THIRD DIVISION

June 7, 2017

G.R. No. 191174

PARADIGM DEVELOPMENT CORPORATION OF THE PHILIPPINES, Petitioner 

vs.
BANK OF THE PHILIPPINE ISLANDS, Respondent

DECISION

REYES, J., J.:

This is a Petition for Review on Certiorari   filed under Rule 45 of the Rules of Court
1

assailing the Decision   dated November 25, 2009 and Resolution   dated February 2, 2010
2 3

of the Court of Appeals (CA) in CA-G.R. CV No. 89755, which granted respondent Bank of
the Philippine Islands' (BPI) appeal and accordingly dismissed the complaint filed by
petitioner Paradigm Development Corporation of the Philippines (PDCP).

The Facts

Sometime in February 1996, Sengkon Trading (Sengkon), a sole proprietorship owned by

Anita Go, obtained a loan from Far East Bank and Trust Company (FEBTC) under a credit
facility denominated as Omnibus Line in the amount of PlOO Million on several sub-facilities
with their particular sub-limits denominated as follows: (i) Discounting Line for P20 Million;
(ii) Letter of Credit/Trust Receipt (LC-TR) Line for P60 Million; and (iii) Bills Purchased Line
for PS Million. This was embodied in the document denominated as "Agreement for
Renewal of Omnibus Line."  4

On April 19, 1996, FEBTC again granted Sengkon another credit facility, denominated as
Credit Line, in the amount of ₱60 Million as contained in the "Agreement for Credit Line."
Two real estate mortgage (REM) contracts were executed by PDCP President Anthony L.
Go (Go) to partially secure Sengkon's obligations under this Credit Line. One REM,
acknowledged on April 22, 1996, was constituted over Transfer Certificate of Title (TCT) No.
RT-55259 (354583) and secured the amount of P8 Million. The other REM, acknowledged
on December 19, 1997, was constituted over TCT Nos. RT-58281, RT-54993 (348989) and
RT-55260 (352956) and secured the amount of ₱42,400,000.00.  5

In a letter dated September 18, 1997, FEB TC informed Sengkon regarding the renewal,
increase and conversion of its ₱l00 Million Omnibus Line to ₱l50 Million LC-TR Line and
P20 Million Discounting Line, the renewal of the ₱60 Million Credit Line and P8 Million Bills
Purchased Line.  6

In the same letter, FEBTC also approved the request of Sengkon to change the account
name from SENGKON TRADING to SENGKON TRADING, INC. (STI).  7
Eventually, Sengkon defaulted in the payment of its loan obligations.  Thus, in a letter dated
8

September 8, 1999, FEBTC demanded payment from PDCP of alleged Credit Line and
Trust Receipt availments with a principal balance of ₱244,277, 199 .68 plus interest and
other charges which Sengkon failed to pay. PDCP responded by requesting for segregation
of Sengkon's obligations under the Credit Line and for the pertinent statement of account
and supporting documents.  9

Negotiations were then held and PDCP proposed to pay approximately ₱50 Million,
allegedly corresponding to the obligations secured by its property, for the release of its
properties but FEBTC pressed for a comprehensive repayment scheme for the entirety of
Sengkon's obligations. 10

Meanwhile, the negotiations were put on hold because BPI acquired FEB TC and assumed
the rights and obligations of the latter. 
11

When negotiations for the payment of Sengkon's outstanding obligations, however, fell,
FEBTC, on April 5, 2000, initiated foreclosure proceedings against the mortgaged
properties of PDCP before the Regional Trial Court (RTC) of Quezon City.   In its Bid for the
12

mortgaged properties, FEBTC's counsel stated that:

On behalf of our client, [FEBTC], we hereby submit its Bid for the Real Properties including
all improvements existing thereon covered by [TCT] Nos. RT - 55259 (354583), 58281, RT -
54993 (348989) and RT- 55260 (352956) which are the subject of the Auction Sale
scheduled on June, 20, 2000 in the amount of:

SEVENTY[-]SIX MILLION FIVE HUNDRED THOUSAND PESOS ONLY (₱76,500,000.00),

Philippine Currency.

Please note that the aforesaid Bid is only in PARTIAL SETTLEMENT of the obligation of
[PDCP], x x x.  13

Upon verification with the Registry of Deeds, PDCP discovered that FEBTC extra-judicially
foreclosed on June 20, 2000 the first and second mortgage without notice to it as mortgagor
and sold the mortgaged properties to FEBTC as the lone bidder.   Thereafter, on August 8,
14

2000, the corresponding Certificate of Sale was registered.  15

Consequently, on July 19, 2001, PDCP filed a Complaint for Annulment of Mortgage,
Foreclosure, Certificate of Sale and Damages   with the RTC of Quezon City, against BPI,
16

successor-in-interest of FEB TC, alleging that the REMs and their foreclosure were null and
void. 
17

In its Amended Complaint,   PDCP alleged that FEB TC assured it that the mortgaged
18

properties will only secure the Credit Line sub-facility of the Omnibus Line. With this
understanding, PDCP President Go allegedly agreed to sign on two separate dates a pro-
forma and blank REM, securing the amount of ₱42.4 Million and P8 Million, respectively.
PDCP, however, claimed that it had no intent to be bound under the second REM, which
was not intended to be a separate contract, but only a means to reduce registration
expenses.  19
Moreover, PDCP averred that sometime in September 1997, FEBTC allegedly requested it
to sign a document which would effectively extend the liability of the properties covered by
the mortgage beyond the Credit Line. Because of its refusal to sign said document, it
surmised that this must have been the reason why, as it later discovered, FEBTC registered
not only the first but also the second REM, contrary to the parties' agreement. 20

In asking for the nullity of the REMs and the foreclosure proceeding, PDCP alleged:

a.) THAT although the [REM] of April 22, 1996 for Php 8.0 Million was not a separate
security but was merely intended to reduce registration expenses, FEBTC, [BPI's]
predecessor-in-interest, fraudulently and in violation of the original intent and agreement of
the parties, made it appear that said [REM] of April 22, 1996 was separate and distinct from
that of December 18, 1997 and caused the registration of both mortgages with separate
considerations totaling Php 50.4 Million;

b.) THAT the subject [REMs] were foreclosed to answer not only for obligations incurred
under SENGKON's Credit Line but also for other obligations of SENGKON and other
companies which were not secured by said mortgages;

c.) THAT no notice was given to or received by [PDCP] of the projected foreclosure x x x
since the notice of said foreclosure was sent by defendant SHERIFF to an address (333
EDSA, Quezon City) other than [PDCP's] known address as stated in the [REMs]
themselves (333 EDSA Caloocan City) x x x;

d.) THAT, contrary to the then prevailing Supreme Court Circular AM 99-10-05-0 x x x, only
one (1) bidder was present and participated at the foreclosure sale[; and]

e.) THAT, without the knowledge and consent of [PDCPJ, obligation of SENGKON has
been transferred to STI [,] a juridical personality separate and distinct from SENGKON, a
single proprietorship. This substitution of SENGKON as debtor by STI x x x effectively
novated the obligation of [PDCP] to FEBTC. x x x.   (Underlining ours)
21

Ruling of the RTC

On April 16, 2007, the R TC rendered its Decision22 nullifying the REMs and the
foreclosure proceedings. It also awarded damages to PDCP. The dispositive portion of the
decision reads:

WHEREFORE, premises considered the Court renders judgment in favor of [PDCP] and
against defendants [BPI], Sheriff and the Register of Deeds of Quezon City in the following
manner:

1) Declaring null and void and of no further force and effect the following:

(a) the [REMs] (Annexes "F" and "F-1" hereof);

(b) the foreclosure thereof;

 (c) the Certificate of Sale; and

(d) the entries relating to said [REMs] and Certificate of Sale annotated on
TCT Nos. 58281, RT-54993 (348989), RT-55260 (352956) and RT-55259
(354583) covering the mortgaged properties;

2) Ordering defendant Registrar of Deeds to cancel all the annotations of the [REMs] and
the Certificate of Sale on the above stated TCTs covering the mortgaged properties and
otherwise to clear said TCTs of any liens and encumbrances annotated thereon relating to
the invalid [REMs] aforesaid;

3) Ordering defendant [BPI] to return to [PDCP] the owner's duplicate copies of the TCTs
covering the mortgaged properties free from any and all liens and encumbrances; and,

4) Ordering the defendant BPI to pay [PDCP] the following sums:

(a) Php 150,000.00 as attorney's fees; and,

(b) Php 50,000.00 as litigation expenses.

The Writ of Preliminary Injunction is hereby made FINAL and PERMANENT.

Costs against defendant [BPI].

SO ORDERED.  23

The RTC observed that the availments under the Credit Line, secured by PDCP's
properties, may be made only within one year, or from April 19, 1996 to April 30, 1997.
While BPI claimed that the period of said credit line was extended up to July 31, 1997,
PDCP was not notified of the extension and thus could not have consented to the
extension. Anyhow, said the RTC, "no evidence had been adduced to show that Sengkon
availed of any loan under the credit line up to July 31, 1997." Thus, in the absence of any
monetary obligation that needed to be secured, the REM cannot be said to subsist.  24

Further, the RTC agreed with PDCP that novation took place in this case, which resulted in
discharging the latter from its obligations as third-party mortgagor. In addition, it also
nullified the foreclosure proceedings because the original copies of the promissory notes
(PN s ), which were the basis of FEBTC's Petition for Extrajudicial Foreclosure of Mortgage,
were not presented in court and no notice of the extrajudicial foreclosure sale was given to
PDCP.  25

Lastly, the RTC ruled that the shorter period of redemption under Republic Act No.
8791   cannot apply to PDCP considering that the REMs were executed prior to the
26

effectivity of said law. As such, the longer period of redemption under Act No.
3135   applies. 
27 28

Aggrieved, BPI appealed to the CA.  29

 Ruling of the CA

In its Decision   dated November 25, 2009, the CA reversed the RTC's ruling on all points.
30

The CA found PDCP's contentions incredible for the following reasons: (i) the fact that
PDCP surrendered the titles to the mortgaged properties to FEBTC only shows that PDCP
intended to mortgage all of these properties; (ii) if it were true that FEBTC assured PDCP
that it would be registering only one of the two REMs in order to reduce registration
expenses, then each of the two REMs should have covered the four properties but it was
not. On the contrary, the four properties were spread out with one REM covering one of the
four properties and the other REMs covering the remaining three properties; and (iii) PDCP
never complained to FEB TC regarding the registration of the two REMs even after it
discovered the same.  31

Also, the CA ruled that novation could not have taken place from FEBTC's mere act of
approving Sengkon's request to change account name from Sengkon to STI.  32

Moreover, it held that the fact that FEBTC failed to submit the original copies of the PN s
that formed the basis of its Petition for Extra judicial Foreclosure of Mortgage cannot affect
the validity of foreclosure because the validity of the obligations represented in those PNs
was never denied by Sengkon nor by PDCP.  33

The CA added that even if the obligations of Sengkon in credit facilities (other than the
Credit Line) were included, since the REMs contain a dragnet clause, these other
obligations were still covered by PDCP's REMs.   Lastly, the CA ruled that the failure to
34

send a notice of extrajudicial foreclosure sale to PDCP did not affect the validity of the
foreclosure sale because personal notice to the mortgagor is not even generally required.  35

Hence, this present petition,, .where PDCP presented the following arguments:

I. THE FINDINGS IN THE CA DECISION WlllCH DEVIATED ON ALMOST ALL POINTS

FROM THOSE OF THE RTC ARE NOT IN ACCORD WITH THE RULES ON THE
ASSESSMENT OF THE CREDIBILITY AND WEIGHT OF THE EVIDENCE;

II. THE VALIDITY OF THE REMs, AS UPHELD BY THE CA, IS VITIATED BY THE FACT
THAT BPI'S PREDECESSOR-IN-INTEREST VIOLATED THE TRUE INTENT AND
AGREEMENT OF THE PARTIES THERETO;

III. THE CA DECISION'S REJECTION OF PDCP'S NOVATION THEORY BASED ON THE

ABSENCE OF AN EXPRESS RELEASE OF THE OLD DEBTOR AND THE
SUBSTITUTION IN ITS PLACE OF A NEW DEBTOR IS MISPLACED AND ERRONEOUS;

IV. THE FORECLOSURE OF THE REMs WAS VITIATED NOT ONLY BY THE
INADMISSIBILITY OF THE PNs UPON WHICH IT IS BASED BUT ALSO BECAUSE IT
VIOLATED THE THERETO APPLICABLE RULES; and

V. THE APPLICATION BY THE CA OF THE SHORTENED PERIOD OF REDEMPTION IN

THIS CASE VIOLATED THE NON-IMPAIRMENT AND EQUAL PROTECTION CLAUSES
OF THE CONSTITUTION.  36
 Ruling of the Court

The Court finds the petition meritorious. The registration of the REMs, even if contrary to
the supposed intent of the parties, did not affect the validity of the mortgage contracts

According to PDCP, when FEBTC registered both REMs, even ifthe intent was only to
register one, the validity of both REMs was vitiated by lack of consent. PDCP claims that
said intent is supported by the fact that the REMs were constituted merely as "partial
security" for Sengkon's obligations and therefore there was really no intent to be bound
under both - but only in one - REM.

The Court cannot see its way clear through PDCP's argument. To begin with, the
registration of the REM contract is not essential to its validity. Article 2085 of the Civil Code
provides:

Art. 2085. The following requisites are essential to the contracts of pledge and mortgage:

(1) That they be constituted to secure the fulfillment of a principal obligation;

(2) That the pledgor or mortgagor be the absolute owner of the thing pledged
or mortgaged;

(3) That the persons constituting the pledge or mortgage have the free
disposal of their property, and in the absence thereof, that they be legally
authorized for the purpose.

Third persons who are not parties to the principal obligation may secure the latter by
pledging or mortgaging their own property. In relation thereto, Article 2125 of the Civil Code
reads:

Article 2125. In addition to the requisites stated in Article 2085, it is indispensable, in order
that a mortgage may be validly constituted, that the document in which it appears be
recorded in the Registry of Property. If the instrument is not recorded, the mortgage is
nevertheless binding between the parties.

x x x x (Emphasis ours)

In Mobil Oil Philippines, Inc. v. Diocares, et al.,   the trial court refused to order the
37

foreclosure of the mortgaged properties on the ground that while an unregistered REM
contract created a personal obligation between the parties, the same did not validly
establish a REM. In reversing the trial court, the Court said:

The lower court predicated its inability to order the foreclosure in view of the categorical
nature of the opening sentence of [Article 2125] that it is indispensable, "in order that a
mortgage may be validly constituted, that the document in which it appears be recorded in
the Registry of Property." Not[e] that it ignored the succeeding sentence: "If the instrument
is not recorded, the mortgage is nevertheless binding between the parties." Its conclusion,
however, is that what was thus created was merely "a personal obligation but did not
establish a [REM]."

Such a conclusion does not commend itself for approval. The codal provision is clear and
explicit. Even if the instrument were not recorded, "the mortgage is nevertheless binding
between the parties." The law cannot be any clearer. Effect must be given to it as written.
The mortgage subsists; the parties are bound. As between them, the mere fact that there is
as yet no compliance with the requirement that it be recorded cannot be a bar to
foreclosure.

xxxx

Moreover to rule as the lower court did would be to show less than fealty to the purpose that
animated the legislators in giving expression to their will that the failure of the instrument to
be recorded does not result in the mortgage being any the less "binding between the
parties." In the language of the Report of the Code Commission: "In Article [2125] an
additional provision is made that if the instrument of mortgage is not recorded, the
mortgage, is nevertheless binding between the parties." We are not free to adopt then an
interpretation, even assuming that the codal provision lacks the forthrightness and clarity
that this particular norm does and therefore requires construction, that would frustrate or
nullify such legislative objective.   (Citation omitted and emphasis and underlining ours)
38

Hence, even assuming that the parties indeed agreed to register only one of the two REMs,
the subsequent registration of both REMs did not affect an already validly executed REM if
there was no other basis for the declaration of its nullity. That the REMs were intended
merely as "partial security" does not make PDCP's argument more plausible because as
aptly observed by the CA, the PDCP's act of surrendering all the titles to the properties to
FEBTC clearly establishes PDCP' s intent to mortgage all of the four properties in favor of
FEBTC to secure Sengkon's obligation under the Credit Line. The Court notes that the
principal debtor, Sengkon, has several obligations under its Omnibus Line corresponding to
the several credit sub-facilities made available to it by FEBTC. As found by the trial court,
PDCP intended to be bound only for Sengkon' s availments under the Credit Line sub-
facility and not for just any of Sengkon's availments. Hence, it is in this sense that the
phrase "partial security" should be logically understood.

In this regard, PDCP argued that what its President signed is a pro-forma REM whose
important details were still left in blank at the time of its execution. But notably, nowhere in
PDCP's Amended Complaint did it anchor its cause of action for the nullity of the REMs on
this ground. While it indeed alleged this circumstance, PDCP's Amended Complaint is
essentially premised on the supposed fraud employed on it by FEBTC consisting of the
latter's assurances that the REMs it already signed would not be registered. In Solidbank
Corporation v. Mindanao Ferroalloy Corporation,   the Court discussed the nature of fraud
39

that would annul or avoid a contract, thus:

Fraud refers to all kinds of deception - whether through insidious machination, manipulation,
concealment or misrepresentation- that would lead an ordinarily prudent person into error
after taking the circumstances into account. In contracts, a fraud known as dolo causante or
causal fraud is basically a deception used by one party prior to or simultaneous with the
contract, in order to secure the consent of the other. Needless to say, the deceit employed
must be serious. In contradistinction, only some particular or accident of the obligation is
referred to by incidental fraud or dolo incidente, or that which is not serious in character and
without which the other party would have entered into the contract anyway.   (Citations
40

omitted)

Under Article 1344 of the Civil Code, the fraud must be serious to annul or avoid a contract
and render it voidable. This fraud or deception must be so material that had it not been
present, the defrauded party would not have entered into the contract.

In the present case, even if FEB TC represented that it will not register one of the REMs,
PDCP cannot disown the REMs it executed after FEB TC reneged on its alleged promise.
As earlier stated, with or without the registration of the REMs, as between the parties
thereto, the same is valid and PDCP is already bound thereby. The signature of PDCP's
President coupled with its act of surrendering the titles to the four properties to FEBTC is
proof that no fraud existed in the execution of the contract. Arguably at most, FEBTC's act
of registering the mortgage only amounted to dolo incidente which is not the kind of fraud
that avoids a contract.

No novation took place

The Court likewise agrees with the CA that no novation took place in the present case.
Novation is a mode of extinguishing an obligation by changing its objects or principal
obligations, by substituting a new debtor in place of the old one, or by subrogating a third
person to the rights of the creditor. Article 1293 of the Civil Code defines novation as
"consists in substituting a new debtor in the place of the original one, [which] may be made
even without the knowledge or against the will of the latter, but not without the consent of
the creditor." However, while the consent of the creditor need not be expressed but may be
inferred from the creditor's clear and unmistakable acts, to change the person of the debtor,
41

the former debtor must be expressly released from the obligation, and the third person
or new debtor must assume the former's place in the contractual   relation.
42

Thus, in Ajax Marketing and Development Corporation v. CA,   the Court had already ruled
43

that:

The well-settled rule is that novation is never presumed. Novation will not be allowed unless
it is clearly shown by express agreement, or by acts of equal import. Thus, to effect an
objective novation it is imperative that the new obligation expressly declare that the old
obligation is thereby extinguished, or that the new obligation be on every point incompatible
with the new one. In the same vein, to effect a subjective novation by a change in the
person of the debtor it is necessary that the old debtor be released expressly from the
obligation, and the third person or new debtor assumes his place in the relation. There is no
novation without such release as the third person who has assumed the debtor's obligation
becomes merely a co-debtor or surety.   (Emphasis ours)
44

In the present case, PDCP failed to prove by preponderance of evidence that Sengkon was
already expressly released from the obligation and that STI assumed the former's
obligation. Again, as correctly pointed out by the CA, the Deed of Assumption of Line/Loan
with Mortgage (Deed of Assumption) which was supposed to embody STI's assumption of
all the obligations of Sengkon under the line, including but not necessarily limited to the
repayment of all the outstanding availments thereon, as well as all applicable interests and
other charges, was not signed by the parties.

Contrary to PDCP's claim, the CA's rejection of its claim ofnovation is not based on the
absence of the mortgagor's conformity to the Deed of Assumption. The CA's rejection is
based on the fact that the non-execution of the Deed of Assumption by Sengkon, STI and
FEBTC rendered the existence of novation doubtful because of lack of clear proof that
Sengkon is being expressly released from its obligation; that STI was already assuming
Sengkon's former place in the contractual relation; and that FEBTC is giving its conformity
to this arrangement. While FEBTC indeed approved Sengkon's request for the "change in
account name" from Sengkon to STI, such mere change in account name alone does not
meet the required degree of certainty to establish novation absent any other circumstance
to bolster said conclusion.

The trial court's finding that Sengkon did not avail under the Credit Line taints the
foreclosure of the mortgage

PDCP also claims that the foreclosure of the mortgage was invalid because the PNs that
formed the basis of FEBTC's Petition for Extrajudicial Foreclosure of Mortgage were
inadmissible in evidence. Rejecting this argument, the CA ruled that the admissibility of the
PNs is a non-issue in this case because in questioning the validity of the REMs and the
foreclosure proceedings, PDCP did not actually assail the validity or existence of said PNs;
what it raised as an issue was whether the foreclosure covered obligations other than
Sengkon's availment under the Credit Line. As the CA puts it:

[W]hat should have been the focal and critical question to be answered on the issue of
whether the subject [REMs] were validly foreclosed should have been whether the [REMs]
executed by [PDCP] covered the obligations of [Sengkon] as represented in those [PNs] or,
stated in another way, were the [PNs] used by defendant BPI in its foreclosure proceedings
over [PDCP's] mortgages availments by [Sengkon] under its Credit Line?

An examination of the subject [PNs] vis-a-vis the Agreement for Credit Line would yield an
affirmative answer.

In the case at bar, a close look at the Agreement for Credit Line would reveal that the said
credit facility for Php60 Million was granted in favor of [Sengkon] for the purpose of
"Additional Working Capital" and that it would be "available by way of short term [PN]." In
the same manner, an examination of [PNs] PN Nos. 2-002-028618, 2-002-029436 and 2-
002-029437 would reveal that the said [PNs] were availed of by [Sengkon] for the purpose
of "Additional Working Capital."   (Citations omitted and emphasis in the original)
45

The Court cannot agree with the CA. In order to determine whether the obligations sought
to be satisfied by the foreclosure proceedings were only Sengkon's availments under the
Credit Line, the court necessarily needs to refer to the PNs themselves, as what the CA in
fact did. Thus, it is actually the contents of these PNs that are in issue and the trial court did
not err in applying the best evidence rule.
But even if the Court disregards the best evidence rule, the circumstances in this case
militate against the CA's conclusion. The trial court made a factual finding that Sengkon's
availment under the Credit Line, which is the one secured by PDCP's properties, may be
made only within one year, or from April 19, 1996 to April 30, 1997. While FEBTC claimed
that the period of said credit line was extended up to July 31, 1997, PDCP was not notified
of the extension. At any rate, the RTC found that "no evidence had been adduced to show
that Sengkon availed of any loan under the credit line up to July 31, 1997," which was the
period of the extension.

Notably, while PDCP demanded from FEBTC for the segregation of Sengkon's availments
under the Credit Line, FEBTC failed to heed PDCP's valid request and instead demanded
for a comprehensive payment of Sengkon's entire obligation, unmindful of the fact of
PDCP's status as a mere third-party mortgagor and not a principal debtor. As a third-party
mortgagor, the limitation on its liability pertains not only to the properties it mortgaged but
also to the obligations specifically secured thereby. It is well settled that while a REM may
exceptionally secure future loans or advancements, these future debts must be specifically
described in the mortgage contract. An obligation is not secured by a mortgage unless it
comes fairly within the terms of the mortgage contract.  46

In this case, there was simply no evidence to support the conclusion that the PNs were in
fact availments under the Credit Line secured by PDCP's properties. The PNs that were
used by FEBTC in its Petition for Extrajudicial Foreclosure of Mortgage were all executed
beyond the extended duration of Sengkon's Credit Line (or until July 1997). While FEBTC
wrote a letter   dated September 18, 1997, which is a few days short of the date of the
47

earliest PN (September 23, 1997), addressed to STI, approving the renewal of the debtor's
Credit Line subject to the condition that the Line "shall be partially secured" by the PDCP's
mortgaged properties, it is worthy to note that this letter did not bear the conforme of the
debtor, lending credence to the trial court's observation. In this light, FEBTC's failure to
heed PDCP's request for the segregation of the amounts secured by its properties assumes
critical significance. The lack of proof that the availments subject of the foreclosure
proceedings were within the coverage of PDCP's REMs explains FEBTC's omission.

Despite the foregoing, however, particularly the variance between the duration of Sengkon's
Credit Line and the dates appearing on the face of the PNs, the CA upheld the validity of
the foreclosure based merely on the similarity in the purpose for which the Credit Line was
granted and the purpose for which the PNs were executed.

On the implied premise that what is material is only the identity of the debtor whose
obligation the mortgagor secures, the CA cited Prudential Bank v. Alviar   and applied the
48

dragnet clause in PDCP's REMs. According to the CA, since the REMs contain a dragnet
clause, then PDCP's properties can be made to answer even if the PNs supporting the
Petition for Extrajudicial Foreclosure of Mortgage refer to Sengkon's obligations in its other
credit facilities. 49

The CA unfortunately misapplied the ruling in Prudential Bank. In that case, the Court's
discussion on the application of the blanket mortgage clause or dragnet clause was not as
much as critically important as the Court's novel application of the doctrine of reliance on
security test.
A dragnet clause is a stipulation in a REM contract that extends the coverage of a mortgage
to advances or loans other than those already obtained or specified in the contract. Where
there are several advances, however, a mortgage containing a dragnet clause will not be
extended to cover future advances, unless the document evidencing the subsequent
advance refers to the mortgage as providing security therefor or unless there are clear and
supportive evidence to the contrary.   This is especially true in this case where the
50

advances were not only several but were covered by different sub-facilities. Thus,
in Prudential Bank, the Court stated:

In the case at bar, the subsequent loans obtained by respondents were secured by other
securities, thus: PN BD#76/C-345, executed by Don Alviar was secured by a "hold-out" on
his foreign currency savings account, while PN BD#76/C-430, executed by respondents for
Donalco Trading, Inc., was secured by "Clean-Phase out TOD CA 3923" and eventually by
a deed of assignment on two [PNs] executed by Bancom Realty Corporation with Deed of
Guarantee in favor of A.U. Valencia and Co., and by a chattel mortgage on various heavy
and transportation equipment. The matter of PN BD#76/C-430 has already been discussed.
Thus, the critical issue is whether the "blanket mortgage" clause applies even to
subsequent advancements for which other securities were intended, or particularly, to PN
BD#76/C-345.

Under American jurisprudence, two schools of thought have emerged on this question. One
school advocates that a "dragnet clause" so worded as to be broad enough to cover all
other debts in addition to the one specifically secured will be construed to cover a different
debt, although such other debt is secured by another mortgage. The contrary thinking
maintains that a mortgage with such a clause will not secure a note that expresses on its
face that it is otherwise secured as to its entirety, at least to anything other than a deficiency
after exhausting the security specified therein, such deficiency being an indebtedness within
the meaning of the mortgage, in the absence of a special contract excluding it from the
arrangement.

The latter school represents the better position. The parties having conformed to the
"blanket mortgage clause" or "dragnet clause," it is reasonable to conclude that they also
agreed to an implied understanding that subsequent loans need not be secured by other
securities, as the subsequent loans will be secured by the first mortgage. In other words,
the sufficiency of the first security is a corollary component of the "dragnet clause." But of
course, there is no prohibition, as in the mortgage contract in issue, against contractually
requiring other securities for the subsequent loans. Thus, when the mortgagor takes
another loan for which another security was given it could not be inferred that such loan was
made in reliance solely on the original security with the "dragnet clause," but rather, on the
new security given. This is the "reliance on the security test."

Hence, based on the "reliance on the security test," the California court in the cited case
made an inquiry whether the second loan was made in reliance on the original security
containing a "dragnet clause." Accordingly, finding a different security was taken for the
second loan no intent that the parties relied on the security of the first loan could be
inferred, so it was held. The rationale involved, the court said, was that the "dragnet clause"
in the first security instrument constituted a continuing offer by the borrower to secure
further loans under the security of the first security instrument, and that when the lender
accepted a different security he did not accept the offer.

xxxx

Indeed, in some instances, it has been held that in the absence of clear, supportive
evidence of a contrary intention, a mortgage containing a "dragnet clause" will not be
extended to cover future advances unless the document evidencing the subsequent
advance refers to the mortgage as providing security therefor.   (Citations omitted and
51

emphasis and underlining ours)

In the present case, PDCP's REMs indeed contain a blanket mortgage clause in the
following language:

That, for and in consideration of credit accommodations obtained from the [FEBTC], and to
secure the payment of the same and those that may hereafter be obtained, the principal of
all of which is hereby fixed at x x x PESOS x x x, Philippine Currency, as well as those that
the [FEBTC] may extend to the [PDCP], including interest and expenses or any other
obligation owing to the [FEBTC], whether direct or indirect, principal or secondary, as
appears in the accounts, books and records of the [FEBTC] x x x.  52

Nonetheless, the parties do not dispute that what the REMs secured were only Sengkon's
availments under the Credit Line and not all of Sengkon's availments under other sub-
facilities which are also secured by other collaterals.  Since the liability of PDCP's
53

properties was not unqualified, the PNs, used as basis of the Petition for Extrajudicial

Foreclosure of Mortgage should sufficiently indicate that it is within the terms of PDCP's
limited liability. In this case, the PNs failed to make any reference to PDCP's availments, if
any, under its Credit Line. In fact, it did not even mention Sengkon's securities under the
Credit Line. Notably, the Disclosure Statements, which were "certified correct" by FEBTC's
authorized representative, Ma. Luisa C. Ellescas, and which accompanied the PNs, failed to
disclose whether the loan secured thereby was actually secured or not.

Thus, even if the Court brushes aside the Best Evidence Rule, the foregoing observations
clearly support the trial court's observation that FEBTC's foreclosure did not actually cover
the specific obligations secured by PDCP's properties.

FEBTC's failure to send personal notice to the mortgagor is fatal to the validity of the
foreclosure proceedings

Indeed, FEBTC's failure to comply with its contractual obligation to send notice to PDCP of
the foreclosure sale is fatal to the validity of the foreclosure proceedings. In Metropolitan
Bank v. Wong,  the Court ruled that while as a rule, personal notice to the mortgagor is not
54

required, such notice may be subject of a contractual stipulation, the breach of which is
sufficient to nullify the foreclosure sale, thus:

In resolving the first query, we resort to the fundamental principle that a contract is the law
between the parties and, that absent any showing that its provisions are wholly or in part
contrary to law, morals, good customs, public order, or public policy, it shall be enforced to
the letter by the courts. Section 3, Act No. 3135 reads:

xxxx

The Act only requires (1) the posting of notices of sale in three public places, and (2) the
publication of the same in a newspaper of general circulation. Personal notice to the
mortgagor is not necessary. Nevertheless, the parties to the mortgage contract are not
precluded from exacting additional requirements. In this case, petitioner and respondent in
entering into a contract of [REM], agreed inter alia:

"all correspondence relative to this mortgage, including demand letters, summonses,

subpoenas, or notifications of any judicial or extra-judicial action shall be sent to the
MORTGAGOR at 40-42 Aldeguer St. Iloilo City, or at the address that may hereafter be
given in writing by the MORTGAGOR to the MORTGAGEE."

Precisely, the purpose of the foregoing stipulation is to apprise respondent of any action
which petitioner might take on the subject property, thus according him the opportunity to
safeguard his rights. When petitioner failed to send the notice of foreclosure sale to
respondent, he committed a contractual breach sufficient to render the foreclosure sale on
November 23, 1981 null and void.   (Citation omitted and italics in the original)
55

In trivializing FEBTC's failure to send personal notice to PDCP however, the CA,
citing Philippine National Bank v. Nepomuceno Productions, Inc.,   ruled that since the
56

principal object of a notice of sale is not so much to notify the mortgagor but to inform the
public in general of the particularities of the foreclosure, then personal notice to the
mortgagor may be disregarded.  The cited case, however, is inapplicable because that
57

case did not in fact involve stipulations on personal notice to mortgagor nor the sending of
notice to a wrong address. The issue involved in that case is whether the parties to the
mortgage can validly waive the statutory requirements of posting and publication and not
whether the bank can ignore a contractual stipulation for personal notice. Neither
is PNB v. Spouses Rabat   likewise cited by the CA applicable because the trial court
58

therein found that the mortgage contract did not in fact require that personal service of
notice of foreclosure sale be given to the mortgagors. The CA's cavalier disregard of the
mortgagor's contractual right to notice of the foreclosure sale runs contrary to jurisprudence.
In Wong,   the Court already had the occasion to observe:
59

It is bad enough that the mortgagor has no choice but to yield his property in a foreclosure
proceeding. It is infinitely worse, if prior thereto, he was denied of his basic right to be
informed of the impending loss of his property. x x x.  60

While the CA acknowledged that there was indeed a contractual stipulation for notice to
PDCP as mortgagor, it considered the absence of a particular address in the space
provided therefor in the mortgage contract as merely evincing an expression of "general
intent" between the parties and that this cannot prevail against their "specific intent" that Act
No. 3135 be the controlling law between them, citing Cortes v. Intermediate Appellate
Court. 61
The Court cannot agree with the CA. To begin with, the value of the doctrine enunciated
in Cortes has long been considered questionable by this Court. Thus, in Global Holiday
Ownership Corporation v. Metropolitan Bank and Trust Company,   the Court held:
62

But what is stated in Cortes no longer applies in light of the Court's rulings in Wong and all
the subsequent cases, which have been consistent. Cortes has never been cited in
subsequent rulings of the Court, nor has the doctrine therein ever been reiterated. Its
doctrinal value has been diminished by the policy enunciated in Wong and the subsequent
cases; that is, that in addition to Section 3 of Act 3135, the parties may stipulate that
personal notice of foreclosure proceedings may be required. Act 3135 remains the
controlling law, but the parties may agree, in addition to posting and publication, to include
personal notice to the mortgagor, the non-observance of which renders the foreclosure
proceedings null and void, since the foreclosure proceedings become an illegal attempt by
the mortgagee to appropriate the property for itself.

Thus, we restate: the general rule is that personal notice to the mortgagor in extrajudicial
foreclosure proceedings is not necessary, and posting and publication will suffice. Sec. 3 of
Act 3135 governing extra-judicial foreclosure of [REMs], as amended by Act 4118, requires
only posting of the notice of sale in three public places and the publication of that notice in a
newspaper of general circulation. The exception is when the parties stipulate that personal
notice is additionally required to be given the mortgagor. Failure to abide by the general
rule, or its exception, renders the foreclosure proceedings null and void.   (Citation omitted,
63

italics ours, and emphasis and underlining in the original deleted)

In fact, the 2002 case of Nepomuceno Productions,  cited by the CA, already made it clear
64

that while personal notice to the mortgagor in extrajudicial foreclosure proceedings is not
necessary, this holds true only if the parties did not stipulate therefor. Stated differently,
personal notice is necessary if the parties so agreed in their mortgage contract. In the
present case, the parties provided in their REMs that:

12. All correspondence relative to this mortgage, including demand letters, summonses,
subpoenas, or notifications of any judicial or extrajudicial action shall be sent to the [PDCP]
at or at the address that may hereafter be given in writing by the [PDCP] to the [FEBTC]. x x
x. 
65

This provision clearly establishes the agreement between the parties that personal notice is
required before FEBTC may proceed with the foreclosure of the property and thus, FEBTC's
act of proceeding with the foreclosure despite the absence of personal notice to the
mortgagor was its own lookout.

That the portion on the mortgagor's address was left in blank cannot be simply swept under
the rug as "an expression of general intent" that cannot prevail of the parties' specific intent
not to require personal notice. Apart from the fact that this reasoning is based on a
questionable doctrine, the CA's ruling completely ignored the fact that the mortgage
contract containing said stipulation was a standard contract prepared by FEBTC itself. If the
latter did not intend to require personal notice, on top of the statutory requirements of
posting and publication, then said provision should not have at all been included in the
mortgage contract. In other words, the REMs in this case are contracts of adhesion, and in
case of doubt, the doubt should be resolved against the party who prepared it.  66

Accordingly, the CA should have considered the "doubt" created by the blank space in the
mortgage contract against FEBTC and not in its favor. Nonetheless, even if the Court
ignores this particular rule of interpretation, the fact that FEBTC caused the sending of a
notice, albeit at a wrong address, to PDCP is itself a clear proof that the parties did intend to
impose a contractual requirement of personal notice, FEBTC's undisputed breach of which
sufficiently nullifies the foreclosure proceeding.

With the foregoing, the Court finds it unnecessary to discuss PDCP's argument based on
the alleged violation of its constitutional right against impairment of obligations and contract.

WHEREFORE, premises considered, the petition is GRANTED. The Decision dated

November 25, 2009 and Resolution dated February 2, 2010 of the Court of Appeals in CA-
G.R. CV No. 89755 are hereby ANNULLED and SET ASIDE. The Decision dated April 16,
2007 of the Regional Trial Court of Quezon City, Branch 222, in Civil Case No. QOl-44630
is REINSTATED and AFFIRMED.

SO ORDERED.

BIENVENIDO L. REYES
Associate Justice

WE CONCUR:

PRESBITERO J. VELASCO, JR.

Chairperson

LUCAS P. BERSAMIN ALFREDO BENJAMIN S. CAGUIOA

Associate Justice Associate Justice

NOEL GIMENEZ TIJAM

Associate Justice

ATTESTATION

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

PRESBITERO J. VELASCO, JR.

Associate Justice
Chairperson, Third Division

CERTIFICATION
Pursuant to the 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.

MARIA LOURDES P.A. SERENO

Chief Justice

FIRST DIVISION

July 19, 2017

G.R. No. 203902

SPOUSES DIONISIO ESTRADA and JOVITA R. ESTRADA, Petitioner 

vs.
PHILIPPINE RABBIT BUS LINES, INC. and EDUARDO R. SA YLAN, Respondents

DECISION

DEL CASTILLO, J.:

The Court restates in this petition two principles on the grant of damages. First, moral
damages, as a general rule, are not recoverable in an action for damages predicated on
breach of contract.  Second, temperate damages in lieu of actual damages for loss of
1

earning capacity may be awarded where earning capacity is plainly established but no
evidence was presented to support the allegation of the injured party's actual income. 2

This Petition for Review on Certiorari assails the May 16, 2012 Decision  and October 1,
3

2012 Resolution  of the Court of Appeals (CA) in CA-G.R. CV No. 95520, which partially
4

granted the appeal filed therewith by respondent Philippine Rabbit Bus Lines, Inc.
(Philippine Rabbit) and denied petitioners spouses Dionisio C. Estrada (Dionisio) and Jovita
R. Estrada's motion for reconsideration thereto.

Factual Antecedents

On April 13, 2004, petitioners filed with the Regional Trial Court (RTC) of Urdaneta City,
Pangasinan, a Complaint for Damages against Philippine Rabbit and respondent Eduardo
5

R. Saylan (Eduardo).

The facts as succinctly summarized by the RTC are as follows:

[A] mishap occurred on April 9, 2002 along the national highway in Barangay Alipangpang,
Pozorrubio, Pangasinan, between the passenger bus with plate number CVK-964 and body
number 3101, driven by [respondent] Eduardo Saylan and owned by [respondent] Philippine
Rabbit Bus, Lines, Inc., and the Isuzu truck with plate number UPB-974 driven by Willy U.
Urez and registered in the nan1e of Rogelio Cuyton, Jr.. At the time of the incident, the
Philippine Rabbit Bus was going towards the north direction, while the Isuzu truck was
travelling towards the south direction. The collision happened at the left lane or the lane
properly belonging to the Isuzu truck. The right front portion of the Isuzu Truck appears to
have collided with the right side portion of the body of the Philippine Rabbit bus. x x x
Before the collision, the bus was following closely a jeepney. When the jeepney stopped,
the bus suddenly swerved to the left encroaching upon the rightful lane of the Isuzu truck,
which resulted in the collision of the two (2) vehicles. x x x The [petitioner] Dionisio Estrada,
who was an1ong the passengers of the Philippine Rabbit bus, as evidenced by the ticket
issued to him, was injured on the [right] arm as a consequence of the accident. His injured
right arm was amputated at the Villaflor Medical Doctor's Hospital in Dagupan City x x x. For
the treatment of his injury, he incurred expenses as evidenced by x x x various receipts. 6

Dionisio argued that pursuant to the contract of carriage between him and Philippine Rabbit,
respondents were duty-bound to carry him safely as far as human care and foresight can
provide, with utmost diligence of a very cautious person, and with due regard for all the
circumstances from the point of his origin in Urdaneta City to his destination in Pugo, La
Union. However, through the fault and negligence of Philippine Rabbit's driver, Eduardo,
and without human care, foresight, and due regard for all circumstances, respondents failed
to transport him safely by reason of the aforementioned collision which resulted in the
amputation of Dionisio's right arm. And since demands for Philippine Rabbit  to pay him
7

damages for the injury he sustained remained unheeded, Dionisio filed the said complaint
wherein he prayed for the following awards: moral damages of ₱500,000.00 actual
damages of ₱60,000.00, and attorney's fees of ₱25,000.00.

Petitioners' claim for moral damages, in particular, was based on the following allegations:

9. [The] amount of ₱500,000.00 as moral damages for the amputation of [Dionisio's] right
arm for life including his moral sufferings for such [loss] of right arm is reasonable. Said
amount is computed and derived using the formula (2/3 x [80- age of the complainant when
the injury is sustained] = life expectancy) adopted in the American Expectancy Table of
Mortality or the actuarial of Combined Experience Table of Mortality. From such formula,
[Dionisio] is expected to live for 18 years, which is equivalent [to] about 6570 days. For each
day, [Dionisio] is claiming ₱80.00 as he is expected to work for 8 hours a day with his
amputated arm or to enjoy the same for at least 8 hours a day (or is claiming ₱l0.00 for
each hour) for 18 years (6570 days). The amount that can be computed thereof would be
₱525,600.00 (6570 days x ₱80.00). [Dionisio] then [rounded] it off to ₱500,000.00, the
moral damages consisted [of] his moral sufferings due to the [loss] of his right arm for life; 8

Denying any liability, Philippine Rabbit in its Answer9 averred that it carried Dionisio safely
as far as human care and foresight could provide with the utmost diligence of a very
cautious person and with due regard for all the circumstances prevailing. While it did not
contest that its bus figured in an accident, Philippine Rabbit nevertheless argued that the
cause thereof was an extraordinary circumstance independent of its driver's action or a
fortuitous event. Hence, it claimed to be exempt from any liability arising therefrom. In any
case, Philippine Rabbit averred that it was the Isuzu truck coming from the opposite
direction which had the last clear chance to avoid the mishap. Instead of slowing down upon
seeing the bus, the said truck continued its speed such that it bumped into the right side of
the bus. The proximate cause of the accident, therefore, was the wrongful and negligent
manner in which the Isuzu truck was operated by its driver. In view of this, Philippine Rabbit
believed that Dionisio has no cause of action against it.

With respect to Eduardo, he was declared in default after he failed to file an Answer despite
due notice.10

Ruling of the Regional Trial Court

Treating petitioners' Complaint for damages as one predicated on breach of contract of

carriage, the RTC rendered its Decision  on December 1, 2009.
11

In concluding that Eduardo was negligent in driving the Philippine Rabbit bus, the said court
ratiocinated, viz.:

Evidently, prior to the accident, [Eduardo] was tailgating the jeepney ahead of him. When
the jeepney stopped, [Eduardo] suddenly swerved the bus to the left, encroaching in the
process the rightful lane of the oncoming Isuzu truck, thereby resulting in the collision. The
fact that [Eduardo] did not apply the brakes, but instead swerved to the other lane, fairly
suggests that he was not only unnecessarily close to the jeepney, but that he was operating
the bus at a speed greater than what was reasonably necessary for him to be able to bring
his vehicle to a full stop to avoid hitting the vehicle he was then following. Clearly,
immediately before the collision, [Eduardo] was actually violating Section 35 of the Land
Transportation and Traffic Code, Republic Act No. 4136, as amended:

Sec. 35. Restriction as to speed. - (a) Any person driving a motor vehicle on a highway shall
drive the same at a careful and prudent speed, not greater nor less than [what] is
reasonable and proper, having due regard for the traffic, the width of the highway, and or
any other condition then and there existing; and no person shall drive any motor vehicle
upon a highway at such a speed as to endanger the life, limb and property of any person,
nor at a speed greater than will permit him to bring the vehicle to a stop within the clear
distance ahead.

Too, when [Eduardo] swerved to the left and encroached on the rightful lane of the Isuzu
truck, he was violating Section 41 of the same Traffic Code:

Sec. 41. Restriction on overtaking and passing. - (a) The driver of a vehicle shall not drive to
the left side of the center line of a highway in overtaking or passing another vehicle,
proceeding in the same direction, unless such left side is clearly visible, and is free of
oncoming traffic for a sufficient distance ahead to permit such overtaking or passing to be
made in safety.

The fact that the collision occurred immediately after the bus swerved on the left lane clearly
[indicates] that the other lane was not clear and free of oncoming vehicle at the time x x x
[Eduardo] tried to overtake the jeepney to avoid hitting it.
It is presumed that a person driving a motor vehicle has been negligent if at the time of the
mishap, he was violating any traffic regulation, unless there is proof to the contrary (Article
2185 of the CivilCode). [Eduardo] failed to rebut this legal presumption as he chose not to
answer the complaint and to testify in court. [Philippine Rabbit was also] unsuccessful in
overthrowing the said legal presumption. x x x

[Eduardo's] failure to observe the proper and safe distance from the vehicle ahead of him
and in running the bus at a speed greater than what was reasonably necessary to control
and stop the vehicle when warranted by the circumstances, clearly were reflective of his
lack of precaution, vigilance, and foresight in operating his vehicle. As an experienced
driver, he should have known about the danger posed by tailgating another vehicle and
driving his vehicle at an unreasonable speed called for by the circumstances. For, the
sudden stopping of a motor vehicle, for whatever [reason], is not an uncommon and
[unforeseeable] occurrence in the highway. If only he had exercised diligence, vigilance and
foresight, he would have refrained from tailgating another vehicle at a dangerously close
range. What he should have done instead was to maintain a reasonable distance from the
jeepney and drove his vehicle at a speed not greater than will permit him to bring the
vehicle to a stop within the assured clear distance ahead. This he failed to do. As a
consequence, when the jeepney stopped, he was unable to control and stop the bus.
Instead, he was forced to swerve the bus to the left lane blocking the path of the oncoming
Isuzu truck. While he averted smashing the jeepney, he however collided with the Isuzu
truck. No doubt, it was [Eduardo's] lack of precaution, vigilance and foresight that led to the
accident. Otherwise stated, it was his recklessness or negligence that was the proximate
cause of the mishap.

[Philippine Rabbit's] imputation of fault to the driver of the Isuzu truck, claiming that it was
the latter [which] had the last clear chance to avoid the accident, deserves scant
consideration. As the evidence would show, the impact occurred immediately after the bus
swerved and while in the process of encroaching on the left lane. This is evidenced by the
fact that the front portion of the Isuzu truck collided with the right side portion of the bus.
The driver of the Isuzu truck, before the accident, was cruising on the lane properly
belonging to him. He had every right to expect that all the vehicles, including the bus
coming from the opposite direction would stay on their proper lane. He certainly was not
expected to know what prompted the bus driver to suddenly swerve his vehicle to the left.
The abruptness by which the bus swerved without a warning could not have given him the
luxury of time to reflect and anticipate the bus' encroachment of his lane for him to be able
to avoid it. Needless to point out, there was no last clear chance to speak of on the part of
the driver of the Isuzu truck to avoid the accident. Besides, the 'last clear chance' principle
is not applicable in this case since the instant suit is between the passenger and the
common carrier. x x x 12

The RTC then proceeded to determine whether Philippine Rabbit, as it claimed, exercised
the diligence of a good father of a family in the selection and supervision of its drivers as to
negate any liability for damages. The said court, however, was unconvinced after it found
that (1) Philippine Rabbit failed to show that it had taken all the necessary and actual steps
to thoroughly examine the qualifications of Eduardo as a driver worthy of employment; and
(2) no proof relative to the existence of company rules and regulations, instructions, and
policies affecting its drivers, as well as to their actual implementation and observance, were
presented. Hence, Philippine Rabbit was held jointly and severally liable with Eduardo for
the awards made in favor of Dionisio as follows:

The emotional anguish and suffering of x x x Dionisio Estrada as a consequence of the

injury and amputation of his right arm due to the reckless driving of x x x Eduardo, which
resulted in the accident, cannot be overemphasized. The loss of the use of his right arm and
the humiliation of being tagged in the public [eye] as a person with only one arn1 would
certainly be borne by him for the rest of his life. The amount of moral damages he is praying
appears to be reasonable under the circumstances.

Too, the award of attorney's fees is proper considering that x xx [Dionisio] was forced to
litigate after x x x [Philippine Rabbit] refused to heed his demand for the payment of
damages as a consequence of the accident.

WHEREFORE, judgment is hereby rendered ordering x x x Philippine Rabbit Bus Lines, Inc.
and Eduardo Saylan to pay jointly and severally x xx Dionisio Estrada the following
amounts:

1. Five Hundred Thousand Pesos (₱500,000.00) as moral damages;

2. Fifty Seven Thousand Seven Hundred Sixty Six Pesos and Twenty Five
Centavos (₱57,766.25), as actual damages; and

3. Twenty Five Thousand Pesos (₱25,000.00), as attorney's fees; and the

costs of suit.

SO ORDERED. 13

Philippine Rabbit filed a Motion for Reconsideration  but the same was denied for lack of
14

merit in an Order  dated May 31, 2010.

15

Ruling of the Court of Appeals

On appeal, Philippine Rabbit imputed error upon the RTC in not finding that it exercised the
diligence of a good father of a family in the selection and supervision of its drivers. In any
case, it argued that moral damages are not recoverable in an action for damages
predicated on breach of contract except when death results or when the carrier is guilty of
fraud or bad faith. Since none of the two aforementioned circumstances are present in this
case, Philippine Rabbit contended that it is Eduardo alone who should be held civilly liable.

In a Decision  dated May 16, 2012, the CA partially granted the appeal on the following
16

ratiocination:

Based from [sic] the aforecited allegations in the complaint, it was rightly regarded by the
trial court as an action to recover damages arising from breach of contract of carriage.
There was in fact, an admission that [Dionisio] was a passenger of a bus owned by
[Philippine Rabbit]. In an action for breach of contract of carriage, all that is required is to
prove the existence of such contract and its non-performance by the carrier through the
latter's failure to carry the passenger safely to his destination. In the present case, it was
duly established that there was a collision and as a result of which, [Dionisio] sustained an
injury.

[Philippine Rabbit] was therefore properly found liable for breach of contract of carriage. A
common carrier is bound to carry its passengers safely as far as human care and foresight
can provide, using the utmost diligence of very cautious persons, with due regard to all the
circumstances. In a contract of carriage, it is presumed that the common carrier was at fault
or was negligent when a passenger dies or is injured. Unless the presumption is rebutted,
the court need not even make an express finding of fault or negligence on the part of the
common carrier. This presumption may only be overcome by evidence that the carrier
exercised extraordinary diligence, and this presumption remained unrebutted in this case.
The trial court found that the accident which led to the amputation of [Dionisio's] arm was
due to the reckless driving and negligence of [Philippine Rabbit's] driver and stated that:

No doubt, it was x x x [Eduardo's] lack of precaution, vigilance and foresight that led to the
accident. Otherwise stated, it was his recklessness or negligence that was the proximate
cause of the mishap.

Such negligence and recklessness is binding against [Philippine Rabbit] pursuant to Article
1759 of the Civil Code which provides:

Common carriers are liable for the death of or injuries to passengers through the negligence
or willful acts of the former' s employees, although such employees may have acted beyond
the scope of their authority or in violation of the orders of the common carriers.

This liability of the common carriers does not cease upon proof that they exercised all the
diligence of a good father of a family in the selection and supervision of their employees.

Thus, [Philippine Rabbit's] defense that it acted with the diligence of a good father of a
family in its selection of its driver, Eduardo R. Saylan, is unavailing. [Philippine Rabbit]
however is correct in its contention that moral damages are not recoverable in actions for
damages predicated on a breach of contract, unless death of a passenger results, or it is
proved that the carrier was guilty of fraud or bad faith, even if death does not result.

There was no evidence on record indicative of fraud or bad faith on [Philippine Rabbit's]
part. Bad faith should be established by clear and convincing evidence. The settled rule is
that the law always presumes good faith such that any person who seeks to be awarded
damages due to the acts of another has the burden of proving that the latter acted in bad
faith or with ill motive. The award for attorney's fees must likewise be deleted considering
that moral damages cannot be granted and none of the instances enumerated in Article
2208 of the Civil Code is present in the instant case. However, the actual damages awarded
by the trial court are adequately substantiated by official receipts. Therefore, the same shall
be sustained.

The driver on the other hand, may not be held liable under the contract of carriage, not
being a party to the same. The basis of a cause of action of a passenger against the driver
is either culpa criminal or culpa aquiliana. A passenger may file a criminal case based on
culpa criminal punishable under the Revised Penal Code or a civil case based on culpa
aquiliana under Articles 2176 and 2177 of the Civil Code.

A cause of action based on culpa contractual is also separate and distinct from a cause of
action based on culpa aquiliana. x x x

xxxx

The trial court therefore erred in ruling that [Philippine Rabbit] bus company and
[respondent] driver are jointly and severally liable. The driver cannot be held jointly and
severally liable with the carrier in case of breach of the contract of carriage. The contract of
carriage is between the carrier and the passenger, and in the event of contractual liability,
the carrier is exclusively responsible [therefor] to the passenger, even if such breach be due
to the negligence of his driver. The carrier can neither shift his liability on the contract to his
driver nor share it with him for his driver's negligence is his. 17

Accordingly, the CA modified the RTC Decision in that it declared Philippine Rabbit as
solely and exclusively liable to Dionisio for actual damages in the amount of ₱57,766.25
and deleted the award of moral damages and attorney's fees.

Petitioners filed a Motion for Reconsideration  but the same was denied by the CA for lack
18

of merit in a Resolution dated October 1, 2012.

19

Hence, this Petition for Review on Certiorari raising the following issues:

WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN DECLARING

THAT THERE WAS NO EVIDENCE ON RECORD INDICATIVE OF FRAUD OR BAD
FAITH ON [PHILIPPINE RABBIT'S] PART.

WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN NOT

[CONSIDERING] X X X THE [COST OF THE] REPLACEMENT OF PETITIONER
[DIONISIO'S AMPUTATED RIGHT ARM] WITH [AN] ARTIFICIAL ONE AS ACTUAL
DAMAGES. 20

The Parties' Arguments

Petitioners dispute the findings of lack of fraud or bad faith on the part of Philippine Rabbit
as to make it liable for moral damages. According to them, the assertions of Philippine
Rabbit in its Answer, i.e., that it carried Dionisio safely; that it was not an insurer of all risks;
that the accident was caused by a fortuitous event; that in any event, it was the negligent
manner by which the Isuzu truck was operated which was the proximate cause of the
accident; and that Dionisio has no cause of action against Philippine Rabbit, were made
with the intention to evade liability. Petitioners claim that the said assertions are clear
indication of fraud or bad faith.

In justifying their claim for moral damages, petitioners aver that in their Complaint, they did
not seek for moral damages in terms of physical suffering, mental anguish, fright, serious
anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and
similar injury per se, but for moral damages based purely on the fact that Dionisio lost his
right arm. They argue that while in a strict sense, Dionisio incurred actual damages through
the amputation of his right arm, such loss may rightly be considered as falling under moral
damages. This is because a right arm is beyond the commerce of man and loss thereof
necessarily brings physical suffering, mental anguish, besmirched reputation, social
humiliation and similar injury to a person. At any rate, should this Court award the amount of
₱500,000.00 as actual damages due to the loss of Dionisio's right arm, petitioners also find
the same proper and appropriate under the circumstances.

Now jointly represented by one counsel, respondents, on the other hand, reiterate the rule
that moral damages are not recoverable in an action for damages predicated on a breach of
contract, as in this case, since breach of contract is not one of the items enumerated in
Article 2219 of the Civil Code. Only as an exception, moral damages may be recovered in
an action for breach of contract of carriage when the mishap results in death or if the carrier
acted fraudulently or in bad faith. Since Dionisio did not die in the mishap nor was Philippine
Rabbit found guilty of fraud or bad faith, respondents argue that an award for moral
damages is improper for having no basis in fact and in law.

Our Ruling

The Court modifies the CA ruling.

Moral damages; Instances when

moral damages can be awarded in an
action for breach of contract.

Moral damages include physical suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury.
Though incapable of pecuniary computation, moral damages may be recovered if they are
the proximate result of the defendant's wrongful act or omission. 21

Under Article 2219 of the Civil Code, moral damages are recoverable in the following and
analogous cases: (1) a criminal offense resulting in physical injuries; (2) quasi-delicts
causing physical injuries; (3) seduction, abduction, rape or other lascivious acts; (4) adultery
or concubinage; (5) illegal or arbitrary detention or arrest; (6) illegal search; (7) libel,
slander, or any other form of defamation; (8) malicious prosecution; (9) acts mentioned in
Article 309;  and (1) acts and actions referred to in Articles 21,  26,  27 ,
22 23 24

 28,  29,  30,  32,  34,  and 35.

25 26 27 28 29 30 31

x x x [C]ase law establishes the following requisites for the award of moral damages: (1)
there must be an injury clearly sustained by the claimant, whether physical, mental or
psychological; (2) there must be a culpable act or omission 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 for damages is predicated on any of the cases stated in
Article 2219 of the Civil Code. 32
Since breach of contract is not one of the items enumerated under Article 2219, moral
damages, as a general rule, are not recoverable in actions for damages predicated on
breach of contract. 33

x x x As an exception, such damages are recoverable [in an action for breach of contract:]
(1) in cases in which the mishap results in the death of a passenger, as provided in Article
1764,  in relation to Article 2206(3)  of the Civil Code; and (2) in x x x cases in which the
34 35

carrier is guilty of fraud or bad faith, as provided in Article 2220 .

36 37

Moral damages are not recoverable

in this case.

It is obvious that this case does not come under the first of the abovementioned exceptions
since Dionisio did not die in the mishap but merely suffered an injury. Nevertheless,
petitioners contend that it falls under the second category since they aver that Philippine
Rabbit is guilty of fraud or bad faith.

It has been held, however, that "allegations of bad faith and fraud must be proved by clear
and convincing evidence."  They are never presumed considering that they are serious
38

accusations that can be so conveniently and casually invoked.  And unless convincingly
39

substantiated by whoever is alleging them, they amount to mere slogans or mudslinging. 40

In this case, the fraud or bad faith that must be convincingly proved by petitioners should be
one which was committed by Philippine Rabbit in breaching its contract of carriage with
Dionisio. Unfortunately for petitioners, the Court finds no persuasive proof of such fraud or
bad faith.

Fraud has been defined to include an inducement through insidious machination. Insidious
machination refers to a deceitful scheme or plot with an evil or devious purpose. Deceit
exists where the party, with intent to deceive, conceals or omits to state material facts and,
by reason of such omission or concealment, the other party was induced to give consent
that would not otherwise have been given. 41

Bad faith, on the other hand, "does not simply connote bad judgment or negligence; it
imports a dishonest purpose or some moral obliquity and conscious doing of a wrong, a
breach of a known duty through some motive or interest or ill will that partakes of the nature
of fraud." 42

There is no showing here that Philippine Rabbit induced Dionisio to enter into a contract of
carriage with the former through insidious machination. Neither is there any indication or
even an allegation of deceit or concealment or omission of material facts by reason of which
Dionisio boarded the bus owned by Philippine Rabbit. Likewise, it was not shown that
Philippine Rabbit's breach of its known duty, which was to transport Dionisio from Urdaneta
to La Union,  was attended by some motive, interest, or ill will. From these, no fraud or bad
43

faith can be attributed to Philippine Rabbit.

Still, petitioners insist that since the defenses it pleaded in its Answer were designed to
evade liability, Philippine Rabbit is guilty of fraud or bad faith. Suffice it to state, however,
that the allegations which made up Philippine Rabbit's defenses are hardly the kind of fraud
or bad faith contemplated by law. Again, it bears to mention that the fraud or bad faith must
be one which attended the contractual breach or one which induced Dionisio to enter into
contract in the first place.

Clearly, moral damages are not recoverable in this case. The CA, therefore, did not err in
deleting the award for moral damages.

Actual damages for loss/impairment

of earning capacity are also not
recoverable. In lieu thereof, the
Court awards temperate damages.

In an attempt to recover the ₱500,000.00 awarded by the RTC as moral damages but
deleted by the CA, petitioners would instead want this Court to grant them the same amount
as just and proper compensation for the loss of Dionisio's right arm.

It can be recalled that in the Complaint, petitioners justified their claim for moral damages as
follows:

9. [The] amount of ₱500,000.00 as moral damages for the amputation of [Dionisio's] right
arm for life including his moral sufferings for such [loss] of right arm is reasonable.

Said amount is computed and derived using the formula (2/3 x [80- age of the complainant
when the injury is sustained] = life expectancy) adopted in the American Expectancy Table
of Mortality or the actuarial of Combined Experience Table of Mortality. From such formula,
[Dionisio] is expected to live for 18 years, which is equivalent [to] about 6570 days. For each
day, [Dionisio] is claiming ₱80.00 as he is expected to work for 8 hours a day with his
amputated arm or to enjoy the same for at least 8 hours a day (or is claiming ₱l0.00 for
each hour) for 18 years (6570 days). The amount that can be computed thereof would be
₱525,600.00 (6570 days x ₱80.00). [Dionisio] then [rounded] it off to ₱500,000.00, the
moral damages consisted [of] his moral sufferings due to the [loss] of his right arm for life;44

It thus appears that while petitioners denominated their claim for ₱500,000.00 as moral
damages, their computation was actually based on the supposed loss/impairment of
Dionisio's earning capacity.

Loss or impairment of ean1ing capacity finds support under Article 2205 (1) of the Civil
Code, to wit:

Art. 2205. Damages may be recovered:

(1) For loss or impairment of earning capacity in cases of temporary or permanent personal
injury;

xxxx
It is, however, settled that "damages for loss [or impairment] of earning capacity is in the
nature of actual damages x x x." 45

Actual or compensatory damages are those awarded in order to compensate a party for an
injury or loss he suffered. They arise out of a sense of natural justice, aimed at repairing the
wrong done. To be recoverable, they must be duly proved with a reasonable degree of
certainty. A court cannot rely on speculation, conjecture, or guesswork as to the fact and
amount of damages, but must depend upon competent proof that they have suffered, and
on evidence of the actual amount thereof. 46

Thus, as a rule, documentary evidence should be presented to substantiate the claim for
damages for loss of earning capacity. By way of exception, damages for loss [or
impairment] of earning capacity may be awarded despite the absence of documentary
evidence when (1) the deceased [or the injured] was self-employed and earning less than
the minimum wage under current labor laws, in which case, judicial notice may be taken of
the fact that in the deceased's line of work no documentary evidence is available; or (2) the
deceased was employed as a daily worker earning less than the minimum wage under
current labor laws.47

Here, it is unlikely that petitioners presented evidence to prove a claim for actual damages
based on loss/impairment of earning capacity since what they were claiming at the outset
was an award for moral damages. The Court has nonetheless gone over the records to find
out if they have sufficiently shown during trial that they are entitled to such compensatory
damages that they are now claiming. Unfortunately, no documentary evidence supporting
Dionisio's actual income is extant on the records. What it bears is the mere testimony of
Dionisio on the matter, viz.:

COURT:

Q: By the way, why did you submit the original copy of your exhibits to the GSIS?

A: I am claiming my GSIS compensation because I am a government Employee.

ATTY. SEVILLEJA:

Q: What particular government [agency do] you belong?

A: DECS.

Q: You are a teacher?

A: Yes sir.

Q: You are still continuing your profession as a teacher until now?

A: Yes sir.
Q: By the way Mr. witness, you are claiming x x x moral damages of ₱500,000.00? How did
you compute that ₱500,000.00?

A: I based that from [sic] my income which is about ₱80.00 a day or ₱l0.00 per hour.

Q: Is that x x x gross or not?

A: Net sir.

Q: What are your other sideline?

A: I know [how] to drive a tricycle.

Q: Because of [the] amputation of your right arm, you mean to say you [cannot] drive
anymore a tricycle?

A: Yes sir.

Q: By the way Mr. witness, how old are you when you met [the] accident?

A: More than 53 years old sir, less than 54.

Q: If you are claiming for x x x moral damages of P80.00 a day, how come you are asking
for ₱500,000.00?

A: If you compute that it is ₱2,400.00 monthly. If I still [live by] about 20-30 years [more], I
can still [earn] that amount.48

It must be emphasized, though, that documentary proof of Dionisio's actual income cannot
be dispensed with since based on the above testimony, Dionisio does not fall under any of
the two exceptions aforementioned. Thus, as it stands, there is no competent proof
substantiating his actual income and because of this, an award for actual damages for loss/
impairment of earning capacity cannot be made.

Nonetheless, since it was established that Dionisio lost his right arm, temperate damages in
lieu of actual damages for loss/impairment of earning capacity may be awarded in his favor.
Under Article 2224, "[t]emperate or moderate damages, which are more than nominal but
less than compensatory damages, may be recovered when the court finds that some
pecuniary loss has been suffered but its amount cannot, from the nature of the case, be
proved with certainty."

The case of Tan v. OMC Carriers, Inc.  enumerates several instances wherein the Court
49

awarded temperate damages in lieu of actual damages for loss of earning capacity, viz.:

In the past, we awarded temperate damages in lieu of actual damages for loss of earning
capacity where earning capacity is plainly established but no evidence was presented to
support the allegation of the injured party's actual income.
In Pleno v. Court of Appeals, we sustained the award of temperate damages in the amount
of ₱200,000.00 instead of actual damages for loss of earning capacity because the plaintiffs
income was not sufficiently proven.

We did the same in People v. Singh, and People v. Almedilla, granting temperate damages

in place of actual damages for the failure of the prosecution to present sufficient evidence of
the deceased's income.

Similarly, in Victory Liner, Inc. v. Gammad, we deleted the award of damages for loss of
earning capacity for lack of evidentiary basis of the actual extent of the loss. Nevertheless,
because the income-earning capacity lost was clearly established, we awarded the heirs
₱500,000.00 as temperate damages. 50

Accordingly, the Court in Tan awarded to the heirs of the therein deceased victim, who was
working as a tailor at the time of his death, temperate damages in the amount of
₱300,000.00 in lieu of compensatory damages. 51

In the subsequent case of Orix Metro Leasing and Finance Corporation v. Mangalinao,  the 52

Court likewise awarded temperate damages as follows:

While the net income had not been sufficiently established, the Court recognizes the fact
that the Mangalinao heirs had suffered loss deserving of compensation.  What the CA
1âwphi1

awarded is in actuality a form of temperate damages. Such form of damages under Article
2224 of the Civil Code is given in the absence of competent proof on the actual damages
suffered. In the past, we awarded temperate damages in lieu of actual damages for loss of
earning capacity where earning capacity is plainly established but no evidence was
presented to support the allegation of the injured party's actual income. In this case,
Roberto Mangalinao, the breadwinner of the family, was a businessman engaged in buying
and selling palay and agricultural supplies that required high capital in its operations and
was only 37 at the time of his death. Moreover, the Pathfinder which the Mangalinaos own,
became a total wreck. Under the circumstances, we find the award of ₱500,000.00 as
temperate damages as reasonable. 53

And in the more recent case of People v. Salahuddin,  the lower courts' award of
54

₱4,398,000.00 as compensation for loss of earning capacity of a murdered lawyer was

disallowed due to insufficiency of evidence. Again in lieu thereof, temperate damages of
₱l,000,000.00 was awarded. 55

In view of the above rulings and under the circumstances of this case, the Court finds
reasonable to award Dionisio temperate damages of ₱500,000.00 in lieu of actual damages
for the loss/impairment of his earning capacity.

Actual damages by way of medical

expenses must be supported by
official receipts.

Anent petitioners' assertion that actual damages should be awarded to them for the cost of
replacement of Dionisio's amputated right arm, suffice it to state that petitioners failed to
show during trial that the said amputated right arm was actually replaced by an artificial one.
All that petitioners submitted was a quotation of ₱l60,000.00 for a unit of elbow
prosthesis  and nothing more. It has been held that actual proof of expenses incurred for
56

medicines and other medical supplies necessary for treatment and rehabilitation must be
presented by the claimant, in the form of official receipts, to show the exact cost of his
medication and to prove that he indeed went through medication and rehabilitation. In the
absence of the same, such claim must be negated. 57

At any rate, the RTC already granted petitioners actual damages by way of medical
expenses based on the official hospital receipts submitted.  There is, however, a need to
58

correct the amount, that is, the should be ₱57,658.25 as borne by the receipts and not
₱57,766.25 .

Legal interest is imposed on the

amounts awarded.

In addition, the amounts of damages awarded are declared subject to legal interest of
6% per annum from the finality of this Decision until full satisfaction.
59

WHEREFORE, the Petition for Review on Certiorari is DENIED. The assailed May 16, 2012

Decision and October 1, 2012 Resolution of the Court of Appeals in CA-G.R. CV No. 95520
are AFFIRMED with MODIFICATIONS as follows: (1) petitioners are declared entitled to
temperate damages of ₱500,000.00; (2) the award of actual damages is set at the amount
of ₱57,658.25; and (3) all damages awarded are subject to legal interest of 6% per
annum from the finality of this Decision until full satisfaction.

SO ORDERED.

MARIANO C. DEL CASTILLO

Associate Justice

WE CONCUR:

MARIA LOURDES P.A. SERENO

Chief Justice
Chairperson

TERESITA J. LEONARDO-DE
ESTELA M. PERLAS-BERNABE
CASTRO
Associate Justice
Associate Justice

ALFREDO BENJAMIN S. CAGUIOA

Associate Justice

CERTIFICATION
Pursuant to the 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.

MARIA LOURDES P.A. SERENO

Chief Justice

THIRD DIVISION

August 16, 2017

G.R. No. 215999

SPS. FELIX A. CHUA and CARMEN L. CHUA, JAMES B. HERRERA, EDUARDO L.

ALMENDRAS, MILA NG ROXAS, EUGENE C. LEE, EDICER H. ALMENDRAS,
BENEDICT C. LEE, LOURDES C. NG, LUCENA INDUSTRIAL CORPORATION, LUCENA
GRAND CENTRAL TERMINAL, INC., represented by FELIX A. CHUA,Petitioners, 
vs.
UNITED COCONUT PLANTERS BANK, ASSET POOL A (SPVAMC), REVERE REALTY
AND DEVELOPMENT CORPORATION, JOSE C. GO and the REGISTRAR OF DEEDS
OF LUCENA CITY,, Respondents.

DECISION

BERSAMIN, J.:

This appeal assails the decision promulgated on March 25, 2014  and the resolution
1

promulgated on December 23, 2014,  whereby, the Court of Appeals (CA) respectively
2

reversed and set aside the decision  rendered on January 6, 2009 by the Regional Trial
3

Court (RTC), Branch 59, in Lucena City and granted the appeal of respondent United
Coconut Planters Bank (UCPB), Revere Realty and Development Corporation (Revere),
Jose Go and The Register of Deeds of Lucena City; and denied the petitioners' motion for
reconsideration.

Antecedents

On March 3, 1997, petitioner Spouses Felix and Carmen Chua, for themselves and
representing their co-petitioners, entered into a Joint Venture Agreement (JVA) with
Gotesco Properties, Inc. (Gotesco) for the development of their 44-hectare property situated
in Ilayang Dupay, Lucena City into a mixed use, residential and commercial subdivision.
Gotesco was then represented by respondent Jose Go.  It appears, however, that the
4

development project under this JVA did not ultimately materialize. 5

Pursuant to the JVA, several deeds of absolute sale were executed over petitioners’ 12
parcels of land situated in Lucena City in favor of Revere, a corporation controlled and
represented by Jose Go. The deeds of absolute sale were complemented by a deed of trust
dated April 30, 1998  under which it was confirmed that Revere did not part with any amount
6

in its supposed acquisition of the 12 parcels of land. The deed of trust further confirmed
petitioners' absolute ownership of the properties. Also on the same date, Gotesco, also
represented by Jose Go, and petitioners, represented by Felix Chua, executed another
deed of trust covering 20 parcels of land distinct from the 12 parcels of land already covered
by the first deed of trust.
7

Prior to the execution of the JVA, petitioners and Jose Go had separate outstanding loan
obligations with UCPB.

On June 2, 1997, the Spouses Chua executed a real estate mortgage (REM) in favor of
UCPB involving several parcels of land registered in the names of petitioners to secure the
loans obtained in their personal capacities and in their capacities as corporate officers and
stockholders of the Lucena Grand Central Terminal, Inc. (LGCTI). 8

On March 21, 2000, petitioners entered into a Memorandum of Agreement (MOA) with
UCPB to consolidate the obligations of the Spouses Chua and LGCTI, which was
determined at ₱204,597,177.04 as of November 30, 1999. The parties thereby agreed to
deduct the sum of ₱103,893,450.00 from said total in exchange for 30 parcels of land
including the improvements thereon;  and that the remaining balance of ₱68,000,000.00
9

would be converted by UCPB into equity interest in LGCTI.

To implement the March 21, 2000 MOA, UCPB drafted a REM covering the properties listed
in the MOA, which petitioners signed to secure a credit accommodation for
₱404,597,177.04. Under its terms, this REM covered the payment of all loans, overdrafts,
credit lines and other credit facilities or accommodations obtained or hereinafter obtained by
the mortgagors, LGCTI, Spouses Chua and Jose Go. 10

On even date, Jose Go, acting in behalf of Revere, and UCPB executed another REM
(Revere REM) involving the properties held in trust by Revere for petitioners. The execution
of the Revere REM was unknown to petitioners. Revere submitted a secretary's certificate
11

signed by Lourdes Ortiga to the effect that the Board of Directors had approved the
mortgage of various corporate properties situated in Ilayang Dupay, Lucena City to secure
any and all obligation of the Spouses Chua, LGCTI, and Jose Go.

Enforcing petitioners' REM as well as the Revere REM, UCPB foreclosed the mortgages,
and the properties were sold for a total bid price of ₱227,700,000.00.

On February 14, 2003, UCPB and LGCTI executed a deed of assignment of liabilities
whereby LGCTI would issue 680,000 preferred shares of its stocks to UCPB to offset its
remaining obligations totaling ₱68,000,000.00.

On September 4, 2003, UCPB wrote a letter to the Spouses Chua and LGCTI regarding the
transfer of LGCTI shares of stock to its favor pursuant to the deed of assignment of
liabilities.
12
On November 11, 2003, Spouses Chua wrote UCPB to request an accounting of Jose Go's
liabilities that had been mistakenly secured by the mortgage of petitioners' properties, as
well as to obtain a list of all the properties subject of their REM as well as of the Revere
REM for reappraisal by an independent appraiser. The Spouses Chua further requested
that the proceeds of the foreclosure sale of the properties be applied only to petitioners'
obligation of ₱204,597, l 77.04; and that the rest of the properties or any excess of their
obligations should be returned to them. However, UCPB did not heed petitioners' requests.
13

Thus, on February 3, 2004, petitioners filed their complaint against UCPB, Revere, Jose
Go, and the Register of Deeds of Lucena City in the RTC in Lucena City.  The RTC issued
14

a writ of preliminary injunction at the instance of petitioners.

On October 4, 2004, the RTC declared Jose Go and Revere in default. On February 22,
2005, the RTC denied the motion for reconsideration of Jose Go and Revere. 15

Rulings of the RTC

On September 6, 2005, the RTC, through Judge Virgilio C. Alpajora, rendered a partial
judgment against Jose Go and Revere, viz.:

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

against defendants JOSE C. GO and REVERE REALTY DEVELOPMENT
CORPORATION, as follows:

a) Declaring as legal and binding the Deeds of Trust dated April 30, 1998 and
holding the properties held in trust for plaintiff by defendants REVERE and
GO.

b) Declaring that defendants REVERE and GO are not the owners of the
properties covered by the deeds of trust and did not have any authority to
constitute a mortgage over them to secure their personal and corporate
obligations, for which they should be liable.

c) Nullifying the Deed of Real Estate Mortgage dated March 21, 2000
executed by defendants REVERE and GO in favor of co-defendant UNITED
COCONUT PLANTERS BANK.

d) Ordering defendants REVERE and GO to reconvey in favor of the plaintiff

the thirty-two (32) real properties listed in the deeds of trust and originally
registered in the names of the plaintiffs under the following titles, to wit: TCT
Nos. T-40450, 40452, 40453, 64488, 71021, 71022, 71023, 71024, 71025,
71136,55033,55287, 58945, 58946,58947, 58948, 54186, 54187,
54189,54190, 54191, 55288, 54186, 54187, 54188, 55030, 55031, 50426,
50427, 50428, 50429,and 50430.

e) Ordering defendants REVERE and GO to pay plaintiffs the amount of

Php1,000,000.00 and as by way of moral damages, and Php200,000.00 and
by way of attorney's fees.
SO ORDERED. 16

On November 9, 2005, the RTC modified the partial judgment upon UCPB's motion for
reconsideration, but otherwise affirmed it as against Revere and Jose Go, disposing thusly:

WHEREFORE, premises considered, the Partial Judgment dated September 6, 2005 is

reconsidered and clarified as to United Coconut Planters Bank, as follows:

a) The contested portion of the Partial Judgment ordering reconveyance is

directed at defendants Revere Realty and Development Corp. and Jose Go
and not at defendant United Coconut Planters Bank; and

b) The resolution of the issue of whether or not defendant UCPB is obliged to

reconvey the properties listed in the Partial Judgment in favor of the plaintiffs,
as well as the other issues between UCPB and the plaintiffs, shall be
determined after the parties shall have presented their evidence.

SO ORDERED. 17

Meanwhile, Asset Pool A moved to be substituted for UCPB as a party-defendant on

February 15, 2006 on the basis that UCPB had assigned to it the rights over petitioners’
₱68,000,000.00 obligation. The RTC approved the substitution on March 14, 2006. 18

On January 6, 2009, the RTC rendered judgment in favor of petitioners, thusly:

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

against defendants UNITED COCONUT PLANTERS BANK, ASSET POOL A, REGISTRAR
OF DEEDS OF LUCENA CITY and EX-OFFICIO SHERIFF OF LUCENA CITY, thus:

a) Declaring that the loan obligations of plaintiffs to defendant UNITED

COCONUT PLANTERS BANK under the Memorandum of Agreement dated
March 21, 2000 have been fully paid;

b) Declaring as legal and binding the Deeds of Trust dated April 30, 1998 and
holding the properties listed therein were merely held-in-trust for plaintiffs by
defendants REVERE and JOSE GO and/or corporations owned or associated
with him;

c) Nullifying the Deed of Real Estate Mortgage dated March 21, 2000
executed by defendants REVERE and JOSE GO in favor of codefendant
UNITED COCONUT PLANTERS BANK and the Deed of Assignment of
Liability dated February 14, 2003 executed by plaintiffs in favor of UNITED
COCONUT PLANTERS BANK;

d) Ordering defendant REGISTRAR OF DEEDS of Lucena City to cancel any

and all titles derived or transferred from TCT Nos. T-40452 (89339), 40453
(89340), 84488 (89342), 71021 (89330), 71022 (89331), 71023 (89332),
71025 (95580-95581), 71136 (95587-95590), 55033 (89384) and issue new
 ones returning the ownership and registration of these titles of the plaintiffs.
For this purpose, defendant UNITED COCONUT PLANTERS BANK is
directed to execute the appropriate Deeds of Reconveyance in favor of the
plaintiffs over the eighteen (18) real properties listed in the Real Estate
Mortgage dated March 21, 2000 executed by defendants Revere Realty and
JOSE GO and originally registered in the names of the plaintiffs.

e) Ordering defendant UNITED COCONUT PLANTERS BANK to return so

much of the plaintiffs titles, of their choice, equivalent to Php200,000,000.00
after applying so much of the mortgaged properties, including those presently
or formerly in the name of REVERE, to the payment of plaintiffs' consolidated
obligation to the bank in the amount of Php204,597,177.04.

f) Declaring the Real Estate Mortgage dated June 02, 1997 as having been
extinguished by the Memorandum of Agreement date March 21, 2000, and
converting the writ of preliminary injunction issued on March 22, 2004 to a
permanent one, forever prohibiting UNITED COCONUT PLANTERS BANK
and ASSET POOL A and all persons/ entities deriving rights under them from
foreclosing on TCT Nos. T54182, T-54184, T-54185, T-54192, and T-71135.
The court hereby orders said defendants, or whoever is in custody of the said
certificates of title, to return the same to plaintiffs and to execute the
appropriate release of mortgage documents.

g) Finally, ordering defendant UNITED COCONUT PLANTERS BANK, to pay

plaintiffs:

(i) The excess of the foreclosure proceeds in the amount of

Php23,102,822.96, as actual damages;

(ii) Legal interest on the amount of Php223,102,822.96 at the rate of

6% per annum from February 3, 2004 until finality of judgment. Once
the judgment becomes final and executor, the interest of 12% per
annum, should be imposed, to be computed from the time the
judgment becomes final and executor until fully satisfied, as
compensatory damages;

(iii)Php1,000,000.00 as moral damages;

(iv)Php100,000.00 as exemplary damages;

(v) Php2,000,000.00 as attorney's fees; and

(vi) costs of suit;

SO ORDERED. 19

The R TC declared the Revere REM as null and void for having been entered into outside
the intent of the JV A; and opined that the Revere REM did not even bear any of herein
petitioners' signatures. It ruled that the application of the proceeds of the foreclosure sale of
petitioners' properties to settle Jose Go's liabilities was improper, invalid and contrary to the
intent of the March 21, 2000 MOA, the principal contract of the parties. 20

The R TC observed that UCPB 's claim that it had no knowledge of the trust nature of the
properties covered by the deeds of trust, which were also included in the MOA was belied
by the letter signed by its First Vice President Enrique L. Gana addressed to Spouses Chua
wherein he stated that UCPB had undertaken to obtain from Jose Go the certificates of title
necessary for the execution of the mortgages, and that should there be any excess or
residual value, the same would be applied to any outstanding obligations that Jose Go
would have in favor of UCPB; and that, accordingly, it was an error on the part of UCPB to
apply any portion of the proceeds to settle the obligations of Jose Go without first totally
extinguishing petitioners' obligations.

Decision of the CA

Respondents appealed to the CA.

In the decision promulgated on March 25, 2014,  the CA reversed and set aside the
21

judgment of the RTC, disposing instead as follows:

WHEREFORE, the assailed January 6, 2009 Decision of the Regional Trial Court of Lucena
City, Branch 59, as well as its September 6, 2005 Partial Judgment
are REVERSED and SETASIDE. In its stead, judgment is hereby rendered:

a) Declaring the Real Estate Mortgage dated June 2, 1997 as valid and
subsisting - accordingly, the writ of preliminary injunction issued on March 22,
2004 by the Regional Trial Court of Lucena City, Branch 59 is hereby lifted;

b) Declaring as legal and binding the March 21, 2000 Deed of Real Estate
Mortgage of defendants REVERE REAL TY AND DEVELOPMENT
CORPORATION and/or JOSE GO in favor of defendant-appellant UNITED
COCONUT PLANTERS BANK;

c) Declaring, pursuant to the parties' March 21, 2000 Deed of Real Estate
Mortgage, that the loan obligations of defendant JOSE GO to defendant-
appellant UNITED COCONUT PLANTERS BANK have been satisfied up to
₱123,806,550.00; and

d) Declaring that the loan obligations of plaintiffs-appellees SPOUSE CHUA,

ET AL. to defendant-appellant UNITED COCONUT PLANTERS BANK under
the first Memorandum of Agreement dated March 21, 2000 have been paid
up to ₱103,893,450.00.

SO ORDERED. 22

The CA made reference to three REMs: the first, executed on June 2, 1997, would secure
the Spouses Chua' s obligations with UCPB; the second, executed on March 21, 2000, was
petitioners' REM in connection with the March 21, 2000 MOA; and the Revere REM,
executed also on March 21, 2000. It opined that the first REM remained outstanding and
was not extinguished as claimed by petitioners; that the Revere REM was valid based on
the application of the complementary contracts construed together doctrine whereby the
accessory contract must be read in its entirety and together with the principal contract
between the parties; that it was the intention of the parties to extend the benefits of the two
REMs under the first MOA in favor of Jose Go and/or his group of companies; and that
petitioners' obligations with UCPB under the first MOA had not been fully settled.

Issues

Petitioners raise the following issues:

A. THE COURT OF APPEALS COMMITTED SERIOUS ERROR OF LAW IN REFUSING

TO HOLD THAT THE OBLIGATIONS EVIDENCED BY THE 1997 AND 1998
PROMISSORY NOTES AND SECURED BY THE 1997 REM HAD BEEN EXTINGUISHED
BY NOV A TION IN TE FORM OF CONSOLIDATION OF ALL OF PETITIONERS' LOANS
UNDER THE 21 MARCH 2000 MOA.

B. THE COURT OF APPEALS COMMITTED PALPABLE ERROR OF LAW AND ACTED

WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION IN REFUSING TO DELARE THE REVERE REM VOID AB INJTJO
DESPITE THE FACT THAT THE MORTGAGOR WAS ADMITTEDLY MERE TRUSTEE OF
THE MORTGAGED PROPERTIES BUT THE TRUE AND ABSOLUTE OWNERS GA VE
NO CONSENT TO THE MORTGAGE.

C. THE COURT OF APPEALS COMMITTED PALPABLE ERROR OF LAW AND ACTED

WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION IN APPL YING PART OF THE PROCEEDS OF THE FORECLOSURE OF
THE OTHER PLAINTIFFS' AND REVERE REMS TO JOSE GO'S ALLEGED BUT
UNPROVEN OBLIGATION, INSTEAD OF APPL YING THE PROCEEDS AGAINST THE
REMAINING OBLIGATION OF PETITIONERS, AND DELIVERING THE EXCESS TO
THEM.

D. THE COURT OF APPEALS COMMITTED PALPABLE ERROR OF LAW AND ACTED

WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION IN REFUSING TO HOLD THAT THE RESTRUCTURED LOAN OF THE
PETITIONERS HAD BEEN FULLY SATISFIED. 23

Did the CA commit reversible errors in finding that the Revere REM was valid and binding
on petitioners, and in upholding the propriety of applying the proceeds of the foreclosure
sale to settle the obligations of Jose Go and his group of companies before fully satisfying
the liabilities of petitioners?

Ruling of the Court

The petition for review on certiorari is meritorious.

While the RTC and the CA both dealt with and examined the same set of facts and
agreements of the parties, they ended up with totally opposing factual findings. The Court's
review jurisdiction is generally limited to reviewing errors of law because the Court is not a
trier of facts and is not the proper venue to settle and determine factual issues.
Nevertheless, this rule is not ironclad, and a departure therefrom may be warranted where
the findings of fact of the CA as the appellate court are contrary to the factual findings and
conclusions of the trial court, like now. In this regard, there is a need to review the records
to determine which findings by the lower courts should be preferred for being conformable
with the records.

It is undisputed that petitioners Spouses Chua and LGCTI as well as respondents Jose Go,
had existing loan obligations with UCPB prior to the March 1997 JV A. As an offshoot of the
JVA, two deeds of trust were executed by the parties involving petitioners' 44-hectare
property covered by 32 titles. The deeds of trust were neither expressly cancelled not
rescinded despite the fact that the project under the NA never came to fruition.

On March 21, 2000, UCPB and petitioners entered into the MOA consolidating the
outstanding obligations of the Spouses Chua and LGCTI. The relevant portions of the MOA
are reproduced:

WITNESSETH:

(A) As of 30 November 1999, the BORROWER has outstanding obligations

due in favor of the BANK in the aggregate amount of Two Hundred Four
Million Five Hundred Ninety Seven Thousand One Hundred Seventy Seven
and 041100 Pesos (₱204,597,177.04), Philippine currency, inclusive of all
interest, charges and fees (the "Obligation").

(B) To partially satisfy the Obligation to the extent of ONE HUNDRED THREE
MILLION EIGHT HUNDRED NINETY THREE THOUSAND FOUR
HUNDRED FIFTY PESOS (₱103,893,450.00), Philippine currency, the
BORROWER has agreed that the BANK shall acquire title to the real property
enumerated and described in the schedule attached hereto and made an
integral part hereof as Annex "A", together with all the improvements thereon,
if any (collectively called, the "Property").

(C) The balance of the Obligation, in the total amount of Sixty Eight Million
Pesos (₱68,000,000.00), Philippine currency, shall be converted by the
BANK to equity interest in LGCTI, with conformity of the BORROWER.

(D) The Spouses Chua have requested the BANK to grant the Spouses
Chua: (i) a continuing option to re-purchase the Property and (ii) develop the
Property, under a joint-venture arrangement with the BANK.

(E) The BANK has acceded to the aforementioned request of the Spouses
Chua, subject to the terms and conditions of this Agreement.
In consideration of the foregoing premises, and the mutual covenants and agreements
contained herein, the parties hereto agree as follows:

SECTION 1.0.

CONTRACTUAL INTENT

Section 1.1. Intent of the Parties - Subject to the provisions of this Agreement, and the
satisfactory performance by the BORROWER of the obligations and undertakings set forth
herein, the parties hereto declare, confirm and agree that:

(a) title to the Property shall be transferred and conveyed to the BANK; the BANK shall
have the sole discretion to determine and implement the appropriate actions for the
conveyance of such title in favor of the BANK;

(b) the BANK shall: (i) grant the Spouses Chua a continuing right of first refusal over the
Property and (ii) consider entering into and concluding with the Spouses Chua a contractual
arrangement for the development of the Property; and

(c) the parties shall implement the appropriate acts and deeds necessary or required for the
execution, delivery and performance of this Agreement and the completion of the
transactions contemplated herein, conformably with the terms and conditions set forth
hereunder.

xxxx

SECTION 5.0.

MISCELLANEOUS PROVISIONS

Section 5 .1. Binding Effect - This Agreement shall take effect upon its execution and the
rights and obligation contained hereunder shall be valid and binding on the parties and their
respective successors-in-interest.

Section 5.2. Governing Law - The provisions of this Agreement shall be governed, and be
construed in all respects, by the laws of the Philippines.

Section 5.3. Further Assurance - LGCTI and the Spouses Chua warrant that they shall
execute and deliver any and all additional documents or instruments and do such acts and
deeds as may be necessary to fully implement and consummate the transactions
contemplated under this Agreement.

Section 5.4. Entire Agreement - This Agreement constitutes the entire, complete and
exclusive statement of the terms and conditions of the agreement between the parties with
respect to the subject matter referred to herein. No statement or agreement, oral or written,
made prior to the signing hereof and no prior conduct or practice by either party shall vary
or modify the written terms embodied hereof, and neither party shall claim any modification
of any provision set forth herein unless such modification is in writing and signed by both
parties.
24

It is clear that petitioners exchanged their 30 parcels of land to effectively reduce their total
unpaid obligations to only ₱68,000,000.00. To settle the balance, they agreed to convert it
into equity in LGCTI in case they would default in their payment. To implement the MOA,
they signed the REM drafted by UCPB, which included the properties listed in the MOA as
security for the credit accommodation of ₱404,597,177.04. Unknown to them, however,
Jose Go, acting in behalf of Revere, likewise executed another REM covering the properties
that Revere was holding in trust for them. When UCPB foreclosed the mortgages, it applied
about P75.09 million out of the ₱227,700,000.00 proceeds of the foreclosure sale to the
obligations of Revere and Jose Go. Moreover, UCPB pursued petitioners for their supposed
deficiency amounting to ₱68,000,000.00, which was meanwhile assigned to respondent
Asset Pool A by UCPB.

We cannot subscribe to the CA's declaration that the 1997 REM still subsisted separately
from the consolidated obligations of petitioners as stated in the March 21, 2000 MOA. As
early as the latter part of 1999, correspondence and negotiation on the matter were already
occurring between UCPB, on one hand, and the Spouses Chua and LGCTI, on the other.
Specifically, in its November 10, 1999 letter to petitioners, UCPB wrote: "This will formalize
our earlier discussions on the manner of settlement of your personal and that of
LGCTI's outstandingobligations. " The outstanding obligations adverted to referred to the
25

Spouses Chua's unsettled, unpaid and remaining debt with UCPB. In discussing how the
Spouses Chua could settle their obligations, there was no distinction whatsoever between
the loans obtained in 1997 and those made in subsequent years. To be readily inferred from
the tenor of the correspondence was that the Spouses Chua's obligations were already
consolidated.

The MOA referred to the outstanding obligations of LGCTI and the Spouses Chua as being
in the amount of ₱204,597,177.04 as of November 30, 1999. This meant that all of the
Spouses Chua's obligations with UCPB on or prior to November 30, 1999 had already been
combined. It was plain enough to see that the MOA constituted the entire, complete and
exclusive agreement between the parties. Its Section 5 .4 of the MOA expressly stipulated
that: "xxxx No statement or agreement, oral or written, made prior to the signing hereof and
no prior conduct or practice by either party shall vary or modify the written terms embodied
hereof, and neither party shall claim any modification of any provision set forth herein
unless such modification is in writing and signed by both parties. "  Furthermore, the REM
26

executed by petitioners in support of the MOA indicated that the mortgage would secure the
payment of all loans, overdrafts, credit lines and other credit facilities or accommodations
obtained or hereinafter to be obtained by the mortgagors. In light of the pertinent provisions
of the MOA, the only rational interpretation was that the parties agreed to consolidate the
Spouses Chua's past and future obligations, which would be secured by the REM executed
between the parties.

There is no question about the validity of the March 21, 2000 MOA as well as the REM
executed by petitioners in support of this MOA. However, much controversy attended the
Revere REM. Nonetheless, the RTC pointed out in its decision:
The Court therefore affirms the nullity of the Revere REM dated March 21, 2000 (Exhibit
"1", Exhibit "7-APA)executed by Revere in favor of defendant UCPB. There is no proof
that plaintiffs have consented to the application of the properties listed in Annex "B"
thereof to the loan obligation of defendant Jose Go. UCPB is therefore lawfully bound
to return to plaintiffs TCT Nos. T-40452 (89339), 40453 (89340), 84488 (89342), 71021
(89330), 71022 (89331), 71023 (89332), 71025 (95580-95581), 71136 (95587-95590),
55033 (89384), conformably with this court's disquisition in the Partial Judgment
rendered on September 6, 2005. 27

We have to note that the REM was executed by Revere through Jose Go purportedly in
connection with the March 21, 2000 MOA on the very same day that petitioners' REM were
executed. Yet, petitioners disclaimed any knowledge or conformity to the Revere REM. With
the two deeds of trust executed in favor of Revere not having been expressly cancelled or
rescinded, the properties mortgaged by Revere to UCPB were still owned by petitioners for
all intents and purposes.

For clarity, we excerpt relevant portions of the deeds of trust, to wit:

DEED OF TRUST 28

KNOW ALL MEN BY THESE PRESENTS:

This DEED OF TRUST made, executed, and entered into by and between:

SPOUSES FELIX and CARMEN CHUA, both of legal age, Filipinos and with postal
address at Ilayang Dupay, Lucena City and ADELA C. CHUA, of legal age, Filipino, married
to Luis A. Chua and a resident of LIC Bldg., Brgy. Gulang-gulang, Lucena City, hereinafter
called the TRUSTORS:

-and-

REVERE REALTY AND DEVELOPMENT CORPORATION, a corporation duly organized

and existing under the laws of the Philippines with office address at 2478 Agatha St., San
Andres Bukid, Manila, herein represented by the President, MRS. LYDIA SEVILLA and
hereinafter called the TRUSTEE.

WITNESSETH

WHEREAS, the TRUSTORS are the lawful and absolute owners of twelve (12) parcels of
land situated at Lucena City and previously covered by the following transfer Certificates of
Title and may be described as follows:

xxxx

WHEREAS, by virtue of several Deeds of Absolute Sale executed by the TRUSTOR in

favor of the TRUSTEE, the twelve (12) parcels of land were transferred in the name of the
TRUSTEE and are now covered by the following Transfer Certificates of Title:
xxxx

WHEREAS, the TRUSTEE hereby acknowledges and confirms that it did not pay the
TRUSTORS the consideration stated in the Deeds of Absolute Sale covering the twelve
(12) parcels of land and said Deeds of Absolute Sale were executed by the TRUSTORS in
compliance with the terms and conditions stated in the Joint Venture Agreement dated
March 3, 1997 executed by and between the TRUSTORS and GOTESCO PROPERTIES,
INC.;

WHEREAS, the TRUSTEE hereby acknowledges and confirms that she is the authorized
representative of GOTESCO PROPERTIES, INC., with respect to the said Joint Venture
Agreement and the transfer of the twelve (12) parcels of land in her name is necessary for
the consolidation and subdivision of the properties in connection with the preparation of the
plans and designs of the project of the said Joint Venture Agreement;

NOW THEREFORE, for and in consideration of the foregoing premises and mutual
covenants hereinafter set forth:

1. The TRUSTEE hereby acknowledges and confirms:

1.1 The absolute title and ownership of the TRUSTORS over the twelve (12)
parcels of land above described;

1.2 Its role as TRUSTEE, to have and hold the said twelve (12) parcels of
land for the sole and exclusive use, benefit, enjoyment of the TRUSTORS;

2. The TRUSTEE hereby acknowledges and obliges itself not to dispose of,
sell, transfer, convey, lease or mortgage the said twelve (12) parcels of land
without the written consent of the TRUSTORS first obtained; (bold emphasis
added)

3. The TRUSTEE hereby covenants and agrees to execute, deliver and perform any
and all arrangements, and acts, which in the opinion of the TRUSTEES are
necessary, required and/or appropriate for the exercise by the TRUSTORS of their
rights, title and interests over the said twelve (12) parcels ofland. (Emphasis
supplied)

The deeds of trust expressly provided that: "The TRUSTEE hereby acknowledges and
obliges itself not to dispose of, sell, transfer, convey, lease or mortgage the said twelve (12)
parcels of land without the written consent of the TRUSTORS first obtained." By entering
into the Revere REM, therefore, Revere openly breached its undertakings under the deeds
of trust in contravention of the express prohibition therein against the disposition or
mortgage of the properties. It is also worth mentioning that the records are bereft of any
allegation that Revere had obtained the approval of petitioners or that the latter had
acquiesced to the mortgage of the properties in favor of UCPB. Absent proof showing that
petitioners had transferred the ownership of some or all of the properties covered by the
deeds of trust in favor or Revere or Jose Go, the deeds of trust remained as the controlling
documents as to the parcels of land therein covered.
Additionally, UCPB could not now feign ignorance of the deeds of trust. As the RTC aptly
pointed out, UCPB's own Vice President expressly mentioned in writing that UCPB would
secure from Jose Go the titles necessary for the execution of the mortgages. As such,
UCPB's actual knowledge of the deeds of trust became undeniable. In addition, UCPB,
being a banking institution whose business was imbued with public interest, was expected
to exercise much greater care and due diligence in its dealings with the public. Any failure
on its part to exercise such degree of caution and diligence would invariably stigmatize its
dealings with bad faith. It should be customary and prudent for UCPB, therefore, to adopt
certain standard operating procedures to ascertain and verify the genuineness of the titles
to determine the real ownership of real properties involved in its dealings, particularly in
scrutinizing and approving loan applications. By approving the loan application of Revere
obviously without making prior verification of the mortgaged properties' real owners, UCPB
became a mortgagee in bad faith. 29

The CA pronounced that the parties had intended to extend the benefits of the two REMs
under the first MOA to Jose Go and/or his group of companies. It premised its
pronouncement on the express stipulation in petitioners' REM to the effect that it was "the
intention of the parties to secure as well the payment of all loans, overdrafts xxxx by the
MORTGAGORS and/or by LGCTI, Spouses Chua, and Jose Go." In addition, it cited the
Spouses Chua's conformity to UCPB's letter dated November 10, 1999 to the effect that
should there be any excess or residual value after the settlement of the Spouses Chua and
LGCTI's obligations, said excess would be applied to any outstanding obligations that Jose
Go might have with UCPB. We must point out, however, that the statements adverted to by
the CA had been supplied by UCPB itself - the first being contained in the REM drafted by
UCPB, and the second being written by UCPB in its letter to the Spouses Chua. Assuming
that petitioners were not just misled into signing or agreeing to the stipulations in said
documents, it was still error for the CA to hold that Revere's or Jose Go's obligations
enjoyed a primacy or precedence over the ₱68,000,000.00 obligation of petitioners.

The discussion of the RTC in its decision on this aspect, being apt and in point, is reiterated
with approval:

The conformity of the plaintiffs through Felix A. Chua only appears on the Plaintiffs' REM
dated March 21, 2000 (Exhibit "G", Exhibit "6-APA"). By virtue of this Plaintiffs' REM, there
is basis to apply the properties listed in Annex "A" thereof to the obligations of both plaintiffs
and defendant Jose Go, but subject to the condition that plaintiffs’ obligations be totally
extinguished first. However, up to the termination of the trial of this case, neither
defendant UCPB nor APA presented any evidence to prove the precise amount of
Jose Go's loan obligations with the bank. It must be emphasized that the Plaintiffs'
REM refers to Jose Go's obligations to the bank, not the obligations of any of the
corporations owned by him in the majority.

The Apportionment of Bid Price signed by UCPB's own witness Milagros

Alcabao (Exhibit "S", Exhibit "10-APA) does not show Jose Go's obligations, if any.
What the Apportionment reveals is the amount of Php75,093,180.00 was set aside for
"Revere Realty & Development Corporation and Lucena Industrial Corporation."
While the name of plaintiff Lucena Industrial Corporation ("LIC") and Revere Realty
and Development Corporation appears in said Apportionment, it has not been shown
that there was any loan contracted by LIC and Revere to which the amount of
Php75,093,180.00 may be applied. Because the twenty-three (23) properties listed in
favor of Revere and LIC were sourced from the two (2) Deeds of Trust and partly from
the null and void Revere REM dated March 21, 2000 (Exhibit "I", Exhibit "7-APA "), it
is only proper that this particular apportionment valued by the bank at
Php75,093,180.00 should likewise be struck down.  (Bold underscoring supplied for
30

emphasis)

On the other hand, the CA maintained that petitioners' obligations to UCPB under the March
21, 2000 MOA had not been fully satisfied, viz.:

The plaintiffs-appellees concede in their First MOA that the outstanding obligations of

Spouses Chua and LGCTI to UCPB were restructured and fixed at the aggregate amount
of ₱204,597,177.04; that part of this restructured debts (of up to ₱103,893,450.00) will be
settled by transferring the titles of the properties listed in Annex "A" to the Bank; and the
remaining balance (in the amount of P68 million) will be converted into equity interest in
LGCTI. Since the contract is the law between the parties, it necessarily follows that only by
adhering to the terms of the First MOA would the entire obligations of Spouses Chua
and LGCTI be deemed fully paid.

In pursuance of the foregoing conceded terms, and in accordance with the provisions of
Plaintiffs’ REM and Revere's REM, UCPB foreclosed the REM on all of the properties listed
in Annex "A" of the First MOA for a total bid price of ₱227,700,000.00. The foreclosure
and auction sale were deemed to cover not only plaintiffs-appellees’ obligations and REM,
they covered as well the REM of Jose Go and Revere as again, in UCPB's conformed
upon November 10, 1999 letter to Spouses Chua, et al., the latter undertook the
following obligations:

xxxx

The imperatives of the parties' obligations under their contracts as above-discussed

therefore require the proceeds of the foreclosure in the total amount of ₱227,700,000.00 be
applied, first, to plaintiffs-appellees’ ₱103,893,450.00,as agreed upon in the First MOA, and
the remaining balance of ₱123,806,550.00 to Jose Go's outstanding obligations with
UCPB. 31

This disquisition of the CA would have resulted in an absurd situation wherein a

considerable portion of petitioners' properties were to be used to settle Jose Go's personal
liabilities, which were ₱20,000,000.00 more than what were to be applied to petitioners' own
obligations. Aside from enabling this ludicrous interpretation of the agreements, petitioners
were still left with a hefty ₱68,000,000.00 balance in their obligations with UCPB. This
absurd situation does not find support in their contracts as well as in the course of ordinary
human experience. To reiterate, the ₱68,000,000.00 obligation was not separate and
distinct from the outstanding obligations consolidated by the March 21, 2000 MOA. In fact,
the February 14, 2003 MOA involving the transfer of 680,000 preferred shares of stock to
UCPB provided that:
4. This Agreement shall take effect upon execution hereof provided however, that in the
event the assignment of liabilities in exchange for the Preferred Shares does not materialize
for any cause whatsoever, this Agreement shall be cancelled and automatically cease
to have any force and effect, thereby restoring to each of the parties hereto whatever
rights and liabilities they may each have in relation to the other parties prior to this
Agreement.  (Bold emphasis supplied)
32

Considering that such issuance of preferred shares in favor of UCPB did not take place
despite the execution of the second MOA in 2003, the February 14, 2003 MOA was
deemed cancelled and the ₱68,000,000.00 must perforce revert as part of petitioners'
outstanding balance that was now fully and completely settled.

A review of the MOA dated March 21, 2000 would reveal that petitioners' outstanding
obligation referred to, after deducting the amount of the thirty properties, was reduced to
only ₱68,000,000.00. To settle this balance, petitioners agreed to convert this into equity in
LGCTI in case they defaulted in their payment.  In this case, what prompted the foreclosure
1âwphi1

sale of the mortgaged properties was petitioners' failure to pay their obligations. When the
proceeds of the foreclosure sale were applied to their outstanding obligations, the payment
of the balance of the ₱68,000,000.00 was deliberately left out, and the proceeds were
conveniently applied to settle ₱75,000,000.00 of Revere and/or Jose Go's unpaid
obligations with UCPB. This application was in blatant contravention of the agreement that
Revere's or Jose Go's obligations would be paid only if there were excess in the application
of the foreclosure proceeds. Accordingly, the CA should have applied the proceeds to the
entire outstanding obligations of petitioners, and only the excess, if any, should have been
applied to pay off Revere and/or Jose Go's obligations.

Based on the foregoing, therefore, we conclude that the deed of assignment of liabilities
covering the deficiency in its obligation to UCPB in the amount of ₱68,000,000.00 was null
and void. According to the apportionment of bid price executed by UCPB's account officer,
the bid amounting to ₱227,700,000.00 far exceeded the indebtedness of the Spouses Chua
and LGCTI in the amount of ₱204,597,177.04, which was inclusive of the ₱68,000,000.00
subject of the deed of assignment of liabilities as well as the ₱32,703,893,450.00
corresponding to the interests and penalties that UCPB waived in favor of petitioners. 33

It can be further concluded that UCPB could not have validly assigned to Asset Pool A any
right or interest in the ₱68,000,000.00 balance because the proper application of the
proceeds of the foreclosure sale would have necessarily resulted in the full extinguishment
of petitioners' entire obligation. Otherwise, unjust enrichment would ensue at the expense of
petitioners. There is unjust enrichment when a person unjustly retains a benefit to the loss
of another, or when a person retains money or property of another against the fundamental
principles of justice, equity and good conscience. The principle of unjust enrichment
requires the concurrence of two conditions, namely: (1) that a person is benefited without a
valid basis or justification; and (2) that such benefit is derived at the expense of
another.  The main objective of the principle against unjust enrichment is to prevent a
34

person from enriching himself at the expense of another without just cause or consideration.
This principle against unjust enrichment would be infringed if we were to uphold the
decision of the CA despite its having no basis in law and in equity.
The Court notes that one of the parcels of land covered by the Revere REM was that
registered under Transfer Certificate of Title (TCT) No. 89334 of the Registry of Deeds of
Lucena City. According to the decision of the CA, the parcel of land registered under TCT
35

No. 89334 had been subdivided into Lot No. 3852 (TCT No. 95582 and TCT No. 95583)
and Lot No. 3854 (TCT No. 95580 and TCT No. 95581). However, the judgment of the RTC
did not include TCT No. 89334 although it should have. To rectify the omission, which was
obviously inadvertent, we should include TCT No. 89334 due to its being admittedly one of
the parcels of land of petitioners covered by the Revere REM.

Finally, the interest of 6% per annum on the judgment upon its finality shall be imposed in
accordance with the pronouncement of the Court in Nacar v. Gallery Frames. 36

WHEREFORE, the Court GRANTS the petition for review on certiorari; SETSASIDE the

decision of the Court of Appeals promulgated on March 25, 2014 in CA-G.R. No.
93644; REINSTATES the judgment rendered on January 6, 2009 by the Regional Trial
Court, Branch 59, in Lucena City, with the addition of TCT No. 89334, to wit:

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

against defendants UNITED COCONUT PLANTERS BANK, ASSET POOL A, REGISTRAR
OF DEEDS OF LUCENA CITY and EX-OFFICIO SHERIFF OF LUCENA CITY, thus:

a. Declaring that the loan obligations of plaintiffs to defendant UNITED COCONUT

PLANTERS BANK under the Memorandum of Agreement dated March 21, 2000 have been
fully paid;

b. Declaring as legal and binding the Deeds of Trust dated April 30, 1998 and holding the
properties listed therein were merely held-in-trust for plaintiffs by defendants REVERE and
JOSE GO and/or corporations owned or associated with him;

c. Nullifying the Deed of Real Estate Mortgage dated March 21, 2000 executed by
defendants REVERE and JOSE GO in favor of codefendant UNITED COCONUT
PLANTERS BANK and the Deed of Assignment of Liability dated February 14, 2003
executed by plaintiffs in favor of UNITED COCONUT PLANTERS BANK;

d. Ordering defendant REGISTRAR OF DEEDS of Lucena City to cancel any and all titles
derived or transferred from TCT Nos. T-40452 (89339), 40453 (89340), 84488 (89342),
71021 (89330), 71022 (89331), 71023 (89332), 71025 (95580-95581), 71136 (95587-
95590), 55033 (89384), 89334 and issue new ones returning the ownership and registration
of these titles of the plaintiffs. For this purpose, defendant UNITED COCONUT PLANTERS
BANK is directed to execute the appropriate Deeds of Reconveyance in favor of the
plaintiffs over the eighteen (18) real properties listed in the Real Estate Mortgage dated
March 21, 2000 executed by defendants Revere Realty and JOSE GO and originally
registered in the names of the plaintiffs.

e. Ordering defendant UNITED COCONUT PLANTERS BANK to return so much of the

plaintiffs titles, of their choice, equivalent to Php200,000,000.00 after applying so much of
the mortgaged properties, including those presently or formerly in the name of REVERE, to
the payment of plaintiffs' consolidated obligation to the bank in the amount of
Php204,597,177.04.

f. Declaring the Real Estate Mortgage dated June 02, 1997 as having been extinguished by
the Memorandum of Agreement date March 21, 2000, and converting the writ of preliminary
injunction issued on March 22, 2004 to a permanent one, forever prohibiting UNITED
COCONUT PLANTERS BANK and ASSET POOL A and all persons/ entities deriving rights
under them from foreclosing on TCT Nos. T54182, T-54184, T-54185, T-54192, and T-
71135. The court hereby orders said defendants, or whoever is in custody of the said
certificates of title, to return the same to plaintiffs and to execute the appropriate release of
mortgage documents.

g. Finally, ordering defendant UNITED COCONUT PLANTERS BANK, to pay plaintiffs:

i. The excess of the foreclosure proceeds in the amount of

Php23,102,822.96, as actual damages;

ii Legal interest on the amount of Php223,102,822.96 at the rate of

6% per annumfrom February 3, 2004 until finality of judgment. Once
the judgment becomes final and executory, the interest of 6% per
annum, should be imposed, to be computed from the time the
judgment becomes final and executory until fully satisfied, as
compensatory damages;

iii. Php1,000,000.00 as moral damages;

iv. Phpl00,000.00 as exemplary damages;

v. Php2,000,000.00 as attorney's fees; and

vi. Costs of suit;

SO ORDERED.

and DIRECTS respondents, except the Registrar of Deeds of Lucena City and the Ex-

Officio Sheriff of Lucena City, to pay the costs of suit.

SO ORDERED.

LUCAS P. BERSAMIN
Associate Justice

WE CONCUR:

(On Leave)
ALFREDO BENJAMIN S. CAGUIOA
Associate Justice
 SAMUEL R. MARTIRES NOEL GIMENEZ TIJAM
Associate Justice Associate Justice

ALEXANDER G. GESMUNDO
Associate Justice

ATTESTATION

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.

LUCAS P. BERSAMIN
Associate Justice
Acting Chairperson, Third Division

CERTIFICATION

Pursuant to the 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.

MARIA LOURDES P.A. SERENO

Chief Justice

FIRST DIVISION

August 2, 2017

G.R. No. 206468

JUDITH D. DARINES and JOYCE D. DARINES, Petitioners, 

vs.
EDUARDO QUIÑONES and ROLANDO QUITAN, Respondents.

DECISION

DEL CASTILLO, J.:

Ibis Petition for Review on Certiorari assails the October 29, 2012 Decision  of the Court of
1

Appeals (CA) in CA-G.R CV No. 95638, which reversed and set aside the July 14, 2010
Decision  of the Regional Trial Court (RTC) of Baguio City, Branch 3 in Civil Case No. 6363-
2

R for "Breach of Contract of Carriage & Damages." Also challenged is the March 6, 2013
CA Resolution  denying the motion for reconsideration on the assailed Decision.
3

Factual Antecedents
Judith D. Darines (Judith) and her daughter, Joyce D. Darines (Joyce) (petitioners) alleged
in their Complaint  that on December 31, 2005, they boarded the Amianan Bus Line with
4

Plate No. ACM 497 and Body No. 808 as paying passengers enroute from Carmen,
Rosales, Pangasinan to Baguio City. Respondent Rolando M. Quitan (Quitan) was driving
the bus at that time. While travelling on Camp 3, Tuba, Benguet along Kennon Road, the
bus crashed into a truck (with Plate No. XSE 578) which was parked on the shoulder of
Kennon Road. As a result, both vehicles were damaged; two passengers of the bus died;
and the other passengers, including petitioners, were injured. In particular, Joyce suffered
cerebral concussion while Judith had an eye wound which required an operation.

Petitioners argued that Quitan and respondent Eduardo Quiñones (Quiñones), the operator
of Amianan Bus Line, breached their contract of carriage as they failed to bring them safely
to their destination. They also contended that Quitan's reckless and negligent driving
caused the collision. Consequently, they prayed for actual, moral, exemplary and temperate
damages, and costs of suit.

For their part, Quiñones and Quitan (respondents) countered in their Answer  that, during
5

the December 31, 2005 incident, Quitan was driving in a careful, prudent, and dutiful
manner at the normal speed of 40 kilometers per hour. According to them, the proximate
cause of the incident was the negligence of the truck driver, Ronald C. Fernandez, who
parked the truck at the roadside right after the curve without having installed any early
warning device. They also claimed that Quiñones observed due diligence in the selection
and supervision of his employees as he conducted seminars on road safety measures; and
Quitan attended such seminars including those required by the government on traffic safety.
They likewise averred that Quitan was a licensed professional driver who, in his 12 years as
a public utility driver, had not figured in any incident like the one at hand.

During the trial, Judith testified that Quitan was driving at a very fast pace resulting in a
collision with the truck parked at the shoulder of the road.  Consequently, the bone holding
6

her right eye was fractured and had to be operated.  She claimed that, as a result of
7

incident, she failed to report for work for two months. 8

To prove the actual damages that she suffered, Judith presented receipts for medicine, and
a summary of expenses, which included those incurred for the ritual dao-is. She explained
that she and Joyce are Igorots, being members of Ibaloi, Kanka.nay-ey, an indigenous
tribe;  and as their customary practice, when a member who meets an accident is released
9

from the hospital, they butcher pigs to remove or prevent bad luck from returning to the
family. 10

Moreover, to support her claim for moral damages, Judith testified that she suffered
sleepless nights since she worried about the result and possible effect of her operation. 11

On the other hand, respondents presented Ernesto Benitez (Benitez), who, on behalf of
respondents, testified that he bought the medicines and paid petitioners' hospitalization
expenses, as evidenced by receipts he submitted in court. 12

Ruling of the Regional Trial Court

On July 14, 2010, the RTC rendered its Decision ordering respondents to pay petitioners
the following:

1. Moral Damages of One Hundred Thousand Pesos (₱100,000.00);

2. Exemplary Damages of Thirty Thousand Pesos (₱30,000.00);

3. Attorney's Fees of Fifteen Percent (15%) of the Damages, plus Total Appearance
Fees of Sixteen Thousand Five Hundred Pesos (₱16,500.00); and

4. Costs of Suit. 13

The RTC held that since the respondents already paid the actual damages relating to
petitioners' medical and hospitalization expenses, then the only remaining matters for
resolution were: whether respondents were liable to pay petitioners a) actual damages
representing the expenses incurred during the dao-is ritual; and, Judith's alleged lost
income; b) moral and exemplary damages; and, c) attorney's fees.

The RTC noted that petitioners did not present any receipt as regards the expenses they
incurred during the dao-isritual. As regards their claim for Judith's lost income, the RTC held
that petitioners similarly failed to substantiate the same as there was no showing that
Judith's failure to report for work for two months was because of the incident. Thus, the RTC
did not award actual damages for lack of evidence.

However, the RTC awarded moral damages grounded on Judith's testimony regarding her
pain and suffering. It likewise awarded exemplary damages by way of correction, and to
serve as example to common carriers to be extraordinarily diligent in transporting
passengers. It also granted petitioners

attorney's fees plus costs of suit on the ground that petitioners were compelled to litigate the
case.

Aggrieved, respondents appealed to the CA.

Ruling of the Court of Appeals

In its October 29, 2012 Decision, the CA reversed and set aside the RTC Decision.

The CA stressed that respondents did not dispute that they were liable for breach of
contract of carriage; in fact, they paid for the medical and hospital expenses of petitioners.
Nonetheless, the CA deleted the award of moral damages because petitioners failed to
prove that respondents acted fraudulently or in bad faith, as shown by the fact that
respondents paid petitioners' medical and hospitalization expenses. The CA held that, since
no moral damages was awarded, then there was no basis to grant exemplary damages.
Finally, it ruled that because moral and exemplary damages were not granted, then the
award of attorney's fees must also be deleted.

On March 6, 2013, the CA denied petitioners' Motion for Reconsideration.

 Issues

Hence, petitioners filed this Petition raising the issues as follows:

1. WHETHER OR NOT THE CASE OF PETITIONERS FALL[S] UNDER ARTICLES 20,

1157, 1759, 2176, 2180 AND 2219 OF THE CIVIL CODE TIIEREBY ENTITL[ING TIIEM]
TO MORAL AND EXEMPLARY DAMAGES AND ATIORNEY'S FEES;

2. WHETHER OR NOT THE X X X AWARD OF DAMAGES AND ATTORNEY'S FEES BY

TIIE TRIAL COURT BECAME FINAL AND EXECUTORY SINCE HEREIN RESPONDENTS
DID NOT QUESTION THE SAME IN THEIR APPEAL BUT MERELY QUESTIONED THE
AMOUNTS OF AWARD [FOR BEING] EXORBITANT. 14

Petitioners'Arguments

Petitioners maintain that respondents are liable to pay them moral and exemplary damages
because the proximate cause of their injuries was the reckless driving of Quitan. As regards
Quiñones, his fault is presumed considering that he did not offer proof that he exercised
extraordinary diligence in the selection and supervision of his employees. They added that
the negligence of respondents resulted in the latter's failure to transport them to their
destination thereby constituting a breach of their contract of carriage. They also argued that
the RTC's grant of damages and attorney's fees in their favor already attained finality
because when respondents appealed to the CA, they only questioned the amounts given by
the RTC for being exorbitant, but not the award itself.

Respondents' Arguments

Respondents, on their end, posit that they are not liable to pay moral damages because
their acts were not attended by fraud or bad faith. They add that since petitioners are not
entitled to moral damages, then it follows that they are also not entitled to exemplary
damages; and same is true with regard to the grant of attorney's fees as the same
necessitates the grant of moral and exemplary damages.

Our Ruling

The Court denies the Petition.

First of all, petitioners contend that the awards of moral and exemplary damages and
attorney's fees by the RTC already attained finality because respondents did not dispute
such grants when they appealed to the CA but only the fact that the amounts were
exorbitant.

Such contention is without merit.

A plain reading of the assigned errors  and issues  in the Appellants' Brief of respondents
15 16

with the CA reveals that they questioned the awards of moral and exemplary damages as
well as attorney's fees made by the RTC to petitioners. Since respondents timely
challenged the awards when they interposed an appeal to the CA, the same had not yet
attained finality.

Going now to the main issue, the Court fully agrees with the CA ruling that in an action for
breach of contract, moral damages may be recovered only when a) death of a passenger
results; orb) the carrier was guilty of fraud and bad faith even if death does not result; and
that neither of these circumstances were present in the case at bar. The CA correctly held
that, since no moral damages was awarded then, there is no basis to grant exemplary
damages and attorney's fees to petitioners.

To stress, this case is one for breach of contract of carriage (culpa contractual) where it is

necessary to show the existence of the contract between the parties, and the failure of the
common carrier to transport its passenger safely to his or her destination. An action for
breach of contract differs from quasi-delicts (also referred as culpa aquilianaor culpa extra
contractual) as the latter emanate from the negligence of the tort feasor  including such
17

instance where a person is injured in a vehicular accident by a party other than the carrier
where he 1s a passenger.

The principle that, in an action for breach of contract of carriage, moral damages may be
awarded only in case (1) an accident results in the death of a passenger; or (2) the carrier is
guilty of fraud or bad faith, is pursuant to Article 1764, in relation to Article 2206(3) of the
Civil Code, and Article 2220 thereof,  as follows:
18

Article 1764. Damages in cases comprised in this Section shall be awarded in accordance
with Title XVIII of this Book, concerning Damages.  Article 2206 shall also apply to
1âwphi1

the death of a passengercaused by the breach of contract by a common carrier.

(Emphasis supplied)

Article 2206. The amount of damages for death caused by a crime or quasi-delict shall be at
least three thousand pesos, even though there may have been mitigating circumstances. In
addition:

xxxx

(3) The spouse, legitimate and illegitimate descendants and ascendants of the deceased
may demand moral damages for mental anguish by reason of the death of the deceased.

Article 2220. Willful injury to property may be a legal ground for awarding moral damages if
the court should find that, under the circumstances, such damages are justly due. The same
rule applies to breaches of contract where the defendant acted fraudulently or
in badfaith. (Emphasis supplied)

The aforesaid concepts of fraud or bad faith and negligence are basic as they are distinctly
differentiated by law. Specifically, fraud or bad faith connotes "deliberate or wanton wrong
doing"  or such deliberate disregard of contractual obligations  while negligence amount to
19 20

sheer carelessness. 21
More particularly, fraud includes "inducement through insidious machination."  In turn,
22

insidious machination refers to such deceitful strategy or such plan with an evil purpose. On
the other hand, bad faith does not merely pertain to bad judgment or negligence but relates
to a dishonest purpose, and a deliberate doing of a wrongful act. Bad faith involves "breach
of a known duty through some motive or interest or ill will that partakes of the nature of
fraud. "
23

In Viluan v. Court of Appeals,  and Bulante v. Chu Liante,   the Court disallowed the
24 25

recovery of moral damages in actions for breach of contract for lack of showing that the
common carrier committed fraud or bad faith in performing its obligation. Similarly,
in Verzosa v. Baytan,  the Court did not also grant moral damages in an action for breach of
26

contract as there was neither allegation nor proof that the common carrier committed fraud
or bad faith.  The Court declared that "[t]o award moral damages for breach of contract,
27

therefore, without proof of bad faith or malice on the part of the defendant, as required by
[Article 2220 of the Civil Code], would be to violate the clear provisions of the law, and
constitute unwarranted judicial legislation."28

Meanwhile, in Gatchalian v. Delim,  and Mr. & Mrs. Fabre, Jr. v. Court of Appeals,  the
29 30

Court found the common carriers liable for breach of contract of carriage and awarded
moral damages to the injured passengers on the ground that the common carrier committed
gross negligence, which amounted to bad faith. Particularly, in Mr. & Mrs. Fabre, Jr., the
gross negligence of the common carrier was determined from the fact that its driver was not
engaged to drive long distance travels; he was also unfamiliar with the area where he
detoured the bus as it was his first time to ply such route; the road was slippery because it
was raining, yet the bus was running at 50 kilometers per hour resulting in its skidding to the
left shoulder of the road; and the bus hit the steel brace on the road at past 11:30 p.m. The
Court also noted that other than the imputation of gross negligence, the injured passengers
therein pursued their claim not on the theory of breach of contract of carriage alone but also
on quasi-delicts.

Clearly, unless it is fully established (and not just lightly inferred) that negligence in an
action for breach of contract is so gross as to amount to malice, then the claim of moral
damages is without merit. 31

Here, petitioners impute negligence on the part of respondents when, as paying

passengers, they sustained injuries when the bus owned and operated by respondent
Quiñones, and driven by respondent Quitan, collided with another vehicle. Petitioners
propounded on the negligence of respondents, but did not discuss or impute fraud or bad
faith, or such gross negligence which would amount to bad faith, against respondents.
There being neither allegation nor proof that respondents acted in fraud or in bad faith in
performing their duties arising from their contract of carriage, they are then not liable for
moral damages.

The Court also sustains the CA's finding that petitioners are not entitled to exemplary
damages. Pursuant to Articles 2229 and 2234  of the Civil Code, exemplary damages may
32

be awarded only in addition to moral, temperate, liquidated, or compensatory damages.

Since petitioners are not entitled to either moral, temperate, liquidated, or compensatory
damages, then their claim for exemplary damages is bereft of merit.
Finally, considering the absence of any of the circumstances under Article 2208  of the Civil
33

Code where attorney's fees may be awarded, the same cannot be granted to petitioners.

All told, the CA correctly ruled that petitioners are not entitled to moral and exemplary
damages as well as attorney's fees.

WHEREFORE, the Petition is DENIED. The October 29, 2012 Decision and March 6, 2013
Resolution of the Court of Appeals in CA-G.R. CV No. 95638 are AFFIRMED.

SO ORDERED.

MARIANO C. DEL CASTILLO,

Associate Justice

WE CONCUR:

MARIA LOURDES P.A. SERENO

Chief Justice
Chairperson

TERESITA J. LEONARDO-DE
ESTELA M. PERLAS-BERNABE
CASTRO
Associate Justice
Associate Justice

ALFREDO BENJAMIN S. CAGUIOA

Associate Justice

CERTIFICATION

Pursuant to the 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.

MARIA LOURDES P.A. SERENO

Chief Justice

FIRST DIVISION

G.R. No. 194189, September 14, 2017

RAFAEL ALMEDA, EMERLINA ALMEDA-LIRIO, ALODIA ALMEDA-TAN, LETICIA ALMEDA-

MAGNO, NORMA ALMEDA-MATIAS AND PUBLIO TIBI, Petitioners, v. HEIRS OF PONCIANO
ALMEDA IN SUBSTITUTION OF ORIGINAL DEFENDANT PONCIANO ALMEDA, INTESTATE
ESTATE OF SPOUSES PONCIANO AND EUFEMIA PEREZ-ALMEDA AND THE REGISTER OF
DEEDS OF TAGAYTAY CITY, Respondent.
 CESAR SANTOS, ROSANA SANTOS, NORMAN SANTOS AND FERDINAND SANTOS, Unwilling
Plaintiffs/Petitioners.

DECISION

TIJAM, J.:

This Petition for Review on Certiorari1 assails the May 25, 2010 Decision2 of the Court of Appeals (CA)
in CA-G.R. CV No. 86953, denying Rafael Almeda (Rafael), Emerlina Almeda-Lirio (Emerlina), Alodia
Almeda-Tan (Alodia), Leticia Almeda-Magno (Leticia), Norma Almeda-Matias (Norma) and Publio Tibi's
(Publio) (collectively, the petitioners) appeal from the Order3 dated September 2, 2004 of the Regional
Trial Court (RTC) of Tagaytay City, Branch 18, in Civil Case No. TG-1643, which dismissed their
Complaint for Nullity of Contracts, Partition of Properties and Reconveyance of Title with Damages,
and the CA Resolution4 dated October 13, 2010 denying petitioners' Motion for Reconsideration.

The Facts

Spouses Venancio Almeda (Venancio) and Leonila Laurel-Almeda (Leonila) were the parents of nine
children: Ponciano L. Almeda (Ponciano), Rafael, Emerlina, Alodia, Leticia, Norma, Benjamin Almeda
and Severina Almeda-Santos (Severina) and Rosalina Almeda-Tibi (Rosalina), Publio's deceased wife.5

On May 19, 1976, a Power of Attorney6 was executed by Venancio and Leonila, who were then 80 and
81 years old respectively,7 granting Ponciano, among others, the authority to sell the parcels of land
covered by Original Certificate of Title (OCT) Nos. O-197 and O-443 of the Office of the Register of
Deeds for Tagaytay City, which Leonila inherited8 from her parents.

OCT Nos. O-197 and O-443 were registered in the name of "Leonila L. Almeda married to Venancio
Almeda." OCT No. O-1979 embraced four (4) parcels of land with an aggregate area of 95,205 square
meters more or less, to wit: Lot 10 (48,512 sq m), Lot 17 (37,931 sq m), Lot 30 (8,047 sq m) and Lot
32 (715 sq m); and OCT No. O-44310 covered Lot 9 measuring 33,946 sq m, more or less.

Venancio died at the age of 90 on February 27, 1985; Leonila died eight years later on April 3, 1993,
aged 97.11 Within the year of Leonila's death on April 17, 1993,12 Rafael, Emerlina, Alodia, Leticia and
Norma filed a notice of adverse claim with the Register of Deeds of Tagaytay City over their parents'
properties.13

On October 10, 1996, a Complaint for Nullity of Contracts, Partition of Properties and Reconveyance of
Titles with Damages,14 docketed as Civil Case No. TG-1643, was filed before the RTC of Tagaytay City
by the petitioners against Ponciano and his wife Eufemia Perez Almeda (Eufemia) and the Register of
Deeds of Tagaytay City, with Severina's surviving spouse, Cesar Santos and children, Rosana, Norman
and Ferdinand, as unwilling plaintiffs.15 Petitioners alleged that the parties were the only heirs of the
late spouses Venancio and Leonila who died without leaving any will and without any legal obligation.16

In support of their Complaint, petitioners claimed that Ponciano, taking advantage of his being the
eldest child and his close relationship with their parents, caused the simulation and forgery of the
following documents:17

(1) Deed of Absolute Sale dated June 9, 1976, over Lot 30 under OCT No. O-197, executed by
Ponciano as Venancio and Leonila's attorney-in-fact, in favor of Julian Y. Pabiloña, Virginia Go, Gemma
Tan Ongking, Arthur C. Chua and Lee Hiong Wee (Pabiloña, et al.), for the price of P160,940.00;18 and

(2) Deed of Absolute Sale dated October 3, 1978, executed by Venancio and Leonila in favor of
Ponciano, over the remaining lots under OCT No. O-197 and Lot 9 under OCT No. O-443, and over
Lots 6, 4 and 9-A with a total area 71,520 sq m which then had no technical description, for the total
consideration of P704,243.77.19
By virtue of the aforesaid Deeds of Absolute Sale, OCT Nos. O-197 and O-443 were cancelled, the
former with respect only to Lots 10 and 17. Resultantly, Transfer Certificate of Title (TCT) Nos. T-
15125, T-24806, T-24807, T-24808 and T-24809,20 all of the Registry of Deeds for Tagaytay City,
were issued to Ponciano,21 while TCT No. T-10330 of the same Registry22 was issued to Julian Y.
Pabiloña, Virginia Go, Gemma Tan Ongking, Arthur C. Chua and Lee Hiong Wee.23

According to petitioners, their parents did not sign the October 3, 1978 Deed of Absolute Sale (1978
Deed) in favor of Ponciano and their signatures may have been forged. They also averred that their
parents did not receive due consideration for the transaction, and if Ponciano succeeded in making
them sign said 1978 Deed, they did so without knowledge of its import. Petitioners, however, would
not claim rights and interest legally transferred to third parties.24

Petitioners further alleged that Ponciano withheld from them the existence of the 1978 Deed in his
favor, and when they learned of it and demanded partition, Ponciano merely promised to cause the
same at a proper time. When petitioners could no longer wait, they filed their notice of adverse claim
with the Register of Deeds.25

Petitioners, thus, prayed that the 1978 Deed in favor of Ponciano be declared null and void; that OCT
No. O-197 be partitioned among the heirs of Venancio and Leonila; that the derivative titles obtained
by Ponciano under his name be reconveyed to petitioners; that the Register of Deeds for Tagaytay
City be ordered to cancel said derivative titles and to restore title to the property in the name of
Venancio and Leonila; that the unwilling plaintiffs be ordered to share in the expenses of the suit; and
that Ponciano and his wife be ordered to pay moral and exemplary damages, attorney's fees and the
costs of litigation.26

In their Answer,27 Ponciano and his wife, Eufemia, denied that the 1978 Deed was simulated or forged,
asserting its genuineness and execution for valuable consideration from which some of the petitioners,
including Rafael, received substantial pecuniary benefits. They asserted that Ponciano no longer
participated in the division of the estate of Venancio and Leonila whose assets amounted to millions of
pesos. They accused petitioners of not coming to court with clean hands, claiming the latter may have
themselves resorted to falsification of documents to transfer said assets in their names and
subsequently to other persons. Ponciano and Eufemia also averred that petitioners were guilty of
laches.

Ponciano died on October 16, 1997 and was substituted by his wife and children.28

Petitioners presented the lone testimony of Emerlina.29 After Ponciano's heirs/substitutes (private

respondents) failed to present their evidence despite several opportunities given them, the RTC
considered the case submitted for decision.30

In the course of the trial, two other documents figured in the dispute, which petitioners likewise
impugned, showing:

(1) an Agreement to Sell31 dated November 9, 1976 whereby Venancio and Leonila agreed to sell to
Ponciano the parcels of land covered by OCT Nos. O-197 and O-443, as well as Lots 6, 4 and 9-A, for
the total price of P1 Million with P200,000.00 as down payment and the balance payable in one year
without interest; and

(2) a Deed of Sale with Mortgage32 (Deed with Mortgage) dated November 11, 1977, which expressly
superseded the Agreement to Sell dated November 9, 1976, whereby Venancio and Leonila sold to
Ponciano the parcels of land covered by OCT Nos. 0-197 and 0-443, as well as Lots 6, 4 and 9-A, for
P1 Million, with the payment of the P700,000.00 balance secured by the said properties. This Deed wih
Mortgage was expressly superseded by the 1978 Deed in favor of Ponciano.

On September 2, 2004, the RTC issued an Order33 dismissing petitioners' complaint. The dispositive
portion of the order reads:
WHEREFORE, premises considered, the same is hereby ordered DISMISSED.

SO ORDERED.34

The RTC held that the questioned documents, having been notarized and executed in the presence of
two instrumental witnesses, enjoy the presumption of regularity, and petitioners failed to overcome
this presumption by clear and convincing evidence. It stressed that petitioners failed to present any
proof of simulation or forgery of the subject documents.

In an Order35 dated November 29, 2005, the RTC denied petitioners' Motion for Reconsideration.

Petitioners brought the case to the CA on appeal which was denied in the assailed Decision36 dated
May 25, 2010, the dispositive portion of which reads:

IN VIEW OF ALL THESE, the Appeal is DENIED. The Order a quo is AFFIRMED.

SO ORDERED.37

The CA held that petitioners failed to discharge their burden of proving the purported forgery with
clear and convincing evidence. The CA stressed that such evidence was especially needed in this case
given that the assailed documents, being notarized, enjoy the presumption of regularity and of due
execution and authenticity. The CA noted that petitioners merely relied on Emerlina's testimony that
the questioned signatures were forged.38

The CA further stressed that mere variance in the genuine and disputed signatures is not proof of
forgery.39 To establish forgery, said the appellate court, presentation of documents bearing the
genuine signatures of Venancio and Leonila was required, for comparison with the alleged false
signatures.40 The CA held that petitioners' failure to submit such documents was fatal as it was
necessary for petitioners to show not only the material differences between the signatures, but also
(1) the extent, kind and significance of the variation; (2) that the variation was due to the operation
of a different personality and not merely an expected and inevitable variation found in the genuine
writing of the same writer; and (3) that the resemblance was the result of a more or less skillful
imitation and not merely a habitual and characteristic resemblance which naturally appears in a
genuine writing.41

Petitioners' Motion for Reconsideration42 was subsequently denied in the Resolution43 dated October

13, 2010.

Dissatisfied with the outcome of its appeal, petitioners filed the instant petition, asserting that the CA's
ruling was contrary to the evidence, the law and existing jurisprudence.

The Court's Ruling

The petition lacks merit.

Factual findings of the RTC, as

affirmed by the CA, deserve a high
degree of respect

Well-entrenched is the rule that the Supreme Court's role in a petition under Rule 45 is limited to
reviewing or reversing errors of law allegedly committed by the appellate court.44 Equally settled is the
rule that this Court is not a trier of facts.45

In Spouses Villaceran, et al. v. De Guzman,46 the Court held that:

The issue of the genuineness of a deed of sale is essentially a question of fact. It is settled that this
Court is not duty-bound to analyze and weigh again the evidence considered in the proceedings below.
This is especially true where the trial court's factual findings are adopted and affirmed by the CA as in
the present case. Factual findings of the trial court, affirmed by the CA, are final and conclusive and
may not be reviewed on appeal.47

At any rate, to remove any doubt as to the correctness of the assailed ruling, We have examined the
records and, nonetheless, reached the same conclusion.48

Notarized documents enjoy the

presumption of regularity

A notarized Deed of Absolute Sale has in its favor the presumption of regularity, and it carries the
evidentiary weight conferred upon it with respect to its due execution.49 It is admissible in evidence
without further proof of its authenticity and is entitled to full faith and credit upon its face.50 Thus, a
notarial document must be sustained in full force and effect so long as he who impugns it does not
present strong, complete and conclusive proof of its falsity or nullity on account of some flaws or
defects.51

Absent evidence of falsity so clear, strong and convincing, and not merely preponderant, the
presumption of regularity must be upheld.52 The burden of proof to overcome the presumption of due
execution of a notarial document lies on the party contesting the same.53

Forgery is not presumed

Furthermore, as a rule, forgery cannot be presumed.54 An a1legation of forgery must be proved by

clear, positive and convincing evidence, and the burden of proof lies on the party alleging forgery.55

Petitioners failed to overcome the

presumption of due execution

Since petitioners are assailing the genuineness of the 1978 Deed, they evidently have the burden of
making out a clear-cut case that the questioned document is bogus.56 Both the trial and appellate
courts concluded that petitioners failed to discharge this burden. We agree.

The Complaint, at the outset, did not allege in definite terms that Venancio and Leonila's signatures on
the 1978 Deed were forged. It stated:

VIII

That [petitioners'] parents did not sign said documents of sale purportedly to transfer rights, titles and
interest in favor of defendants, and, in fact their signatures thereon may have been forged, and, that
they did not receive due consideration thereof, and, said documents are merely simulated if ever
defendant [Ponciano] succeeded in making them [sign] the same without knowledge of the import
thereof, likewise, in making them appear as having executed and affixed their signatures on said
controversial documents although the transactions were inexistent.57 (Emphasis ours)

Likewise, Emerlina's testimony, upon which petitioners' case was built, is unclear and uncertain as to
the supposed forgery. Emerlina testified that the vendors' signatures appearing on the 1978 Deed did
not belong to her parents, Venancio and Leonila.58 Subsequently, however, she testified that if the
latter did affix their signatures, they did not know what they signed.59 Still further to her testimony,
Emerlina declared that she could not say if the signatures indeed belonged to her
parents.60 Eventually, she conceded to having two alternative answers to the question of forgery: first,
that Venancio and Leonila did not sign the document, and second, that it is possible that they signed it
but without knowing the consequences of their action.61

The uncertainty in petitioners' stance, as echoed in Emerlina's testimony, clearly militates against their
claim of forgery.

Furthermore, it is undeniable that Emerlina stands to benefit from a judgment annulling the 1978
Deed. Her testimony denying the validity of the sale, having been made by a party who has an
interest in the outcome of the case, is not as reliable as written or documentary evidence. Moreover,
self-serving statements are inadequate to establish one's claims. Proof must be presented to support
the same.62

To establish forgery, the extent, kind and significance of the variation in the standard and disputed
signatures must be demonstrated; it must be proved that the variation is due to the operation of a
different personality and not merely an expected and inevitable variation found in the genuine writing
of the same writer; and it should be shown that the resemblance is a result of a more or less skillful
imitation and not merely a habitual and characteristic resemblance which naturally appears in a
genuine writing.63 Emerlina's uncorroborated testimony failed to demonstrate, based on the foregoing
criteria, that the questioned signatures were forgeries.

Indeed, petitioners failed to present the requisite proof of falsity and forgery of the notarized 1978
Deed to overcome the presumption of regularity and due execution.

Visual comparison of the questioned

and admittedly genuine signatures
reveal prominent similarities

Section 22, Rule 132 of the Rules of Court explicitly authorizes the court, by itself, to make a
comparison of the disputed handwriting with writings admitted or treated as genuine by the party
against whom the evidence is offered, or proved to be genuine to the satisfaction of the judge.64

Petitioners assert that the 1976 Power of Attorney65 executed in favor of Ponciano, which bore the true
and genuine signatures of Venancio and Leonila, could have been used as basis for comparison with
the questioned signatures to determine their authenticity.66

Comparing these two sets of signatures, the Court finds prominent similarities as to indicate the
habitual and characteristic writing of Venancio and Leonila. Leonila's signature on the 1978 Deed, in
particular, appears almost the same as her signature on the 1976 Power of Attorney. Venancio's
signature on the 1978 Deed was not as smooth as his signature on the 1976 Power of Attorney, but
the similarities in the angles and slants cannot be ignored.

To support their claim of forgery, petitioners described the questioned signatures as "wiri-wiri,"  or
containing "wild strokes."67 The Court, however, does not find such wild strokes in the questioned
signatures. Leonila's was nearly as smooth as her signature on the 1976 Power of Attorney.
Venancio's signature gives the impression that it had been affixed by a less than steady but
determined hand, and though not as fluid as his previous signature, reveals the characteristic imprint
of his handwriting. Indeed, the resemblance in the questioned and standard signatures are more
prominent or pronounced than the apparent variance which could be attributed to the signatories' old
age.

In fine, the apparent dissimilarities in the signatures are overshadowed by the striking similarities and,
therefore, fail to overcome the presumption of validity in favor of a notarized document.68

Presumption of competence was not

adequately refuted

"The law presumes that every person is fully competent to enter into a contract until satisfactory proof
to the contrary is presented."69 The party claiming absence of capacity to contract has the burden of
proof and discharging this burden requires that clear and convincing evidence be adduced.70

Petitioners have not satisfactorily shown that their parents' mental faculties were impaired as to
deprive them of reason or hinder them from freely exercising their own will or from comprehending
the provisions of the sale in favor of Ponciano.
Petitioners assert that their parents were "uliyanin"  or forgetful, of advanced age and "at times" sickly
during the time of the execution of the 1978 Deed in favor of Ponciano.71

Mere forgetfulness, however, without evidence that the same has removed from a person the ability to
intelligently and firmly protect his property rights, will not by itself incapacitate a person from entering
into contracts.

In Mendezona v. Ozamiz,72 the Court affirmed a vendor's capacity to contract despite a doctor's

revelation that the former was afflicted with certain infirmities and was, at times, forgetful, holding
that:

The revelation of Dr. Faith Go did not also shed light on the mental capacity of Carmen Ozamiz on the
relevant day – April 28, 1989 when the Deed of Absolute Sale was executed and notarized. At best,
she merely revealed that Carmen Ozamiz was suffering from certain infirmities in her body
and at times, she was forgetful, but there was no categorical statement that Carmen
Ozamiz succumbed to what respondents suggest as her alleged "second childhood" as early
as 1987. The petitioners' rebuttal witness, Dr. William Buot, a doctor of neurology, testified that no
conclusion of mental incapacity at the time the said deed was executed can be inferred from
Dr. Faith Go's clinical notes nor can such fact be deduced from the mere prescription of a
medication for episodic memory loss.73 (Emphasis ours)

In this case, petitioners' claim that Venancio and Leonila were forgetful and at times sickly was not
even supported by medical evidence. It was based solely on Emerlina's testimony, which failed to
demonstrate that Venancio and Leonila's mental state had prevented them from freely giving their
consent to the 1978 Deed or from understanding the nature and effects of their disposition.

It is settled that a person is not incapacitated to enter into a contract merely because of advanced
years or by reason of physical infirmities, unless such age and infirmities impair his mental faculties to
the extent that he is unable to properly, intelligently and fairly understand the provisions of said
contract, or to protect his property rights.74

Petitioners' reliance on the case of Domingo v. CA75 is misplaced. There, the Court declared a deed of
sale null and void given that the seller was already of advanced age and senile at the time of its
execution, thus:

The unrebutted testimony of Zosima Domingo shows that at the time of the alleged execution of the
deed, Paulina was already incapacitated physically and mentally. She narrated that Paulina played
with her waste and urinated in bed. Given these circumstances, there is in our view sufficient reason
to seriously doubt that she consented to the sale of and the price for her parcels of land. x x x.76

No similar circumstances, indicating senility and clear incapacity to contract, have been alleged or
proved in the instant case.

"A person is presumed to be of sound mind at any particular time and the condition is presumed to
exist, in the absence of proof to the contrary."77 In this case, petitioners failed to discharge their
burden of proving, by clear and convincing evidence, that their parents were mentally incompetent to
execute the 1978 Deed in favor of Ponciano.

Undue influence was not proved

"There is undue influence when a person takes improper advantage of his power over the will of
another, depriving the latter of a reasonable freedom of choice."78

Other than petitioners' general allegation that Ponciano unduly took advantage of his being the eldest
child and his close relationship with their parents, no other circumstance or evidence has been
presented to show how Ponciano exerted his undue influence or how Venancio and Leonila were
thereby deprived of the freedom to exercise sufficient judgment in selling the subject properties to
Ponciano.

"[U]ndue influence that vitiated a party's consent must be established by full, clear and convincing
evidence, otherwise, the latter's presumed consent to the contract prevails."79

Lack or inadequacy of consideration

was not established

While maintaining that the 1978 Deed was a forgery, petitioners also insist that the deed was
simulated. The incompatibility of these two contentions does not help petitioners' case. Forgery
suggests that no consent was given to the transaction, while simulation indicates a mutual agreement
albeit to deceive third persons.

Simulation has been defined as the declaration of a fictitious will, made deliberately by mutual
agreement of the parties, in order to produce the appearances of a juridical act which does not exist
or is different from that which was really executed, for the purpose of deceiving third persons.
Accordingly, simulation exists when: (a) there is an outward declaration of will different from the will
of the parties; (b) the false appearance was intended by mutual agreement of the parties; and (c)
their purpose is to deceive third persons.80

None of the foregoing requisites have been shown to exist in this case.

In claiming that the 1978 Deed was simulated, petitioners assert that there was no consideration and
the vouchers supposedly showing Ponciano's payment of P704,243.77 should not be considered as
evidence since private respondents failed to offer them, having been deemed to have waived their
presentation of evidence. Petitioners likewise argue that the price, in said amount, was
unconscionable.81

That the vouchers were not offered in evidence will not serve to strengthen petitioners' theory of
simulation. The notarized 1978 Deed shows on its face that the properties were sold for the price of
P704,243.77. The 1978 Deed also appears to have gone through the procedure of registration, leading
to the issuance of TCT in Ponciano's name.

In Mendezona,82 the appellate court ruled that the assailed deed of absolute sale was a simulated
contract since the petitioners therein, in whose favor the deed was executed, failed to prove that the
consideration was actually paid. This Court disagreed with the CA's ruling, holding that:

Contrary to the erroneous conclusions of the appellate court, a simulated contract cannot be
inferred from the mere non-production of the checks. It was not the burden of the
petitioners to prove so. It is significant to note that the Deed of Absolute Sale dated April 28, 1989
is a notarized document duly acknowledged before a notary public. As such, it has in its favor the
presumption of regularity, and it carries the evidentiary weight conferred upon it with respect to its
due execution. It is admissible in evidence even without further proof of its authenticity and is entitled
to full faith and credit upon its face.

Payment is not merely presumed from the fact that the notarized Deed of Absolute Sale
dated April 28, 1989 has gone through the regular procedure as evidenced by the transfer
certificates of title issued in petitioners' names by the Register of Deeds. In other words,
whosoever alleges the fraud or invalidity of a notarized document has the burden of proving the same
by evidence that is clear, convincing, and more than merely preponderant. Therefore, with this well-
recognized statutory presumption, the burden fell upon the respondents to prove their allegations
attacking the validity and due execution of the said Deed of Absolute Sale. Respondents failed to
discharge that burden; hence, the presumption in favor of the said deed stands. But more
importantly, that notarized deed shows on its face that the consideration of One Million
Forty Thousand Pesos (P1,040,000.00) was acknowledged to have been received by
Carmen Ozamiz.
xxxx

Considering that Carmen Ozamiz acknowledged, on the face of the notarized deed, that she
received the consideration at One Million Forty Thousand Pesos (P1,040,000.00), the
appellate court should not have placed too much emphasis on the checks, the presentation
of which is not really necessary. Besides, the burden to prove alleged non-payment of the
consideration of the sale was on the respondents, not on the petitioners. Also, between its conclusion
based on inconsistent oral testimonies and a duly notarized document that enjoys presumption of
regularity, the appellate court should have given more weight to the latter. Spoken words could be
notoriously unreliable as against a written document that speaks a uniform
language.83 (Citations omitted and emphasis ours)

Contending that the price paid by Ponciano for the properties was unconscionably low, petitioners
point to the alleged sale of Lot 30, measuring 8,047 sq m, by Pabiloña, et al.84 to Cityland, Inc., on
September 18, 1992 for P12,070,500.00.85

Petitioners, however, have not demonstrated how the alleged selling price for Lot 30 in 1992 proves
that the price paid by Ponciano under the 1978 Deed was unconscionable.

Furthermore, it is beyond dispute that the Deed of Absolute Sale in favor of Ponciano was executed in
1978, or nearly 14 years before the alleged sale of Lot 30 to Cityland, Inc. Given the obvious
difference in the time of transaction, the prevailing market conditions, and the size of the properties,
petitioners cannot sweepingly conclude that the price paid by Ponciano in 1978 was unconscionable on
the basis of the 1992 sale of Lot 30.

In Ceballos v. Intestate Estate of the Late Mercado,86 the Court had occasion to rule:

Harping on the alleged unconscionably low selling price of the subject land, petitioner points out that it
is located in a tourist area and golf haven in Cebu. Notably, she has failed to prove that on February
13, 1982, the date of the sale, the area was already the tourist spot and golf haven that she describes
it to be. In 1990, the property might have been worth ten million pesos, as she claimed; however, at
the time of the sale, the area was still undeveloped. Hence, her contention that the selling price was
unconscionably low lacks sufficient substantiation.87 (Citations omitted)

With more reason should the Court, in this case, hold that petitioners failed to substantiate their claim
of an unconscionable selling price, considering that they have not shown any evidence of either the
condition of the subject properties in 1978 or other factors affecting their valuation, which may
possibly indicate the gross inadequacy of the price paid by Ponciano.

Petitioners would have this Court appreciate, as additional indications of simulation of the 1978 Deed,
the alleged late registration thereof in 1993 or 15 years after the sale, and the Tax Declarations that
were allegedly still in Leonila's name up to the time the Complaint was filed.88 These contentions,
however, do not suffice to constitute the strong, positive and convincing evidence that will overcome
the presumption of due execution of a notarized document.

In any event, records show that the 1978 Deed was in fact registered in 1984, during Venancio and
Leonila's lifetime. Both OCT No. O-19789 and OCT No. O-44390 bear an annotation referring to the
1978 Deed, inscribed on November 12, 1984, and based on such annotation, new transfer certificates
of title were issued in lieu of OCT No. O-197 and OCT No. O-443 in Ponciano's name; TCT No.
15125,91 in particular, appears to have been issued on November 12, 1984. By such registration and
by obtaining certificates of title in his name, Ponciano had clearly asserted his ownership over the
properties. Thus, that the Tax Declarations were still in Leonila's name cannot be the basis to conclude
that the 1978 Deed was a simulation.

A contract or conduct apparently honest and lawful must be treated as such until it is shown to be
otherwise by either positive or circumstantial evidence. A duly executed contract enjoys the
presumption of validity, and the party assailing its regularity has the burden to prove its simulation.
Indeed, it is settled that notarized documents carry the presumption of due execution, lending truth to
the statements therein contained and to the authenticity of the signatures thereto affixed.92 Petitioners
have failed to adduce the requisite clear and convincing evidence to overturn this presumption.

Alleged defects in the notarization

were raised only before this Court

Petitioners argue that the parties' Acknowledgment of the 1978 Deed before the Notary Public,
Federico Magdangal, whose notarial commission was for Makati City, was done outside the latter's
"territorial limits" because the property is in Tanauan, Batangas. Furthermore, while the
Acknowledgment was done in Makati City, its printed text expressly states that the parties personally
appeared before the Notary Public in Tanauan, Batangas.93 Petitioners also assert that their parents
were residents of Tanauan, Batangas, and given their advanced age, would not have gone to Makati
on the same day that the 1978 Deed was executed, to have the same notarized.94

Petitioners further assert that while the Acknowledgment indicated that Ponciano exhibited his
residence certificate to the Notary Public, it did not reflect any identification document from Venancio
and Leonila. They argue that the absence of such document contravened the Notary Public's
statement that Venancio and Leonila were known to him.95

As private respondents have pointed out, however, these claims were only raised for the first time
before this Court.96

"It is well-settled that issues not raised in the court a quo cannot be raised for the first time on appeal
in the Supreme Court without violating the basic rules of fair play, justice and due process."97 Due
process dictates that when a party who adopts a certain theory upon which the case is tried and
decided by the lower court, he should not be allowed to change his theory on appeal. The reviewing
court will not consider a theory of the case which has not been brought to the lower court's attention;
a new theory cannot be raised for the first time at such late stage.98 Thus, We cannot bend backwards
to examine the issue belatedly raised by petitioners at this late stage in the proceedings.

Granting the Acknowledgment was defective, the same will merely strip the document of its public
character and reduce it to a private instrument.99 It remains incumbent upon petitioners to prove, by
preponderance of evidence, their allegation that the deed of sale was forged even though that
document no longer enjoys any significantly weighted presumption as to its validity.100

The Court has explained "preponderance of evidence" thus:

"Preponderance of evidence" is the weight, credit, and value of the aggregate evidence on either side
and is usually considered to be synonymous with the term "greater weight of the evidence" or "greater
weight of the credible evidence." Preponderance of evidence is a phrase which, in the last analysis,
means probability of the truth. It is evidence which is more convincing to the court as worthy of belief
than that which is offered in opposition thereto.101 (Italics ours)

Petitioners have argued that their evidence is of greater weight since private respondents did not at all
present any evidence, particularly, to prove the notarization of the 1978 Deed and the genuineness of
their parents' signatures thereon.102

We are not convinced. Time and again, this Court has ruled that:

In civil cases, it is a basic rule that the party making allegations has the burden of proving
them by a preponderance of evidence. The parties must rely on the strength of their own
evidence and not upon the weakness of the defense offered by their opponent. This rule
holds true especially when the latter has had no opportunity to present evidence because of
a default order. Needless to say, the extent of the relief that may be granted can only be so
much as has been alleged and proved with preponderant evidence required under Section 1
of Rule 133.103(Citations omitted and emphasis ours)
The same principle applies here where private respondents were considered to have waived the
presentation of their evidence at trial. "Ei incumbit probatio qui dicit, non qui negat. He who asserts,
not he who denies, must prove."104 "We have consistently applied the ancient rule that if the plaintiff,
upon whom rests the burden of proving his cause of action, fails to show in a satisfactory manner
facts on which he bases his claim, the defendant is under no obligation to prove his exception or
defense."105

Thus, petitioners' evidence must stand on its own merit and must be scrutinized for veracity and
probative value. It is not rendered conclusive simply because it was not met with evidence from the
defense.

Section 1, Rule 133 of the Revised Rules of Court states how preponderance of evidence is
determined, viz:

In determining where the preponderance or superior weight of evidence on the issues involved lies,
the court may consider all the facts and circumstances of the case, the witnesses' manner of
testifying, their intelligence, their means and opportunity of knowing the facts to which
[they] are testifying, the nature of the facts to which they testify, the probability or
improbability of their testimony, their interest or want of interest, and also their personal
credibility so far as the same may legitimately appear upon the trial. The court may also consider the
number of witnesses, though the preponderance is not necessarily with the greater number.
(Emphasis ours)

Considering all the circumstances of this case and all evidence adduced in support of the complaint,
We find that even by the standard of preponderance of evidence, petitioners have failed to establish
the alleged simulation or forgery of the 1978 Deed.

As previously explained, petitioners' claim of forgery is built on Emerlina's testimony which we have
found to be both uncertain and self-serving. More importantly, a visual comparison of the disputed
and admittedly genuine signatures of Venancio and Leonila has led this Court to find striking
similarities that negate petitioners' claim of forgery. Petitioners have likewise failed to substantiate
their claims that their parents were mentally incapable of executing the 1978 Deed, that Ponciano
exerted undue influence on their parents, and that there was no consideration for the sale or that it
was unconscionable.

All told, We find that the CA did not err in upholding the RTC's decision to dismiss petitioners'
complaint.

WHEREFORE, the petition is DENIED. The Decision dated May 25, 2010 and Resolution dated
October 13, 2010 of the Court of Appeals in CA-G.R. CV No. 86953 are AFFIRMED.

SO ORDERED.

Sereno, C.J., (Chairperson), Leonardo-De Castro, Del Castillo, and Jardeleza, JJ., concur.

THIRD DIVISION

October 4, 2017

G.R. No. 196419

PILIPINAS MAKRO, INC., Petitioner 
vs.
COCO CHARCOAL PHILIPPINES, INC. and LIM KIM SAN, Respondents

DECISION

MARTIRES, J.:

This Petition for Review on Certiorari seeks to reverse and set aside the 30 December 2010
Decision  and 7 April 2011 Resolution  of the Court of Appeals (CA) in CA-G.R. CV No.
1 2

83836 which reversed the 16 August 2004 Decision  of the Regional Trial Court, Branch
3

276, Muntinlupa City {RTC).

Petitioner Pilipinas Makro, Inc. (Makro) is a duly registered domestic corporation. In 1999, it

was in need of acquiring real properties in Davao City to build on and operate a store to
establish its business presence in the city. After conferring with authorized real estate
agents, Makro found two parcels of land suitable for its purpose. 4

On 26 November 1999, Makro and respondent Coco Charcoal Phils., Inc. (Coco

Charcoal)  executed a notarized Deed of Absolute Sale  wherein the latter would sell its
5 6

parcel of land, with a total area of 1,000 square meters and covered by Transfer Certificate
of Title (TCT) No. 208776, to the former for the amount of ₱8,500,000.00. On the same
date, Makro entered into another notarized Deed of Absolute Sale  with respondent Lim Kim
7

San (Lim) for the sale of the latter's land, with a total area of 1,000 square meters and
covered by TCT No. 282650, for the same consideration of ₱8,500,000.00.

Coco Charcoal and Lim's parcels of land are contiguous and parallel to each other. Aside
from the technical descriptions of the properties in question, both deeds of sale contained
identical provisions, similar terms, conditions, and warranties.
8

In December 1999, Makro engaged the services of Engineer Josefina M. Vedua (Engr.

Vedua), a geodetic engineer, to conduct a resurvey and relocation of the two adjacent lots.
As a result of the resurvey, it was discovered that 131 square meters of the lot purchased
from Coco Charcoal had been encroached upon by the Department of Public Works and
Highways (DPWH) for its road widening project and construction of a drainage canal to
develop and expand the Davao-Cotabato National Highway. On the other hand, 130 square
meters of the land bought from Lim had been encroached upon by the same DPWH project.
Meanwhile, TCT Nos. T-321199 and T-321049 were issued in January 2000 in favor of
Makro after the deeds of sale were registered and the titles of the previous owners were
cancelled. 9

Makro informed the representatives of Coco Charcoal and Lim about the supposed
encroachment on the parcels of land due to the DPWH project. Initially, Makro offered a
compromise agreement in consideration of a refund of 75% of the value of the encroached
portions. Thereafter, Makro sent a final demand letter to collect the refund of the purchase
price corresponding to the area encroached upon by the road widening project, seeking to
recover ₱1,113,500.00 from Coco Charcoal and ₱1,105,000.00 from Lim. Failing to recover
such, Makro filed separate complaints against Coco Charcoal and Lim to collect the refund
sought.

The RTC Decision

In its 16 August 2004 Decision, the RTC granted Makro's complaint and ordered
respondents to refund the amount corresponding to the value of the encroached area.  The1âwphi1

trial court ruled that the DPWH project encroached upon the purchased properties, such
that Makro had to adjust its perimeter fences. It noted that Makro was constrained to bring
legal action after its demand for refund remained unheeded. The trial court expounded that
the road right of way includes not only the paved road, but also the shoulders and gutters. It
highlighted that the unpaved portion of the right of way was well within the area Makro had
purchased.

The RTC also found respondents in bad faith because they had concealed from Makro the
fact that the DPWH had already taken possession of a portion of the lands they had sold,
respectively, considering that drainage pipes had already been installed prior to the sale. It
noted that DPWH could not have undertaken the diggings and subsequent installation of
drainage pipes without Coco Charcoal and Lim's consent, being the previous owners of the
lots in question. The dispositive portion reads:

PREMISES CONSIDERED, judgment is rendered for the plaintiff and defendants LIM KIM
SAN directed to return and reimburse to plaintiff the sum of ONE MILLION FIVE HUNDRED
THOUSAND (Phpl,500,000.00) PESOS, Philippine Currency, with interest at 12% per
annum, attorney's fees of Php200,000.00, exemplary damages of Php200,000.00 to deter
anybody similarly prone;

Coco Charcoal Philippines, Inc. is likewise directed to pay a refund and return to plaintiff
corporation the value of ONE MILLION FIVE HUNDRED THOUSAND (Phpl,500,000.00)
PESOS, Philippine Currency, with interest at 12% per annum, representing the 131 square
meters parcel of land it cannot occupy and to pay attorney's fees in the sum of
Php200,000.00 and exemplary damages of Php200,000.00 to deter anybody similarly
inclined;

Both Defendants are directed to pay the cost of this litigation.

It is SO ORDERED. 10

Aggrieved, Coco Charcoal and Lim appealed before the CA.

The CA Ruling

In its 30 December 2010 Decision, the CA reversed the RTC decision. While the appellate
court agreed that the DPWH project encroached upon the frontal portions of the properties,
it ruled that Makro was not entitled to a refund. It explained that the warranty expressed in
Section 4(i)  of the deeds of sale is similar to the warranty against eviction set forth under
11

Article 1548 of the Civil Code. As such, the CA posited that only a buyer in good faith may
sue to a breach of warranty against eviction. It averred that Makro could not feign ignorance
of the ongoing road widening project. The appellate court noted Makro's actual knowledge
of the encroachment before the execution of the sale constitutes its recognition that Coco
Charcoal and Lim's warranty against liens, easements, and encumbrances does not include
the respective 131 and 130 square meters affected by the DPWH project, but covers only
the remainder of the property. It ruled:

WHEREFORE, premises considered, the instant appeal is GRANTED. Accordingly, the

herein assailed August 16, 2004 Decision of the trial court is REVERSED and SET ASIDE,
and the action instituted by appellee MAKRO against appellants Coco Charcoal and Lim
Kim San for collection of sum of money by way of refund is hereby DISMISSED for lack of
cause of action.

SO ORDERED. 12

Makro moved for reconsideration, but the same was denied by the CA in its assailed 7 April
2011 Resolution.

Hence, this present petition raising the following:

ISSUES

WHETHER THE COURT OF APPEALS ERRED IN DENYING MAKRO'S MOTION FOR

EXTENSION TO FILE A MOTION FOR RECONSIDERATION; AND

II

WHETHER THE COURT OF APPEALS ERRED IN DENYING MAKRO A REFUND ON

THE GROUND OF BAD FAITH.

THE COURT'S RULING

The petition is meritorious.

Non-extendible period to file motion for reconsideration; exceptions

Makro filed two motions for extension to file a motion for reconsideration. On the first
motion, it sought an extension after its former lawyer, Atty. Edwin Lacierda, withdrew as a
counsel in view of his appointment as press secretary for former President Benigno Aquino
III. Makro again asked for an extension after its present counsel was confined for dengue
and typhoid fever. Eventually, it filed its motion for reconsideration on 7 March 2011.

In its 7 April 2011 Resolution, the CA denied Makro's motions for extension to file a motion
for reconsideration, explaining that the 15-day period for the filing of such is non-extendible
and that a motion for extension is prohibited.
It must be remembered that procedural rules are set not to frustrate the ends of substantial
justice, but are tools to expedite the resolution of cases on their merits. The Court reminds
us in Gonzales v. Serrano  that the prohibition on motion for extension to file a motion for
13

reconsideration is not absolute, to wit:

The Court shall first delve on the procedural issue of the case. In Imperial v. Court of
Appeals,   the Court ruled:
14

In a long line of cases starting with Habaluyas Enterprises v. Japson,   we have laid down
15

the following guideline:

Beginning one month after the promulgation of this Resolution, the rule shall be strictly
enforced that no motion for extension of time to file a motion for new trial or reconsideration
may be filed with the Metropolitan or Municipal Trial Courts, the Regional Trial Courts, and
the Intermediate Appellate Court. Such a motion may be filed only in cases pending with the
Supreme Court as the court of last resort, which may in its sound discretion either grant or
deny the extension requested.

Thus, the general rule is that no motion for extension of time to file a motion for
reconsideration is allowed. This rule is consistent with the rule in the 2002 Internal Rules of
the Court of Appeals that unless an appeal or a motion for reconsideration or new trial is
filed within the 15-day reglementary period, the CA's decision becomes final. Thus, a
motion for extension of time to file a motion for reconsideration does not stop the running of
the 15-day period for the computation of a decision's finality. At the end of the period, a CA
judgment becomes final, immutable and beyond our power to review.

This rule, however, admits of exceptions based on a liberal reading of the rule, so long as
the petitioner is able to prove the existence of cogent reasons to excuse its non-
observance. xxx

While the CA was correct in denying his Urgent Motion for Extension to File Motion for
Reconsideration for being a prohibited motion, the Court, in the interest of justice, looked
into the merits of the case, and opted to suspend the prohibition against such motion for
extension after it found that a modification of the CA Decision is warranted by the law and
the jurisprudence on administrative cases involving sexual harassment. The emerging trend
of jurisprudence, after all, is more inclined to the liberal and flexible application of procedural
rules. Rules of procedure exist to ensure the orderly, just and speedy dispensation of cases;
to this end, inflexibility or liberality must be weighed. Thus, the relaxation or suspension of
procedural rules, or exemption of a case from their operation is warranted only by
compelling reasons or when the purpose of justice requires it. (emphases and underscoring
supplied)

The Court finds that cogent reason exists to justify the relaxation of the rules regarding the
filing of motions for extension to file a motion for reconsideration. The explanation put forth
by Makro in filing its motions for extension clearly were not intended to delay the
proceedings but were caused by reasons beyond its control, which cannot be avoided even
with the exercise of appropriate care or prudence. Its former counsel had to withdraw in the
light of his appointment as a cabinet secretary and its new lawyer was unfortunately afflicted
with a serious illness. Thus, it would have been more prudent for the CA to relax the
procedural rules so that the substantive issues would be thoroughly ventilated.

More importantly, the liberal application of the rules becomes more imperative considering
that Makro's position is meritorious.

Express Warranty vis-a vis Implied Warranty

In addressing the issues of the present case, the following provisions of the deeds of sale
between Makro and respondents are pertinent:

Section 2. General Investigation and Relocation

Upon the execution of this Deed, the BUYER shall undertake at its own expense a general
investigation and relocation of their lots which shall be conducted by a surveyor mutually
acceptable to both parties. Should there be any discrepancy between the actual areas of
the lots as resurveyed and the areas as indicated in their Transfer Certificates of Title, the
Purchase Price shall be adjusted correspondingly at the rate of PESOS: EIGHT
THOUSAND FIVE HUNDRED (Php8,500.000) per square meter. In the event that the
actual area of a lot is found to be in excess of the area specified in the Titles, the Purchase
Price shall be increased on the basis of the rate specified herein. Conversely, in the event
that the actual area of a lot is found to be less than the area specified in the Titles, the
BUYER shall deduct a portion of the Purchase Price corresponding to the deficiency in the
area on the basis of the rate specified herein. In any case of discrepancy, be it more or less
than the actual area of the Property as specified in the Titles, the SELLER agrees to make
the necessary correction of the title covering the lots before the same is transferred to the
BUYER. 16

Section 4. Representations and Warranties

The SELLER hereby represents and warrants to the BUYER that:

1. The Property is and shall continue to be free and clear of all easements, liens and
encumbrances of any nature whatsoever, and is, and shall continue to be, not subject to
any claim set-off or defense which will prevent the BUYER from obtaining full and absolute
ownership and possession over the Property or from developing or using it as a site for its
store building.
17

Pursuant to Section 2 of the deeds of sale, Makro engaged the services of a surveyor which
found that the DPWH project had encroached upon the properties purchased. After
demands for a refund had failed, it opted to file the necessary judicial action for redress.

The courts a quo agree that the DPWH project encroached upon the properties Makro had
purchased from respondents.  Nevertheless, the CA opined that Makro was not entitled to a
1âwphi1

refund because it had actual knowledge of the ongoing road widening project. The appellate
court likened Section 4(i) of the deeds of sale as a warranty against eviction, which
necessitates that the buyer be in good faith for it to be enforced.
A warranty is a collateral undertaking in a sale of either real or personal property, express or
implied; that if the property sold does not possess certain incidents or qualities, the
purchaser may either consider the sale void or claim damages for breach of
warranty.  Thus, a warranty may either be express or implied.
18

An express warranty pertains to any affirmation of fact or any promise by the seller relating
to the thing, the natural tendency of which is to induce the buyer to purchase the same.  It
19

includes all warranties derived from the language of the contract, so long as the language is
express-it may take the form of an affirmation, a promise or a representation.  On the other
20

hand, an implied warranty is one which the law derives by application or inference from the
nature of transaction or the relative situation or circumstances of the parties, irrespective of
any intention of the seller to create it.  In other words, an express warranty is different from
21

an implied warranty in that the former is found within the very language of the contract while
the latter is by operation of law.

Thus, the CA erred in treating Section 4(i) of the deeds of sale as akin to an implied
warranty against eviction. First,the deeds of sale categorically state that the sellers assure
that the properties sold were free from any encumbrances which may prevent Makro from
fully and absolutely possessing the properties in question. Second, in order for the implied
warranty against eviction to be enforceable, the following requisites must concur: (a) there
must be a final judgment; (b) the purchaser has been deprived of the whole or part of the
thing sold; (c) said deprivation was by virtue of a prior right to the sale made by the vendor;
and (d) the vendor has been summoned and made co-defendant in the suit for eviction at
the instance of the vendee.  Evidently, there was no final judgment and no opportunity for
22

the vendors to have been summoned precisely because no judicial action was instituted.

Further, even if Section 4(i) of the deeds of sale was to be deemed similar to an implied
warranty against eviction, the CA erred in concluding that Makro acted in bad faith. It is true
that the warranty against eviction cannot be enforced if the buyer knew of the risks or
danger of eviction and still assumed its consequences.  The CA highlights that Makro was
23

aware of the encroachments even before the sale because the ongoing road widening
project was visible enough to inform the buyer of the diminution of the land area of the
property purchased.

The Court disagrees.

It is undisputed that Makro's legal counsel conducted an ocular inspection on the properties
in question before the execution of the deeds of sale and that there were noticeable works
and constructions going on near them. Nonetheless, these are insufficient to charge Makro
with actual knowledge that the DPWH project had encroached upon respondents'
properties. The dimensions of the properties in relation to the DPWH project could have not
been accurately ascertained through the naked eye. A mere ocular inspection could not
have possibly determined the exact extent of the encroachment. It is for this reason that
only upon a relocation survey performed by a geodetic engineer, was it discovered that 131
square meters and 130 square meters of the lots purchased from Coco Charcoal and Lim,
respectively, had been adversely affected by the DPWH project.
To reiterate, the fact of encroachment is settled as even the CA found that the DPWH
project had disturbed a portion of the properties Makro had purchased. The only reason the
appellate court denied Makro recompense was because of its purported actual knowledge
of the intrusion which is not reason enough to deny Makro a refund of the proportionate
amount pursuant to Section 2 of the deeds of sale.

Nevertheless, the RTC errs in ordering respondents to pay ₱l,500,00.00 each to Makro.
Under Section 2 of the deeds of sale, the purchase price shall be adjusted in case of
increase or decrease in the land area at the rate of ₱8,500.00 per square meter. In the case
at bar, 131 square meters and 130 square meters of the properties of Coco Charcoal and
Lim, respectively, were encroached upon by the DPWH project. Applying the formula set
under the deeds of sale, Makro should be entitled to receive ₱l,113,500.00 from Coco
Charcoal and ₱l,105,000.00 from Lim. It is noteworthy that Makro's complaint against
respondents also prayed for the same amounts. The RTC awarded ₱l,500,00.00 without
sufficient factual basis or justifiable reasons.

Exemplary damages and attorney's fees may be awarded only for cause provided for by
law.

In finding for Makro, the RTC also awarded attorney's fees and exemplary damages in its
favor. The trial court ruled that Makro was entitled to attorney's fees because it was forced
to bring the matter before the court assisted by counsel. It found the grant of exemplary
damages in order because respondents were in bad faith for concealing from Makro the fact
that the DPWH had already dispossessed a portion of the lots purchased.

In ABS-CBN Broadcasting Corporation v. Court of Appeals,   the Court cautioned that the
24

fact that a party was compelled to litigate his cause does not necessarily warrant the award
of attorney's fees, to wit:

As regards attorney's fees, the law is clear that in the absence of stipulation, attorney's fees
may be recovered as actual or compensatory damages under any of the circumstances
provided for in Article 2208 of the Civil Code.

The general rule is that attorney's fees cannot be recovered as part of damages because of
the policy that no premium should be placed on the right to litigate. They are not to be
awarded every time a party wins a suit. The power of the court to award attorney's fees
under Article 2208 demands factual, legal, and equitable justification. Even when a claimant
is compelled to litigate with third persons or to incur expenses to protect his rights, still
attorney's fees may not be awarded where no sufficient showing of bad faith could be
reflected in a party's persistence in a case other than an erroneous conviction of the
righteousness of his cause. (emphasis supplied)

Other than the bare fact that Makro was compelled to hire the services of counsel to
prosecute its case, the RTC did not provide compelling reasons to justify the award of
attorney's fees. Thus, it is but right to delete the award especially since there is no showing
that respondents had acted in bad faith in refusing Makro's demand for refund. It is in
consonance with the policy that there is no premium on the right to litigate. 25
On the other hand, exemplary damages may be awarded if the defendant had acted in a
wanton, fraudulent, reckless, oppressive or malevolent manner.  The RTC found the award
26

of exemplary damages warranted because respondents allegedly concealed the fact the
DPWH had already taken possession of a portion of the land they had sold to Makro. Bad
faith, however, involves a state of mind dominated by ill will or motive implying a conscious
and intentional design to do a wrongful act for a dishonest purpose or moral
obliquity.  Here, there is insufficient evidence to definitively ascertain that respondents'
27

omission to mention the ongoing DPWH projects was impelled by a conscious desire to
defraud Makro. This is especially true since the road widening project was already in
progress even before the time of the sale, and which would have been noticeable when
Makro conducted its ocular inspection.

WHEREFORE, the petition is GRANTED. The 30 December 2010 Decision and 7 April

2011 Resolution of the Court of Appeals in CA-G.R. CV No. 83836
are REVERSED and SET ASIDE. Petitioner Pilipinas Makro, Inc. is entitled to recover
₱l,113,500.00 from respondent Coco Charcoal Phils., Inc. and ₱l,105,000.00 from
respondent Lim Kim San.

SO ORDERED.

SAMUEL R. MARTIRES
Associate Justice

WE CONCUR:

PRESBITERO J. VELASCO, JR.

Associate Justice
Chairperson

LUCAS P. BERSAMIN MARVIC M.V.F. LEONEN

Associate Justice Associate Justice

ALEXANDER G. GESMUNDO
Associate Justice

ATTESTATION

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.

PRESBITERO J. VELASCO, JR.

Associate Justice
Chairperson, Third Division

CERTIFICATION

Pursuant to the 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.

MARIA LOURDES P.A. SERENO

Chief Justice

First DIVISION

November 20, 2017

G.R. No. 211564

BENJAMIN EVANGELISTA, Petitioner 
vs.
SCREENEX,  INC., represented by ALEXANDER G, YU, Respondent
1

DECISION

SERENO, CJ.:

This is a Petition  for Review on Certiorari seeking to set aside the Decision  and
2 3

Resolution  rendered by the Court of Appeals (CA) Manila, Fifth Division, in CA-G.R. SP No.
4

110680.

ANTECEDENT FACTS

The facts as summarized by the CA are as follows:

Sometime in 1991, [Evangelista] obtained a loan from respondent Screenex, Inc. which
issued two (2) checks to [Evangelista]. The first check was UCPB Check No. 275345 for
₱l,000,000 and the other one is China Banking Corporation Check No. BDO 8159110 for
₱500,000. There were also vouchers of Screenex that were signed by the accused
evidencing that he received the 2 checks in acceptance of the loan granted to him.

As security for the payment of the loan, [Evangelista] gave two (2) open-dated checks:
UCPB Check Nos. 616656 and 616657, both pay to the order of Screenex, Inc. From the
time the checks were issued by [Evangelista], they were held in safe keeping together with
the other documents and papers of the company by Philip Gotuaco, Sr., father-in-law of
respondent Alexander Yu, until the former's death on 19 November 2004.

Before the checks were deposited, there was a personal demand from the family for
[Evangelista] to settle the loan and likewise a demand letter sent by the family lawyer. 5

On 25 August 2005, petitioner was charged with violation of Batas Pambansa (BP) Blg. 22
in Criminal Case Nos. 343615-16 filed with the Metropolitan Trial Court (MeTC) of Makati
City, Branch 61.  The Information reads:
6
That sometime in 1991, in the City of Makati, Metro Manila, Philippines, a place within the
jurisdiction of this Honorable Court, the above-named accused, did then and there, willfully,
unlawfully and feloniously make out, draw, and issue to SCREENEX INC., herein
represented by ALEXANDER G. YU, to apply on account or for value the checks described
below:

  Check No. Date Amount

United Coconut AGR 616656 12-22-04 ₱l ,000,000.00
Planters Bank AGR 616657 12-22-04 500,000.00

said accused well knowing that at the time of issue thereof, said accused did not have
sufficient funds in or credit with the drawee bank for the payment in full of the face amount
of such check upon its presentment which check when presented for payment within ninety
(90) days from the date thereof, was subsequently dishonored by the drawee bank for the
reason "ACCOUNT CLOSED" and despite receipt of notice of such dishonor, the said
accused failed to pay said payee the face amount of said checks or to make arrangement
for full payment thereof within five (5) banking days after receiving notice.

CONTRARY TO LAW. 7

Petitioner pleaded not guilty when arraigned, and trial proceeded. 8

THE RULING OF THE METC

The MeTC found that the prosecution had indeed proved the first two elements of cases
involving violation of BP 22: i.e. the accused makes, draws or issues any check to apply to
account or for value, and the check is subsequently dishonored by the drawee bank for
insufficiency of funds or credit; or the check would have been dishonored for the same
reason had not the drawer, without any valid reason, ordered the bank to stop payment.
The trial court pointed out, though, that the prosecution failed to prove the third element; i.e.
at the time of the issuance of the check to the payee, the latter did not have sufficient funds
in, or credit with, the drawee bank for payment of the check in full upon its presentment.  In
9

the instant case, the court held that while prosecution witness Alexander G. Yu declared
that the lawyer had sent a demand letter to Evangelista, Yu failed to prove that the letter
had actually been received by addressee. Because there was no way to determine when
the five-day period should start to toll, there was a failure to establish prima facie evidence
of knowledge of the insufficiency of funds on the part of Evangelista.  Hence, the court
10

acquitted him of the criminal charges.

Ruling on the civil aspect of the cases, the court held that while Evangelista admitted to
having issued and delivered the checks to Gotuaco and to having fully paid the amounts
indicated therein, no evidence of payment was presented.  It further held that the creditor's
11

possession of the instrument of credit was sufficient evidence that the debt claimed had not
yet been paid.  In the end, Evangelista was declared liable for the corresponding civil
12

obligation.
13
The dispositive portion of the Decision  reads:
14

WHEREFORE, judgment is rendered acquitting the accused BENJAMIN EVANGELISTA for

failure of the prosecution to establish all the elements constituting the offense of Violation of
B.P. 22 for two (2) counts. However, accused is hereby ordered to pay his civil obligation to
the private complainant in the total amount of ONE MILLION FIVE HUNDRED THOUSAND
PESOS (₱l,500,000) plus twelve (12%) percent interest per annum from the date of the
filing of the two sets of Information until fully paid and to pay the costs of suit.

SO ORDERED. 15

THE RULING OF THE RTC

Evangelista filed a timely Notice of Appeal  and raised two errors of the MeTC before the
16

Regional Trial Court (RTC) of Makati City, Branch 147. Docketed therein as Criminal Case
Nos. 08-1723 and 08-1724, the appeal posed the following issues: (1) the lower court erred
in not appreciating the fact that the prosecution failed to prove the civil liability of
Evangelista to private complainant; and (2) any civil liability attributable to Evangelista had
been extinguished and/or was barred by prescription. 17

After the parties submitted their respective Memoranda,  the R TC ruled that the checks
18

should be taken as evidence of Evangelista's indebtedness to Gotuaco, such that even if

the criminal aspect of the charge had not been established, the obligation subsisted.  Also,
19

the alleged payment by Evangelista was an affirmative defense that he had the burden of
proving, but that he failed to discharge.  With respect to the defense of prescription, the
20

RTC ruled in this wise:

As to the defense of prescription, the same cannot be successfully invoked in this appeal.
The 10-year prescriptive period of the action under Art. 1144 of the New Civil Code is
computed from the time the right of action accrues. The terms and conditions of the loan
obligation have not been shown, as only the checks evidence the same. It has not been
shown when the loan obligation was to mature such that there is no basis to show or from
which to infer, when the cause of action (non-payment of the loan) which would give the
obligee the right to seek redress for the non-payment of the obligation, accrued. In other
words, the reckoning point of prescription has not been established.

Prosecution witness Alexander G. Yu was not competent to state that the loan was
contracted in 1991 as in fact, Yu admitted that it was a few months before his father-in-law
(Philip Gotuaco) died when the latter told him about accused's failure to pay his obligation.
That was a few months before November 19, 2004, date of death of his father-in-law.

At any rate, the right of action in this case is not upon a written contract, for which reason,
Art. 1144, New Civil Code, on prescription does not apply. 21

In a Decision  dated 18 December 2008, the R TC dismissed the appeal and affirmed the
22

MeTC decision in toto. The Motion for Reconsideration  was likewise denied in an
23 24

Order  dated 19 August 2009.

25
 THE RULING OF THE CA

Evangelista filed a petition for review  before the CA insisting that the lower court erred in
26

finding him liable to pay the sum with interest at 12% per annum from the date of filing until
full payment. He further alleged that witness Yu was not competent to testify on the loan
transaction; that the insertion of the date on the checks without the knowledge of the
accused was an alteration that avoided the checks; and that the obligation had been
extinguished by prescription. 27

Screenex, Inc., represented by Yu, filed its Comment.  Yu claimed that he had testified on
28

the basis of his personal dealings with his father-in-law, whom Evangelista dealt with in
obtaining the loan. He further claimed that during the trial, petitioner never raised the
competence of the witness as an issue.  Moreover, Yu argued that prescription set in from
29

the accrual of the obligation; hence, while the loan was transacted in 1991, the demand was
made in February 2005, which was within the 10-year prescriptive period.  Yu also argued
30

that while Evangelista claimed under oath that the loan had been paid in 1992, he was not
able to present any proof of payment.  Meanwhile, Yu insisted that the material alteration
31

invoked by Evangelista was unavailing, since the checks were undated; hence, nothing had
been altered.  Finally, Yu argued that Evangelista should not be allowed to invoke
32

prescription, which he was raising for the first time on appeal, and for which no evidence
was adduced in the court of origin. 33

The CA denied the petition.  It held that (1) the reckoning time for the prescriptive period
34

began when the instrument was issued and the corresponding check returned by the bank
to its depositor;  (2) the issue of prescription was raised for the first time on appeal with the
35

RTC;  (3) the writing of the date on the check cannot be considered as an alteration, as the
36

checks were undated, so there was nothing to change to begin with;  (4) the loan obligation
37

was never denied by petitioner, who claimed that it was settled in 1992, but failed to show
any proof of payment.  Quoting the MeTC Decision, the CA declared:
38

[t]he mere possession of a document evidencing an obligation by the person in whose favor
it was executed, merely raises a presumption of nonpayment which may be overcome by
proof of payment, or by satisfactory explanation of the fact that the instrument is found in
the hands of the original creditor not inconsistent with the fact of payment. 39

The dispositive portion reads:

WHEREFORE, premises considered, the petition is DENIED. The assailed August 19, 2009
Order of the Regional Trial Court, Branch 147, Makati City, denying petitioner's Motion for
Reconsideration of the Court's December 18, 2008 Decision in Crim. Case Nos. 08-1723
and 08- 1724 are AFFIRMED.

SO ORDERED. 40

Petitioner filed a Motion for Reconsideration,  which was similarly denied in a

41

Resolution  dated 27 February 2014.

42
Hence, this Petition,  in which petitioner contends that the lower court erred in ordering the
43

accused to pay his alleged civil obligation to private complainant. In particular, he argues
that the court did not consider the prosecution's failure to prove his civil liability to
respondent, and that any civil liability there might have been was already extinguished
and/or barred by prescription. 44

Meanwhile, respondent filed its Comment,  arguing that the date of prescription was
45

reckoned from the date of the check, 22 December 2004. So when the complaint was filed
on 25 August 2005, it was supposedly well within the prescriptive period of ten (10) years
under Article 1144 of the New Civil Code. 46

OUR RULING

With petitioner's acquittal of the criminal charges for violation of BP 22, the only issue to be
resolved in this petition is whether the CA committed a reversible error in holding that
petitioner is still liable for the total amount of ₱l.5 million indicated in the two checks.

We rule in favor of petitioner.

A check is discharged by any other

act which will discharge a simple
contract for the payment of money.

In BP 22 cases, the action for the corresponding civil obligation is deemed instituted with
the criminal action.  The criminal action for violation of BP 22 necessarily includes the
47

corresponding civil action, and no reservation to file such civil action separately shall be
allowed or recognized. 48

The rationale for this rule has been elucidated in this wise: Generally, no filing fees are
required for criminal cases, but because of the inclusion of the civil action in complaints for
violation of B.P. 22, the Rules require the payment of docket fees upon the filing of the
complaint. This rule was enacted to help declog court dockets which are filled with B.P. 22
cases as creditors actually use the courts as collectors. Because ordinarily no filing fee is
charged in criminal cases for actual damages, the payee uses the intimidating effect of a
criminal charge to collect his credit gratis and sometimes. upon being paid, the trial court is
not even informed thereof. The inclusion of the civil action in the criminal case is expected
to significantly lower the number of cases filed before the courts for collection based on
dishonored checks. It is also expected to expedite the disposition of these cases. Instead of
instituting two separate cases, one for criminal and another for civil, only a single suit shall
be filed and tried. It should be stressed that the policy laid down by the Rules is to
discourage the separate filing of the civil action. The Rules even prohibit the reservation of a
separate civil action, which means that one can no longer file a separate civil case after the
criminal complaint is filed in court. The only instance when separate proceedings are
allowed is when the civil action is filed ahead of the criminal case. Even then, the Rules
encourage the consolidation of the civil and criminal cases. We have previously observed
that a separate civil action for the purpose of recovering the amount of the dishonored
checks would only prove to be costly, burdensome and time-consuming for both parties and
would further delay the final disposition of the case. This multiplicity of suits must be
avoided.  (Citations omitted)
49

This notwithstanding, the civil action deemed instituted with the criminal action is treated as
an "independent civil liability based on contract." 50

By definition, a check is a bill of exchange drawn on a bank 'payable on demand.  It is a

51

negotiable instrument - written and signed by a drawer containing an unconditional order to

pay on demand a sum certain in money.  It is an undertaking that the drawer will pay the
52

amount indicated thereon. Section 119 of the NIL, however, states that a negotiable
instrument like a check may be discharged by any other act which will discharge a simple
contract for the payment of money, to wit:

Sec. 119. Instrument; how discharged. - A negotiable instrument is discharged:

(a) By payment in due course by or on behalf of the principal debtor;

(b) By payment in due course by the party accommodated, where the instrument is made or
accepted for his accommodation;

(c) By the intentional cancellation thereof by the holder;

(d) By any other act which will discharge a simple contract for the payment of money;

(e) When the principal debtor becomes the holder of the instrument at or after maturity in his
own right. (Emphasis supplied)

A check therefore is subject to prescription of actions upon a written contract. Article 1144
of the Civil Code provides:

Article 1144. The following actions must be brought within ten years from the time the right
of action accrues:

1) Upon a written contract;

2) Upon an obligation created by law;

3) Upon a judgment. (Emphasis supplied)

Barring any extrajudicial or judicial demand that may toll the 10-year prescription period and
any evidence which may indicate any other time when the obligation to pay is due, the
cause of action based on a check is reckoned from the date indicated on the check.

If the check is undated, however, as in the present petition, the cause of action is reckoned
from the date of the issuance of the check. This is so because regardless of the omission of
the date indicated on the check, Section 17  of the Negotiable Instruments Law instructs
53

that an undated check is presumed dated as of the time of its issuance.

While the space for the date on a check may also be filled, it must, however, be filled up
strictly in accordance with the authority given and within a reasonable time.  Assuming that
54

Yu had authority to insert the dates in the checks, the fact that he did so after a lapse of
more than 10 years from their issuance certainly cannot qualify as changes made within a
reasonable time.

Given the foregoing, the cause of action on the checks has become stale, hence, time-
barred. No written extrajudicial or judicial demand was shown to have been made within 10
years which could have tolled the period. Prescription has indeed set in.

Prescription allows the court to

dismiss the case motu proprio.

We therefore have no other recourse but to grant the instant petition on the ground of
prescription. Even if that defense was belatedly raised before the RTC for the first time on
appeal from the ruling of the Me TC, we nonetheless dismiss the complaint, seeking to
enforce the civil liability of Evangelista based on the undated checks, by applying Section 1
of Rule 9 of the Rules of Court, to wit:

Section 1. Defenses and objections not pleaded. - Defenses and objections not pleaded
either in a motion to dismiss or in the answer are deemed waived. However, when it
appears from the pleadings or the evidence on record that the court has no jurisdiction over
the subject matter, that there is another action pending between the same parties for the
same cause, or that the action is barred by a prior judgment or by statute of limitations, the
court shall dismiss the claim.

While it was on appeal before the RTC that petitioner invoked the defense of prescription,
we find that the pleadings and the evidence on record indubitably establish that the action to
hold petitioner liable for the two checks has already prescribed.

The delivery of the check produces

the effect of payment when through
the fault of the creditor they have
been impaired

It is a settled rule that the creditor's possession of the evidence of debt is proof that the debt
has not been discharged by payment.  It is likewise an established tenet that a negotiable
55

instrument is only a substitute for money and not money, and the delivery of such an
instrument does not, by itself, operate as payment.  Thus, in BPI v. Spouses Royeca,  we
56 57

ruled that despite the lapse of three years from the time the checks were issued, the
obligation still subsisted and was merely suspended until the payment by commercial
document could actually be realized. 58

However, payment is deemed effected and the obligation for which the check was given as
conditional payment is treated discharged, if a period of 10 years or more has elapsed from
the date indicated on the check until the date of encashment or presentment for payment.
The failure to encash the checks within a reasonable time after issue, or more than 10 years
in this instance, not only results in the checks becoming stale but also in the obligation to
pay being deemed fulfilled by operation of law.

Art. 1249 of the Civil Code specifically provides that checks should be presented for
payment within a reasonable period after their issuance, to wit:

Art. 1249. The payment of debts in money shall be made in the currency stipulated, and if it
is not possible to deliver such currency, then in the currency which is legal tender in the
Philippines.

The delivery of promissory notes payable to order, or bills of exchange or other mercantile
documents shall produce the effect of payment only when they have been cashed, or when
through the fault of the creditor they have been impaired.

In the meantime, the action derived from the original obligation shall be held in the
abeyance. (Emphasis supplied)

This rule is similarly stated in the Negotiable Instruments Law as follows:

Sec. 186. Within what time a check must be presented. - A check must be presented for
p:iyment within a reasonable time after its issue or the drawer will be discharged from
liability thereon to the extent of the loss caused by the delay. (Emphasis supplied)

These provisions were the very same ones we cited when we discharged a check by
reason of the creditor's unreasonable or unexplained delay in encashing it. In Papa v.
Valencia,  the respondents supposedly paid the petitioner the purchase price of the lots in
59

cash and in check. The latter disputed this claim and argued that he had never encashed
the checks, and that he could no longer recall the transaction that happened 10 years
earlier. This Court ruled:

Granting that petitioner had never encashed the check, his failure to do so for more than ten
(10) years undoubtedly resulted in the impairment of the check through his unreasonable
and unexplained delay.

While it is true that the delivery of a check produces the effect of payment only when it is
cashed, pursuant to Art. 1249 of the Civil Code, the rule is otherwise if the debtor is
prejudiced by the creditor's unreasonable delay in presentment. The acceptance of a check
implies an undertaking of due diligence in presenting it for payment, and if he from whom it
is received sustains loss by want of such diligence, it will be held to operate as actual
payment of the debt or obligation for which it was given. It has, likewise, been held that if no
presentment is made at all, the drawer cannot be held liable irrespective of loss or injury
unless presentment is otherwise excused. This is in harmony with Article 1249 of the Civil
Code under which payment by way of check or other negotiable instrument is conditioned
on its being cashed, except when through the fault of the creditor, the instrument is
impaired. The payee of a check would be a creditor under this provision and if its no-
payment is caused by his negligence, payment will be deemed effected and the obligation
for which the check was given as conditional payment will be discharged.  (Citations
60

omitted and emphasis supplied)

Similarly in this case, we find that the delivery of the checks, despite the subsequent failure
to encash them within a period of 10 years or more, had the effect of payment. Petitioner is
considered discharged from his obligation to pay and can no longer be pronounced civilly
liable for the amounts indicated thereon.

WHEREFORE, the instant Petition is GRANTED. The Decision dated 1 October 2013 and
Resolution dated 27 February 2014 in CA-G.R. SP No. 110680 are SET ASIDE. The
Complaint against petitioner is hereby DISMISSED.

SO ORDERED.

MARIA LOURDES P.A. SERENO

Chief Justice, Chairperson

WE CONCUR:

TERESITA J. LEONARDO-DE CASTRO

Associate Justice

MARIANO C. DEL CASTILLO FRANCIS H. JARDELEZA

Associate Justice Associate Justice

NOEL GIMENEZ TIJAM

Associate Justice

CERTIFICATION

Pursuant to the 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.

MARIA LOURDES P.A. SERENO

Chief Justice

SECOND DIVISION

G.R. No. 217426, December 04, 2017

ST. MARTIN POLYCLINIC, INC., Petitioner, v. LWV CONSTRUCTION

CORPORATION, Respondent.

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari1 are the Decision2 dated July 11, 2014 and the
Resolution3 dated February 27, 2015 of the Court of Appeals (CA) in CA-G.R. SP No. 125451, which
affirmed with modification the Decision4 dated December 15, 2011 and the Order dated May 25, 2012
of the Regional Trial Court of Mandaluyong City, Branch 211 (RTC) in SCA Case No. MC11-879 (Civil
Case No. 21881), and thereby ordered herein petitioner St. Martin Polyclinic, Inc. (petitioner) to pay
respondent LWV Construction Corporation (respondent) temperate damages in the amount of
P50,000.00.

The Facts

Respondent is engaged in the business of recruiting Filipino workers for deployment to Saudi
Arabia.5 On the other hand, petitioner is an accredited member of the Gulf Cooperative Council
Approved Medical Centers Association (GAMCA) and as such, authorized to conduct medical
examinations of prospective applicants for overseas employment.6

On January 10, 2008, respondent referred prospective applicant Jonathan V. Raguindin (Raguindin) to
petitioner for a pre-deployment medical examination in accordance with the instructions from
GAMCA.7After undergoing the required examinations, petitioner cleared Raguindin and found him "fit
for employment," as evidenced by a Medical Report8 dated January 11, 2008 (Medical Report).9

Based on the foregoing, respondent deployed Raguindin to Saudi Arabia, allegedly incurring expenses
in the amount of P84,373.41.10 Unfortunately, when Raguindin underwent another medical
examination with the General Care Dispensary of Saudi Arabia (General Care Dispensary) on March
24, 2008, he purportedly tested positive for HCV or the hepatitis C virus. The Ministry of Health of the
Kingdom of Saudi Arabia (Ministry of Health) required a re-examination of Raguindin, which the
General Care Dispensary conducted on April 28, 2008.11 However, the results of the re-examination
remained the same, i.e., Raguindin was positive for HCV, which results were reflected in a
Certification12 dated April 28, 2008 (Certification). An undated HCV Confirmatory Test Report13 likewise
conducted by the Ministry of Health affirmed such finding, thereby leading to Raguindin's repatriation
to the Philippines.14

Claiming that petitioner was reckless in issuing its Medical Report stating that Raguindin is "fit for
employment" when a subsequent finding in Saudi Arabia revealed that he was positive for HCV,
respondent filed a Complaint15 for sum of money and damages against petitioner before the
Metropolitan Trial Court of Mandaluyong City, Branch 60 (MeTC). Respondent essentially averred that
it relied on petitioner's declaration and incurred expenses as a consequence. Thus, respondent prayed
for the award of damages in the amount of P84,373.41 representing the expenses it incurred in
deploying Raguindin abroad.16

In its Answer with compulsory counterclaim,17 petitioner denied liability and claimed that: first,
respondent was not a proper party in interest for lack of privity of contract between them; second, the
MeTC had no jurisdiction over the case as it involves the interpretation and implementation of a
contract of employment; third, the action is premature as Raguindin has yet to undergo a post-
employment medical examination following his repatriation; and fourth, the complaint failed to state a
cause of action as the Medical Report issued by petitioner had already expired on April 11, 2008, or
three (3) months after its issuance on January 11, 2008.18

The MeTC Ruling

In a Decision19 dated December 17, 2010, the MeTC rendered judgment in favor of respondent and
ordered petitioner to pay the amount of P84,373.41 as actual damages, P20,000.00 as attorney's
fees, and the costs of suit.20

At the onset, the MeTC held that it had jurisdiction over the case, since respondent was claiming
actual damages incurred in the deployment of Raguindin in the amount of P84,373.41.21 It further
ruled that respondent was a real party in interest, as it would not have incurred expenses had
petitioner not issued the Medical Report certifying that Raguindin was fit to work.

On the merits, the MeTC found that respondent was entitled to be informed accurately of the precise
condition of Raguindin before deploying the latter abroad and consequently, had sustained damage as
a result of the erroneous certification.22 In this relation, it rejected petitioner's contention that
Raguindin may have contracted the disease after his medical examination in the Philippines up to the
time of his deployment, there being no evidence offered to corroborate the same.23

Aggrieved, petitioner appealed to the RTC, contending,24 among others, that respondent failed to
comply with the requirements on the authentication and proof of documents under Section 24,25 Rule
132 of the Rules of Court, considering that respondent's evidence, particularly the April 28, 2008
Certification issued by the General Care Dispensary and the HCV Confirmatory Test Report issued by
the Ministry of Health, are foreign documents issued in Saudi Arabia.

The RTC Ruling

In a Decision26 dated December 15, 2011, the RTC dismissed petitioner's appeal and affirmed the
MeTC Decision in its entirety.27 Additionally, the RTC pointed out that petitioner can no longer change
the theory of the case or raise new issues on appeal, referring to the latter's argument on the
authentication of respondent's documentary evidence.28

Petitioner's motion for reconsideration29 was denied in an Order30 dated May 25, 2012. Dissatisfied,
petitioner elevated the case to the CA.31

The CA Ruling

In a Decision32 dated July 11, 2014, the CA affirmed the RTC Decision, with the modification deleting
the award of actual damages and instead, awarding temperate damages in the amount of
P50,000.00.33

The CA held that petitioner failed to perform its duty to accurately diagnose Raguindin when it issued
its Medical Report declaring the latter "fit for employment", considering that he was subsequently
found positive for HCV in Saudi Arabia.34 Further, the CA opined that the Certification issued by the
General Care Dispensary is not a public document and in such regard, rejected petitioner's argument
that the same is inadmissible in evidence for not having been authenticated. Moreover, it remarked
that petitioner's own Medical Report does not enjoy the presumption of regularity as petitioner is
merely an accredited clinic.35 Finally, the CA ruled that petitioner could not disclaim liability on the
ground that Raguindin tested positive for HCV in Saudi Arabia after the expiration of the Medical
Report on April 11, 2008, noting that the General Care Dispensary issued its Certification on April 28,
2008, or a mere seventeen (17) days from the expiration of petitioner's Medical Report.36 Hence, the
CA concluded that "it is contrary to human experience that a newly-deployed overseas worker, such as
Raguindin, would immediately contract a serious virus at the very beginning of a deployment."37

However, as the records are bereft of evidence to show that respondent actually incurred the amount
of P84,373.41 as expenses for Raguindin's deployment, the CA deleted the award of actual damages
and instead, awarded temperate damages in the amount of P50,000.00.38

Aggrieved, petitioner filed a motion for partial reconsideration,39 which the CA denied in a

Resolution40dated February 27, 2015; hence, this petition.

The Issue Before the Court

The essential issue advanced for the Court's resolution is whether or not petitioner was negligent in
issuing the Medical Report declaring Raguindin "fit for employment" and hence, should be held liable
for damages.

The Court's Ruling

The petition is granted.

 I.

At the outset, it should be pointed out that a re-examination of factual findings cannot be done acting
on a petition for review on certiorari because the Court is not a trier of facts but reviews only
questions of law.41 Thus, in petitions for review on certiorari, only questions of law may generally be
put into issue. This rule, however, admits of certain exceptions, such as "when the inference made is
manifestly mistaken, absurd or impossible"; or "when the findings are conclusions without citation of
specific evidence on which they are based."42 Finding a confluence of certain exceptions in this case,
the general rule that only legal issues may be raised in a petition for review on certiorari under Rule
45 of the Rules of Court would not apply, and the Court retains the authority to pass upon the
evidence presented and draw conclusions therefrom.43

II.

An action for damages due to the negligence of another may be instituted on the basis of Article 2176
of the Civil Code, which defines a quasi-delict:

Article 2176. Whoever by act or omission causes damage to another, there being fault or negligence,
is obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual
relation between the parties, is called a quasi-delict and is governed by the provisions of this Chapter.

The elements of a quasi-delict are: (1) an act or omission; (2) the presence of fault
or negligencein the performance or non-performance of the act; (3) injury; (4) a causal
connection between the negligent act and the injury; and (5) no pre-existing contractual
relation.44

As a general rule, any act or omission coming under the purview of Article 2176 gives rise to a cause
of action under quasi-delict. This, in turn, gives the basis for a claim of damages.45 Notably, quasi-
delict is one among several sources of obligation. Article 1157 of the Civil Code states:

Article 1157. Obligations arise from:

(1) Law;
(2) Contracts; 
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Quasi-delicts.

However, as explained by Associate Justice Marvic M.V.F. Leonen (Justice Leonen) in his opinion
in Alano v. Magud-Logmao46 (Alano), "Article 2176 is not an all-encompassing enumeration of
all actionable wrongs which can give rise to the liability for damages. Under the Civil Code,
acts done in violation of Articles 19, 20, and 21 will also give rise to damages."47 These
provisions - which were cited as bases by the MTC, RTC and CA in their respective rulings in this
case - read as follows:

Article 19. Every person must, in the exercise of his rights and in the performance of his duties, act
with justice, give everyone his due, and observe honesty and good faith.

Article 20. Every person who, contrary to law, willfully or negligently causes damage to another,
shall indemnify the latter for the same.

Article 21. Any person who willfully causes loss or injury to another in a manner that is contrary to
morals, good customs, or public policy shall compensate the latter for the damage.
"[Article 19], known to contain what is commonly referred to as the principle of abuse of rights, sets
certain standards which must be observed not only in the exercise of one's rights, but also in the
performance of one's duties."48 Case law states that "[w]hen a right is exercised in a manner which
does not conform with the norms enshrined in Article 19 and results in damage to another, a legal
wrong is thereby committed for which the wrongdoer must be held responsible. But while Article 19
lays down a rule of conduct for the government of human relations and for the maintenance of social
order, it does not provide a remedy for its violation. Generally, an action for damages under either
Article 20 or Article 21 would [then] be proper."49 Between these two provisions as worded, it is Article
20 which applies to both willful and negligent acts that are done contrary to law. On the other
hand, Article 21 applies only to willful acts done contra bonos mores.50

In the Alano case, Justice Leonen aptly elaborated on the distinctive applications of Articles 19, 20 and
21, which are general provisions on human relations, vis-a-vis Article 2176, which particularly governs
quasi-delicts:

Article 19 is the general rule which governs the conduct of human relations. By itself, it is not the
basis of an actionable tort. Article 19 describes the degree of care required so that an actionable tort
may arise when it is alleged together with Article 20 or Article 21.

Article 20 concerns violations of existing law as basis for an injury. It allows recovery should
the act have been willful or negligent. Willful may refer to the intention to do the act and the desire to
achieve the outcome which is considered by the plaintiff in tort action as injurious. Negligence may
refer to a situation where the act was consciously done but without intending the result which the
plaintiff considers as injurious.

Article 21, on the other hand, concerns injuries that may be caused by acts which are not necessarily
proscribed by law. This article requires that the act be willful, that is, that there was an intention to do
the act and a desire to achieve the outcome. In cases under Article 21, the legal issues revolve around
whether such outcome should be considered a legal injury on the part of the plaintiff or whether the
commission of the act was done in violation of the standards of care required in Article 19.

Article 2176 covers situations where an injury happens through an act or omission of the defendant.
When it involves a positive act, the intention to commit the outcome is irrelevant. The act itself
must not be a breach of an existing law or a pre-existing contractual obligation. What will be
considered is whether there is "fault or negligence” attending the commission of the act which
necessarily leads to the outcome considered as injurious by the plaintiff. The required degree of
diligence will then be assessed in relation to the circumstances of each and every case.51 (Emphases
and underscoring supplied)

Thus, with respect to negligent acts or omissions, it should therefore be discerned that Article 20 of
the Civil Code concerns "violations of existing law as basis for an injury", whereas Article
2176 applies when the negligent act causing damage to another does not constitute "a
breach of an existing law or a pre-existing contractual obligation."

In this case, the courts a quo erroneously anchored their respective rulings on the provisions of
Articles 19, 20, and 21 of the Civil Code. This is because respondent did not proffer (nor have these
courts mentioned) any law as basis for which damages may be recovered due to petitioner's alleged
negligent act. In its amended complaint, respondent mainly avers that had petitioner not issue a "fit
for employment" Medical Report to Raguindin, respondent would not have processed his documents,
deployed him to Saudi Arabia, and later on - in view of the subsequent findings that Raguindin was
positive for HCV and hence, unfit to work - suffered actual damages in the amount of
P84,373.41.52Thus, as the claimed negligent act of petitioner was not premised on the breach of any
law, and not to mention the incontestable fact that no pre-existing contractual relation was averred to
exist between the parties, Article 2176 - instead of Articles 19, 20 and 21 - of the Civil Code should
govern.
 III.

Negligence is defined as the failure to observe for the protection of the interests of another person,
that degree of care, precaution and vigilance which the circumstances justly demand, whereby such
other person suffers injury.53

As early as the case of Picart v. Smith,54 the Court elucidated that "the test by which to determine the
existence of negligence in a particular case is: Did the defendant in doing the alleged negligent
act use that reasonable care and caution which an ordinarily prudent person would have
used in the same situation? If not, then he is guilty of negligence."55 Corollary thereto, the Court
stated that "[t]he question as to what would constitute the conduct of a prudent man in a given
situation must of course be always determined in the light of human experience and in view of the
facts involved in the particular case. Abstract speculation cannot here be of much value x x x:
Reasonable men govern their conduct by the circumstances which are before them or known to
them. They are not, and are not supposed to be, omniscient of the future. Hence[,] they can
be expected to take care only when there is something before them to suggest or warn of
danger."56

Under our Rules of Evidence, it is disputably presumed that a person takes ordinary care of his
concerns and that private transactions have been fair and regular.57 In effect, negligence cannot
be presumed, and thus, must be proven by him who alleges it.58 In Huang v. Philippine
Hoteliers, Inc.:59

[T]he negligence or fault should be clearly established as it is the basis of her action. The burden of
proof is upon [the plaintiff]. Section 1, Rule 131 of the Rules of Court provides that "burden of proof is
the duty of a party to present evidence on the facts in issue necessary to establish his claim or
defense by the amount of evidence required by law." It is then up for the plaintiff to establish his
cause of action or the defendant to establish his defense. Therefore, if the plaintiff alleged in his
complaint that he was damaged because of the negligent acts of the defendant, he has the
burden of proving such negligence. It is even presumed that a person takes ordinary care of
his concerns. The quantum of proof required is preponderance of evidence.60 (Emphasis and
underscoring supplied)

The records of this case show that the pieces of evidence mainly relied upon by respondent to
establish petitioner's negligence are: (a) the Certification61 dated April 28, 2008; and (b) the HCV
Confirmatory Test Report.62 However, these issuances only indicate the results of the General Care
Dispensary and Ministry of Health's own medical examination of Raguindin finding him to be positive
for HCV. Notably, the examination conducted by the General Care Dispensary, which was later
affirmed by the Ministry of Health, was conducted only on March 24, 2008, or at least two (2)
months after petitioner issued its Medical Report on January 11, 2008. Hence, even assuming
that Raguindin's diagnosis for HCV was correct, the fact that he later tested positive for the same does
not convincingly prove that he was already under the same medical state at the time petitioner issued
the Medical Report on January 11, 2008. In this regard, it was therefore incumbent upon respondent
to show that there was already negligence at the time the Medical Report was issued, may it
be through evidence that show that standard medical procedures were not carefully observed or that
there were already palpable signs that exhibited Raguindin's unfitness for deployment at that time.
This is hardly the case when respondent only proffered evidence which demonstrate that months after
petitioner's Medical Report was issued, Raguindin, who had already been deployed to Saudi Arabia,
tested positive for HCV and as such, was no longer "fit for employment".

In fact, there is a reasonable possibility that Raguindin became exposed to the HCV only  after his
medical examination with petitioner on January 11, 2008. Based on published reports from the World
Health Organization, HCV or the hepatitis C virus causes both acute and chronic infection. Acute HCV
infection is usually asymptomatic,63 and is only very rarely associated with life-threatening diseases.
The incubation period64 for HCV is two (2) weeks to six (6) months, and following initial
infection, approximately 80% of people do not exhibit any symptoms.65 Indisputably, Raguindin was
not deployed to Saudi Arabia immediately after petitioner's medical examination and hence, could
have possibly contracted the same only when he arrived thereat. In light of the foregoing, the CA
therefore erred in holding that "[h]ad petitioner more thoroughly and diligently examined Raguindin, it
would likely have discovered the existence of the HCV because it was contrary to human experience
that a newly-deployed overseas worker, such as Raguindin, would immediately have contracted the
disease at the beginning of his deployment"66

While petitioner's Medical Report indicates an expiration of April 11, 2008, the Court finds it fitting to
clarify that the same could not be construed as a certified guarantee coming from petitioner that
Raguindin's medical status at the time the report was issued on January 11, 2008 (i.e., that he was fit
for employment) would remain the same up until that date (i.e., April 11, 2008). As earlier intimated,
the intervening period could very well account for a number of variables that could have led to a
change in Raguindin's condition, such as his deployment to a different environment in Saudi Arabia. If
at all, the expiration date only means that the Medical Report is valid - and as such, could be
submitted - as a formal requirement for overseas employment up until April 11, 2008; it does not, by
any means, create legal basis to hold the issuer accountable for any intervening change of condition
from the time of issuance up until expiration. Truly, petitioner could not be reasonably expected to
predict, much less assure, that Raguindin's medical status of being fit for employment would remain
unchanged. Thus, the fact that the Medical Report's expiration date of April 11, 2008 was only
seventeen (17) days away from the issuance of the General Care Dispensary's April 28, 2008
Certification finding Raguindin positive for HCV should not - as it does not - establish petitioner's
negligence.

IV.

At any rate, the fact that Raguindin tested positive for HCV could not have been properly established
since the courts a quo, in the first place, erred in admitting and giving probative weight to the
Certification of the General Care Dispensary, which was written in an unofficial language. Section 33,
Rule 132 ofthe Rules of Court states that:

Section 33. Documentary evidence in an unofficial language. - Documents written in an unofficial

language shall not be admitted as evidence, unless accompanied with a translation into
English or Filipino. To avoid interruption of proceedings, parties or their attorneys are directed to
have such translation prepared before trial.67

A cursory examination of the subject document would reveal that while it contains English words, the
majority of it is in an unofficial language. Sans any translation in English or Filipino provided by
respondent, the same should not have been admitted in evidence; thus their contents could not be
given probative value, and deemed to constitute proof of the facts stated therein.

Moreover, the due execution and authenticity of the said certification were not proven in accordance
with Section 20, Rule 132 of the Rules of Court:

Section 20. Proof of private document. - Before any private document offered as authentic is received
in evidence, its due execution and authenticity must be proved either:

(a) By anyone who saw the document executed or written; or

(b) By evidence of the genuineness of the signature or handwriting of the
maker.
(c) Any other private document need only be identified as that which it is
claimed to be.
Notably, the foregoing provision applies since the Certification does not fall within the classes of public
documents under Section 19, Rule 132 of the Rules of Court68 - and hence, must be considered as
private. It has been settled that an unverified and unidentified private document cannot be
accorded probative value.69 In addition, case law states that "since a medical certificate
involves an opinion of one who must first be established as an expert witness, it cannot be
given weight or credit unless the doctor who issued it is presented in court to show his
qualifications. It is precluded because the party against whom it is presented is deprived of the right
and opportunity to cross-examine the person to whom the statements or writings are attributed. Its
executor or author should be presented as a witness to provide the other party to the litigation the
opportunity to question its contents. Being mere hearsay evidence, failure to present the author of the
medical certificate renders its contents suspect and of no probative value,"70 as in this case.

Similarly, the HCV Confirmatory Test Report issued by the Ministry of Health of Saudi Arabia should
have also been excluded as evidence. Although the same may be considered a public document, being
an alleged written official act of an official body of a foreign country,71 the same was not duly
authenticated in accordance with Section 24,72 Rule 132 of the Rules of Court. While respondent
provided a translation73 thereof from the National Commission on Muslim Filipinos, Bureau of External
Relations, Office of the President, the same was not accompanied by a certificate of the secretary of
the embassy or legation, consul-general, consul, vice-consul, or consular agent or any officer in the
foreign service of the Philippines stationed in Saudi Arabia, where the record is kept, and
authenticated by the seal of his office.74

To be sure, petitioner - contrary to respondent's contention75 - has not changed its theory of the case
by questioning the foregoing documents. As petitioner correctly argued, it merely amplified its
defense76that it is not liable for negligence when it further questioned the validity of the issuances of
the General Care Dispensary and Ministry of Health. In Limpangco Sons v. Yangco77, the Court
explained that "[t]here is a difference x x x between a change in the theory of the case and a shifting
of the incidence of the emphasis placed during the trial or in the briefs." "Where x x x the theory of
the case as set out in the pleadings remains the theory throughout the progress of the cause, the
change of emphasis from one phase of the case as presented by one set of facts to another phase
made prominent by another set of facts x x x does not result in a change of theory x x x".78 In any
case, petitioner had already questioned the validity of these documents in its Position Paper79 before
the MeTC.80 Hence, there is no change of theory that would preclude petitioner's arguments on this
score.

All told, there being no negligence proven by respondent through credible and admissible evidence,
petitioner cannot be held liable for damages under Article 2176 of the Civil Code as above-discussed.

WHEREFORE, the petition is GRANTED. Accordingly, the Decision dated July 11, 2014 and the
Resolution dated February 27, 2015 of the Court of Appeals in CA-G.R. SP No. 125451
are REVERSEDand SET ASIDE, and a NEW ONE is entered, DISMISSING the complaint of
respondent LWV Construction Corporation for lack of merit.

SO ORDERED.

Carpio (Chairperson), Peralta, Caguioa, and Reyes, Jr., JJ., concur. 

Endnotes:

THIRD DIVISION

February 15, 2017

G.R. No. 196444

DASMARIÑAS T. ARCAINA and MAGNANI T. BANTA, Petitioners 

vs.
NOEMI L. INGRAM, represented by MA. NENETTE L. ARCHINUE, Respondent

DECISION

JARDELEZA, J.:

This is a Petition for Review on Certiorari  assailing the October 26, 2010 Decision  and
1 2

March 1 7, 2011 Resolution  of the Court of Appeals (CA) in CA-G.R. SP No. 107997, which
3

affirmed with modification the March 11, 2009 Decision  of the Regional Trial Court-Branch
4

7 of Legazpi City (RTC). The RTC reversed the July 31, 2008 Order  of the 3rd Municipal
5

Circuit Trial Court of Sto. Domingo-Manito in Albay (MCTC). The MCTC dismissed for
insufficiency of evidence Civil Case No. S-241-a case for recovery of ownership and title to
real property, possession and damages with preliminary injunction (recovery case)-filed by
respondent Noemi L. Ingram (Ingram) against petitioners Dasmariñas T. Arcaina (Arcaina)
and Magnani T. Banta (Banta) [collectively, petitioners].

Arcaina is the owner of Lot No. 3230 (property) located at Salvacion, Sto. Domingo, Albay.
Sometime in 2004, her attorney-in-fact, Banta, entered into a contract with Ingram for the
sale of the property. Banta showed Ingram and the latter’s attorney-in-fact, respondent Ma.
Nenette L. Archinue (Archinue), the metes and bounds of the property and represented that
Lot No. 3230 has an area of more or less 6,200 aquare meters (sq.m.) per the tax
declaration covering it. The contract price was ₱1,860,000.00, with Ingram making
installment payments for the property from May 5, 2004 to February 10, 2005 totaling
₱1,715,000.00.  Banta and Ingram thereafter executed a Memorandum of Agreement
6

acknowledging the previous payments and that Ingram still had an obligation to pay the
remaining balance in the amount of ₱145,000.00.  They also separately executed deeds of
7

absolute sale over the property in Ingram’s favor. Both deeds described the property to wit:

DESCRIPTION

A parcel of land Lot No. 3230, situated at Salvacion, Sto. Domingo, Albay, Bounded on the
NE-by Lot 3184 on the SE-by Seashore on the SW-Lot No. 3914 and on the NW-by Road
with an area of SIX THOUSAND TWO HUNDRED (6,200) sq. meters more or less. 8

Subsequently, Ingram caused the property to be surveyed and discovered that Lot No. 3230
has an area of 12,000 sq. m. Upon learning of the actual area of the property, Banta
allegedly insisted that the difference of 5,800 sq. m. remains unsold. This was opposed by
Ingram who claims that she owns the whole lot by virtue of the sale.  Thus, Archinue, on
9

behalf of Ingram, instituted the recovery case, docketed as Civil Case No. S-241, against
petitioners before the MCTC.
In her Complaint, Ingram alleged that upon discovery of the actual area of the property,
Banta insisted on fencing the portion which she claimed to be unsold. Ingram further
maintained that she is ready to pay the balance of ₱145,000.00 as soon as petitioners
recognize her ownership of the whole property. After all, the sale contemplated the entire
property as in fact the boundaries of the lot were clearly stated in the deeds of
sale.  Accordingly, Ingram prayed that the MCTC declare her owner of the whole property
10

and order petitioners to pay moral damages, attorney's fees and litigation expenses. She
also asked the court to issue a writ of preliminary injunction to enjoin the petitioners from
undertaking acts of ownership over the alleged unsold portion. 11

In their Answer with Counterclaim, petitioners denied that the sale contemplates the entire
property and contended that the parties agreed that only 6,200 sq. m. shall be sold at the
rate of ₱300.00 per sq. m.  This, according to petitioners, is consistent with the
12

contemporaneous acts of the parties: Ingram declared only 6,200 sq. m. of the property for
tax purposes, while Arcaina declared the remaining portion under her name with no
objection from Ingram. Petitioners averred that since Ingram failed to show that that she has
a right over the unsold portion of the property, the complaint for recovery of possession
should be dismissed.  By way of counterclaim, petitioners asked for the payment of the
13

balance of ₱145,000.00, as well as attorney's fees, litigation expenses, and costs of suit. 14

Trial ensued. After Ingram presented her evidence, petitioners filed a demurrer on the
grounds that (1) Ingram failed to sufficiently establish her claim and (2) her claim lacks basis
in fact and in law. 15

In its Order dated July 31, 2008, the MCTC granted petitioners' demurrer and counterclaim
against Ingram, thus:

WHEREFORE, in view of the foregoing this instant case is hereby ordered DISMISSED for

insufficiency of evidence.

Plaintiffs are further ordered to pay to the Defendants the remaining amount of ONE
HUNDRED FORTY FIVE THOUSAND (PhP 145,000.00) PESOS as counterclaim for the
remaining balance of the contract as admitted by the Plaintiffs during the Pre-Trial.

SO ORDERED. 16

The MCTC held that the testimonies of Ingram and her witnesses suffer from several
inconsistencies and improbabilities. For instance, while Archinue claimed that what was
sold was the entire property, she also admitted in her cross-examination that she was not
present when the sale was consummated between Banta, Ingram and Ingram's husband
Jeffrey. Further, Archinue stated that she was made aware before their ocular visit to the
property that the lot being sold is only 6,200 sq. m. based on the tax declaration covering
it.  Ingram also had knowledge of the area of the property as confirmed by her husband
17

Jeffrey's testimony. Jeffrey also testified that Banta gave them a copy of the tax declaration
of the property.
18

The MCTC declared that the survey showed that the property was 12,000 sq. m. or more
than what was stated in the deeds of sale.  For Ingram to be awarded the excess 5,800 sq.
19
m. portion of the property, she should have presented evidence that she paid for the surplus
area consistent with Article 1540 of the Civil Code which reads:

Art. 1540. If, in the case of the preceding article, there is a greater area or number in the
immovable than that stated in the contract, the vendee may accept the area included in the
contract and reject the rest. If he accepts the whole area, he must pay for the same at the
contract rate.

Accordingly, since Ingram failed to show that she paid for the value of the excess land area,
the MCTC held that she cannot claim ownership and possession of the whole property.

On appeal, the RTC reversed and set aside the Order of the MCTC, to wit:

WHEREFORE, premises considered, the assailed Decision dated July 31, 2008 by the
Municipal [Circuit] Trial Court of Sto. Domingo, Al bay is hereby REVERSED and SET
ASIDE and a new judgment is hereby rendered as follows:

1. Ordering plaintiff-appellant [referring to Ingram] to pay the defendant-appellee [referring

to Arcaina] the amount of ₱145,000.00 representing the remaining balance of the purchase
price of Lot 3230;

2. Declaring Noemi L. Ingram the owner of the whole Lot 3230;

3. Ordering defendants-appellees Dasmariñas T. Arcaina and Magnani Banta or their

agents to remove the fence constructed by them on the said lot and to respect the peaceful
possession of Noemi Ingram over the same;

4. Ordering defendants-appellees Dasmariñas Arcaina and Magnani Banta to pay jointly

and severally the plaintiff-appellent Noemi Ingram the amount of ₱5,000.00 as reasonable
attorney's fees; and

5. To pay the cost of suit.

SO ORDERED. 20

The RTC found that neither of the parties presented competent evidence to prove the
property's actual area. Except for a photocopy of the cadastral map purportedly showing the
graphical presentation of the property, no plan duly prepared and approved by the proper
government agency showing the area of the lot was presented. Hence, the RTC concluded
that the area of Lot No. 3230 as shown by the boundaries indicated in the deeds of sale is
only 6,200 sq. m. more or less. Having sold Lot No. 3230 to Ingram, Arcaina must vacate
it.
21

In addition, the RTC held that Article 1542, which covers sale of real estate in lump sum,
applies in this case.

Having apparently sold the entire Lot No. 3230 for a lump sum, Arcaina, as the vendor, is
obligated to deliver all the land included in the boundaries of the property, regardless of
whether the real area should be greater or smaller than what is recited in the deeds of
sale.
22

In its Decision dated October 26, 2010, the CA affirmed the RTC's ruling with modification. It
deleted paragraphs 4 and 5 of the dispositive portion of the RTC's Decision, which ordered
petitioners to pay ₱5,000.00 as attorney's fees and costs of suit, respectively.23

The CA agreed with the RTC that other than the uniform statements of the parties, no
evidence was presented to show that the property was found to have an actual area of
more or less 12,000 sq. m. It held that the parties' statements cannot be simply admitted as
true and correct because the area of the land is a matter of public record and presumed to
have been recorded in the Registry of Deeds. The CA noted that the best evidence should
have been a certified true copy of the survey plan duly approved by the proper government
agency. 24

The CA also agreed with the RTC that the sale was made for a lump sum and not on a per-
square-meter basis. The parties merely agreed on the purchase price of ₱l,860,000.00 for
the 6,200 sq. m. lot, with the deed of sale providing for the specific boundaries of the
property.  Citing Rudolf Lietz, Inc. v. Court of Appeals,  the CA explained that in case of
25 26

conflict between the area and the boundaries of a land subject of the sale, the vendor is
obliged to deliver to the vendee everything within the boundaries. This is in consonance
with Article 1542 of the Civil Code. Further, the CA found the area in excess "substantial"
which, to its mind, "should have not escaped the discerning eye of an ordinary vendor of a
piece of land."  Thus, it held that the RTC correctly ordered petitioners to deliver the entire
27

property to Ingram.

The CA, however, deleted the award of attorney's fees and the costs of suit, stating that
there was no basis in awarding them. First, the RTC did not discuss the grounds for
granting attorney's fees in the body of its decision. Second, Arcaina cannot be faulted for
claiming and then fencing the excess area of the land after the survey on her honest belief
that the ownership remained with her. 28

Petitioners moved for reconsideration, raising for the first time the issue of prescription.
They pleaded that under Article 1543  of the Civil Code, Ingram should have filed the action
29

within six months from the delivery of the property. Counting from Arcaina's execution of the
notarized deed of absolute sale on April 13, 2005, petitioners concluded that the filing of the
case only on January 25, 2006 is already time-barred.  The CA denied petitioners' motion
30

for reconsideration and ruled that Article 1543 does not apply because Ingram had no
intention of rescinding the sale. In fact, she instituted the action to recover the excess
portion of the land that petitioners claimed to be unsold. Thus, insofar as Ingram is
concerned, that portion remained undelivered. 31

Petitioners now assail the CA' s declaration that the sale of the property was made for a
lump sum. They insist that they sold the property on a per-square-meter basis, at the rate of
₱300.00 per sq. m. They further claim that they were aware that the property contains more
than 6,200 sq. m. According to petitioners, this is the reason why the area sold is
specifically stated in the deeds of sale. Unfortunately, in the drafting of the deeds, the word
"portion" was omitted. They allege that contemporaneously with the execution of the formal
contract of sale, they delivered the area sold and constructed a fence delineating the unsold
portion of the property.  Ingram allegedly recognized the demarcation because she
32

introduced improvements confined to the area delivered.  Since the sale was on a per-
33

square-meter basis, petitioners argue that it is Article 1539,  and not Article 1542 of the Civil
34

Code, which governs. 35

In her Comment, Ingram accuses petitioners of raising new and irrelevant issues based on
factual allegations which they cannot in any case prove, as a consequence of their filing a
demurrer to evidence.  She maintains that the only issue for resolution is whether the sale
36

was made on a lump sum or per-square-meter basis. On this score, Ingram asserts that the
parties intended the sale of the entire lot, the boundaries of which were stated in the deeds
of sale. These deeds of sale, as observed by the CA, did not contain any qualification. 37

II

At the outset, we find that contrary to the findings of the RTC and the CA, the result of the
survey conducted on the property is not a disputed fact. In their Answer to the Complaint,
petitioners admitted that when the property was surveyed, it yielded an area of more or less
12,000 sq. m.  Nevertheless, petitioners now proffer that they agree with the CA that the
38

final survey of the property is not yet approved; hence, there can be no valid verdict for the
final adjudication of the parties' rights under the contract of sale.39

We reject petitioners' contention on this point.

Judicial admissions made by the parties in the pleadings, or in the course of the trial or
other proceedings in the same case, are conclusive and do not require further evidence to
prove them. These admissions cannot be contradicted unless previously shown to have
been made through palpable mistake or that no such admission was made.  Petitioners do
40

not deny their previous admission, much less allege that they had made a palpable mistake.
Thus, they are bound by it.

We now resolve the main issue in this case and hold that Lot No. 3230 was sold for a lump
sum. In sales involving real estate, the parties may choose between two types of pricing
agreement: a unit price contract wherein the purchase price is determined by way of
reference to a stated rate per unit area (e.g, ₱1,000.00 per sq. m.) or a lump sum
contract which states a full purchase price for an immovable the area of which may be
declared based on an estimate or where both the area and boundaries are stated (e.g., ₱1
million for 1,000 sq. m., etc.).  Here, the Deed of Sale executed by Banta on March 21,
41

2005  and the Deed of Sale executed by Arcaina on April 13, 2005 both show that the
42 43

property was conveyed to Ingram at the predetermined price of ₱1,860,000.00. There was
no indication that it was bought on a per-square-meter basis. Thus, Article 1542 of the Civil
Code governs the sale, viz.:

Art. 1542. In the sale of real estate, made for a lump sum and not at the rate of a certain
sum for a unit of measure or number, there shall be no increase or decrease of the price,
although there be a greater or less area or number than that stated in the contract.
The same rule shall be applied when two or more immovables are sold for a single price;
but if, besides mentioning the boundaries, which is indispensable in every conveyance of
real estate, its area or number should be designated in the contract, the vendor shall be
bound to deliver all that is included within said boundaries, even when it exceeds the area
or number specified in the contract; and, should he not be able to do so, he shall suffer a
reduction in the price, in proportion to what is lacking in the area or number, unless the
contract is rescinded because the vendee does not accede to the failure to deliver what has
been stipulated.

The provision teaches that where both the area and the boundaries of the immovable are
declared in a sale of real estate for a lump sum, the area covered within the boundaries of
the immovable prevails over the stated area.  The vendor is obliged to deliver all that is
44

included within the boundaries regardless of whether the actual area is more than what was
specified in the contract of sale; and he/she shall do so without a corresponding increase in
the contract price. This is particularly true when the stated area is qualified to be
approximate only, such as when the words "more or less" were used. 45

The deeds of sale in this case provide both the boundaries and the estimated area of the
property. The land is bounded on the North East by Lot No. 3184, on the South East by
seashore, on the South West by Lot No. 3914 and on the North West by a road.  It has an
46

area of more or less 6,200 sq. m. The uniform allegations of petitioners and Ingram,
however, reveal that the actual area within the boundaries of the property amounts to more
or less 12,000 sq. m., with a difference of 5,800 sq. m. from what was stated in the deeds of
sale. With Article 1542 in mind, the RTC and the CA ordered petitioners to deliver the
excess area to Ingram.

They are mistaken.

In Del Prado v. Spouses Caballero,  we were confronted with facts analogous to the
47

present petition. Pending the issuance of the Original Certificate of Title (OCT) in their
name, Spouses Caballero sold a parcel of land to Del Prado. The contract of sale stated
both the property's boundaries and estimated area of more or less 4,000 sq. m. Later, when
the OCT was issued, the technical description of the property appeared to be 14,457 sq. m.,
more or less. Del Prado alleged that Spouses Caballero were bound to deliver all that was
included in the boundaries of the land since the sale was made for a lump sum. Although,
we agreed with Del Prado that the sale partakes of the nature of a lump sum contract, we
did not apply Article 1542. In holding that Del Prado is entitled only to the area stated in the
contract of sale, we explained:

The Court, however, clarified that the rule laid down in Article 1542 is not hard and
fast and admits of an exception. It held:

"A caveat is in order, however. The use of "more or less" or similar words in

designating quantity covers only a reasonable excess or deficiency. A vendee of land
sold in gross or with the description "more or less" with reference to its area does not
thereby ipso facto take all risk of quantity in the land.

xxx
In the instant case, the deed of sale is not one of a unit price contract. The parties agreed
on the purchase price of ₱40,000.00 for a predetermined area of 4,000 sq m, more or
less, bounded on the North by Lot No. 11903, on the East by Lot No. 11908, on the South
by Lot Nos. 11858 & 11912, and on the West by Lot No. 11910. In a contract of sale of land
in a mass, the specific boundaries stated in the contract must control over any other
statement, with respect to the area contained within its boundaries.

Black's Law Dictionary defines the phrase "more or less" to mean:

"About; substantially; or approximately; implying that both parties assume the risk of any
ordinary discrepancy. The words are intended to cover slight or unimportant
inaccuracies in quantity, Carter v. Finch, 186 Ark. 954, 57 S.W.2d 408; and are
ordinarily to be interpreted as taking care of unsubstantial differences or differences
of small importance compared to the whole number of items transferred."

Clearly, the discrepancy of 10,475 sq m cannot be considered a slight difference in

quantity. The difference in the area is obviously sizeable and too substantial to be
overlooked. It is not a reasonable excess or deficiency that should be deemed
included in the deed of sale. (Emphasis supplied; citations omitted.)
48

In a lump sum contract, a vendor is generally obligated to deliver all the land covered within
the boundaries, regardless of whether the real area should be greater or smaller than that
recited in the deed.  However, in case there is conflict between the area actually covered by
49

the boundaries and the estimated area stated in the contract of sale, he/she shall do so only
when the excess or deficiency between the former and the latter is reasonable. 50

Applying Del Prado to the case before us, we find that the difference of 5,800 sq. m. is too
substantial to be considered reasonable. We note that only 6,200 sq. m. was agreed upon
between petitioners and Ingram. Declaring Ingram as the owner of the whole 12,000 sq. m.
on the premise that this is the actual area included in the boundaries would be ordering the
delivery of almost twice the area stated in the deeds of sale. Surely, Article 1542 does not
contemplate such an unfair situation to befall a vendor-that he/she would be compelled to
deliver double the amount that he/she originally sold without a corresponding increase in
price. In Asiain v. Jalandoni,  we explained that "[a] vendee of a land when it is sold in gross
51

or with the description 'more or less' does not thereby ipso facto take all risk of quantity in
the land. The use of 'more or less' or similar words in designating quantity covers only a
reasonable excess or deficiency."  Therefore, we rule that Ingram is entitled only to 6,200
52

sq. m. of the property. An area of 5,800 sq. m. more than the area intended to be sold is not
a reasonable excess that can be deemed included in the sale. 53

Further, at the time of the sale, Ingram and petitioners did not have knowledge of the actual
area of the land within the boundaries of the property. It is undisputed that before the
survey, the parties relied on the tax declaration covering the lot, which merely stated that it
measures more or less 6,200 sq. m. Thus, when petitioners offered the property for sale
and when Ingram accepted the offer, the object of their consent or meeting of the minds is
only a 6,200 sq. m. property. The deeds of sale merely put into writing what was agreed
upon by the parties. In this regard, we quote with approval the ruling of the MCTC:
In this case, the Deed of Absolute Sale (Exhibit "M") dated April 13, 2005 is clear and
unequivocal as to the area sold being up to only 6,200 square meters.  The agreement of
1âwphi1

the parties were clear and unambiguous, hence, the inconsistent and impossible
testimonies of N[e]nette [Archinue] and the Spouses Ingram. No amount of extrinsic aids
are required and no further extraneous sources are necessary in order to ascertain the
parties' intent, determinable as it is, from the document itself. The court is thus convinced
that the deed expresses truly the parties' intent as against the oral testimonies of Nenette,
and the Spouses Ingram. 54

The contract of sale is the law between Ingram and petitioners; it must be complied with in
good faith. Petitioners have already performed their obligation by delivering the 6,200 sq. m.
property. Since Ingram has yet to fulfill her end of the bargain,  she must pay petitioners the
55

remaining balance of the contract price amounting to ₱145,000.00.

WHEREFORE, premises considered, the petition is GRANTED. The October 26, 2010

Decision and March 1 7, 2011 Resolution of the Court of Appeals in CA-G.R. SP No.
107997 are hereby REVERSED and SET ASIDE. The July 31, 2008 Order of the 3rd
Municipal Circuit Trial Court of Sto. Domingo-Manito, dismissing Civil Case No. S-241 for
insufficiency of evidence, and ordering Ingram to pay ₱145,000.00 to petitioners, is
hereby REINSTATED with MODIFICATION.

Ingram is ordered to pay petitioners the amount of ₱145,000.00 to earn interest at the rate
of six percent (6%) per annum from July 31, 2008  until the finality of this Decision.
56

Thereafter, the total amount due shall earn legal interest at the rate of 6% per annum  until
57

fully paid.

SO ORDERED.

FRANCIS H. JARDELEZA
Associate Justice

WE CONCUR:

PRESBITERO J. VELASCO, JR.

Associate Justice
Chairperson

LUCAS P. BERSAMIN BIENVENIDO L. REYES

Associate Justice Associate Justice

ALFREDO BENJAMIN S. CAGUIOA *

Associate Justice

ATTESTATION

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.
PRESBITERO J. VELASCO, JR.
Associate Justice
Chairperson, Third Division

FIRST DIVISION

February 20, 2017

G.R. No. 212690 *

SPOUSES ROMEO PAJARES and IDA T. PAJARES, Petitioners 

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

DECISION

DEL CASTILLO, J.:

Breach of contract may give rise to an action for specific performance or rescission of
contract.  It may also be the cause of action in a complaint for damages filed pursuant to
1

Art. 1170 of the Civil Code.  In the specific performance and rescission of contract cases,
2

the subject matter is incapable of pecuniary estimation, hence jurisdiction belongs to the
Regional Trial Court (RTC). In the case for damages, however, the court that has
jurisdiction depends upon the total amount of the damages claimed.

Assailed in this Petition for Review on Certiorari  is the December 11, 2013 Decision  of the
3 4

Court of Appeals (CA) in CA-G.R. CEB SP No. 07711 that set aside the February 19, 2013
Order  of the RTC, Branch 17, Cebu City dismissing Civil Case No. CEB-39025 for lack of
5

jurisdiction.

Factual Antecedents

On September 3, 2012, Remarkable Laundry and Dry Cleaning (respondent) filed a

Complaint denominated as "Breach of Contract and Damages"  against spouses Romeo
6

and Ida Pajares (petitioners) before the RTC of Cebu City, which was docketed as Civil
Case No. CEB-39025 and assigned to Branch 17 of said court. Respondent alleged that it
entered into a Remarkable Dealer Outlet Contract  with petitioners whereby the latter, acting
7

as a dealer outlet, shall accept and receive items or materials for laundry which are then
picked up and processed by the former in its main plant or laundry outlet; that petitioners
violated Article IV (Standard Required Quota & Penalties) of said contract, which required
them to produce at least 200 kilos of laundry items each week, when, on April 30, 2012,
they ceased dealer outlet operations on account of lack of personnel; that respondent made
written demands upon petitioners for the payment of penalties imposed and provided for in
the contract, but the latter failed to pay; and, that petitioners' violation constitutes breach of
contract. Respondent thus prayed, as fol1ows:
WHEREFORE, premises considered, by reason of the above-mentioned breach of the
subject dealer contract agreement made by the defendant, it is most respectfully prayed of
the Honorable Court to order the said defendant to pay the following incidental and
consequential damages to the plaintiff, to wit:

a) TWO HUNDRED THOUSAND PESOS (PHP200,000.00) plus legal interest as incidental

and consequential [sic] for violating Articles IV and XVI of the Remarkable Laundry Dealer
Contract dated 08 September 2011.

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

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

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

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

original)

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

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

Ruling of the Regional Trial Court

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

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

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

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

Notify the counsels.

SO ORDERED.  (Emphasis in the original)

11
Respondent filed its Motion for Reconsideration,  arguing that as Civil Case No. CEB-39025
12

is for breach of contract, or one whose subject is incapable of pecuniary estimation,

jurisdiction thus falls with the RTC. However, in an April 29, 2013 Order,  the RTC held its
13

ground.

Ruling of the Court of Appeals

Respondent filed CA-G.R. CEB SP No. 07711, a Petition for Certiorari  seeking to nullify
14

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

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

In determining the jurisdiction of an action whose subject is incapable of pecuniary

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

x x xx

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

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

x x xx

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

Thus, the totality of damages principle finds no application in the instant case since the
same applies only when damages is principally and primarily demanded in accordance with
the specification in Administrative Circular No. 09-94 which reads: 'in cases where the claim
for damages is the main cause of action ... the amount of such claim shall be considered in
determining the jurisdiction of the court.'
Thus, the court a quo should not have dismissed the instant case.

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

SO ORDERED. 18

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

Issue

In a June 29, 2015 Resolution,  this Court resolved to give due course to the Petition, which
19

claims that the CA erred in declaring that the RTC had jurisdiction over respondent's
Complaint which, although denominated as one for breach of contract, is essentially one for
simple payment of damages.

Petitioners' Arguments

In praying that the assailed CA dispositions be set aside and that the RTC's February 19,
2013 Order dismissing Civil Case No. CEB-39025 be reinstated, petitioners in their Petition
and Reply  espouse the original findings of the RTC that Civil Case No. CEB-39025 is for
20

the recovery of a sum of money in the form of damages. They asserted that in determining
jurisdiction over the subject matter, the allegations in the Complaint and the principal relief
in the prayer thereof must be considered; that since respondent merely prayed for the
payment of damages in its Complaint and not a judgment on the claim of breach of contract,
then jurisdiction should be determined based solely on the total amount of the claim or
demand as alleged in the prayer; that while breach of contract may involve a claim for
specific performance or rescission, neither relief was sought in respondent's Complaint;
and, that respondent "chose to focus his [sic] primary relief on the payment of
damages,"  which is "the true, actual, and principal relief sought, and is not merely
21

incidental to or a consequence of the alleged breach of contract." Petitioners conclude that,

22

applying the totality of claims rule, respondent's Complaint should be dismissed as the
claim stated therein is below the jurisdictional amount of the RTC.

Respondent's Arguments

Respondent, on the other hand, counters in its Comment  that the CA is correct in declaring
23

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

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

Respondent's complaint denominated

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

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

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

without, however, determining whether, from the four corners of the Complaint, respondent
actually intended to initiate an action for specific performance or an action for rescission of
contract. Specific performance is ''[t]he remedy of requiring exact performance of a contract
in the specific form in which it was made, or according to the precise terms agreed upon. [It
is t]he actual accomplishment of a contract by a party bound to fulfill it."  Rescission of
25

contract under Article 1191 of the Civil Code, on the other hand, is a remedy available to the
obligee when the obligor cannot comply with what is incumbent upon him.  It is predicated
26

on a breach of faith by the other party who violates the reciprocity between them.
Rescission may also refer to a remedy granted by law to the contracting parties and
sometimes even to third persons in order to secure reparation of damages caused them by
a valid contract; by means of restoration of things to their condition in which they were prior
to the celebration of the contract.27

In a line of cases, this Court held that –

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

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

Remarkable Laundry and Dry Cleaning Civil Case No. ______

herein represented by Archemedes G. For: Breach of Contract
Solis, Plaintiff, & Damages

vs.  

Spouses Romeo Pajares and Ida T. Pajares,

Defendants.

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

COMPLAINT

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

1. Plaintiff Remarkable Laundry and Dry Cleaning Services, is a sole proprietorship

business owned by Archemedes Solis with principal office address at PREDECO CMPD
AS-Ostechi Bldg. Banilad, Heman Cortes St., Mandaue City.

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

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

CAUSES OF ACTION:

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

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

6. The aforementioned act of unilateral cessation of operation by the defendant constitutes

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

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

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

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

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

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

' ... The DEALER OUTLET must have a minimum 200 kilos on a six-day or per week pick-
up for the entire duration of the contract to free the dealer outlet from being charge[d] Php
200/week on falling below required minimum kilos per week of laundry materials. Automatic
charging shall become part of the billing on the services of the dealer outlet on cases where
the minimum requirements on required kilos are not met.[']

9. The cessation of operation by the defendant, which is tantamount to gross infraction to

[sic] the subject contract, resulted to [sic] incidental damages amounting to Two Hundred
Thousand Pesos (PHP200,000.00). Defendant should have opted to comply with the Pre-
termination clause in the subject contract other than its [sic] unilateral and whimsical
cessation of operations.

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

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

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

'Obligations arising .from contracts have the force of law between the contracting parties
and should be complied with in good faith. '
13. Likewise, Article 1170 of the Civil Code of the Philippines [provides] that:

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

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

PRAYER:

WHEREFORE, premises considered, by reason of the above-mentioned breach of the

subject dealer contract agreement made by the defendant, it is most respectfully prayed of
the Honorable Court to order the said defendant to pay the following incidental and
consequential damages to the plaintiff, to wit:

a) TWO HUNDRED THOUSAND PESOS (PHP200,000.00) plus legal interest as incidental

and consequential [damages] for violating Articles IV and XVI of the Remarkable Laundry
Dealer Contract dated 08 SEP 2011;

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

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

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

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

August 31, 2012, Cebu City, Philippines. 29

An analysis of the factual and material allegations in the Complaint shows that there is
nothing therein which would support a conclusion that respondent's Complaint is one for
specific performance or rescission of contract. It should be recalled that the principal
obligation of petitioners under the Remarkable Laundry Dealership Contract is to act as
respondent's dealer outlet. Respondent, however, neither asked the RTC to compel
petitioners to perfom1 such obligation as contemplated in said contract nor sought the
rescission thereof. The Complaint's body, heading, and relief are bereft of such allegation.
In fact, neither phrase appeared on or was used in the Complaint when, for purposes of
clarity, respondent's counsels, who are presumed to be learned in law, could and should
have used any of those phrases to indicate the proper designation of the Complaint. To the
contrary, respondent's counsels designated the Complaint as one for "Breach of Contract &
Damages," which is a misnomer and inaccurate. This erroneous notion was reiterated in
respondent's Memorandum  wherein it was stated that "the main action of CEB 39025 is
30

one for a breach of contract."  There is no such thing as an "action for breach of contract."
31

Rather, "[b]reach of contract is a cause of action,  but not the action or relief itself"  Breach
32 33
of contract may be the cause of action in a complaint for specific performance or rescission
of contract, both of which are incapable of pecuniary estimation and, therefore, cognizable
by the RTC. However, as will be discussed below, breach of contract may also be the cause
of action in a complaint for damages.

A complaint primarily seeking to

enforce the accessory obligation
contained in the penal clause is actually
an action for damages capable of
pecuniary estimation.

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

Article IV: STANDARD REQUIRED QUOTA & PENALTIES

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

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

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

To Our mind, petitioners' responsibility under the above penal clause involves the payment
of liquidated damages because under Article 2226  of the Civil Code the amount the parties
35

stipulated to pay in case of breach are liquidated damages. "It is attached to an obligation in

order to ensure performance and has a double function: (1) to provide for liquidated
damages, and (2) to strengthen the coercive force of the obligation by the threat of greater
responsibility in the event of breach."36
Concomitantly, what respondent primarily seeks in its Complaint is to recover aforesaid
liquidated damages (which it termed as "incidental and consequential damages") premised
on the alleged breach of contract committed by the petitioners when they unilaterally
ceased business operations. Breach of contract may also be the cause of action in a
complaint for damages filed pursuant to Article 1170 of the Civil Code. It provides:

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

In Pacmac, Inc. v. Intermediate Appellate Court,  this Court held that the party who
37

unilaterally terminated the exclusive distributorship contract without any legal justification
can be held liable for damages by reason of the breach committed pursuant to Article 1170.

In sum, after juxtaposing Article IV of the Remarkable Dealer Outlet Contract vis-a-vis the

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

In an action for damages, the court

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

Having thus determined the nature of respondent's principal action, the next question
brought to fore is whether it is the RTC which has jurisdiction over the subject matter of Civil
Case No. CEB-39025.

Paragraph 8, Section 19  of BP 129, as amended by Republic Act No. 7691,  provides that
38 39

where the amount of the demand exceeds ₱100,000.00, exclusive of interest, damages of
whatever kind, attorney's fees, litigation expenses, and costs, exclusive jurisdiction is
lodged with the RTC. Otherwise, jurisdiction belongs to the Municipal Trial Court. 40

The above jurisdictional amount had been increased to ₱200,000.00 on March 20, 1999
and further raised to ₱300,000.00 on February 22, 2004 pursuant to Section 5 of RA 7691. 41

Then in Administrative Circular No. 09-94  this Court declared that "where the claim for
42

damages is the main cause of action, or one of the causes of action, the amount of such
claim shall be considered in determining the jurisdiction of the court." In other words, where
the complaint primarily seeks to recover damages, all claims for damages should be
considered in determining which court has jurisdiction over the subject matter of the case
regardless of whether they arose from a single cause of action or several causes of action. 1âwphi1
Since the total amount of the damages claimed by the respondent in its Complaint filed with
the RTC on September 3, 2012 amounted only to ₱280,000.00, said court was correct in
refusing to take cognizance of the case.

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

SO ORDERED.

MARIANO C. DEL CASTILLO

Associate Justice

WE CONCUR:

MARIA LOURDES P.A. SERENO

Chief Justice
Chairperson

TERESITA J. LEONARDO-DE
ESTELA M. PERLAS-BERNABE
CASTRO
Associate Justice
Associate Justice

ALFREDO BENJAMIN S. CAGUIOA

Associate Justice

CERTIFICATION

Pursuant to the 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.

MARIA LOURDES P.A. SERENO

Chief Justice

SECOND DIVISION

March 1, 2017

G.R. No. 205578

GEORGIA OSMEÑA-JALANDONI, Petitioner 
vs
CARMEN A. ENCOMIENDA, Respondent
 DECISION

PERALTA, J.:

This is an appeal from the Decision  of the Court of Appeals, Cebu City (CA) dated March
1

29, 2012 and its Resolution  dated December 19, 2012 in CA-G.R. CV No. 01339 which set
2

aside the Decision  of the Cebu Regional Trial Court (RTC), Branch 57, dated January 9,
3

2006, dismissing respondent Carmen Encomienda's claim for sum of money.

The facts, as shown by the records of the case, are as follows:

Encomienda narrated that she met petitioner Georgia Osmeña-Jalandoni in Cebu on

October 24, 1995, when the former was purchasing a condominium unit and the latter was
the real estate broker. Thereafter, Encomienda and Jalandoni became close friends. On
March 2, 1997, Jalandoni called Encomienda to ask if she could borrow money for the
search and rescue operation of her children in Manila, who were allegedly taken by their
father, Luis Jalandoni. Encomienda then went to Jalandoni's house and handed
₱l00,000.00 in a sealed envelope to the latter's security guard. While in Manila, Jalandoni
again borrowed money for the following errands: 4

1âwphi1

1. Publication in SunStar Daily of Georgia's missing children ₱l1,000.00

2. Reproduction of the pictures of Georgia's children 720.00
3. Additional reproduction of pictures 1,350.00
4. Plane fare for Georgia's secretary to Manila 3,196.00
5. Allowance of Germana Berning in going to Manila 4,080.00
6. Cash airbill of Kabayan Forwarders 49.50
7. Cash airbill of Kabayan Forwarders 49.50
8. Salary of Georgia's household helper Reynilda Atillo for March 16-31, 750.00
1997
9. Salary of Georgia's driver Billy Tano for March 16-31, 1997 2,000.00
10. Petty cash for Germana Berning 250.00
11. Consultancy fee of Germana Berning 7,000.00
12. Filing fee of case filed by Georgia against CIS 100,500.00
13. Cebu cable bill per receipt No. 197743 380.00
14. Cebu cable bill per receipt No. 197742 380.00
15. Bankard bill of Georgia 840.00
16. Services of 2 security guards for 2/1-15/97 and 3/1-31/97 14,715.00
17. One sack of rice and gasoline 1,270.00
18. Food allowance for Georgia's household and payment for food 2,900.00
ordered
19. Shipping charge of immigration papers sent to Georgia in Manila 145.45
20. Shipping charge of cellphone and easy call pager sent to Georgia 145 .45
21. Salary of Georgia's helper Renilda Atillo from April 1-15, 1997 750.00
22. Purchase of cellphone registered in the name of Encomienda's sister,
10,260.00
Paz
23. Pager acquired on April 10, 1997 upon Georgia's request 6,351.00
24. Wanted ad in Panay News and expenses of Georgia's secretary 8,500.00
25. Salary of Billy Tano from April 1-15, 1997 2,000.00
26. Water consumption of Georgia's house in Paradise Village 1,120.00
2 7. Services of security guard from April 1-15, 1997 4,905.00
28. Telephone bill for Georgia's residential phone from March 25 to April 3,609.77
24, 1997
29. Telephone bill for Georgia's other telephone line 440.20
30. Plane ticket for Georgia's psychic friends $1,570.00
31. Petty cash for GRO Co. owned by Georgia 3,150.00
32. Bill of cellphone under the name of Paz Encomienda 5,468.70
33. Another bill of cellphone used by Georgia 3,923.87
34. Cost of reproduction of pictures 2,500.00
35. Salary of driver and house help of Georgia from May 15-31, 1997 3,250.00
36. Service charge of Georgia's cellphone number 550.00
37. Ritual performed in Georgia's house to drive away evil spirits 17,500.00
38. Prayers for Georgia's missing children 5,500.00
39. Amount given to priest who performed a blessing of the house of 500.00
Georgia
40. Globe cellular phone bill of Georgia as of 5/10/97 7,957.24
41. Salary of Germana Berning for May 1997 6,000.00
42. Amount given to priest for mass and blessing 2,500.00
43. Cash given to G. Berning for payment of Georgia's phone bill 3,000.00
44. Gasoline for Georgia's car paid on 6/10/97 per cash slip #221088 150.00
45. Gasoline for Georgia's car paid on 6/10/97 per cash slip #220997 379.44
 46. Bill for Georgia's Easycall pager 1,605.09
47. Security guard services for May 16-31 4,905.00
48. Globe bill for cellular phone from April 18, 1997 to May 17, 1997 5,543.98
49. Bill of cellular phone registered in the name of Paz Encomienda but 14,169.21
used by Georgia paid on June 18, 1997
50. Charge for changing the cap of Easycall pager on June 21, 1997 275.00
51. Monthly bill for Georgia's Easycall pager from 7 /15/97 to 10/14/97 1,551.00
52. Water bill for April-May 1997 paid on June 25, 1997 1,728.31
53. Cebu Cable bill paid on 6125197 380.00
54. PLDT bill for the telephone in Georgia's residence 2,097.98
55. Electric bill paid on 6/25/97 1,964.43
56. Purchase of steel cabinet on 6/25/97 2,750.00
57. Airbill of JRS in sending the cap of Easycall pager 20.00
58. Bill for the cellphone in the name of Paz Encomienda but used by 8,630.11
Georgia, June to July 8, 1997
59. Penalty for downgrading of executive line of cellphone 1,045.00
60. Globe cellphone bill paid on 9/10/97 1,903.00
61. Charge for downgrading of cellphone plan from Advantage to Basic 660.00
62. Penalty for Easycall 11/17/97 1,248.50

On April 1, 1997, Jalandoni borrowed ₱l Million from Encomienda and promised that she
would pay the same when her money in the bank matured. Thereafter, Encomienda went to
Manila to attend the hearing of Jalandoni's habeas corpus case before the CA where
₱100,000.00 more was requested. On May 26, 1997, now crying, Jalandoni asked if
Encomienda could lend her an additional ₱900,000.00. Encomienda still acceded, albeit
already feeling annoyed. All in all, Encomienda spent around ₱3,245,836.02 and $6,638.20
for Jalandoni.

When Jalandoni came back to Cebu on July 14, 1997, she never informed Encomienda.
Encomienda then later gave Jalandoni six (6) weeks to settle her debts. Despite several
demands, no payment was made. Jalandoni insisted that the amounts given were not in the
form of loans. When they had to appear before the Barangay for conciliation, no settlement
was reached. But a member of the Lupong Tagapamayapa of Barangay Kasambagan,
Laureano Rogero, attested that J alandoni admitted having borrowed money from
Encomienda and that she was willing to return it. Jalandoni said she would talk to her
lawyer first, but she never came back. Hence, Encomienda filed a complaint. She
impleaded Luis as a necessary party, being Georgia's husband.
For her defense, Jalandoni claimed that there was never a discussion or even just an
allusion about a loan. She confirmed that Encomienda would indeed deposit money in her
bank account and pay her bills in Cebu. But when asked, Encomienda would tell her that
she just wanted to extend some help and that it was not a loan. When Jalandoni returned to
Cebu, Encomienda wanted to fetch her at the airport but the former refused. This allegedly
made Encomienda upset, causing her to eventually demand payment for the amounts
originally intended to be gratuitous.

On January 9, 2006, the RTC of Cebu City dismissed Encomienda's complaint, the
dispositive portion of which states:

WHEREFORE, in view of the foregoing, this case is hereby dismissed.

SO ORDERED. 5

Therefore, Encomienda brought the case to the CA. On March 29, 2012, the appellate court
granted the appeal and reversed the RTC Decision, to wit:

WHEREFORE, the defendant-appellant's appeal is GRANTED. The decision of the trial

court dated January 9, 2006 is hereby REVERSED and SET ASIDE and in its stead render
judgment against defendant-appellee Georgia Osmefia-Jalandoni ordering the latter to pay
plaintiff-appellant Carmen A. Encomienda the following:

1. The sum of Three Million Two Hundred Forty-Five Thousand Eight Hundred Thirty-Six
(₱3,245,836.02) Pesos and 02/100 and Six Thousand Six Hundred Thirty-Eight
(US$6,638.20) US Dollars and 20/100;

2. Legal interest of Twelve (12%) Percent from August 14, 1997 the date of extrajudicial
demand.

3. Attorney's fees and expenses of litigation in the amount of One Hundred Thousand (₱l
00,000.00) Pesos.

Let a copy of this Decision be served upon defendants-appellees through their respective
counsels. The Division Clerk of Court is directed to furnish a copy of this Decision to
plaintiff-appellant who, to date, has yet to submit the name of her new counsel following the
death of appellant's original counsel ofrecord, Atty. Richard W. Sison.

SO ORDERED. 6

Jalandoni filed a motion for reconsideration, but the same was denied.  Hence, the instant
7

petition.

The sole issue in this case is whether or not Encomienda is entitled to be reimbursed for the
amounts she defrayed for Jalandoni.

Jalandoni insists that she never borrowed any amount of money from Encomienda. During
the entire time that Encomienda was sending hermoney and paying her bills, there was not
one reference to a loan. In other words, Jalandoni would have the Court believe that
Encomienda volunteeredto spend about ₱3,245,836.02 and $6,638.20 of her hard-earned
money in a span of eight (8) months for her and her family simply out of pure generosity and
the kindness of her heart, without expecting anything in return. Suchpresupposition is
incredible, highly unusual, and contrary to common experience, unless the benefactor is a
billionaire philanthropist who usuallyspends his days distributing his fortune to the needy. It
is a notable fact that Jalandoni was married to one of the richest hacienderos of Iloilo and
belongto the privileged and affluent Osmeña family, being the daughter of the late Senator
Sergio Osmeña, Jr. Clearly then, Jalandoni is not one to be aconvincing object of anyone's
charitable acts, especially not from someone like Encomienda who has not been endowed
with such wealth and powerful pedigree.

The appellate court aptly pointed out that when Encomienda gave a Barbie doll to
Jalandoni's daughter, she was quick to send a letter acknowledging receipt and thanking
Encomienda for the simple gift. However, not once did Jalandoni ever send a simple note or
letter, let alone a card, expressing her gratitude towards Encomienda for the countless
instances she received various amounts of money supposedly given to her as gifts.

Jalandoni also contends that the amounts she received from Encomienda were mostly
provided and paid without her prior knowledge and thus she could not have consented to
any loan agreement. She relies on the trial court's finding that Encomienda's claims were
not supported by any documentary evidence. It must be stressed, however, that the trial
court merely found that no documentary evidence was offered showing Jalandoni's
authorization or undertaking to pay the expenses. But the second paragraph of Article 1236
of the Civil Code provides:

xxxx

Whoever pays for another may demand from the debtor what he has paid, except that if he
paid without the knowledge or against the will of the debtor, he can recover only
insofar as the payment has been beneficial to the debtor. 8

Clearly, Jalandoni greatly benefited from the purportedly unauthorized payments. Thus,
even if she asseverates that Encomienda's payment of her household bills was without her
knowledge or against her will, she cannot deny the fact that the same still inured to her
benefit and Encomienda must therefore be consequently reimbursed for it. Also, when
Jalandoni learned about the payments, she did nothing to express her objection to or
repudiation of the same, within a reasonable time. Even when she claimed that she was
prepared with her own money,  she still accepted the financial assistance and actually made
9

use of it. While she asserts to have been upset because of Encomienda's supposedly
intrusive actions, she failed to protest and, in fact, repeatedly accepted money from her and
further allowed her to pay her driver, security guard, househelp, and bills for her cellular
phone, cable television, pager, gasoline, food, and other utilities. She cannot, therefore,
deny the benefits she reaped from said acts now that the time for restitution has come. The
debtor who knows that another has paid his obligation for him and who does not repudiate it
at any time, must corollarily pay the amount advanced by such third person. 10
The RTC likewise harped on the fact that if Encomienda really intended the amounts to be a
loan, nonnal human behavior would have prompted at least a handwritten acknowledgment
or a promissory note the moment she parted with her money for the purpose of granting a
loan. This would be particularly true if the loan obtained was part of a business dealing and
not one extended to a close friend who suddenly needed monetary aid. In fact, in case of
loans between friends and relatives, the absence of acknowledgment receipts or promissory
notes is more natural and real. In a similar case,  the Court upheld the CA' s
11

pronouncement that the existence of a contract of loan cannot be denied merely because it
was not reduced in writing. Surely, there can be a verbal loan. Contracts are binding
between the parties, whether oral or written. The law is explicit that contracts shall be
obligatory in whatever form they may have been entered into, provided all the essential
requisites for their validity are present. A simple loan or mutuum exists when a person
receives a loan of money or any other fungible thing and acquires its ownership. He is
bound to pay to the creditor the equal amount of the same kind and quality. Jalandoni posits
that the more logical reason behind the disbursements would be what Encomiendacandidly
told the trial court, that her acts were plainly an "unselfish display of Christian help" and
done out of "genuine concern for Georgia's children." However, the "display of Christian
help" is not inconsistent with theexistence of a loan. Encomienda immediately offered a
helping hand when a friend asked for it. But this does not mean that she had already waived
herright to collect in the future. Indeed, when Encomienda felt that Jalandoni was beginning
to avoid her, that was when she realized that she had to protect her right to demand
payment. The fact that Encomienda kept the receipts even for the smallest amounts she
had advanced, repeatedly sent demand letters, and immediately filed the instant case when
Jalandoni stubbornly refused to heed her demands sufficiently disproves the latter’s belief
that all the sums of money she received were merely given out of charity.

Truly, Jalandoni herself admitted that she received the aforementioned amounts from
Encomienda and is merely using her lack of authorization over the payments as her
defence. In fact, Lupong Tagapamayapa member Rogero, a disinterested third party,
confirmed this, saying that during the barangay conciliation, Jalandoni indeed admitted
having borrowed money from Encomienda and that she would return it. Jalandoni, however,
reneged on said promise.

The principle of unjust enrichment finds application in this case. Unjust enrichment exists
when a person unfairly retains a benefit to the loss of another, or when a person retains
money or property of another against the fundamental principles of justice, equity, and good
conscience. There is unjust enrichment under Article 22 of the Civil Code when (1) a person
is unjustly benefited, and (2) such benefit is derived at the expense of or with damages to
another. The principle of unjust enrichment essentially contemplates payment when there is
no duty to pay, and the person who receives the payment has no right to receive it.  The CA
12

is then correct when it ruled that allowing Jalandoni to keep the amounts received from
Encomienda will certainly cause an unjust enrichment on Jalandoni' s part and to
Encomienda's damage and prejudice.

WHEREFORE, PREMISES CONSIDERED, the Court DISMISSES the petition for lack of

merit and AFFIRMS the Decision of the Court of Appeals, Cebu City dated March 29, 2012
and its Resolution dated December 19, 2012 in CA-G.R. CV No. 01339, with
MODIFICATION as to the interest which must be twelve percent (12%) per annum of the
amount awarded from the time of demand on August 14, 1997 to June 30, 2013, and six
percent (6%)  per annum from July 1, 2013 until its full satisfaction.
13

SO ORDERED.

DIOSDADO M. PERALTA
Associate Justice

WE CONCUR:

ANTONIO T. CARPIO
Associate Justice
Chairperson

On official leave
JOSE CATRAL MENDOZA
MARVIC M.V.F. LEONEN
Associate Justice
Associate Justice

FRANCIS H. JARDELEZA
Associate Justice

CERTIFICATION

Pursuant to the 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.

ANTONIO T. CARPIO

Acting Chief Justice