5(a) of the said circular states:

Sec. 5. Conduct of the extra-judicial foreclosure sale –

a. The bidding shall be made through sealed bids which must be submitted to the Sheriff who shall conduct the sale between the hours of 9 a.m. and 4 p.m. of the date of the

33

auction (Act 3135, Sec. 4). The property mortgaged shall be awarded to the party submitting the highest bid and in case of a tie, an open bidding shall be conducted between the highest bidders. Payment of the winning bid shall be made either in cash or in managers check, in Philippine currency, within five (5) days from notice.

The use of the word "bids" (in plural form) does not make it a mandatory requirement to have more than one bidder for an auction sale to be valid. A.M. No. 99-10-05-0, as amended, no longer prescribes the requirement of at least two bidders for a valid auction sale. We further held that "Except for errors or omissions in the notice of sale which are calculated to deter or mislead bidders, to depreciate the value of the property, or to prevent it from bringing a fair price, simple mistakes or omissions are not considered fatal to the validity of the notice and the sale made pursuant thereto".32

In view of the foregoing, the extra-judicial foreclosure sale conducted in this case is regular and valid. Consequently, the subsequent issuance of the writ of possession is likewise regular and valid.

Hence, it is no longer necessary for this Court to rule on the other issues presented by the petitioners, which are also grounded on the supposed irregularity in the auction.

WHEREFORE, the instant petition is DENIED. The assailed Decision of the Court of Appeals dated May 8, 2009 and its Resolution dated October 20, 2009 are hereby AFFIRMED.

SO ORDERED.

MARIANO C. DEL CASTILLO Associate Justice

WE CONCUR:


Chairperson



JOSE P. PEREZAssociate Justice



ANTONIO T. CARPIOAssociate JusticeChairperson, Second Division


Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s attestation, it is hereby certified that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.



Manila

EN BANC

G.R. No. 176625 : February 25, 2010

MACTAN-CEBU INTERNATIONAL AIRPORT AUTHORITY and AIR TRANSPORTATION

OFFICE, Petitioners, vs. BERNARDO L. LOZADA, SR., and the HEIRS OF ROSARIO MERCADO,

namely, VICENTE LOZADA, MARIO M. LOZADA, MARCIA L. GODINEZ, VIRGINIA L. FLORES,

BERNARDO LOZADA, JR., DOLORES GACASAN, SOCORRO CAFARO and ROSARIO LOZADA, represented by MARCIA LOZADA GODINEZ,

Respondents.

DECISION

NACHURA, J .:

This is a petition for review on certiorari under Rule 45 of the Rules of Court, seeking to reverse, annul, and set aside the Decision[1] cralaw dated February 28, 2006 and the Resolution[2] cralaw dated February 7, 2007 of the Court of Appeals (CA) ( Cebu City), Twentieth Division, in CA-G.R. CV No. 65796.

The antecedent facts and proceedings are as follows:

Subject of this case is Lot No. 88-SWO-25042 (Lot No. 88), with an area of 1,017 square meters, more or less, located in Lahug, Cebu City.Its original owner was Anastacio Deiparine when the same was subject to expropriation proceedings, initiated by the Republic of the Philippines (Republic), represented by the then Civil Aeronautics Administration (CAA), for the expansion and improvement of the Lahug Airport.The case was filed with the then Court of First Instance of Cebu, Third Branch, and docketed as Civil Case No. R-1881.

As early as 1947, the lots were already occupied by the U.S. Army.They were turned over to the Surplus Property Commission, the Bureau of Aeronautics, the National Airport Corporation and then to the CAA.

During the pendency of the expropriation proceedings, respondent Bernardo L. Lozada, Sr. acquired Lot No. 88 from Deiparine.Consequently, Transfer Certificate of Title (TCT) No. 9045 was issued in Lozadas name.

On December 29, 1961, the trial court rendered judgment in favor of the Republic and ordered the latter to pay Lozada the fair market value of Lot No. 88, adjudged at P3.00 per square meter, with consequential damages by way of legal interest computed from November 16, 1947the time when the lot was first occupied by the airport.Lozada received the amount of P3,018.00 by way of payment.

The affected landowners appealed.Pending appeal, the Air Transportation Office (ATO), formerly CAA, proposed a compromise settlement whereby the owners of the lots affected by the expropriation proceedings would either not appeal or withdraw their respective appeals in consideration of a commitment that the expropriated lots would be resold at the price they were expropriated in the event that the ATO would abandon the Lahug Airport, pursuant to an established policy involving similar cases.Because of this promise, Lozada did not pursue his appeal.Thereafter, Lot No. 88 was transferred and registered in the name of the Republic under TCT No. 25057.

The projected improvement and expansion plan of the old Lahug Airport, however, was not pursued.

Lozada, with the other landowners, contacted then CAA Director Vicente Rivera, Jr., requesting to repurchase the lots, as per previous agreement.The CAA replied that there might still be a need for the Lahug Airport to be used as an emergency DC-3 airport.It reiterated, however, the assurance that should this Office dispose and resell the properties which may be found to be no longer necessary as an airport, then the policy of this Office is to give priority to the former owners subject to the approval of the President.

On November 29, 1989, then President Corazon C. Aquino issued a Memorandum to the Department of Transportation, directing the transfer of general aviation operations of the Lahug Airport to the Mactan International Airport before the end of 1990 and, upon such transfer, the closure of the Lahug Airport.

Sometime in 1990, the Congress of the Philippines passed Republic Act (R.A.) No. 6958, entitled An Act Creating the Mactan-Cebu International Airport Authority, Transferring Existing Assets of the Mactan International Airport and the Lahug Airport to the Authority, Vesting the Authority with Power to Administer and Operate the Mactan International Airport and the Lahug Airport, and For Other Purposes.

From the date of the institution of the expropriation proceedings up to the present, the public purpose of the said expropriation (expansion of the airport) was never actually initiated, realized, or implemented.Instead, the old

34

airport was converted into a commercial complex.Lot No. 88 became the site of a jail known as Bagong Buhay Rehabilitation Complex , while a portion thereof was occupied by squatters.[3] cralaw The old airport was converted into what is now known as the Ayala I.T. Park, a commercial area.

Thus, on June 4, 1996, petitioners initiated a complaint for the recovery of possession and reconveyance of ownership of Lot No. 88.The case was docketed as Civil Case No. CEB-18823 and was raffled to the Regional Trial Court (RTC), Branch 57, Cebu City.The complaint substantially alleged as follows:

(a) Spouses Bernardo and Rosario Lozada were the registered owners of Lot No. 88 covered by TCT No. 9045;

(b) In the early 1960s, the Republic sought to acquire by expropriation Lot No. 88, among others, in connection with its program for the improvement and expansion of the Lahug Airport;

(c) A decision was rendered by the Court of First Instance in favor of the Government and against the land owners, among whom was Bernardo Lozada, Sr. appealed therefrom;

(d) During the pendency of the appeal, the parties entered into a compromise settlement to the effect that the subject property would be resold to the original owner at the same price when it was expropriated in the event that the Government abandons the Lahug Airport;

(e) Title to Lot No. 88 was subsequently transferred to the Republic of the Philippines (TCT No. 25057);

(f) The projected expansion and improvement of the Lahug Airport did not materialize;

(g) Plaintiffs sought to repurchase their property from then CAA Director Vicente Rivera.The latter replied by giving as assurance that priority would be given to the previous owners, subject to the approval of the President, should CAA decide to dispose of the properties;

(h) On November 29, 1989, then President Corazon C. Aquino, through a Memorandum to the Department of Transportation and Communications (DOTC), directed the transfer of general aviation operations at the Lahug Airport to the Mactan-Cebu International Airport Authority;

(i) Since the public purpose for the expropriation no longer exists, the property must be returned to the plaintiffs. [4]

In their Answer, petitioners asked for the immediate dismissal of the complaint.They specifically denied that the Government had made assurances to reconvey Lot No. 88 to respondents in the event that the property would no longer be needed for airport operations.Petitioners instead asserted that the judgment of condemnation was unconditional, and respondents were, therefore, not entitled to recover the expropriated property notwithstanding non-use or abandonment thereof.

After pretrial, but before trial on the merits, the parties stipulated on the following set of facts:

(1) The lot involved is Lot No. 88-SWO-25042 of the Banilad Estate, situated in the City of Cebu, containing an area of One Thousand Seventeen (1,017) square meters, more or less;

(2) The property was expropriated among several other properties in Lahug in favor of the Republic of the Philippines by virtue of a Decision dated December 29, 1961 of the CFI of Cebu in Civil Case No. R-1881;

(3) The public purpose for which the property was expropriated was for the purpose of the Lahug Airport;

(4) After the expansion, the property was transferred in the name of MCIAA; [and]

(5) On November 29, 1989, then President Corazon C. Aquino directed the Department of Transportation and Communication to transfer general aviation operations of the Lahug Airport to the Mactan-Cebu International Airport Authority and to close the Lahug Airport after such transfer[.] [5]

During trial, respondents presented Bernardo Lozada, Sr. as their lone witness, while petitioners presented their own witness, Mactan-Cebu International Airport Authority legal assistant Michael Bacarisas.

On October 22, 1999, the RTC rendered its Decision, disposing as follows:

WHEREFORE, in the light of the foregoing, the Court hereby renders judgment in favor of the plaintiffs, Bernardo L. Lozada, Sr., and the heirs of Rosario Mercado, namely, Vicente M. Lozada, Marcia L. Godinez, Virginia L. Flores, Bernardo M. Lozada, Jr., Dolores L. Gacasan, Socorro L. Cafaro and Rosario M. Lozada, represented by their attorney-in-fact Marcia Lozada Godinez, and against defendants Cebu-Mactan International Airport Authority (MCIAA) and Air Transportation Office (ATO):

1.ordering MCIAA and ATO to restore to plaintiffs the possession and ownership of their land, Lot No. 88 Psd-821 (SWO-23803), upon payment of the expropriation price to plaintiffs; and

2.ordering the Register of Deeds to effect the transfer of the Certificate of Title from defendant[s] to plaintiffs on Lot No. [88] , cancelling TCT No. 20357 in the name of defendant MCIAA and to issue a new title on the same lot in the name of Bernardo L. Lozada, Sr. and the heirs of Rosario Mercado, namely: Vicente M. Lozada, Mario M. Lozada, Marcia L. Godinez, Virginia L. Flores, Bernardo M. Lozada, Jr., Dolores L. Gacasan, Socorro L. Cafaro and Rosario M. Lozada.


SO ORDERED. [6]

Aggrieved, petitioners interposed an appeal to the CA.After the filing of the necessary appellate briefs, the CA rendered its assailed Decision dated February 28, 2006, denying petitioners appeal and affirming in toto the Decision of the RTC, Branch 57, Cebu City.Petitioners motion for reconsideration was, likewise, denied in the questioned CA Resolution dated February 7, 2007.

Hence, this petition arguing that: (1) the respondents utterly failed to prove that there was a repurchase agreement or compromise settlement between them and the Government; (2) the judgment in Civil Case No. R-1881 was absolute and unconditional, giving title in fee simple to the Republic; and (3) the respondents claim of verbal assurances from government officials violates the Statute of Frauds.

The petition should be denied.

Petitioners anchor their claim to the controverted property on the supposition that the Decision in the pertinent expropriation proceedings did not provide for the condition that should the intended use of Lot No. 88 for the expansion of the Lahug Airport be aborted or abandoned, the property would revert to respondents, being its former owners.Petitioners cite, in support of this position, Fery v. Municipality of Cabanatuan ,[7] cralaw which declared that the Government acquires only such rights in expropriated parcels of land as may be allowed by the character of its title over the properties

If x x x land is expropriated for a particular purpose, with the condition that when that purpose is ended or abandoned the property shall return to its former owner, then, of course, when the purpose is terminated or abandoned the former owner reacquires the property so expropriated.If x x x land is expropriated for a public street and the expropriation is granted upon condition that the city can only use it for a public street, then, of course, when the city abandons its use as a public street, it returns to the former owner, unless there is some statutory provision to the contrary. x x x.If, upon the contrary, however, the decree of expropriation gives to the entity a fee simple title, then, of course, the land becomes the absolute property of the expropriator, whether it be the State, a province, or municipality, and in that case the non-user does not have the effect of defeating the title acquired by the expropriation proceedings. x x x.

When land has been acquired for public use in fee simple, unconditionally , either by the exercise of eminent domain or by purchase, the former owner retains no right in the land, and the public use may be abandoned, or the land may be devoted to a different use, without any impairment of the estate or title acquired, or any reversion to the former owner. x x x. [8]

35

Contrary to the stance of petitioners, this Court had ruled otherwise in Heirs of Timoteo Moreno and Maria Rotea v. Mactan-Cebu International Airport Authority ,[9] cralaw thus

Moreover, respondent MCIAA has brought to our attention a significant and telling portion in the Decision in Civil Case No. R-1881 validating our discernment that the expropriation by the predecessors of respondent was ordered under the running impression that Lahug Airport would continue in operation

As for the public purpose of the expropriation proceeding, it cannot now be doubted.Although Mactan Airport is being constructed, it does not take away the actual usefulness and importance of the Lahug Airport: it is handling the air traffic both civilian and military.From it aircrafts fly to Mindanao and Visayas and pass thru it on their flights to the North and Manila. Then, no evidence was adduced to show how soon is the Mactan Airport to be placed in operation and whether the Lahug Airport will be closed immediately thereafter. It is up to the other departments of the Government to determine said matters.The Court cannot substitute its judgment for those of the said departments or agencies. In the absence of such showing, the Court will presume that the Lahug Airport will continue to be in operation (emphasis supplied).

While in the trial in Civil Case No. R-1881 [we] could have simply acknowledged the presence of public purpose for the exercise of eminent domain regardless of the survival of Lahug Airport, the trial court in its Decision chose not to do so but instead prefixed its finding of public purpose upon its understanding that Lahug Airport will continue to be in operation. Verily, these meaningful statements in the body of the Decision warrant the conclusion that the expropriated properties would remain to be so until it was confirmed that Lahug Airport was no longer in operation. This inference further implies two (2) things: (a) after the Lahug Airport ceased its undertaking as such and the expropriated lots were not being used for any airport expansion project, the rights vis--vis the expropriated Lots Nos. 916 and 920 as between the State and their former owners, petitioners herein, must be equitably adjusted; and (b) the foregoing unmistakable declarations in the body of the Decision should merge with and become an intrinsic part of the fallo thereof which under the premises is clearly inadequate since the

dispositive portion is not in accord with the findings as contained in the body thereof. [10]

Indeed, the Decision in Civil Case No. R-1881 should be read in its entirety, wherein it is apparent that the acquisition by the Republic of the expropriated lots was subject to the condition that the Lahug Airport would continue its operation.The condition not having materialized because the airport had been abandoned, the former owner should then be allowed to reacquire the expropriated property.[11] cralaw

On this note, we take this opportunity to revisit our ruling in Fery , which involved an expropriation suit commenced upon parcels of land to be used as a site for a public market.Instead of putting up a public market, respondent Cabanatuan constructed residential houses for lease on the area.Claiming that the municipality lost its right to the property taken since it did not pursue its public purpose, petitioner Juan Fery, the former owner of the lots expropriated, sought to recover his properties.However, as he had admitted that, in 1915, respondent Cabanatuan acquired a fee simple title to the lands in question, judgment was rendered in favor of the municipality, following American jurisprudence, particularly City of Fort Wayne v. Lake Shore & M.S. RY. Co., [12] cralaw McConihay v. Theodore Wright, [13] cralaw and Reichling v. Covington Lumber Co., [14] cralaw all uniformly holding that the transfer to a third party of the expropriated real property, which necessarily resulted in the abandonment of the particular public purpose for which the property was taken, is not a ground for the recovery of the same by its previous owner, the title of the expropriating agency being one of fee simple.

Obviously, Fery was not decided pursuant to our now sacredly held constitutional right that private property shall not be taken for public use without just compensation.[15] cralaw It is well settled that the taking of private property by the Governments power of eminent domain is subject to two mandatory requirements: (1) that it is for a particular public purpose; and (2) that just compensation be paid to the property owner. These requirements partake of the nature of implied conditions that should be complied with to enable the condemnor to keep the property expropriated.[16] cralaw

More particularly, with respect to the element of public use, the expropriator should commit to use the property pursuant to the purpose stated in the petition for expropriation filed, failing which, it should file another petition for the new purpose.If not, it is then incumbent upon the expropriator to return the said property to its private owner, if the latterdesires to reacquire the same.Otherwise, the judgment of expropriation suffers an intrinsic flaw, as it would lack one indispensable element for the proper exercise of the power of eminent domain, namely, the particular public purpose for which the property will be devoted.Accordingly, the private property owner would be denied due process of law, and the judgment would violate the property owners right to justice, fairness, and equity.

In light of these premises, we now expressly hold that the taking of private property, consequent to the Governments exercise of its power of eminent domain, is always subject to the condition that the property be devoted to the specific public purpose for which it was taken.Corollarily, if this particular purpose or intent is not initiated or not at all pursued, and is peremptorily abandoned, then the former owners, if they so desire, may seek the reversion of the property, subject to the return of the amount of just compensation received.In such a case, the exercise of the power of eminent domain has become improper for lack of the required factual justification.[17] cralaw

Even without the foregoing declaration, in the instant case, on the question of whether respondents were able to establish the existence of an oral compromise agreement that entitled them to repurchase Lot No. 88 should the operations of the Lahug Airport be abandoned, we rule in the affirmative.

It bears stressing that both the RTC, Branch 57, Cebu and the CA have passed upon this factual issue and have declared, in no uncertain terms, that a compromise agreement was, in fact, entered into between the Government and respondents, with the former undertaking to resell Lot No. 88 to the latter if the improvement and expansion of the Lahug Airport would not be pursued.In affirming the factual finding of the RTC to this effect, the CA declared

Lozadas testimony is cogent.An octogenarian widower-retiree and a resident of Moon Park, >California since

1974, he testified that government representatives verbally promised him and his late wife while the expropriation proceedings were on-going that the government shall return the property if the purpose for the expropriation no longer exists. This promise was made at the premises of the airport.As far as he could remember, there were no expropriation proceedings against his property in 1952 because the first notice of expropriation he received was in 1962.Based on the promise, he did not hire a lawyer.Lozada was firm that he was promised that the lot would be reverted to him once the public use of the lot ceases.He made it clear that the verbal promise was made in Lahug with other lot owners before the 1961 decision was handed down, though he could not name the government representatives who made the promise.It was just a verbal promise; nevertheless, it is binding.The fact that he could not supply the necessary details for the establishment of his assertions during cross-examination, but that When it will not be used as intended, it will be returned back, we just believed in the government, does not dismantle the credibility and truthfulness of his allegation.This Court notes that he was 89 years old when he testified in November 1997 for an incident which happened decades ago.Still, he is a competent witness capable of perceiving and making his perception known.The minor lapses are immaterial.The decision of the competency of a witness rests primarily with the trial judge and must not be disturbed on appeal unless it is clear that it was erroneous.The objection to his competency must be made before he has given any testimony or as soon as the incompetency becomes apparent.Though Lozada is not part of the compromise agreement, [18] he nevertheless adduced sufficient evidence to support his claim. [19]

As correctly found by the CA, unlike in Mactan Cebu International Airport Authority v. Court of Appeals, [20]

cralaw cited by petitioners, where respondent therein offered testimonies which were hearsay in nature, the testimony of Lozada was based on personal knowledge as the assurance from the government was personally made to him. His testimony on cross-examination destroyed neither his credibility as a witness nor the truthfulness of his words.

Verily, factual findings of the trial court, especially when affirmed by the CA, are binding and conclusive on this Court and may not be reviewed. A petition for certiorari under Rule 45 of the Rules of Court contemplates only

36

questions of law and not of fact.[21] cralaw Not one of the exceptions to this rule is present in this case to warrant a reversal of such findings.

As regards the position of petitioners that respondents testimonial evidence violates the Statute of Frauds, suffice it to state that the Statute of Frauds operates only with respect to executory contracts, and does not apply to contracts which have been completely or partially performed, the rationale thereof being as follows:

In executory contracts there is a wide field for fraud because unless they be in writing there is no palpable evidence of the intention of the contracting parties.The statute has precisely been enacted to prevent fraud.However, if a contract has been totally or partially performed, the exclusion of parol evidence would promote fraud or bad faith, for it would enable the defendant to keep the benefits already delivered by him from the transaction in litigation, and, at the same time, evade the obligations, responsibilities or liabilities assumed or contracted by him thereby. [22]

In this case, the Statute of Frauds, invoked by petitioners to bar the claim of respondents for the reacquisition of Lot No. 88, cannot apply, the oral compromise settlement having been partially performed.By reason of such assurance made in their favor, respondents relied on the same by not pursuing their appeal before the CA.Moreover, contrary to the claim of petitioners, the fact of Lozadas eventual conformity to the appraisal of Lot No. 88 and his seeking the correction of a clerical error in the judgment as to the true area of Lot No. 88 do not conclusively establish that respondents absolutely parted with their property.To our mind, these acts were simply meant to cooperate with the government, particularly because of the oral promise made to them.

The right of respondents to repurchase Lot No. 88 may be enforced based on a constructive trust constituted on the property held by the government in favor of the former.On this note, our ruling in Heirs of Timoteo Moreno is instructive, viz. :

Mactan-Cebu International Airport Authority is correct in stating that one would not find an express statement in the Decision in Civil Case No. R-1881 to the effect that the [condemned] lot would return to [the landowner] or that

[the landowner] had a right to repurchase the same if the purpose for which it was expropriated is ended or abandoned or if the property was to be used other than as the Lahug Airport. This omission notwithstanding, and while the inclusion of this pronouncement in the judgment of condemnation would have been ideal, such precision is not absolutely necessary nor is it fatal to the cause of petitioners herein.No doubt, the return or repurchase of the condemned properties of petitioners could be readily justified as the manifest legal effect or consequence of the trial courts underlying presumption that Lahug Airport will continue to be in operation when it granted the complaint for eminent domain and the airport discontinued its activities.

The predicament of petitioners involves a constructive trust, one that is akin to the implied trust referred to in Art. 1454 of the Civil Code, If an absolute conveyance of property is made in order to secure the performance of an obligation of the grantor toward the grantee, a trust by virtue of law is established.If the fulfillment of the obligation is offered by the grantor when it becomes due, he may demand the reconveyance of the property to him. In the case at bar, petitioners conveyed Lots No. 916 and 920 to the government with the latter obliging itself to use the realties for the expansion of Lahug Airport; failing to keep its bargain, the government can be compelled by petitioners to reconvey the parcels of land to them, otherwise, petitioners would be denied the use of their properties upon a state of affairs that was not conceived nor contemplated when the expropriation was authorized.

Although the symmetry between the instant case and the situation contemplated by Art. 1454 is not perfect, the provision is undoubtedly applicable.For, as explained by an expert on the law of trusts: The only problem of great importance in the field of constructive trust is to decide whether in the numerous and varying fact situations presented to the courts there is a wrongful holding of property and hence a threatened unjust enrichment of the defendant. Constructive trusts are fictions of equity which are bound by no unyielding formula when they are used by courts as devices to remedy any situation in which the holder of legal title may not in good conscience retain the beneficial interest.

In constructive trusts, the arrangement is temporary and passive in which the trustees sole duty is to transfer the title and possession over the property to the plaintiff-

beneficiary.Of course, the wronged party seeking the aid of a court of equity in establishing a constructive trust must himself do equity. Accordingly, the court will exercise its discretion in deciding what acts are required of the plaintiff-beneficiary as conditions precedent to obtaining such decree and has the obligation to reimburse the trustee the consideration received from the latter just as the plaintiff-beneficiary would if he proceeded on the theory of rescission.In the good judgment of the court, the trustee may also be paid the necessary expenses he may have incurred in sustaining the property, his fixed costs for improvements thereon, and the monetary value of his services in managing the property to the extent that plaintiff-beneficiary will secure a benefit from his acts.

The rights and obligations between the constructive trustee and the beneficiary, in this case, respondent MCIAA and petitioners over Lots Nos. 916 and 920, are echoed in Art. 1190 of the Civil Code, When the conditions have for their purpose the extinguishment of an obligation to give, the parties, upon the fulfillment of said conditions, shall return to each other what they have received x x x In case of the loss, deterioration or improvement of the thing, the provisions which, with respect to the debtor, are laid down in the preceding article shall be applied to the party who is bound to return x x x. [23]

On the matter of the repurchase price, while petitioners are obliged to reconvey Lot No. 88 to respondents, the latter must return to the former what they received as just compensation for the expropriation of the property, plus legal interest to be computed from default, which in this case runs from the time petitioners comply with their obligation to respondents.

Respondents must likewise pay petitioners the necessary expenses they may have incurred in maintaining Lot No. 88, as well as the monetary value of their services in managing it to the extent that respondents were benefited thereby.

Following Article 1187[24] cralaw of the Civil Code, petitioners may keep whatever income or fruits they may have obtained from Lot No. 88, and respondents need not account for the interests that the amounts they received as just compensation may have earned in the meantime.

In accordance with Article 1190[25] cralaw of the Civil Code vis--vis Article 1189, which provides that (i)f a thing is improved by its nature, or by time, the improvement shall inure to the benefit of the creditor x x x, respondents, as creditors, do not have to pay, as part of the process of restitution, the appreciation in value of Lot No. 88, which is a natural consequence of nature and time.[26] cralaw

WHEREFORE, the petition is DENIED.The February 28, 2006 Decision of the Court of Appeals, affirming the October 22, 1999 Decision of the Regional Trial Court, Branch 87, Cebu City, and its February 7, 2007 Resolution are AFFIRMEDwith MODIFICATIONas follows:

1.Respondents are ORDERED to return to petitioners the just compensation they received for the expropriation of Lot No. 88, plus legal interest, in the case of default, to be computed from the time petitioners comply with their obligation to reconvey Lot No. 88 to them;

2.Respondents are ORDERED to pay petitioners the necessary expenses the latter incurred in maintaining Lot No. 88, plus the monetary value of their services to the extent that respondents were benefited thereby;

3.Petitioners are ENTITLED to keep whatever fruits and income they may have obtained from Lot No. 88; and

4.Respondents are also ENTITLED to keep whatever interests the amounts they received as just compensation may have earned in the meantime, as well as the appreciation in value of Lot No. 88, which is a natural consequence of nature and time;

In light of the foregoing modifications, the case is REMANDED to the Regional Trial Court, Branch 57, Cebu City, only for the purpose of receiving evidence on the amounts that respondents will have to pay petitioners in accordance with this Courts decision.No costs.

SO ORDERED.

ANTONIO EDUARDO B. NACHURAAssociate Justice

WE CONCUR:

37




CONCHITA CARPIO MORALESAssociate Justice


TERESITA J. LEONARDO-DE CASTROAssociate Justice


(on official leave)DIOSDADO M. PERALTA*

Associate Justice


MARIANO C. DEL CASTILLOAssociate Justice






Pursuant to Section 13, Article VIII of the Constitution, I hereby certify that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court.



Manila

SECOND DIVISION

G.R. No. 162218 : February 25, 2010

METROPOLITAN BANK AND TRUST COMPANY, Petitioner, vs. EDGARDO D. VIRAY, Respondent.:

DECISION

CARPIO, J. :

The Case

Before the Court is a petition for review on certiorari [1]

cralaw assailing the Decision[2] cralaw dated 21 August 2003 and Resolution[3] cralaw dated 13 February 2004 of the Court of Appeals (CA) in CA-G.R. CV No. 43926, which reversed the Decision[4] cralaw dated 21 September 2003 of the Regional Trial Court (RTC) of Cagayan de Oro City, Misamis Oriental, Branch 23, in Civil Case No. 91-309.

The Facts

On 7 July 1979, Rico Shipping, Inc., represented by its President, Erlinda Viray-Jarque, together with respondent Edgardo D. Viray (Viray), in their own personal capacity and as solidary obligors (the three parties collectively known as the debtors), obtained two separate loans from petitioner Metropolitan Bank and Trust Company (MBTC) in the total amount of P250,000.The debtors executed a promissory note promising to pay in four semi-annual installments of P62,500 starting on 23 January 1980, with 15% interest and 2% credit evaluation and supervision fee per annum .The two loans were subsequently renewed and secured by one promissory note.Under the note, the debtors made a total payment of P134,054 leaving a balance of P115,946 which remained unpaid despite demands by MBTC.

On 5 June 1981, the debtors executed another promissory note and obtained a loan from MBTC in the amount of P50,000, payable on 2 November 1981, with 16% interest

and 2% credit evaluation and supervision fee per annum .On the due date, the debtors again failed to pay the loan despite demands to pay by MBTC.

On 3 September 1981, the debtors obtained a third loan from MBTC in the amount of P50,000 payable on 14 November 1981, with 16% interest and 2% credit evaluation and supervision fee per annum .Again, the debtors failed and refused to pay on due date.

MBTC filed a complaint for sum of money against the debtors with the RTC of Manila, Branch 4.[5] cralaw On 28 April 1983, the RTC of Manila rendered a judgment in favor of MBTC.[6] cralaw The dispositive portion of the decision states:

WHEREFORE, judgment is hereby rendered ordering defendants to pay jointly and severally plaintiff the following:

I On the first cause of action:

(a) The sum ofP50,000 with interest thereon at the rate of 16% per annum from date of filing of the complaint until fully paid;

(b) The sum equivalent to 1% per month of the principal obligation as penalty charge, computed likewise from the filing of the complaint;

II On the second cause of action:

(a) The sum ofP50,000 with interest thereon at the rate of 16% per annum from date of filing of the complaint until fully paid;

(b) The sum equivalent to 1% per month of the principal sum as penalty charge, computed from date of filing of the complaint;

III On the third cause of action:

(a) The sum ofP115,946.00 with interest thereon at the rate of 1% per annum from date of filing of the complaint until fully paid;

(b) The sum equivalent to 1% per month of the sum of P115,946.00 as penalty charge, computed from date of filing of the complaint;

IV

(1) The sum ofP15,000.00 as attorneys fees; and

(2) To pay the costs of suit.

SO ORDERED.

Meanwhile, on 29 December 1982, the government issued Free Patents in favor of Viray over three parcels of land (lots) designated as(1) Lot No. 26275, Cad-237 with an area of 500 square meters; (2) LotNo. 26276, Cad-237, with an area of 888 square meters; and (3) LotNo. 26277, Cad-237 with an area of 886 square meters, all situatedin Barangay Bulua, Cagayan de Oro City, Misamis Oriental. Original Certificate of Title (OCT) Nos. P-2324, P-2325 and P-2326 were issued covering Free Patent Nos. [X-1] 10525, [X-1] 10526 and [X-1] 10527, respectively.

TheOCTs containing the free patents were registered with the Registry of Deeds of Cagayan de Oro City on 18 January 1983.Written across the face of the OCTs were the following:

x x x To have and to hold said tract of land, with the appurtenances thereunto of right belonging unto the said EDGARDO D. VIRAY and to his heirs and assigns forever, subject to the provisions of Sections 118, 119, 121 as amended by P.D. No. 763, 122 and 124 of Commonwealth Act No. 141, as amended, which provide that except in favor of the Government or any of its branches, units or institutions, the land thereby acquired shall be inalienableand shall not be subject to encumbrance for a period offive (5) years from the date of this patent, and shall not be liable for the satisfaction of any debt contracted prior to the expiration of said periodx x x.[7] cralaw

On 6 March 1984, the RTC of Manila issued a writ of execution over the lots owned by Viray.On 12 October 1984, pursuant to the writ of execution, the City Sheriff of Cagayan de Oro sold the lots at public auctionin favor of

38

MBTC as the winning bidder.The next day, the sheriff issued a Certificate of Sale to MBTC.[8] cralaw

On 23 August 1990, the sheriff executed a Deed of Final Conveyanceto MBTC.The Register of Deeds of Cagayan de Oro City cancelled OCT Nos. P-2324, P-2325 and P-2326 and issued in MBTCs name TransferCertificate of Title (TCT) Nos. T-59171, T-59172 and T-59173,[9] cralaw respectively.

On 30 July 1991, Viray filed an action for annulment of sale against the sheriff and MBTC with the RTC of Cagayan de Oro City, Misamis Oriental, Branch 23.[10]

cralaw Viray sought the declaration of nullity of the execution sale, the sheriffs certificate of sale, the sheriffs deed of final conveyance and the TCT's issued by the Register of Deeds.

On 21 September 1993, the RTC of Cagayan de Oro City rendered its decision in favor of MBTC.[11] cralaw The dispositive portion states:

Wherefore, based on facts and jurisprudence, the Auction Sale by the Sheriff of the then lots of plaintiff covered by [free] patents to satisfy the judgment in favor of Defendant Bank is considered valid.While plaintiff had until April 2, 1991 to redeem the property, the former never attempted to show interest in redeeming the properties, and therefore such right has prescribed.Defendant Bank therefore is declared as the lawful transferee of the three (3) lots now covered by Titles in the name of Defendant Bank.

SO ORDERED.[12] cralaw

Viray filed an appeal with the CA alleging that the RTC of Cagayan de Oro City committed reversible error in ruling solely on the issue of redemption instead of the issue of validity of the auction sale, being the lis mota [13] cralaw of the action.

The Ruling of the Court of Appeals

On 21 August 2003, the appellate court reversed the decision of the RTC of Cagayan de Oro City.The CA ruled that the auction sale conducted by the sheriff was null and void ab initio since the sale was made during

the five-year prohibition period in violation of Section 118 of Commonwealth Act No. 141 (CA 141) or the Public Land Act.The dispositive portion states:

WHEREFORE, in view of the foregoing considerations, the decision appealed from is hereby REVERSED, and plaintiff-appellant Edgardo Viray is declared entitled to the return and possession of the three (3) parcels of land covered by O.C.T. Nos. P-2324, P-2325 and P-2326, without prejudice to his continuing obligation to pay the judgment debt, and expenses connected therewith.

Accordingly, the Register of Deeds of Cagayan de Oro City is ordered to cancel TCT Nos. T-59171, T-59172 and T-59173 in the name of defendant-appellee Metrobank, and to restore O.C.T. Nos. P-2324, P-2325 and P-2326 in the name of plaintiff-appellant Edgardo Viray.


SO ORDERED.[14] cralaw

MBTC filed a Motion for Reconsideration which was denied in a Resolution dated 13 February 2004.

Hence, the instant petition.

The Issue

The main issue is whether the auction sale falls within the five-year prohibition period laid down in Section 118 of CA 141.

The Courts Ruling

The petition lacks merit.

Petitioner MBTC insists that the five-year prohibition period against the alienation or sale of the property provided in Section 118 of CA 141 does not apply to an obligation contracted before the grant or issuance of the free patent or homestead.The alienation or sale stated in the law pertains to voluntary sales and not to forced or execution sales.

Respondent Viray, on the other hand, maintains that the express prohibition in Section 118 of CA 141 does not qualify or distinguish whether the debt was contracted prior to the date of the issuance of the free patent or within five years following the date of such issuance.Further, respondent asserts that Section 118 of CA 141 absolutely prohibits any and all sales, whether voluntary or not, of lands acquired under free patent or homestead, made within the five-year prohibition period.

Section 118 of CA 141 states:

SECTION 118. Except in favor of the Government or any of its branches, units, or instruction, lands acquired under free patent or homestead provisions shall not be subject to encumbrance or alienation from the date of the approval of the application and for a term of five years from and after the date of issuance of the patent and grant, nor shall they become liable to the satisfaction of any debt contracted prior to the expiration of said period, but the improvements or crops on the land may be mortgaged or pledged to qualified persons, associations, or corporations.

No alienation, transfer, or conveyance of any homestead after five years and before twenty-five years after issuance of title shall be valid without the approval of the Secretary of Agriculture and Natural Resources, which approval shall not be denied except on constitutional and legal grounds.

The law clearly provides that lands which have been acquired under free patent or homestead shall not be encumbered or alienated within five years from the date of issuance of the patent or be liable for the satisfaction of any debt contracted prior to the expiration of the period.

In the present case, the three loans were obtained on separate dates 7 July 1979, 5 June 1981 and 3 September 1981, or several years before the free patents on the lots were issued by the government to respondent on 29 December 1982.The RTC of Manila, in a Decision dated 28 April 1983, ruled in favor of petitioner ordering the debtors, including respondent, to pay jointly and severally certain amounts of money.The public auction conducted by the sheriff on the lots owned by respondent occurred on 12 October 1984.

For a period of five years or from 29 December 1982 up to 28 December 1987, Section 118 of CA 141 provides that the lots comprising the free patents shall not be made liable for the payment of any debt until the period of five years expires.In this case, the execution sale of the lots occurred less than two years after the date of the issuance of the patents.This clearly falls within the five-year prohibition period provided in the law, regardless of the dates when the loans were incurred.

In Artates v. Urbi ,[15] cralaw we held that a civil obligation cannot be enforced against, or satisfied out of, the sale of the homestead lot acquired by the patentee less than five years before the obligation accrued even if the sale is involuntary.For purposes of complying with the law, it is immaterial that the satisfaction of the debt by the encumbrance or alienation of the land grant was made voluntarily, as in the case of an ordinary sale, or involuntarily, such as that effected through levy on the property and consequent sale at public auction.In both instances, the law would have been violated.

Likewise, in Beach v. Pacific Commercial Company and Sheriff of Nueva Ecija, [16] cralaw we held that to subject the land to the satisfaction of debts would violate Section 116 of Act No. 2874 (now Section 118 of CA 141).

As correctly observed by the CA in the present case:

It is argued by defendant-appellee, however, that the debt referred to in the law must have been contracted within the five-year prohibitory period; any debt contracted before or after the five-year prohibitory period is definitely not covered by the law.This argument is weakest on two points.Firstly, because the provision of law does not say that the debt referred to therein should be contracted before the five-year prohibitory period but before the expiration of the five-year prohibitory period.(Defendant-appellee deliberately omitted the word expiration to suit its defense.)This simply means that it is not material whether the debt is contracted before the five-year prohibitory period; what is material is that the debt must be contracted before or prior to the expirationof the five-year prohibitory period from the date of the issuance and approval of the patent or grant. x x x

And secondly, while it is true that the debt in this case was contracted prior to the five-year prohibitory period, the

39

same is of no consequence, for as held in Artates vs. Urbi, supra , such indebtedness has to be reckoned from the date said obligation was adjudicated and decreed by the court. x x x[17] cralaw

It must be emphasized that the main purpose in the grant of a free patent or homestead is to preserve and keep in the family of the homesteader that portion of public land which the State has given to him so he may have a place to live with his family and become a happy citizen and a useful member of the society.[18] cralaw In Jocson v. Soriano ,[19] cralaw we held that the conservation of a family home is the purpose of homestead laws.The policy of the state is to foster families as the foundation of society, and thus promote general welfare.The sentiment of patriotism and independence, the spirit of free citizenship, the feeling of interest in public affairs, are cultivated and fostered more readily when the citizen lives permanently in his own home, with a sense of its protection and durability.

Section 118 of CA 141, therefore, is predicated on public policy.Its violation gives rise to the cancellation of the grant and the reversion of the land and its improvements to the government at the instance of the latter.[20] cralaw The provision that nor shall they become liable to the satisfaction of any debt contracted prior to the expiration of the five-year period is mandatory[21] cralaw and any sale made in violation of such provision is void[22] cralaw and produces no effect whatsoever, just like what transpired in this case.Clearly, it is not within the competence of any citizen to barter away what public policy by law seeks to preserve.[23] cralaw

WHEREFORE, we DENY the petition. We AFFIRM the Decision dated 21 August 2003 and Resolution dated 13 February 2004 of the Court of Appeals in CA-G.R. CV No. 43926.

SO ORDERED.


WE CONCUR:


MARIANO C. DEL CASTILLO Associate Justice


JOSE P. PEREZAssociate Justice

ATTESTATION



Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the DivisionChairperson’s Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.



Manila

THIRD DIVISION

G.R. No. 165377 February 16, 2010

LOLITA REYES doing business under the name and style, SOLID BROTHERS WEST MARKETING, Petitioner, vs.CENTURY CANNING CORPORATION, Respondent.

D E C I S I O N

PERALTA, J.:

Before us is a Petition for Review on Certiorari seeking the reversal of the Decision1 dated September 16, 2004 of the Court of Appeals (CA) in CA-G.R. CV No. 67975, which reversed and set aside the Decision2 of the Regional Trial Court (RTC), Branch 267, Pasig City, in Civil Case No. 66863.

The antecedent facts as found by the Court of Appeals are as follows:

Plaintiff corporation, Century Canning Corporation, is engaged in the business of manufacturing, processing, and distribution of canned goods, particularly, Century Tuna. Defendant Lolita Reyes is a businesswoman doing business under the name and style Solid Brothers West Marketing.

The facts as gathered by the Court a quo are as follows:

In the subject case, Plaintiff Century Canning Corporation tried to establish the fact that defendant Lolita Reyes had applied for and was granted "credit line" from the former thereby allowing the latter to allegedly obtain and secure Century tuna canned goods. And when the defendant's obligation to pay became due and demandable, the same failed to pay as she refused to pay her unsettled accounts in the total amount of P787,191.27. However, due to the constant and diligent efforts exerted by the representatives of the plaintiff to collect the alleged unpaid obligations of the defendant, the later returned some unsold Century tuna canned goods, the value of which at P323,697.64 was deducted from the principal obligation thereby leaving the amount of P463,493.63 as the unsettled account of defendant Reyes. That because of the refusal of the defendant to satisfactorily and completely settle her unpaid account, the plaintiff was constrained to refer the matter to its legal counsel, who consequently sent a demand letter,

and accordingly filed the instant case in Court after the defendant failed to comply and satisfy the demand letter to pay.

In her Answer with Compulsory Counterclaim, defendant averred that she has no transaction with the plaintiff for the purchase of the alleged canned goods in question, inasmuch as she is not engaged in the canned goods business but in auto airconditioning, parts and car accessories in Banaue, Quezon City.3

Trial thereafter ensued.

On April 28, 2000, the RTC rendered its decision, the dispositive portion of which reads:

WHEREFORE, premises considered, the instant complaint is hereby ordered DISMISSED. The prayer for counterclaim of defendant in the form of moral damages, exemplary damages, and attorney's fees is hereby granted.

Accordingly, let judgment be rendered in favor of defendant's counterclaim, and plaintiff Century Canning Corporation is directed to pay defendant Lolita Reyes moral damages in the amount of P50,000.00, exemplary damages in the amount of P25, 000.00 and attorney's fees in the amount of P20,000.00 as well as to pay the costs of the suit.4

SO ORDERED.

In so ruling, the RTC found that respondent failed to substantiate its allegations that petitioner is liable to pay a certain sum of money. It based its conclusion on the fact that petitioner's signature in the Credit Application Form submitted by respondent was significantly different from the signature appearing in petitioner's COMELEC voter's identification card (ID) and her Community Tax Certificate (CTC) which she proffered to be her usual, true, and genuine signature. It also found that petitioner's signature did not appear in the five sales invoices presented by respondent where the former acknowledged receipt of the delivered canned good; that there was no explicit authority such as a written document showing the appointment of a certain Oscar Delumen as petitioner's authorized representative to transact business and/or receive canned goods for and on petitioner's behalf; that

40

there was also no showing that respondent requested or asked for Delumen's authority to transact or receive the goods on petitioner's behalf inasmuch as the amount involved was of considerable value. The RTC did not give credence to the testimonial as well as the documentary evidence presented by respondent for being self-serving. It awarded damages to petitioner taking into consideration the mental anguish she suffered by reason of the case and for being forced to litigate to protect her right.

Respondent filed its appeal with the CA. Petitioner filed her appellee's brief, and respondent filed a Reply thereto.

On September 16, 2004, the CA granted the appeal, the dispositve portion of which reads:

WHEREFORE, premises considered, the appeal is hereby GRANTED. The assailed decision of the Regional Trial Court is REVERSED and SET ASIDE and the defendant-appellee held liable for the amount claimed by the plaintiff-appellant.5

In reversing the RTC, the CA found that the RTC's conclusion that petitioner's signature in the Credit application form was different from her signature in the CTC and voter's ID was contrary to the RTC's observation during the September 9, 1999 hearing, where it made a remark that "as far as the strokes, there seemed to be a similarity, because signatures sometimes differed in size; but as far as the strokes were concerned, they seemed to be the same." The CA found that in the credit application form, where petitioner's certificate of registration of business name was attached, a certain Oscar Delumen represented himself as petitioner's former sales operations manager; that the existence and authenticity of both documents were never refuted by petitioner; that the fact that Delumen was acting for and on petitioner's behalf was not controverted, except by mere denial. The CA noted that in Delumen's Comments on Motion to Cite him in Contempt of Court, he stated that "when he saw on his desk the RTC Order of December 27, 1999, directing him to pay a fine of P1,000.00 as form of wastage fee, he immediately brought the said Order to petitioner and was assured by the latter that she would have her lawyer attend to and take care for him"; that this statement proved that petitioner and Delumen knew each other; and that the RTC should have required Delumen's testimony, as he was a

vital witness to the case, but the RTC opted to forego with the same.

The CA gave credence to the respondent's witnesses, who testified that they had previously met with petitioner when they attempted to collect her unpaid accounts; that petitioner even tried to settle her indebtedness through monthly installments until such time that the debt was fully paid; that petitioner even returned some of the goods previously delivered to her to reduce her accountabilities; that the testimonies of these witnesses belied petitioner's defense that she never transacted business with respondent, because, if she did not transact with the latter, she would not have entertained respondent's officers and would not have offered settlement and returned the goods. The CA concluded that the positive declarations of respondent's witnesses could not be overturned by petitioner's general denial that she never transacted business with respondent.

Hence, this petition where petitioner raises the issue that:

THE COURT OF APPEALS GRAVELY ABUSED ITS DISCRETION IN GRANTING RESPONDENT'S APPEAL AND HOLDING PETITIONER LIABLE TO PAY RESPONDENT'S CLAIM.

Petitioner contends that the CA misquoted or misapplied the remarks made by the RTC during the trial of the case, since the observation "as far as the strokes, there seems to be a similarity" refers to that between petitioner's signature appearing in her community tax certificate and the verification in her answer, and not between petitioner's alleged signatures in the credit application form and her community tax certificate and voter's ID. She argues that contrary to the CA finding that she never refuted the existence and authenticity of the credit application form, she categorically denied having executed the same by claiming that the signature appearing therein was not hers; that she not only denied her signature in the credit application form, but she also presented documents showing her genuine signature. She also claimed that the CA's finding that Delumen was acting on her behalf was not established by competent evidence during the trial of the case, as the only evidence submitted by respondent to prove the authority of Delumen was the credit application form; that said credit application form has no probative

value for being self-serving, and its genuineness and authenticity were not established.

Petitioner contended that the Comment on Motion to Cite in Contempt of Court submitted by Delumen, which the CA claimed to have proven the fact that petitioner and Delumen knew each other, was not formally offered as part of respondent's evidence, and Delumen was not even presented during the trial; that the CA erred in concluding that petitioner returned some of the canned goods to respondent, relying on the statement of account which was self-serving, and no copy of the same was sent to the petitioner; and that the statement of account where the amount of P323,697.64 was deducted was merely based on the credit memo, which respondent's witness did not prepare himself. There was no evidence that the goods were received by petitioner, as even the sales invoices did not bear her signatures; and the fact that the goods were received by Delumen because he was petitioner's general manager was not established.

The issue presented before Us is whether the CA correctly found that petitioner was liable to pay respondent's claim.1avvphi1 This is a factual issue.

The Court is not a trier of facts, its jurisdiction being limited to reviewing only errors of law that may have been committed by the lower courts.6 As a general rule, petitions for review under Rule 45 of the Rules of Civil Procedure filed before this Court may only raise questions of law.7 However, jurisprudence has recognized several exceptions to this rule.8

In this case, the factual findings of the Court of Appeals are contrary to those of the RTC; thus, we find it proper to review the evidence.

It is a basic rule in evidence that each party to a case must prove his own affirmative allegations by the degree of evidence required by law.9 In civil cases, the party having the burden of proof must establish his case by preponderance of evidence,10 or that evidence that is of greater weight or is more convincing than that which is in opposition to it. It does not mean absolute truth; rather, it means that the testimony of one side is more believable than that of the other side, and that the probability of truth is on one side than on the other.

We find no merit in the petition.

The RTC dismissed respondent's complaint, as it found that the signature appearing in the credit application form, alleged to be that of petitioner, was significantly different from the signature in the CTC and voter's ID that petitioner claimed to show her usual and genuine signature. However, the CA found that such conclusion was contrary to the RTC's observation made during the trial, when the latter said that "there seems to be a similarity in strokes because a signature sometimes differs on the size." While the CA's finding on this matter was erroneous, since a reading of the transcript of stenographic notes of the September 9, 1999 hearing, when the alleged observation regarding the similarity in strokes was made by the RTC, shows that the RTC was comparing petitioner's signatures in her voter's ID and her CTC with her signature in the Verification in her Answer. We still affirm the CA's reversal of the RTC decision.

While petitioner denies having any transaction with respondent regarding the sale and delivery to her of respondent's canned goods, a review of the evidence shows otherwise. Records show that respondent submitted a certificate of registration of business name under petitioner's name and with her photo, which was marked as respondent's Exhibit "L."11 Notably, respondent's formal offer of evidence12 stated that the purpose of Exhibit "L" was to show that petitioner had submitted such certificate as one of her supporting documents in applying as a distributor of respondent's products, and also for the purpose of contradicting petitioner's allegation that she had no transaction with respondent.13 In petitioner's Objections/Comment to respondent's offer of evidence,14 she offered no objection to this exhibit.15 In fact, in the same Comment, petitioner prayed that the other exhibits be denied admission for the purpose for which they were offered, except Exhibit "L."16 In effect, petitioner admitted the purpose for which Exhibit "L" was offered, i.e., one of the documents she submitted to respondent to be a distributor of the latter's products. Thus, such admission belies her allegation in her Answer with compulsory counterclaim that she had no transaction with respondent for the purchase of the canned goods,17 as well as her testimony on direct examination that she did not know respondent.18

Although petitioner denies her signature in the credit application form, the entries19 therein show informations

41

whose veracity even admitted by petitioner. Such entries include the residential address at 132 Zamora Street, Caloocan, which was petitioner's previous residence prior to her transfer to Banaue, Quezon City;20 and shows Eliseo Dy as authorized signatory of two bank accounts, whom petitioner admitted on cross-examination to be her live-in partner for 23 years.21 Notable also is the fact that the tax account number appearing in the credit application form was the same tax account number stated in petitioner's CTC, which she presented to reflect her true and usual signature.22 It was also in the credit application form where the name of Oscar Delumen, with his signature affixed thereto, appears as petitioner's operations manager.

Petitioner claims that there was no evidence showing that she received the canned goods delivered by respondent, as the sales invoices evidencing such delivery were not signed by her. The sales invoices were signed by Delumen, her operations manager. While petitioner denies having received the canned goods and knowing Delumen, respondent presented two witnesses who categorically declared and positively identified petitioner as the person whom they met several times in her store and residence for the purpose of collecting her unpaid obligations with respondent.

George Navarez, respondent's former Credit and Collection Supervisor, testified that petitioner was their former customer who failed to pay the purchases and deliveries covered by five sales invoices;23 that he knew petitioner since he had met her several times when he was collecting her unpaid obligations;24 that in one of his visits to petitioner, the latter offered to pay P50,000.00 a month as partial settlement of her total indebtedness with respondent; and that to reduce her debt, petitioner even returned some of the canned goods delivered to her.25 Navarez, on cross examination, testified that he was the one who personally received the canned goods that petitioner returned, as he was there in the store when the goods were pulled out;26 that the transaction regarding the returned goods was contained in three credit memos, which served as the bases for the amount deducted from petitioner's debt.27 On re-direct, he clarified that the amount of P323,697.64 was the amount of the returned canned goods which was reflected as deductions in the statement of account,28 and that the statement of account was prepared by a clerk and approved by him.29

Manuel Conti Uy, respondent's Regional Sales Manager, testified that he met petitioner several times when he presented to her the five unpaid sales invoices30 that, in one instance, petitioner, who was with Eliseo Dy who could not speak because of a throat infection, asked him to just pull out the remaining unsold goods for application to her total indebtedness;31 that he told her that he would still have to ask the approval of their credit and collection department. Uy then came back with Navarez and, in the presence of petitioner, initiated the pull-out of the goods;32 that after deducting the amount of the returned canned goods, the remaining balance was P463,493.63;33 and when he made another visit, i.e., a few days after Eliseo's death, he presented to petitioner the statement of account where the amount of the returned goods was deducted, but petitioner still refused to pay.34

Notably, petitioner did not even rebut, either in her direct testimony or in rebuttal, the testimonies of Navarez and Uy that they met with her several times, and talked with her regarding the collection of her indebtedness and the pull-out of the canned goods. In fact, in Uy's testimony, he also mentioned Eliseo's death, and that Uy even allowed few days to pass before going to petitioner's place to collect so as to give petitioner time to comfort herself. Eliseo's death sometime in October 1997 was confirmed by petitioner.

We agree with the CA when it said that if indeed petitioner did not transact with respondent, she should not have entertained respondent's collecting officers and should not have offered settlement or returned some of the canned goods.

The testimonies of respondent's witnesses were further bolstered by the absence of any motive on their part to falsely testify against petitioner; thus, their testimonies are hereby accorded full faith and credit.

Petitioner's defense consists of denial. We have held that denial, if unsubstantiated by clear and convincing evidence, is a negative and self-serving evidence that has no weight in law and cannot be given greater evidentiary value over the testimony of credible witnesses who testified on affirmative matters.35

We find that respondent has sufficiently established petitioner's liability in the amount of P463,493.63. Such

amount must be paid with legal interest from the filing of the complaint on June 25, 1998, until fully paid. As held in the landmark case of Eastern Shipping Lines, Inc. v. Court of Appeals,36 to wit:

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.

x x x x

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.

WHEREFORE, the decision dated September 16, 2004 of the Court of Appeals in CA-G.R. CV No. 67975 is hereby AFFIRMED.

SO ORDERED.


WE CONCUR:


Chairperson

PRESBITERO J. VELASCO, JR.


Associate Justice Associate Justice



I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court's Division.



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



Manila

THIRD DIVISION

G.R. No. 172927 February 11, 2010

RONILO SORREDA, Petitioner, vs.CAMBRIDGE ELECTRONICS CORPORATION,1 Respondent.

D E C I S I O N

CORONA, J.:

42

This petition2 seeks to reverse and set aside the May 26, 2005 decision3 of the Court of Appeals (CA) in CA-G.R. SP No. 77303 and its resolution denying reconsideration.4 The CA affirmed the resolution5 of the National Labor Relations Commission (NLRC) in NLRC NCR CA No. 028156-01 declaring that petitioner Ronilo Sorreda was not a regular employee of respondent Cambridge Electronics Corporation.

On May 8, 1999, petitioner was hired by respondent as a technician for a period of 5 months at minimum wage.6 Five weeks into the job (on June 15, 1999), petitioner met an accident in which his left arm was crushed by a machine and had to be amputated.7

Petitioner claimed that, shortly after his release from the hospital, officers of respondent company called him to a meeting with his common-law wife, father and cousin. There he was assured a place in the company as a regular employee for as long as the company existed and as soon as he fully recovered from his injury.

In September 1999, after he recovered from his injury, petitioner reported for work. Instead of giving him employment, they made him sign a memorandum of resignation to formalize his separation from the company in the light of the expiration of his five-month contract.

On November 16, 1999, petitioner filed in the Regional Arbitration Branch of the NLRC of Dasmariñas, Cavite a complaint8 for illegal dismissal (later changed to breach of contract). In his position paper, he raised the following issues:

1. whether there was a valid agreement or contract of perpetual employment perfected between the parties concerned;

2. whether respondent corporation was bound thereby and

3. whether [petitioner] has a cause of action for damages against respondent based on the contract.9

He claimed that respondent failed to comply with the terms of the contract of perpetual employment which was perfected in June 1999 when he was called to a meeting by management.10 He prayed that respondent be made to pay compensatory,11 moral12 and exemplary damages and attorney’s fees for default or breach of contract.

Respondent denied that it extended regular employment to petitioner. Only words of encouragement were offered but not perpetual employment. Moreover, it assailed the labor arbiter’s jurisdiction over the case, claiming a lack of causal connection between the alleged breach of contract and their employer-employee relationship.

The labor arbiter held that he had jurisdiction to hear and decide the case as it involved the employer-employee relationship of the contending parties. He ruled that petitioner who had been employed on a per-project basis became a regular employee by virtue of the contract of perpetual employment. He stated that the positive declaration of the witnesses (common-law wife, father and cousin) present at the meeting and the parole evidence rule was enough to support the petitioner’s claim. Thus, in a decision dated March 9, 2001, the labor arbiter ruled that petitioner was employed by respondent for an indefinite period of employment (that is, on regular status.) He ordered petitioner’s reinstatement and the payment of backwages, moral damages and exemplary damages as well as attorney’s fees.13

Both petitioner and respondent appealed to the NLRC. Petitioner claimed that the labor arbiter erred in finding that he was a regular employee, that the case was based on illegal dismissal and that reinstatement and payment of backwages were the proper reliefs. Respondent, on the other hand, asked for the reversal of the labor arbiter’s decision based on grave abuse of discretion for assuming jurisdiction over the case.

The NLRC agreed with respondent.14 It found that petitioner was not a regular employee; thus, he was neither illegally dismissed nor entitled to reinstatement and backwages. Petitioner sued for compensatory damages because of the accident that befell him. As the contract for per-project employment had already expired, the issue no longer fell under the jurisdiction of the labor arbiter and NLRC. Moreover, the testimonies of petitioner’s witnesses were declared self-serving and thus insufficient to prove

the contract of perpetual employment. The motion for reconsideration of petitioner was denied.15

Aggrieved, petitioner filed a petition for certiorari16 in the CA questioning the NLRC’s finding of non-existence of the contract of perpetual employment.

The CA dismissed the petition for lack of merit, stating that the labor arbiter decided the case on an issue that was never raised (i.e., the employment status of petitioner). Moreover, petitioner’s principal cause of action, breach of contract, was not cognizable by the labor courts but by the regular courts.17 The CA concluded that the NLRC did not commit any reversible error in finding that the labor arbiter had no jurisdiction over the case. Furthermore, petitioner failed to prove grave abuse of discretion in the NLRC’s exercise of its quasi-judicial function.

Petitioner moved for reconsideration but the motion was denied.18 Thus, this petition.

We affirm the Court of Appeals.

This case rests on the issue of whether the labor arbiter had the jurisdiction to take cognizance thereof.

Jurisdiction over the subject matter of a complaint is determined by the allegations of the complaint.19 In Pioneer Concrete Philippines, Inc. v. Todaro,20 the Court reiterated that where no employer-employee relationship exists between the parties, and the Labor Code or any labor statute or collective bargaining agreement is not needed to resolve any issue raised by them, it is the Regional Trial Court which has jurisdiction. Thus it has been consistently held that the determination of the existence of a contract as well as the payment of damages is inherently civil in nature.21 A labor arbiter may only take cognizance of a case and award damages where the claim for such damages arises out of an employer-employee relationship.22

In this instance, petitioner, from the period May 8, 1999 to October 8, 1999, was clearly a per-project employee of private respondent, resulting in an employer-employee relationship. Consequently, questions or disputes arising out of this relationship fell under the jurisdiction of the labor arbiter.1avvphi1

However, based on petitioner’s allegations in his position paper, his cause of action was based on an alleged second contract of employment separate and distinct from the per-project employment contract. Thus, petitioner insisted that there was a perfected contract of perpetual employment and that respondent was liable to pay him damages.

We note, however, that petitioner filed the case only when respondent refused to rehire him.23

While there was an employer-employee relationship between the parties under their five-month per-project contract of employment, the present dispute is neither rooted in the aforestated contract nor is it one inherently linked to it. Petitioner insists on a right to be employed again in respondent company and seeks a determination of the existence of a new and separate contract that established that right. As such, his case is within the jurisdiction not of the labor arbiter but of the regular courts. The NLRC and the CA were therefore correct in ruling that the labor arbiter erroneously took cognizance of the case.

Even assuming arguendo that the labor arbiter had the jurisdiction to decide the case, the Court cannot countenance petitioner’s claim that a contract of perpetual employment was ever constituted. While the Constitution recognizes the primacy of labor, it also recognizes the critical role of private enterprise in nation-building and the prerogatives of management. A contract of perpetual employment deprives management of its prerogative to decide whom to hire, fire and promote, and renders inutile the basic precepts of labor relations. While management may validly waive it prerogatives, such waiver should not be contrary to law, public order, public policy, morals or good customs.24 An absolute and unqualified employment for life in the mold of petitioner’s concept of perpetual employment is contrary to public policy and good customs, as it unjustly forbids the employer from terminating the services of an employee despite the existence of a just or valid cause. It likewise compels the employer to retain an employee despite the attainment of the statutory retirement age, even if the employee has became a "non-performing asset" or, worse, a liability to the employer.

Moreover, aside from the self-serving claim of petitioner, there was no concrete proof to establish the existence of

43

such agreement. Petitioner cannot validly force respondent to enter into a permanent employment contract with him. Such stance is contrary to the consensuality principle of contracts as well as to the management prerogative of respondent company to choose its employees.

WHEREFORE, the petition is hereby DENIED.

Costs against petitioner.

SO ORDERED


WE CONCUR:


ANTONIO EDUARDO B.


DIOSDADO M. PERALTA

Associate Justice

JOSE C. MENDOZA

Associate Justice








Manila

THIRD DIVISION

G.R. No. 172279 February 11, 2010

VALENTIN MOVIDO, substituted by MARGINITO MOVIDO, Petitioner, vs.LUIS REYES PASTOR, Respondent.

D E C I S I O N

CORONA, J.:

Respondent Luis Reyes Pastor filed a complaint for specific performance in the Regional Trial Court (RTC) of Imus, Cavite, praying that petitioner Valentin Movido1 be compelled to cause the survey of a parcel of land subject of their contract to sell.

In his complaint, respondent alleged that he and petitioner executed a kasunduan sa bilihan ng lupa where the latter agreed to sell a parcel of land located in Paliparan, Dasmariñas, Cavite with an area of some 21,000 sq. m. out of the 22,731 sq. m. covered by Transfer Certificate of Title (TCT) No. 362995 at P400/sq. m. The agreement read:

x x x

1. Na si MOVIDO ang tunay at ganap na may-ari ng isang (1) parselang lupa sa Paliparan, Dasmariñas, Cavite, na ang nasabing lupa sakop ng TRANSFER CERTIFICATE OF TITLE No. T-362995, na ito ay lalong mailalarawan ng tulad ng sumusunod:

x x x

2. Na ipinagkakasundo ni MOVIDO na ipagbili kay PASTOR ang 21,000 metro cuadrado humigit-kumulang, ng lupang nakalarawan sa dakong taas sa halagang APAT NA RAANG PISO (P400.00) bawat metro cuadrado o sa kabuuang halaga na WALONG MILYON AT APAT NA RAANG LIBONG PISO (P8,400,000.00), na ang nasabing halaga ay babayaran ni PASTOR kay MOVIDO ng gaya ng sumusunod:

P500,000.00– babayaran sa paglagda ng kasulatang ito;

P500,000.00

– babayaran sa loob ng tatlong (3) buwan mula sa petsa ng unang bayad;

P1,000, 000.00

– babayaran sa loob ng tatlong (3) buwan mula sa petsa ng ikalawang bayad;

P1,000, 000.00

– babayaran sa loob ng tatlong (3) buwan mula sa petsa ng ikatlong bayad;

P1,000, 000.00

– babayaran sa loob ng tatlong (3) buwan mula sa petsa ng ikaapat na bayad;

P1,000, 000.00

– babayaran sa loob ng tatlong (3) buwan mula sa petsa ng ikalimang bayad;

P1,000, 000.00

– babayaran sa loob ng tatlong (3) buwan mula sa petsa ng ikaanim na bayad;

P2,400, 000.00

– babayaran sa loob ng tatlong (3) buwan mula sa petsa ng ikapitong bayad;

P8,400,

– Kabuuan.

000.00

3. Na ang 1,731 metro cuadrado, humigit-kumulang, na hindi kasama sa bilihang ito ay nasasakop ni Leonardo Cuevas, na ito ay ipapasukat at ipapahiwalay ni MOVIDO sa kabuuan ng nasabing lupa bago matapos ang huling bayad ng bilihang ito;

4. Na si MOVIDO ang magbabayad ng lahat ng gastos tungkol sa bilihang ito tulad ng capital gains tax, selyo dokumentaryo, transfer tax, registration fees, bayad sa nagsasaka ng nasabing lupa, sampu ng komisyon ng mga ahente. Ang babayaran ni MOVIDO na capital gains tax ay hanggang sa ISANG DAANG PISO (P100.00) lamang;

5. Na kung si PASTOR ay hindi makabayad sa balance sa takdang panahon, ang kalahati ng lahat ng kanyang naibayad ay mapopornada sa kapakanan ni MOVIDO at ang kasulatang ito ay mawawalan ng bisa;

6. Na kasabay ng pagbabayad ng huling bayad, si MOVIDO ay lalagda sa kaukulang kasulatan ng ganap na bilihan (Deed of Absolute Sale) ng lupang dito ay tinutukoy.2

Respondent further alleged that another kasunduan was later executed supplementing the kasunduan sa bilihan ng lupa. It provided that, if a Napocor power line traversed the subject lot, the purchase price would be lowered to P200/sq. m. beyond the distance of 15 meters on both sides from the center of the power line while the portion within a distance of 15 meters on both sides from the center of the power line would not be paid. In particular, the kasunduan provided:

x x x

1. Na ipinagkasundoni MOVIDO na ipagbili kay PASTOR ang kanyang lupa lupa sa Paliparan, Dasmariñas, Cavite na may sukat na 22731 metro kwadrado at sakop ng Transfer Certificate of Title No. T-362995.

44

2. Na kanilang napagkasunduan na kung sakali na ang lupang tinutukoy ay pumailalim sa linya ng kuryente ng NAPOCOR, ang bahagi ng lupa na hindi hihigit sa layo ng LABING LIMANG (15) METRO mula sa kailaliman ng linya ng kuryente ay hindi pababayaran ni MOVIDO kay PASTOR, at ang bahagi ng lupa na pumakabila sa linya ng kuryente mula sa Paliparan Road at hihigit ng LABING LIMANG (15) METRO mula sa kailaliman ng linya ng kuryente ay pababayaran ni MOVIDO kay PASTOR sa halagang DALAWANG DAANG PISO bawat metro kwadrado.3 (italics supplied)

Respondent likewise claimed that petitioner undertook to cause the survey of the property in order to determine the portion affected by the Napocor power line.

Lastly, respondent alleged that he already paid petitioner P5 million out of the original purchase price of P8.4 million stated in the kasunduan sa bilihan ng lupa. He was willing and ready to pay the balance of the purchase price but due to petitioner’s refusal to have the property surveyed despite incessant demands, his unpaid balance could not be determined with certainty.

In his answer, petitioner alleged that the original negotiation for the sale of his property involved the entire area of 22,731 sq. m. However, as respondent was not sure whether a Napocor power line traversed the property, they then executed the kasunduan. After respondent personally inspected the property, a final agreement—the kasunduan sa bilihan ng lupa—was executed where the area to be sold was 21,000 sq. m. for P400/sq. m. for a total sum of P8.4 million. The final agreement also listed a schedule of payments of the purchase price and included a penalty clause in case of default.

Petitioner also charged respondent with delay in paying several installments due and did not pay the 7th installment in the amount of P1 million. This was allegedly a material breach because they agreed that the survey of the property would only be done after respondent would have paid the 7th installment. Due to respondent’s failure to fulfill his obligations, petitioner claimed that he had no choice except to rescind the kasunduan sa bilihan ng lupa. He, however, was willing to

reimburse 50% of whatever respondent had paid him so far.

After hearing, the RTC4 ruled in favor of petitioner and held that the kasunduan preceded the kasunduan sa bilihan ng lupa. Thus, the RTC dismissed the complaint of respondent for lack of merit and/or cause of action. It also ordered the rescission of the kasunduan sa bilihan ng lupa as well as the forfeiture of 50% of the amount already paid by respondent (but ordered petitioner to return to respondent 50% of the amount already paid). The RTC also directed respondent to pay petitioner P50,000 attorney’s fees and costs of suit.

On appeal, the Court of Appeals (CA)5 reversed the RTC and held that the kasunduan sa bilihan ng lupa was the first document executed by the parties, not the kasunduan. Thus, the CA ordered respondent to pay the heirs of petitioner the balance of the purchase price in the amount of P2,796,400. The CA also ordered that, upon complete payment by respondent, Marginito Movido (the substitute of petitioner) should execute the necessary deed of absolute sale in favor of respondent and comply with petitioner’s other obligations under the kasunduan sa bilihan ng lupa.

Marginito Movido’s motion for reconsideration did not have its desired result.6 Hence, this petition for review on certiorari,7 where he insists that it was the kasunduan, not the kasunduan sa bilihan ng lupa, which was first executed by the parties. He likewise claims that the failure of respondent to pay the 7th and 8th installments of the purchase price gave petitioner the right to rescind the contract.

Misguided Search For Priority In Time

The issue of which of the two contracts was first executed by the parties is immaterial to the resolution of this case. In the first place, both contracts were executed and notarized on the same day, December 6, 1993. More importantly, both contracts, even independent of the time of their execution but, taken together, clearly spell out in full the respective rights and obligations of the parties.

Indeed, a reading of the kasunduan sa bilihan ng lupa and the kasunduan would readily reveal that payment of the

purchase price does not depend on the survey of the property. In other words, the purchase price should be paid whether or not the property is surveyed. The survey of the property is important only insofar as the right of respondent to the reduction of the purchase price is concerned.

On the other hand, the survey of the property to determine the metes and bounds of the 1,731 sq. m. portion that is excluded from the contract as well as the portions covered by the kasunduan which will be subject to reduction of the purchase price, is also not conditioned on the payment of any installment. Petitioner simply has to do it. In fact, under the kasunduan sa bilihan ng lupa, the survey should be done before the date of the last installment. Hence, the survey could have been done anytime after the execution of the agreement.

If respondent pays a higher amount without the property being surveyed first (compared to what he is liable to pay after the survey of the property) it will not be a problem because the excess of the amount paid can easily be refunded to him. Such would be the plain application of the provisions of the kasunduan. On the other hand, petitioner cannot successfully reject respondent’s demand for petitioner to perform his obligation to have the property surveyed. Under the kasunduan sa bilihan ng lupa, petitioner is obligated to conduct the survey on or before the due date of the last installment.

Corollary to this, the CA erred when it proceeded to determine the remaining balance of respondent by applying a reduced rate on certain portions of the property. In effect, the CA disregarded the agreement of the parties that petitioner should first cause the survey of the subject property in order to determine the area excluded from the sale and the portion traversed by the Napocor power line. Petitioner himself admitted that he had this obligation. Thus, the CA’s application of a reduced price in the absence of a survey was without factual or legal basis. It unduly infringed on the parties’ liberty to contract.

There are two options to resolve this impasse. First, respondent may be ordered to pay his remaining balance in the kasunduan sa bilihan ng lupa representing the 7th and 8th installments or the amount of P3.4 million in which case Marginito will be ordered to immediately conduct the survey of the property and thereafter to refund to

respondent the excess of the amount paid. Second, Marginito may be ordered to have the property surveyed first within a reasonable period and thereafter respondent will have to pay his corresponding balance (which, naturally, will be less than P3.4 million).

Prudence dictates that the second option is better as it will prevent further conflict between the parties. Thus, we adopt the second option.

Impropriety Of Rescission

Rescission is only allowed when the breach is so substantial and fundamental as to defeat the object of the parties in entering into the contract.8 We find no such substantial or material breach.

It is true that respondent failed to pay the 7th and 8th installments of the purchase price. However, considering the circumstances of the instant case, particularly the provisions of the kasunduan, respondent cannot be deemed to have committed a serious breach. In the first place, respondent was not in default as petitioner never made a demand for payment.1avvphi1

Moreover, the kasunduan sa bilihan ng lupa and the kasunduan should both be given effect rather than be declared conflicting, if there is a way of reconciling them. Petitioner and respondent would not have entered into either of the agreements if they did not intend to be bound or governed by them. Indeed, taken together, the two agreements actually constitute a single contract pertaining to the sale of a land to respondent by petitioner. Their stipulations must therefore be interpreted together, attributing to the doubtful ones that sense that may result from all of them taken jointly.9 Their proper construction must be one that gives effect to all.10

In this connection, the kasunduan sa bilihan ng lupa contains the general terms and conditions of the agreement of the parties. On the other hand, the kasunduan refers to a particular or specific matter, i.e., that portion of the land that is traversed by a Napocor power line. As the kasunduan pertains to a special area of the agreement, it constitutes an exception to the general provisions of the kasunduan sa bilihan ng lupa, particularly on the purchase price for that portion. Specialibus derogat generalibus.

45

Under both the kasunduan sa bilihan ng lupa and the kasunduan, petitioner undertook to cause the survey of the property in order to determine the portion excluded from the sale, as well as the portion traversed by the Napocor power line. Despite repeated demands by respondent, however, petitioner failed to perform his obligation. Thus, considering that there was a breach on the part of petitioner (and no material breach on the part of respondent), he cannot properly invoke his right to rescind the contract.

WHEREFORE, the petition is hereby DENIED. The July 18, 2005 decision of the Court of Appeals in CA-G.R. CV No. 67207 is AFFIRMED with the MODIFICATION that Marginito Movido is ordered to cause the survey of the subject lot within a period of three months in order to determine the excluded portion of the sale and the portion traversed by the Napocor power line. If he fails to do so, Luis Reyes Pastor is hereby authorized to have it done with the cost of the survey charged to Marginito Movido.

Luis Reyes Pastor should thereafter pay the balance of the purchase price, after which, Marginito should execute the kasulatan ng ganap na bilihan ng lupa (deed of absolute sale) in favor of Luis Reyes Pastor, reflecting as purchase price the amount actually paid by the latter.


SO ORDERED.


WE CONCUR:


ANTONIO EDUARDO B.


DIOSDADO M. PERALTA

Associate Justice

JOSE C. MENDOZA

Associate Justice








Manila

THIRD DIVISION

G.R. No. 170405 February 2, 2010

RAYMUNDO S. DE LEON, Petitioner, vs.BENITA T. ONG.1 Respondent.

D E C I S I O N

CORONA, J.:

On March 10, 1993, petitioner Raymundo S. de Leon sold three parcels of land2 with improvements situated in Antipolo, Rizal to respondent Benita T. Ong. As these properties were mortgaged to Real Savings and Loan Association, Incorporated (RSLAI), petitioner and respondent executed a notarized deed of absolute sale with assumption of mortgage3 stating:

x x x x x x x x x

That for and in consideration of the sum of ONE MILLION ONE HUNDRED THOUSAND PESOS (P1.1 million), Philippine currency, the receipt whereof is hereby acknowledged from [RESPONDENT] to the entire satisfaction of [PETITIONER], said [PETITIONER] does hereby sell, transfer and convey in a manner absolute and irrevocable, unto said [RESPONDENT], his heirs and assigns that certain real estate together with the buildings and other improvements existing thereon, situated in [Barrio] Mayamot, Antipolo, Rizal under the following terms and conditions:

1. That upon full payment of [respondent] of the amount of FOUR HUNDRED FIFTEEN THOUSAND FIVE HUNDRED (P415,000), [petitioner] shall execute and sign a deed of assumption of mortgage in favor of [respondent] without any further cost whatsoever;

2. That [respondent] shall assume payment of the outstanding loan of SIX HUNDRED EIGHTY FOUR THOUSAND FIVE HUNDRED PESOS (P684,500) with REAL SAVINGS AND LOAN,4 Cainta, Rizal… (emphasis supplied)

x x x x x x x x x

Pursuant to this deed, respondent gave petitioner P415,500 as partial payment. Petitioner, on the other hand, handed the keys to the properties and wrote a letter informing RSLAI of the sale and authorizing it to accept payment from respondent and release the certificates of title.

Thereafter, respondent undertook repairs and made improvements on the properties.5 Respondent likewise informed RSLAI of her agreement with petitioner for her to assume petitioner’s outstanding loan. RSLAI required her to undergo credit investigation.

Subsequently, respondent learned that petitioner again sold the same properties to one Leona Viloria after March 10, 1993 and changed the locks, rendering the keys he gave her useless. Respondent thus proceeded to RSLAI to

inquire about the credit investigation. However, she was informed that petitioner had already paid the amount due and had taken back the certificates of title.

Respondent persistently contacted petitioner but her efforts proved futile.

On June 18, 1993, respondent filed a complaint for specific performance, declaration of nullity of the second sale and damages6 against petitioner and Viloria in the Regional Trial Court (RTC) of Antipolo, Rizal, Branch 74. She claimed that since petitioner had previously sold the properties to her on March 10, 1993, he no longer had the right to sell the same to Viloria. Thus, petitioner fraudulently deprived her of the properties.

Petitioner, on the other hand, insisted that respondent did not have a cause of action against him and consequently prayed for the dismissal of the complaint. He claimed that since the transaction was subject to a condition (i.e., that RSLAI approve the assumption of mortgage), they only entered into a contract to sell. Inasmuch as respondent did apply for a loan from RSLAI, the condition did not arise. Consequently, the sale was not perfected and he could freely dispose of the properties. Furthermore, he made a counter-claim for damages as respondent filed the complaint allegedly with gross and evident bad faith.

Because respondent was a licensed real estate broker, the RTC concluded that she knew that the validity of the sale was subject to a condition. The perfection of a contract of sale depended on RSLAI’s approval of the assumption of mortgage. Since RSLAI did not allow respondent to assume petitioner’s obligation, the RTC held that the sale was never perfected.

In a decision dated August 27, 1999,7 the RTC dismissed the complaint for lack of cause of action and ordered respondent to pay petitioner P100,000 moral damages, P20,000 attorney’s fees and the cost of suit.

Aggrieved, respondent appealed to the Court of Appeals (CA),8 asserting that the court a quo erred in dismissing the complaint.

The CA found that the March 10, 2003 contract executed by the parties did not impose any condition on the sale and

46

held that the parties entered into a contract of sale. Consequently, because petitioner no longer owned the properties when he sold them to Viloria, it declared the second sale void. Moreover, it found petitioner liable for moral and exemplary damages for fraudulently depriving respondent of the properties.

In a decision dated July 22, 2005,9 the CA upheld the sale to respondent and nullified the sale to Viloria. It likewise ordered respondent to reimburse petitioner P715,250 (or the amount he paid to RSLAI). Petitioner, on the other hand, was ordered to deliver the certificates of titles to respondent and pay her P50,000 moral damages and P15,000 exemplary damages.

Petitioner moved for reconsideration but it was denied in a resolution dated November 11, 2005.10 Hence, this petition,11 with the sole issue being whether the parties entered into a contract of sale or a contract to sell.

Petitioner insists that he entered into a contract to sell since the validity of the transaction was subject to a suspensive condition, that is, the approval by RSLAI of respondent’s assumption of mortgage. Because RSLAI did not allow respondent to assume his (petitioner’s) obligation, the condition never materialized. Consequently, there was no sale.

Respondent, on the other hand, asserts that they entered into a contract of sale as petitioner already conveyed full ownership of the subject properties upon the execution of the deed.

We modify the decision of the CA.

Contract of Sale or Contract to Sell?

The RTC and the CA had conflicting interpretations of the March 10, 1993 deed. The RTC ruled that it was a contract to sell while the CA held that it was a contract of sale.

In a contract of sale, the seller conveys ownership of the property to the buyer upon the perfection of the contract. Should the buyer default in the payment of the purchase price, the seller may either sue for the collection thereof or have the contract judicially resolved and set aside. The

non-payment of the price is therefore a negative resolutory condition.12

On the other hand, a contract to sell is subject to a positive suspensive condition. The buyer does not acquire ownership of the property until he fully pays the purchase price. For this reason, if the buyer defaults in the payment thereof, the seller can only sue for damages.13

The deed executed by the parties (as previously quoted) stated that petitioner sold the properties to respondent "in a manner absolute and irrevocable" for a sum of P1.1 million.14 With regard to the manner of payment, it required respondent to pay P415,500 in cash to petitioner upon the execution of the deed, with the balance15 payable directly to RSLAI (on behalf of petitioner) within a reasonable time.16 Nothing in said instrument implied that petitioner reserved ownership of the properties until the full payment of the purchase price.17 On the contrary, the terms and conditions of the deed only affected the manner of payment, not the immediate transfer of ownership (upon the execution of the notarized contract) from petitioner as seller to respondent as buyer. Otherwise stated, the said terms and conditions pertained to the performance of the contract, not the perfection thereof nor the transfer of ownership.

Settled is the rule that the seller is obliged to transfer title over the properties and deliver the same to the buyer.18 In this regard, Article 1498 of the Civil Code19 provides that, as a rule, the execution of a notarized deed of sale is equivalent to the delivery of a thing sold.

In this instance, petitioner executed a notarized deed of absolute sale in favor of respondent. Moreover, not only did petitioner turn over the keys to the properties to respondent, he also authorized RSLAI to receive payment from respondent and release his certificates of title to her. The totality of petitioner’s acts clearly indicates that he had unqualifiedly delivered and transferred ownership of the properties to respondent. Clearly, it was a contract of sale the parties entered into.

Furthermore, even assuming arguendo that the agreement of the parties was subject to the condition that RSLAI had to approve the assumption of mortgage, the said condition was considered fulfilled as petitioner prevented its fulfillment by paying his outstanding obligation and taking

back the certificates of title without even notifying respondent. In this connection, Article 1186 of the Civil Code provides:

Article 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment.

Void Sale Or Double Sale?

Petitioner sold the same properties to two buyers, first to respondent and then to Viloria on two separate occasions.20

However, the second sale was not void for the sole reason that petitioner had previously sold the same properties to respondent. On this account, the CA erred.

This case involves a double sale as the disputed properties were sold validly on two separate occasions by the same seller to the two different buyers in good faith.

Article 1544 of the Civil Code provides:

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

Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property.

Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good faith. (emphasis supplied)

This provision clearly states that the rules on double or multiple sales apply only to purchasers in good faith. Needless to say, it disqualifies any purchaser in bad faith.

A purchaser in good faith is one who buys the property of another without notice that some other person has a right to, or an interest in, such property and pays a full and fair price for the same at the time of such purchase, or before he has notice of some other person’s claim or interest in

the property.21 The law requires, on the part of the buyer, lack of notice of a defect in the title of the seller and payment in full of the fair price at the time of the sale or prior to having notice of any defect in the seller’s title.

Was respondent a purchaser in good faith? Yes.

Respondent purchased the properties, knowing they were encumbered only by the mortgage to RSLAI. According to her agreement with petitioner, respondent had the obligation to assume the balance of petitioner’s outstanding obligation to RSLAI. Consequently, respondent informed RSLAI of the sale and of her assumption of petitioner’s obligation. However, because petitioner surreptitiously paid his outstanding obligation and took back her certificates of title, petitioner himself rendered respondent’s obligation to assume petitioner’s indebtedness to RSLAI impossible to perform.

Article 1266 of the Civil Code provides:

Article 1266. The debtor in obligations to do shall be released when the prestation become legally or physically impossible without the fault of the obligor.

Since respondent’s obligation to assume petitioner’s outstanding balance with RSLAI became impossible without her fault, she was released from the said obligation. Moreover, because petitioner himself willfully prevented the condition vis-à-vis the payment of the remainder of the purchase price, the said condition is considered fulfilled pursuant to Article 1186 of the Civil Code. For purposes, therefore, of determining whether respondent was a purchaser in good faith, she is deemed to have fully complied with the condition of the payment of the remainder of the purchase price.

Respondent was not aware of any interest in or a claim on the properties other than the mortgage to RSLAI which she undertook to assume. Moreover, Viloria bought the properties from petitioner after the latter sold them to respondent. Respondent was therefore a purchaser in good faith. Hence, the rules on double sale are applicable.

Article 1544 of the Civil Code provides that when neither buyer registered the sale of the properties with the registrar

47

of deeds, the one who took prior possession of the properties shall be the lawful owner thereof.

In this instance, petitioner delivered the properties to respondent when he executed the notarized deed22 and handed over to respondent the keys to the properties. For this reason, respondent took actual possession and exercised control thereof by making repairs and improvements thereon. Clearly, the sale was perfected and consummated on March 10, 1993. Thus, respondent became the lawful owner of the properties.

Nonetheless, while the condition as to the payment of the balance of the purchase price was deemed fulfilled, respondent’s obligation to pay it subsisted. Otherwise, she would be unjustly enriched at the expense of petitioner.

Therefore, respondent must pay petitioner P684,500, the amount stated in the deed. This is because the provisions, terms and conditions of the contract constitute the law between the parties. Moreover, the deed itself provided that the assumption of mortgage "was without any further cost whatsoever." Petitioner, on the other hand, must deliver the certificates of title to respondent. We likewise affirm the award of damages.

WHEREFORE, the July 22, 2005 decision and November 11, 2005 resolution of the Court of Appeals in CA-G.R. CV No. 59748 are hereby AFFIRMED with MODIFICATION insofar as respondent Benita T. Ong is ordered to pay petitioner Raymundo de Leon P684,500 representing the balance of the purchase price as provided in their March 10, 1993 agreement.


SO ORDERED.


WE CONCUR:

ANTONIO T. CARPIO

Associate Justice


ANTONIO EDUARDO B.


DIOSDADO M. PERALTA

Associate Justice








Manila

THIRD DIVISION

G.R. No. 171231 : February 17, 2010

PNCC SKYWAY TRAFFIC MANAGEMENT AND SECURITY DIVISION WORKERS

ORGANIZATION (PSTMSDWO), represented by its President, RENE SORIANO, Petitioner, vs. PNCC

SKYWAY CORPORATION, Respondent.

D E C I S I O N

PERALTA , J.:

Before this Court is a Petition for Review on C ertiorari under Rule 45 of the Rules of Court seeking to set aside the Decision1cralaw and the Resolution2cralaw of the Court of Appeals (CA) in CA-G.R. SP. No. 87069, which annulled and set aside the Decision and Order of the Voluntary Arbitrator dated July 12, 2004 and August 11, 2004, respectively.

The factual antecedents are as follows:

Petitioner PNCC Skyway Corporation Traffic Management and Security Division Workers' Organization (PSTMSDWO) is a labor union duly registered with the Department of Labor and Employment (DOLE). Respondent PNCC Skyway Corporation is a corporation duly organized and operating under and by virtue of the laws of the Philippines.

On November 15, 2002, petitioner and respondent entered into a Collective Bargaining Agreement (CBA) incorporating the terms and conditions of their agreement which included vacation leave and expenses for security license provisions.

The pertinent provisions of the CBA relative to vacation leave and sick leave are as follows:

ARTICLE VIIIVACATION LEAVE AND SICK LEAVE

Section 1. Vacation Leave.

[a] Regular Employees covered by the bargaining unit who have completed at least one [1] year of continuous service shall be entitled to vacation leave with pay depending on the length of service as follows:

1-9 years of service - 15 working days




26 and above years of service - 19 working days.

[b] The company shall schedule the vacation leave of employees during the year taking into consideration the request of preference of the employees. (emphasis supplied)

[c] Any unused vacation leave shall be converted to cash and shall be paid to the employees on the first week of December each year."

ARTICLE XXI

Section 6. Security License All covered employees must possess a valid License [Security Guard License] issued by the Chief, Philippine National Police or his duly authorized representative, to perform his duties as security guard. All expenses of security guard in securing/renewing their licenses shall be for their personal account. Guards, securing/renewing their license must apply for a leave of absence and/or a change of schedule. Any guard who fails to renew his security guard license should be placed on forced leave until such time that he can present a renewed security license.

In a Memorandum dated December 29, 2003,3cralaw respondent's Head of the Traffic Management and Security Department (TMSD) published the scheduled vacation leave of its TMSD personnel for the year 2004. Thereafter, the Head of the TMSD issued a Memorandum4cralaw

48

dated January 9, 2004 to all TMSD personnel. In the said memorandum, it was provided that:

SCHEDULED VACATION LEAVE WITH PAY.

The 17 days (15 days SVL plus 2-day-off) scheduled vacation leave (SVL) with pay for the year 2004 had been published for everyone to take a vacation with pay which will be our opportunity to enjoy quality time with our families and perform our other activities requiring our personal attention and supervision. Swapping of SVL schedule is allowed on a one-on-one basis by submitting a written request at least 30 days before the actual schedule of SVL duly signed by the concerned parties. However, the undersigned may consider the re-scheduling of the SVL upon the written request of concerned TMSD personnel at least 30 days before the scheduled SVL. Re-scheduling will be evaluated taking into consideration the TMSDs operational requirement.

Petitioner objected to the implementation of the said memorandum. It insisted that the individual members of the union have the right to schedule their vacation leave. It opined that the unilateral scheduling of the employees' vacation leave was done to avoid the monetization of their vacation leave in December 2004. This was allegedly apparent in the memorandum issued by the Head HRD,5cralaw addressed to all department heads, which provides:

FOR : All Dept. Heads

FROM : Head, HRD

SUBJECT : Leave Balances as of January 01, 2004

DATE : January 9, 2004

We are furnishing all the departments the leave balances of their respective staff as of January 01, 2004, so as to have them monitor and program the schedule of such leave.

Please consider the leave credit they earned each month [1-2-0] , one day and two hours in anticipation of the later schedule. As we are targeting the zero conversion comes

December 2004, it is suggested that the leave balances as of to date be given preferential scheduling.

x x x.

Petitioner also demanded that the expenses for the required in-service training of its member security guards, as a requirement for the renewal of their license, be shouldered by the respondent. However, the respondent did not accede to petitioner's demands and stood firm on its decision to schedule all the vacation leave of petitioner's members.

Due to the disagreement between the parties, petitioner elevated the matter to the DOLE-NCMB for preventive mediation. For failure to settle the issue amicably, the parties agreed to submit the issue before the voluntary arbitrator.

The voluntary arbitrator issued a Decision dated July 12, 2004, the dispositive portion of which reads:

WHEREFORE, premises all considered, declaring that:

a) The scheduling of all vacation leaves under Article VIII, Section 6, thereof, shall be under the discretion of the union members entitled thereto, and the management to convert them into cash all the leaves which the management compelled them to use.

b) To pay the expenses for the in-service-training of the company security guards, as a requirement for renewal of licenses, shall not be their personal account but that of the company.

All other claims are dismissed for lack of merit.

SO ORDERED.6cralaw

Respondent filed a motion for reconsideration, which the voluntary arbitrator denied in the Order7cralaw dated August 11, 2004.

Aggrieved, on October 22, 2004, respondent filed a Petition for Certiorari with Prayer for Temporary Restraining Order and/or Writ of Preliminary Injunction with the CA, and the CA rendered a Decision dated October 4, 2005,8cralaw annulling and setting aside the decision and order of the voluntary arbitrator. The CA ruled that since the provisions of the CBA were clear, the voluntary arbitrator has no authority to interpret the same beyond what was expressly written.

Petitioner filed a motion for reconsideration, which the CA denied through a Resolution dated January 23, 2006.9cralaw Hence, the instant petition assigning the following errors:

I

WITH ALL DUE RESPECT, THE HONORABLE PUBLIC RESPONDENT COURT OF APPEALS [THIRTEENTH DIVISION] ERRED IN HOLDING THAT:

A) THE MANAGEMENT HAS THE SOLE DISCRETION TO SCHEDULE THE VACATION LEAVE OF HEREIN PETITIONER.

B) THE MANAGEMENT IS NOT LIABLE FOR THE IN-SERVICE-TRAINING OF THE SECURITY GUARDS.

II

THE HONORABLE PUBLIC RESPONDENT ERRED IN OVERSEEING THE CONVERSION ASPECT OF THE UNUSED LEAVE.

Before considering the merits of the petition, We shall first address the objection based on technicality raised by respondent.

Respondent alleged that the petition was fatally defective due to the lack of authority of its union president, Rene Soriano, to sign the certification and verification against

forum shopping on petitioner's behalf. It alleged that the authority of Rene Soriano to represent the union was only conferred on June 30, 2006 by virtue of a board resolution,10cralaw while the Petition for Review had long been filed on February 27, 2006. Thus, Rene Soriano did not possess the required authority at the time the petition was filed on February 27, 2006.

The petitioner countered that the Board Resolution11cralaw dated June 30, 2006 merely reiterated the authority given to the union president to represent the union, which was conferred as early as October 2005. The resolution provides in part that:

WHEREAS, in a meeting duly called for October 2005 , the Union decided to file a Motion for Reconsideration and if the said motion be denied, to file a petition before the Supreme Court. (Emphasis supplied)

Thus, the union president, representing the union, was clothed with authority to file the petition on February 27, 2006.

The purpose of requiring verification is to secure an assurance that the allegations in the petition have been made in good faith; or are true and correct, not merely speculative. This requirement is simply a condition affecting the form of pleadings, and non-compliance therewith does not necessarily render it fatally defective. Truly, verification is only a formal, not a jurisdictional, requirement.

With respect to the certification of non-forum shopping, it has been held that the certification requirement is rooted in the principle that a party-litigant shall not be allowed to pursue simultaneous remedies in different fora, as this practice is detrimental to an orderly judicial procedure. However, this Court has relaxed, under justifiable circumstances, the rule requiring the submission of such certification considering that, although it is obligatory, it is not jurisdictional. Not being jurisdictional, it can be relaxed under the rule of substantial compliance.12cralaw

In Cagayan Valley Drug Corporation v. Commissioner of Internal Revenue ,13cralaw We said that:

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In a slew of cases, however, we have recognized the authority of some corporate officers to sign the verification and certification against forum shopping. In Mactan-Cebu International Airport Authority v. CA, we recognized the authority of a general manager or acting general manager to sign the verification and certificate against forum shopping; in Pfizer v. Galan, we upheld the validity of a verification signed by an "employment specialist" who had not even presented any proof of her authority to represent the company; in Novelty Philippines, Inc., v. CA, we ruled that a personnel officer who signed the petition but did not attach the authority from the company is authorized to sign the verification and non-forum shopping certificate; and in Lepanto Consolidated Mining Company v. WMC Resources International Pty. Ltd. (Lepanto), we ruled that the Chairperson of the Board and President of the Company can sign the verification and certificate against non-forum shopping even without the submission of the board's authorization.

In sum, we have held that the following officials or employees of the company can sign the verification and certification without need of a board resolution: (1) the Chairperson of the Board of Directors, (2) the President of a corporation, (3) the General Manager or Acting General Manager, (4) Personnel Officer, and (5) an Employment Specialist in a labor case.

While the above cases do not provide a complete listing of authorized signatories to the verification and certification required by the rules, the determination of the sufficiency of the authority was done on a case to case basis. The rationale applied in the foregoing cases is to justify the authority of corporate officers or representatives of the corporation to sign the verification or certificate against forum shopping, being "in a position to verify the truthfulness and correctness of the allegations in the petition."

In the case at bar, We rule that Rene Soriano has sufficient authority to sign the verification and certification against forum shopping for the following reasons: First , the resolution dated June 30, 2006 was merely a reiteration of the authority given to the Union President to file a case before this Court assailing the CBA violations committed by the management, which was previously conferred during a meeting held on October 5, 2005. Thus, it can be inferred that even prior to the filing of the petition before Us on February 27, 2006, the president of the union was

duly authorized to represent the union and to file a case on its behalf. Second , being the president of the union, Rene Soriano is in a position to verify the truthfulness and correctness of the allegations in the petition. Third, assuming that Mr. Soriano has no authority to file the petition on February 27, 2006, the passing on June 30, 2006 of a Board Resolution authorizing him to represent the union is deemed a ratification of his prior execution, on February 27, 2006, of the verification and certificate of non-forum shopping, thus curing any defects thereof. Ratification in agency is the adoption or confirmation by one person of an act performed on his behalf by another without authority.14cralaw

We now go to the merits of the case.

Petitioner insisted that their union members have the preference in scheduling their vacation leave. On the other hand, respondent argued that Article VIII, Section 1 (b) gives the management the final say regarding the vacation leave schedule of its employees. Respondent may take into consideration the employees' preferred schedule, but the same is not controlling.

Petitioner also requested the respondent to provide and/or shoulder the expenses for the in-service training of their members as a requirement for the renewal of the security guards' license. Respondent did not accede to the union's request invoking the CBA provision which states that all expenses of security guards in securing /renewing their license shall be for their personal account. The petitioner further argued that any doubts or ambiguity in the interpretation of the CBA should be resolved in favor of the laborer.

As to the issue on vacation leaves, the same has no merit.

The rule is that where the language of a contract is plain and unambiguous, its meaning should be determined without reference to extrinsic facts or aids. The intention of the parties must be gathered from that language, and from that language alone. Stated differently, where the language of a written contract is clear and unambiguous, the contract must be taken to mean that which, on its face, it purports to mean, unless some good reason can be assigned to show that the words used should be understood in a different sense.15cralaw

In the case at bar, the contested provision of the CBA is clear and unequivocal. Article VIII, Section 1 (b) of the CBA categorically provides that the scheduling of vacation leave shall be under the option of the employer. The preference requested by the employees is not controlling because respondent retains its power and prerogative to consider or to ignore said request.

Thus, if the terms of a CBA are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulation shall prevail.16cralaw In fine, the CBA must be strictly adhered to and respected if its ends have to be achieved, being the law between the parties. In Faculty Association of Mapua Institute of Technology (FAMIT) v. Court of Appeals, 17cralaw this Court held that the CBA during its lifetime binds all the parties. The provisions of the CBA must be respected since its terms and conditions constitute the law between the parties. The parties cannot be allowed to change the terms they agreed upon on the ground that the same are not favorable to them.

As correctly found by the CA:

The words of the CBA were unequivocal when it provided that "The company shall schedule the vacation leave of employees during the year taking into consideration the request of preference of the employees." The word shall in this instance connotes an imperative command, there being nothing to show a different intention. The only concession given under the subject clause was that the company should take into consideration the preferences of the employees in scheduling the vacations; but certainly, the concession never diminished the positive right of management to schedule the vacation leaves in accordance with what had been agreed and stipulated upon in the CBA.

There is, thus, no basis for the Voluntary Arbitrator to interpret the subject provision relating to the schedule of vacation leaves as being subject to the discretion of the union members. There is simply nothing in the CBA which grants the union members this right.

It must be noted the grant to management of the right to schedule vacation leaves is not without good reason. Indeed, if union members were given the unilateral discretion to schedule their vacation leaves, the same may

result in significantly crippling the number of key employees of the petitioner manning the toll ways on holidays and other peak seasons, where union members may wittingly or unwittingly choose to have a vacation. Put another way, the grant to management of the right to schedule vacation leaves ensures that there would always be enough people manning and servicing the toll ways, which in turn assures the public plying the same orderly and efficient toll way service.

Indeed, the multitude or scarcity of personnel manning the tollways should not rest upon the option of the employees, as the public using the skyway system should be assured of its safety, security and convenience.

Although the preferred vacation leave schedule of petitioner's members should be given priority, they cannot demand, as a matter of right, that their request be automatically granted by the respondent. If the petitioners were given the exclusive right to schedule their vacation leave then said right should have been incorporated in the CBA. In the absence of such right and in view of the mandatory provision in the CBA giving respondent the right to schedule the vacation leave of its employees, compliance therewith is mandated by law.

In the grant of vacation leave privileges to an employee, the employer is given the leeway to impose conditions on the entitlement to and commutation of the same, as the grant of vacation leave is not a standard of law, but a prerogative of management.18cralaw It is a mere concession or act of grace of the employer and not a matter of right on the part of the employee.19cralaw Thus, it is well within the power and authority of an employer to impose certain conditions, as it deems fit, on the grant of vacation leaves, such as having the option to schedule the same.

Along that line, since the grant of vacation leave is a prerogative of the employer, the latter can compel its employees to exhaust all their vacation leave credits. Of course, any vacation leave credits left unscheduled by the employer, or any scheduled vacation leave that was not enjoyed by the employee upon the employer's directive, due to exigencies of the service, must be converted to cash, as provided in the CBA. However, it is incorrect to award payment of the cash equivalent of vacation leaves that were already used and enjoyed by the employees. By

50

directing the conversion to cash of all utilized and paid vacation leaves, the voluntary arbitrator has licensed unjust enrichment in favor of the petitioner and caused undue financial burden on the respondent. Evidently, the Court cannot tolerate this.

It would seem that petitioner's goal in relentlessly arguing that its members preferred vacation leave schedule should be given preference is not allowed to them to avail themselves of their respective vacation leave credits at all but, instead, to convert these into cash.

In Cuajo v. Chua Lo Tan ,20cralaw We said that the purpose of a vacation leave is to afford a laborer a chance to get a much-needed rest to replenish his worn-out energy and acquire a new vitality to enable him to efficiently perform his duties, and not merely to give him additional salary and bounty.

This purpose is manifest in the Memorandum dated January 9, 200421cralaw addressed to all TMSD Personnel which provides that:

SCHEDULED VACATION LEAVE WITH PAY

The 17 days (15 days SVL plus 2-Day-Off) scheduled vacation leave (SVL) with pay for the year 2004 had been published for everyone to take a vacation with pay which will be our opportunity to enjoy quality time with our families and perform our other activities requiring our personal attention and supervision.(Emphasis ours.)

Accordingly, the vacation leave privilege was not intended to serve as additional salary, but as a non-monetary benefit. To give the employees the option not to consume it with the aim of converting it to cash at the end of the year would defeat the very purpose of vacation leave.

Petitioner's contention that labor contracts should be construed in favor of the laborer is without basis and, therefore, inapplicable to the present case. This rule of construction does not benefit petitioners because, as stated, there is here no room for interpretation. Since the CBA is clear and unambiguous, its terms should be implemented as they are written.

This brings Us to the issue of who is accountable for the in-service training of the security guards. On this point, We find the petition meritorious.

Although it is a rule that a contract freely entered into between the parties should be respected, since a contract is the law between the parties, there are, however, certain exceptions to the rule, specifically Article 1306 of the Civil Code, which provides:

The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy.

Moreover, the relations between capital and labor are not merely contractual. "They are so impressed with public interest that labor contracts must yield to the common good x x x."22cralaw The supremacy of the law over contracts is explained by the fact that labor contracts are not ordinary contracts; they are imbued with public interest and therefore are subject to the police power of the state.23cralaw However, it should not be taken to mean that provisions agreed upon in the CBA are absolutely beyond the ambit of judicial review and nullification. If the provisions in the CBA run contrary to law, public morals, or public policy, such provisions may very well be voided.

In the present case, Article XXI, Section 6 of the CBA provides that " All expenses of security guards in securing /renewing their licenses shall be for their personal account ." A reading of the provision would reveal that it encompasses all possible expenses a security guard would pay or incur in order to secure or renew his license. In-service training is a requirement for the renewal of a security guard's license.24cralaw Hence, following the aforementioned CBA provision, the expenses for the same must be on the personal account of the employee. However, the 1994 Revised Rules and Regulations Implementing Republic Act No. 5487 provides the following:

Section 17. Responsibility for Training and Progressive Development. It is the primary responsibility of all operators private security agency and company security forces to maintain and upgrade the standards of efficiency, discipline, performance and competence of their personnel. To attain this end, each duly licensed private

security agency and company security force shall establish a staff position for training and appoint a training officer whose primary functions are to determine the training needs of the agency/guards in relation to the needs of the client/ market/ industry, and to supervise and conduct appropriate training requirements. All private security personnel shall be re-trained at least once very two years.

Section 12. In service training. - a. To maintain and/or upgrade the standard of efficiency, discipline and competence of security guards and detectives, company security force and private security agencies upon prior authority shall conduct-in-service training at least two (2) weeks duration for their organic members by increments of at least two percent (2%) of their total strength. Where the quality of training is better served by centralization, the CSFD Directors may activate a training staff from local talents to assist. The cost of training shall be pro-rated among the participating agencies/private companies . All security officer must undergo in-service training at least once every two (2) years preferably two months before his or her birth month.

Since it is the primary responsibility of operators of company security forces to maintain and upgrade the standards of efficiency, discipline, performance and competence of their personnel, it follows that the expenses to be incurred therein shall be for the personal account of the company. Further, the intent of the law to impose upon the employer the obligation to pay for the cost of its employees training is manifested in the aforementioned law's provision that Where the quality of training is better served by centralization, the CFSD Directors may activate a training staff from local talents to assist. The cost of training shall be pro-rated among the participating agencies/private companies. It can be gleaned from the said provision that cost of training shall be pro-rated among participating agencies and companies if the training is best served by centralization. The law mandates pro-rating of expenses because it would be impracticable and unfair to impose the burden of expenses suffered by all participants on only one participating agency or company. Thus, it follows that if there is no centralization, there can be no pro-rating, and the company that has its own security forces shall shoulder the entire cost for such training. If the intent of the law were to impose upon individual employees the cost of training, the provision on the pro-rating of expenses would not have found print in the law.

Further, petitioner alleged that prior to the inking of the CBA, it was the respondent company providing for the in-service training of the guards.25cralaw Respondent never controverted the said allegation and is thus deemed to have admitted the same.26cralaw Implicit from respondent's actuations was its acknowledgment of its legally mandated responsibility to shoulder the expenses for in-service training.

WHEREFORE, the petition is PARTIALLY GRANTED. The Decision and Resolution of the Court of Appeals, dated October 4, 2005 and January 23, 2006, respectively, in CA-G.R. SP. No. 87069 is MODIFIED. The cost of in-service training of the respondent company's security guards shall be at the expense of the respondent company. This case is remanded to the voluntary arbitrator for the computation of the expenses incurred by the security guards for their in-service training, and respondent company is directed to reimburse its security guards for the expenses incurred.

SO ORDERED.


WE CONCUR:


Chairperson



Associate Justice



I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court's Division.

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Third Division, Chairperson


Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court's Division.


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