Republic of the Philippines

Supreme CourtManila

   

 THIRD DIVISION

  

VIOLETA TUDTUD BANATE, MARY MELGRID M. CORTEL, BONIFACIO CORTEL, ROSENDO MAGLASANG, and PATROCINIA MONILAR,                                   Petitioners,

  

-         versus    -  PHILIPPINE COUNTRYSIDE RURAL BANK (LILOAN, CEBU), INC. and TEOFILO SOON, JR.,                                    Respondents.    

 G.R. No.   163825     Present:

     *CARPIO, J.,   **BRION, Acting Chairperson,  ***ABAD,      VILLARAMA, JR., and         ****MENDOZA, JJ.        Promulgated:             July 13, 2010

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D E C I S I O N 

 BRION, J.:

 

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

December 19, 2003 decision[2] and the May 5, 2004 resolution[3] of the Court of

Appeals (CA) in CA-G.R. CV No. 74332.  The CA decision reversed the Regional

Trial Court (RTC) decision[4] of June 27, 2001 granting the petitioners’ complaint

for specific performance and damages against the respondent Philippine

Countryside Rural Bank, Inc. (PCRB).[5]

 

THE FACTUAL ANTECEDENTS

 

          On July 22, 1997, petitioner spouses Rosendo Maglasang and Patrocinia

Monilar (spouses Maglasang) obtained A LOAN (subject loan) from PCRB

for P1,070,000.00.  The subject loan was evidenced by a PROMISSORY NOTE  

and was payable on January 18, 1998. To secure the payment of the subject loan,

the spouses Maglasang executed, in favor of PCRB a real estate MORTGAGE  

over their property, Lot 12868-H-3-C, [6] including the HOUSE CONSTRUCTED  

thereon (collectively referred to as subject properties), owned by petitioners Mary

Melgrid and Bonifacio Cortel (spouses Cortel), the spouses Maglasang’s daughter

and son-in-law, respectively. Aside from the subject loan, the spouses Maglasang

obtained two other LOANS FROM  PCRB which were covered by separate

promissory notes[7] and secured by mortgages on their other properties.

 

          Sometime in November 1997 (before the subject loan became due), the

spouses Maglasang and the spouses Cortel asked PCRB’s permission to sell the

subject properties. They likewise requested that the subject properties be released

from the MORTGAGE  since the two other loans were adequately secured by the

other mortgages. The spouses Maglasang and the spouses Cortel claimed that the

PCRB, acting through its Branch Manager, Pancrasio Mondigo, verbally agreed to

their request but required first the full payment of the subject loan.  The spouses

Maglasang and the spouses Cortel thereafter sold to petitioner Violeta Banate the

subject properties for P1,750,000.00. The spouses Magsalang and the spouses

Cortel used the amount to pay the subject loan with PCRB.  After settling the

subject loan, PCRB gave the owner’s duplicate certificate of title of Lot 12868-H-

3-C to Banate, who was able to secure a new title in her name. The title, however,

carried the mortgage lien in favor of PCRB, prompting the petitioners to request

from PCRB a Deed of Release of Mortgage.  As PCRB refused to comply with the

petitioners’ request, the petitioners instituted an action for specific performance

before the RTC to compel PCRB to execute the release deed.

 

The petitioners additionally sought payment of damages from PCRB, which,

they claimed, caused the publication of a news report stating that they

“surreptitiously” caused the transfer of ownership of Lot 12868-H-3-C.  The

petitioners considered the news report false and malicious, as PCRB knew of the

sale of the subject properties and, in fact, consented thereto.

 

          PCRB countered the petitioners’ allegations by invoking the cross-collateral

stipulation in the mortgage deed which states: 

1.                  That as security for the payment of the loan or advance in principal sum of one million seventy thousand pesos only (P1,070,000.00) and such other loans or advances already obtained, or still to be obtained by the MORTGAGOR(s) as MAKER(s), CO-MAKER(s) or GUARANTOR(s) from the MORTGAGEE plus interest at the rate of _____ per annum and penalty and litigation charges payable on the dates mentioned in the corresponding promissory notes, the MORTGAGOR(s) hereby transfer(s) and convey(s) to MORTGAGEE by way of first mortgage the parcel(s) of land described hereunder, together with the improvements now existing for which may hereafter be made thereon, of which MORTGAGOR(s) represent(s) and warrant(s) that

MORTGAGOR(s) is/are the absolute owner(s) and that the same is/are free from all liens and encumbrances;

 TRANSFER CERTIFICATE OF TITLE NO. 82746[8]

  

Accordingly, PCRB claimed that full payment of the three loans, obtained by the

spouses Maglasang, was necessary before any of the mortgages could be released;

the settlement of the subject loan merely constituted partial payment of the total

obligation. Thus, the payment does not authorize the release of the subject

properties from the mortgage lien.

 

          PCRB considered Banate as a buyer in bad faith as she was fully aware of

the existing mortgage in its favor when she purchased the subject properties from

the spouses Maglasang and the spouses Cortel. It explained that it allowed the

release of the owner’s duplicate certificate of title to Banate only to enable her to

annotate the sale. PCRB claimed that the release of the title should not indicate the

corresponding release of the subject properties from the mortgage constituted

thereon.

 

After trial, the RTC ruled in favor of the petitioners. It noted that the

petitioners, as “necessitous men,” could not have bargained on equal footing with

PCRB in executing the mortgage, and concluded that it was a contract of

adhesion.  Therefore, any obscurity in the mortgage contract should not benefit

PCRB.[9]

 

The RTC observed that the official receipt issued by PCRB stated that the

amount owed by the spouses Maglasang under the subject loan was only

about P1.2 million; that Mary Melgrid Cortel paid the subject loan using the check

which Banate issued as payment of the purchase price; and that PCRB authorized

the release of the title further indicated that the subject loan had already been

settled. Since the subject loan had been fully paid, the RTC considered the

petitioners as rightfully entitled to a deed of release of mortgage, pursuant to the

verbal agreement that the petitioners made with PCRB’s branch manager,

Mondigo. Thus, the RTC ordered PCRB to execute a deed of release of mortgage

over the subject properties, and to pay the petitioners moral damages and

attorney’s fees.[10]

        

          On appeal, the CA reversed the RTC’s decision. The CA did not consider as

valid the petitioners’ new agreement with Mondigo, which would novate the

original mortgage contract containing the cross-collateral stipulation.  It ruled that

Mondigo cannot orally amend the mortgage contract between PCRB, and the

spouses Maglasang and the spouses Cortel; therefore, the claimed commitment

allowing the release of the mortgage on the subject properties cannot bind PCRB.

Since the cross-collateral stipulation in the mortgage contract (requiring full

settlement of all three loans before the release of any of the mortgages) is clear, the

parties must faithfully comply with its terms. The CA did not consider as material

the release of the owner’s duplicate copy of the title, as it was done merely to allow

the annotation of the sale of the subject properties to Banate.[11]

 

          Dismayed with the reversal by the CA of the RTC’s ruling, the petitioners

filed the present appeal by certiorari, claiming that the CA ruling is not in accord

with established jurisprudence.

 

THE PETITION

 

          The petitioners argue that their claims are consistent with their agreement

with PCRB; they complied with the required full payment of the subject loan to

allow the release of the subject properties from the mortgage.

Having carried out their part of the bargain, the petitioners maintain that PCRB

must honor its commitment to release the mortgage over the subject properties.

 

The petitioners disregard the cross-collateral stipulation in the mortgage

contract, claiming that it had been novated by the subsequent agreement with

Mondigo. Even assuming that the cross-collateral stipulation subsists for lack of

authority on the part of Mondigo to novate the mortgage contract, the petitioners

contend that PCRB should nevertheless return the amount paid to settle the subject

loan since the new agreement should be deemed rescinded.     

 

          The basic issues for the Court to resolve are as follows:

 

1.     Whether the purported agreement between the petitioners and Mondigo

novated the mortgage contract over the subject properties and is thus binding

upon PCRB.

2.     If the first issue is resolved negatively, whether Banate can demand

restitution of the amount paid for the subject properties on the theory that the

new agreement with Mondigo is deemed rescinded.     

  

THE COURT’S RULING  

We resolve to deny the petition.  The purported agreement did not novate the mortgage contract, particularly the cross- collateral stipulation thereon

 

Before we resolve the issues directly posed, we first dwell on the

determination of the nature of the cross-collateral stipulation in the mortgage

contract.  As a general rule, a mortgage liability is usually limited to the amount

mentioned in the contract. However, the amounts named as consideration in a

contract of mortgage do not limit the amount for which the mortgage may stand as

security if, from the four corners of the instrument, the intent to secure future and

other indebtedness can be gathered.  This stipulation is valid and binding between

the parties and is known as the “blanket mortgage clause” (also known as

the “dragnet clause).”[12]

 

In the present case, the mortgage contract indisputably provides that the

subject properties serve as security, not only for the payment of the subject loan,

but also for “such other loans or advances already obtained, or still to be

obtained.”  The cross-collateral stipulation in the mortgage contract between the

parties is thus simply a variety of a dragnet clause. After agreeing to such

stipulation, the petitioners cannot insist that the subject properties be released from

mortgage since the security covers not only the subject loan but the two other loans

as well.

 

The petitioners, however, claim that their agreement with Mondigo must be

deemed to have novated the mortgage contract. They posit that the full payment of

the subject loan extinguished their obligation arising from the mortgage contract,

including the stipulated cross-collateral provision. Consequently, consistent with

their theory of a novated agreement, the petitioners maintain that it devolves upon

PCRB to execute the corresponding Deed of Release of Mortgage.

   

We find the petitioners’ argument unpersuasive. Novation, in its broad

concept, may either be extinctive or modificatory. It is extinctive when an old

obligation is terminated by the creation of a new obligation that takes the place of

the former; it is merely modificatory when the old obligation subsists to the extent

that it remains compatible with the amendatory agreement. An extinctivenovation

results either by changing the object or principal conditions (objective or real), or

by substituting the person of the debtor or subrogating a third person in the rights

of the creditor (subjective or personal). Under this mode, novation would

have dual functions – one to extinguish an existing obligation, the other to

substitute a new one in its place – requiring a conflux of four essential requisites:

(1) a previous valid obligation; (2) an agreement of all parties concerned to a new

contract; (3) the extinguishment of the old obligation; and (4) the birth of a valid

new obligation.[13]

 

The second requisite is lacking in this case. Novation presupposes not only

the extinguishment or modification of an existing obligation but, more importantly,

the creation of a valid new obligation.[14] For the consequent creation of a new

contractual obligation, consent of both parties is, thus, required. As a general rule,

no form of words or writing is necessary to give effect to a novation.

Nevertheless, where either or both parties involved are juridical entities, proof that

the second contract was executed by persons with the proper authority to bind their

respective principals is necessary.[15]

 

Section 23 of the Corporation Code[16] expressly provides that the corporate

powers of all corporations shall be exercised by the board of directors. The power

and the responsibility to decide whether the corporation should enter into a

contract that will bind the corporation are lodged in the board, subject to the

articles of incorporation, bylaws, or relevant provisions of law. In the absence of

authority from the board of directors, no person, not even its officers, can validly

bind a corporation.

 

However, just as a natural person may authorize another to do certain acts

for and on his behalf, the board of directors may validly delegate some of its

functions and powers to its officers, committees or agents. The authority of these

individuals to bind the corporation is generally derived from law, corporate bylaws

or authorization from the board, either expressly or impliedly by habit, custom or

acquiescence in the general course of business.[17]

 

The authority of a corporate officer or agent in dealing with third persons

may be actual or apparent. Actual authority is either express or implied. The extent

of an agent’s express authority is to be measured by the power delegated to him by

the corporation, while the extent of his implied authority is measured by his prior

acts which have been ratified or approved, or their benefits accepted by his

principal.[18] The doctrine of “apparent authority,” on the other hand, with special

reference to banks, had long been recognized in this jurisdiction. The existence of

apparent authority may be ascertained through:

 1)      the general manner in which the corporation holds out an officer or agent as

having the power to act, or in other words, the apparent authority to act in general, with which it clothes him; or

2)      the acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, within or beyond the scope of his ordinary powers. 

 

Accordingly, the authority to act for and to bind a corporation may be presumed

from acts of recognition in other instances when the power was exercised without

any objection from its board or shareholders.[19]

 

Notably, the petitioners’ action for specific performance is premised on the

supposed actual or apparent authority of the branch manager, Mondigo, to release

the subject properties from the mortgage, although the other obligations remain

unpaid. In light of our discussion above, proof of the branch manager’s authority

becomes indispensable to support the petitioners’ contention. The petitioners make

no claim that Mondigo had actual authority from PCRB, whether express or

implied. Rather, adopting the trial court’s observation, the petitioners posited that

PCRB should be held liable for Mondigo’s commitment, on the basis of the latter’s

apparent authority.   

 

We disagree with this position.

 

Under the doctrine of apparent authority, acts and contracts of the agent, as are within the apparent scope of the authority conferred on him, although no actual

authority to do such acts or to make such contracts has been conferred, bind the principal.[20]The principal’s liability, however, is limited only to third persons who

have been led reasonably to believe by the conduct of the principal that such actual authority exists, although none was given. In other words, apparent authority

is determined only by the acts of the principal and not by the acts of the agent.[21] There can be no apparent authority of an agent without acts or conduct on the

part of the principal; such acts or conduct must have been known and relied upon in good faith as a result of the exercise of reasonable prudence by a third party as

claimant, and such acts or conduct must have produced a change of position to the third party’s detriment.[22]

 

In the present case, the decision of the trial court was utterly silent on the

manner by which PCRB, as supposed principal, has “clothed” or “held out” its

branch manager as having the power to enter into an agreement, as claimed by

petitioners. No proof of the course of business, usages and practices of the bank

about, or knowledge that the board had or is presumed to have of, its responsible

officers’ acts regarding bank branch affairs, was ever adduced to establish the

branch manager’s apparent  authority to verbally alter the terms of mortgage

contracts.[23] Neither was there any allegation, much less proof, that PCRB ratified

Mondigo’s act or is estopped to make a contrary claim.[24]   

 

Further, we would be unduly stretching the doctrine of apparent authority

were we to consider the power to undo or nullify solemn agreements validly

entered into as within the doctrine’s ambit. Although a branch manager, within his

field and as to third persons, is the general agent and is in general charge of the

corporation, with apparent authority commensurate with the ordinary business

entrusted him and the usual course and conduct thereof,[25]  yet the power to modify

or nullify corporate contracts remains generally in the board of directors.[26] Being

a mere branch manager alone is insufficient to support the conclusion that

Mondigo has been clothed with “apparent authority” to verbally alter terms of

written contracts, especially when viewed against the telling circumstances of this

case: the unequivocal provision in the mortgage contract; PCRB’s vigorous denial

that any agreement to release the mortgage was ever entered into by it; and, the

fact that the purported agreement was not even reduced into writing considering its

legal effects on the parties’ interests.  To put it simply, the burden of proving the

authority of Mondigo to alter or novate the mortgage contract has not been

established.[27]

 

It is a settled rule that persons dealing with an agent are bound at their peril,

if they would hold the principal liable, to ascertain not only the fact of agency but

also the nature and extent of the agent’s authority, and in case either is

controverted, the burden of proof is upon them to establish it.[28] As parties to the

mortgage contract, the petitioners are expected to abide by its terms. The

subsequent purported agreement is of no moment, and cannot prejudice PCRB, as

it is beyond Mondigo’s actual or apparent authority, as above discussed.      Rescission has no legal basis; there can beno restitution of the amount paid

 

The petitioners, nonetheless, invoke equity and alternatively pray for the

restitution of the amount paid, on the rationale that if PCRB’s branch manager was

not authorized to accept payment in consideration of separately releasing the

mortgage, then the agreement should be deemed rescinded, and the amount paid by

them returned.

 

PCRB, on the other hand, counters that the petitioners’ alternative prayer has

no legal and factual basis, and insists that the clear agreement of the parties was for

the full payment of the subject loan, and in return, PCRB would deliver the title to

the subject properties to the buyer, only to enable the latter to obtain a transfer of

title in her own name.

 

We agree with PCRB. Even if we were to assume that the purported

agreement has been sufficiently established, since it is not binding on the bank for

lack of authority of PCRB’s branch manager, then the prayer for restitution of the

amount paid would have no legal basis.  Of course, it will be asked: what then is

the legal significance of the payment made by Banate? Article 2154 of the Civil

Code reads: 

Art 2154. If something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises.

          

Notwithstanding the payment made by Banate, she is not entitled to recover

anything from PCRB under Article 2154. There could not have been any payment

by mistake to PCRB, as the check which Banate issued as payment was to her co-

petitioner Mary Melgrid Cortel (the payee), and not to PCRB. The same check was

simply endorsed by the payee to PCRB in payment of the subject loan that the

Maglasangs owed PCRB.[29]  

 

The mistake, if any, was in the perception of the authority of Mondigo, as

branch manager, to verbally alter the mortgage contract, and not as to whether the

Cortels, as sellers, were entitled to payment.  This mistake (on Mondigo’s lack of

authority to alter the mortgage) did not affect the validity of the payment made to

the bank as the existence of the loan was never disputed.  The dispute was merely

on the effect of the payment on the security given.[30]  

 

Consequently, no right to recover accrues in Banate’s favor as PCRB never

dealt with her.  The borrowers-mortgagors, on the other hand, merely paid what

was really owed. Parenthetically, the subject loan was due on January 18, 1998, but

was paid sometime in November 1997.  It appears, however, that at the time the

complaint was filed, the subject loan had already matured. Consequently, recovery

of the amount paid, even under a claim of premature payment, will not prosper.

 

In light of these conclusions, the claim for moral damages must necessarily

fail.  On the alleged injurious publication, we quote with approval the CA’s ruling

on the matter, viz:

 Consequently, there is no reason to hold [respondent] PCRB liable to

[petitioners] for damages. x  x  x [Petitioner] Maglasang cannot hold [respondent] PCRB liable for the publication of the extra-judicial sale. There was no evidence submitted to prove that [respondent] PCRB authored the words “Mortgagors surreptitiously caused the transfer of ownership of Lot 12868-H-3-C  x  x  x” contained in the publication since at the bottom was   x  x  x  Sheriff Teofilo C. Soon, Jr.’s name. Moreover, there was not even an iota of proof which shows damage on the part of [petitioner] Mary Melgrid M. Cortel[VAC1] .[31]

  

WHEREFORE, we DENY the petitioners’ petition for review

on certiorari for lack of merit, and AFFIRM the decision of the Court of Appeals

dated December 19, 2003 and its resolution dated May 5, 2004 in CA-G.R. CV No.

74332. No pronouncement as to costs.         

          SO ORDERED. 

Republic of the Philippines

Supreme Court

Manila

SECOND DIVISION

TIMOTEO H. SARONA,

Petitioner,

- versus -

NATIONAL LABOR RELATIONS

COMMISSION, ROYALE SECURITY

G.R. No. 185280

Present:

CARPIO, J.,

Chairperson,

PEREZ,

SERENO,

REYES, and

BERNABE, JJ. *

AGENCY (FORMERLY SCEPTRE

SECURITY AGENCY) and

CESAR S. TAN,

Respondents.

Promulgated:

January 18, 2012

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DECISION

REYES, J.:

This is a petition for review under Rule 45 of the Rules of Court from the May

29, 2008 Decision1 of the Twentieth Division of the Court of Appeals (CA) in CA-

G.R. SP No. 02127 entitled “Timoteo H. Sarona v. National Labor Relations

Commission, Royale Security Agency (formerly Sceptre Security Agency) and Cesar S.

Tan” (Assailed Decision), which affirmed the National Labor Relations

Commission’s (NLRC) November 30, 2005 Decision and January 31, 2006

Resolution, finding the petitioner illegally dismissed but limiting the amount of his

backwages to three (3) monthly salaries. The CA likewise affirmed the NLRC’s

finding that the petitioner’s separation pay should be computed only on the basis of

his length of service with respondent Royale Security Agency (Royale). The CA held

that absent any showing that Royale is a mere alter ego of Sceptre Security Agency

(Sceptre), Royale cannot be compelled to recognize the petitioner’s tenure with

Sceptre. The dispositive portion of the CA’s Assailed Decision states:

WHEREFORE, in view of the foregoing, the instant petition is PARTLY GRANTED, though piercing of the corporate veil is hereby denied for lack of merit. Accordingly, the assailed Decision and Resolution of the NLRC respectively dated November 30, 2005 and January 31, 2006 are hereby AFFIRMED as to the monetary awards.

SO ORDERED. 2

Factual Antecedents

On June 20, 2003, the petitioner, who was hired by Sceptre as a security guard

sometime in April 1976, was asked by Karen Therese Tan (Karen), Sceptre’s

Operation Manager, to submit a resignation letter as the same was supposedly

required for applying for a position at Royale. The petitioner was also asked to fill up

Royale’s employment application form, which was handed to him by Royale’s

General Manager, respondent Cesar Antonio Tan II (Cesar).3

After several weeks of being in floating status, Royale’s Security Officer,

Martin Gono (Martin), assigned the petitioner at Highlight Metal Craft, Inc.

(Highlight Metal) from July 29, 2003 to August 8, 2003. Thereafter, the petitioner was

transferred and assigned to Wide Wide World Express, Inc. (WWWE, Inc.). During

his assignment at Highlight Metal, the petitioner used the patches and agency cloths of

Sceptre and it was only 

when he was posted at WWWE, Inc. that he started using those of Royale.4

On September 17, 2003, the petitioner was informed that his assignment at

WWWE, Inc. had been withdrawn because Royale had allegedly been replaced by

another security agency. The petitioner, however, shortly discovered thereafter that

Royale was never replaced as WWWE, Inc.’s security agency. When he placed a call

at WWWE, Inc., he learned that his fellow security guard was not relieved from his

post.5

On September 21, 2003, the petitioner was once again assigned at Highlight

Metal, albeit for a short period from September 22, 2003 to September 30, 2003.

Subsequently, when the petitioner reported at Royale’s office on October 1, 2003,

Martin informed him that he would no longer be given any assignment per the

instructions of Aida Sabalones-Tan (Aida), general manager of Sceptre. This

prompted him to file a complaint for illegal dismissal on October 4, 2003.6

In his May 11, 2005 Decision, Labor Arbiter Jose Gutierrez (LA Gutierrez)

ruled in the petitioner’s favor and found him illegally dismissed. For being

unsubstantiated, LA Gutierrez denied credence to the respondents’ claim that the

termination of the petitioner’s employment relationship with Royale was on his

accord following his alleged employment in another company. That the petitioner was

no longer interested in being an employee of Royale cannot be presumed from his

request for a certificate of employment, a claim which, to begin with, he vehemently

denies. Allegation of the petitioner’s abandonment is negated by his filing of a

complaint for illegal dismissal three (3) days after he was informed that he would no

longer be given any assignments. LA Gutierrez ruled:

In short, respondent wanted to impress before us that complainant abandoned his employment. We are not however, convinced.

There is abandonment when there is a clear proof showing that one has no more interest to return to work. In this instant case, the record has no proof to such effect. In a long line of decisions, the Supreme Court ruled:

“Abandonment of position is a matter of intention expressed in clearly certain and unequivocal acts, however, an interim employment does not mean abandonment.” (Jardine Davis, Inc. vs. NLRC, 225 SCRA 757).

“In abandonment, there must be a concurrence of the intention to abandon and some overt acts from which an employee may be declared as having no more interest to work.” (C. Alcontin & Sons, Inc. vs. NLRC, 229 SCRA 109).

“It is clear, deliberate and unjustified refusal to severe employment and not mere absence that is required to constitute abandonment.” x x x” (De Ysasi III vs. NLRC, 231 SCRA 173).

Aside from lack of proof showing that complainant has abandoned his employment, the record would show that immediate action was taken in order to protest his dismissal from employment. He filed a complaint [for] illegal dismissal on October 4, 2004 or three (3) days after he was dismissed. This act, as declared by the Supreme Court is inconsistent with abandonment, as held in the case of Pampanga Sugar Development Co., Inc. vs. NLRC, 272 SCRA 737 where the Supreme Court ruled:

“The immediate filing of a complaint for [i]llegal [d]ismissal by an employee is inconsistent with abandonment.”7

The respondents were ordered to pay the petitioner backwages, which LA

Gutierrez computed from the day he was dismissed, or on October 1, 2003, up to the

promulgation of his Decision on May 11, 2005. In lieu of reinstatement, the

respondents were ordered to pay the petitioner separation pay equivalent to his one (1)

month salary in consideration of his tenure with Royale, which lasted for only one (1)

month and three (3) days. In this 

regard, LA Gutierrez refused to pierce Royale’s corporate veil for purposes of

factoring the petitioner’s length of service with Sceptre in the computation of his

separation pay. LA Gutierrez ruled that Royale’s corporate personality, which is

separate and distinct from that of Sceptre, a sole proprietorship owned by the late

Roso Sabalones (Roso) and later, Aida, cannot be pierced absent clear and convincing

evidence that Sceptre and Royale share the same stockholders and incorporators and

that Sceptre has complete control and dominion over the finances and business affairs

of Royale. Specifically:

To support its prayer of piercing the veil of corporate entity of respondent Royale, complainant avers that respondent Royal (sic) was using the very same office of SCEPTRE in C. Padilla St., Cebu City. In addition, all officers and staff of SCEPTRE are now the same officers and staff of ROYALE, that all [the] properties of SCEPTRE are now being owned by ROYALE and that ROYALE is now occupying the property of SCEPTRE. We are not however, persuaded.

It should be pointed out at this juncture that SCEPTRE, is a single proprietorship. Being so, it has no distinct and separate personality. It is owned by the late Roso T. Sabalones. After the death of the owner, the property is supposed to be divided by the heirs and any claim against the sole proprietorship is a claim against Roso T. Sabalones. After his death, the claims should be instituted against the estate of Roso T. Sabalones. In short, the estate of the late Roso T. Sabalones should have been impleaded as respondent of this case.

Complainant wanted to impress upon us that Sceptre was organized into another entity now called Royale Security Agency. There is however, no proof to this assertion. Likewise, there is no proof that Roso T. Sabalones, organized his single proprietorship business into a corporation, Royale Security Agency. On the contrary, the name of Roso T. Sabalones does not appear in the Articles of Incorporation. The names therein as incorporators are:

Bruno M. Kuizon – [P]150,000.00

Wilfredo K. Tan – 100,000.00

Karen Therese S. Tan – 100,000.00

Cesar Antonio S. Tan – 100,000.00

Gabeth Maria K. Tan – 50,000.00

Complainant claims that two (2) of the incorporators are the granddaughters of Roso T. Sabalones. This fact even give (sic) us further reason to conclude that respondent Royal (sic) Security Agency is not an alter ego or conduit of SCEPTRE. It is obvious that respondent Royal (sic) Security Agency is not owned by the owner of “SCEPTRE”.

It may be true that the place where respondent Royale hold (sic) office is the same office formerly used by “SCEPTRE.” Likewise, it may be true that the same officers and staff now employed by respondent Royale Security Agency were the same officers and staff employed by “SCEPTRE.” We find, however, that these facts are not sufficient to justify to require respondent Royale to answer for the liability of Sceptre, which was owned solely by the late Roso T. Sabalones. As we have stated above, the remedy is to address the claim on the estate of Roso T. Sabalones.8

The respondents appealed LA Gutierrez’s May 11, 2005 Decision to the

NLRC, claiming that the finding of illegal dismissal was attended with grave abuse of

discretion. This appeal was, however, dismissed by the NLRC in its November 30,

2005 Decision,9 the dispositive portion of which states:

WHEREFORE, premises considered, the Decision of the Labor Arbiter declaring the illegal dismissal of complainant is herebyAFFIRMED.

However[,] We modify the monetary award by limiting the grant of backwages to only three (3) months in view of complainant’s very limited service which lasted only for one month and three days.

1. Backwages - [P]15,600.00

2. Separation Pay - 5,200.00

3. 13th Month Pay - 583.34

[P]21,383.34 Attorney’s Fees- 2,138.33

Total [P]23,521.67

The appeal of respondent Royal (sic) Security Agency is hereby DISMISSED for lack of merit.

SO ORDERED.10

The NLRC partially affirmed LA Gutierrez’s May 11, 2005 Decision. It

concurred with the latter’s finding that the petitioner was illegally dismissed and the

manner by which his separation pay was computed, but modified the monetary award

in the petitioner’s favor by reducing the amount of his backwages from P95,600.00

to P15,600.00. The NLRC determined the petitioner’s backwages as limited to three

(3) months of his last monthly salary, considering that his employment with Royale

was only for a period for one (1) month and three (3) days, thus:11

On the other hand, while complainant is entitled to backwages, We are aware that his stint with respondent Royal (sic) lasted only for one (1) month and three (3) days such that it is Our considered view that his backwages should be limited to only three (3) months.

Backwages:

[P]5,200.00 x 3 months = [P]15,600.0012

The petitioner, on the other hand, did not appeal LA Gutierrez’s May 11, 2005

Decision but opted to raise the validity of LA Gutierrez’s adverse findings with

respect to piercing Royale’s corporate personality and computation of his separation

pay in his Reply to the respondents’ Memorandum of Appeal. As the filing of an

appeal is the prescribed remedy and no aspect of the decision can be overturned by a

mere reply, the NLRC dismissed the petitioner’s efforts to reverse LA Gutierrez’s

disposition of these issues. Effectively, the petitioner had already waived his right to

question LA Gutierrez’s Decision when he failed to file an appeal within the

reglementary period. The NLRC held:

On the other hand, in complainant’s Reply to Respondent’s Appeal Memorandum he prayed that the doctrine of piercing the veil of corporate fiction of respondent be applied so that his services with Sceptre since 1976 [will not] be deleted. If complainant assails this particular finding in the Labor Arbiter’s Decision, complainant should have filed an appeal and not seek a relief by merely filing a Reply to Respondent’s Appeal Memorandum.13

Consequently, the petitioner elevated the NLRC’s November 30, 2005 Decision to the

CA by way of a Petition for Certiorari under Rule 65 of the Rules of Court. On the

other hand, the respondents filed no appeal from the NLRC’s finding that the

petitioner was illegally dismissed.

The CA, in consideration of substantial justice and the jurisprudential dictum

that an appealed case is thrown open for the appellate court’s review, disagreed with

the NLRC and proceeded to review the evidence on record to determine if Royale is

Sceptre’s alter ego that would warrant the piercing of its corporate veil.14 According to

the CA, errors not assigned on appeal may be reviewed as technicalities should not

serve as bar to the full adjudication of cases. Thus:

In Cuyco v. Cuyco, which We find application in the instant case, the Supreme Court held:

“In their Reply, petitioners alleged that their petition only raised the sole issue of interest on the interest due, thus, by not filing their own petition for review, respondents waived their privilege to bring matters for the Court’s review that [does] not deal with the sole issue raised.

Procedurally, the appellate court in deciding the case shall consider only the assigned errors, however, it is equally settled that the Court is clothed with ample authority to review matters not assigned as errors in an appeal, if it finds that their consideration is necessary to arrive at a just disposition of the case.”

Therefore, for full adjudication of the case, We have to primarily resolve the issue of whether the doctrine of piercing the corporate veil be justly applied in order to determine petitioner’s length of service with private respondents.15 (citations omitted)

Nonetheless, the CA ruled against the petitioner and found the evidence he

submitted to support his allegation that Royale and Sceptre are one and the same

juridical entity to be wanting. The CA refused to pierce Royale’s corporate mask as

one of the “probative factors that would justify the application of the doctrine of

piercing the corporate veil is stock ownership by one or common ownership of both

corporations” and the petitioner failed to present clear and convincing proof that

Royale and Sceptre are commonly owned or controlled. The relevant portions of the

CA’s Decision state:

In the instant case, We find no evidence to show that Royale Security Agency, Inc. (hereinafter “Royale”), a corporation duly registered with the Securities and Exchange Commission (SEC) and Sceptre Security Agency (hereinafter “Sceptre”), a single proprietorship, are one and the same entity.

Petitioner, who has been with Sceptre since 1976 and, as ruled by both the Labor Arbiter and the NLRC, was illegally dismissed by Royale on October 1, 2003, alleged that in order to circumvent labor laws, especially to avoid payment of money claims and the consideration on the length of service of its employees, Royale was established as an alter ego or business conduit of Sceptre. To prove his claim, petitioner declared that Royale is conducting business in the same office of Sceptre, the latter being owned by the late retired Gen. Roso Sabalones, and was managed by the latter’s daughter, Dr. Aida Sabalones-Tan; that two of Royale’s incorporators are grandchildren [of] the late Gen. Roso

Sabalones; that all the properties of Sceptre are now owned by Royale, and that the officers and staff of both business establishments are the same; that the heirs of Gen. Sabalones should have applied for dissolution of Sceptre before the SEC before forming a new corporation.

On the other hand, private respondents declared that Royale was incorporated only on March 10, 2003 as evidenced by the Certificate of Incorporation issued by the SEC on the same date; that Royale’s incorporators are Bruino M. Kuizon, Wilfredo Gracia K. Tan, Karen Therese S. Tan, Cesar Antonio S. Tan II and [Gabeth] Maria K. Tan.

Settled is the tenet that allegations in the complaint must be duly proven by competent evidence and the burden of proof is on the party making the allegation. Further, Section 1 of Rule 131 of the Revised Rules of Court provides:

“SECTION 1. Burden of proof. – 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.”

We believe that petitioner did not discharge the required burden of proof to establish his allegations. As We see it, petitioner’s claim that Royale is an alter ego or business conduit of Sceptre is without basis because aside from the fact that there is no common ownership of both Royale and Sceptre, no evidence on record would prove that Sceptre, much less the late retired Gen. Roso Sabalones or his heirs, has control or complete domination of Royale’s finances and business transactions. Absence of this first element, coupled by petitioner’s failure to present clear and convincing evidence to substantiate his allegations, would prevent piercing of the corporate veil. Allegations must be proven by sufficient evidence. Simply stated, he who alleges a fact has the burden of proving it; mere allegation is not evidence.16 (citations omitted)

By way of this Petition, the petitioner would like this Court to revisit the computation

of his backwages, claiming that the same should be computed from the time he was

illegally dismissed until the finality of this decision.17 The petitioner would likewise

have this Court review and examine anew the factual allegations and the supporting

evidence to determine if the CA erred in its refusal to pierce Royale’s corporate mask

and rule that it is but a mere continuation or successor of Sceptre. According to the

petitioner, the erroneous computation of his separation pay was due to the CA’s

failure, as well as the NLRC and LA Gutierrez, to consider evidence conclusively

demonstrating that Royale and Sceptre are one and the same juridical entity. The

petitioner claims that since Royale is no more than Sceptre’s alter ego, it should

recognize and credit his length of service with Sceptre.18

The petitioner claimed that Royale and Sceptre are not separate legal persons

for purposes of computing the amount of his separation pay and other benefits under

the Labor Code. The piercing of Royale’s corporate personality is justified by several

indicators that Royale was incorporated for the sole purpose of defeating his right to

security of tenure and circumvent payment of his benefits to which he is entitled under

the law: (i) Royale was holding office in the same property used by Sceptre as its

principal place of business;19(ii) Sceptre and Royal have the same officers and

employees;20 (iii) on October 14, 1994, Roso, the sole proprietor of Sceptre, sold to

Aida, and her husband, Wilfredo Gracia K. Tan (Wilfredo),21 the property used by

Sceptre as its principal place of business;22 (iv) Wilfredo is one of the incorporators of

Royale;23 (v) on May 3, 1999, Roso ceded the license to operate Sceptre issued by the

Philippine National Police to Aida;24 (vi) on July 28, 1999, the business name “Sceptre

Security & Detective Agency” was registered with the Department of Trade and

Industry (DTI) under the name of Aida;25 (vii) Aida exercised control over the affairs

of Sceptre and Royale, as she was, in fact, the one who dismissed the petitioner from

employment;26 (viii) Karen, the daughter of Aida, was Sceptre’s OperationManager

and is one of the incorporators of Royale;27 and (ix) Cesar Tan II, the son of Aida was

one of Sceptre’s officers and is one of the incorporators of Royale.28

In their Comment, the respondents claim that the petitioner is barred from

questioning the manner by which his backwages and separation pay were computed.

Earlier, the petitioner moved for the execution of the NLRC’s November 30, 2005

Decision29 and the respondents paid him the full amount of the monetary award

thereunder shortly after the writ of execution was issued.30 The respondents likewise

maintain that Royale’s separate and distinct corporate personality should be respected

considering that the evidence presented by the petitioner fell short of establishing that

Royale is a mere alter ego of Sceptre.

The petitioner does not deny that he has received the full amount of backwages

and separation pay as provided under the NLRC’s November 30, 2005

Decision.31 However, he claims that this does not preclude this Court from modifying

a decision that is tainted with grave abuse of discretion or issued without jurisdiction. 32

ISSUES

Considering the conflicting submissions of the parties, a judicious

determination of their respective rights and obligations requires this Court to resolve

the following substantive issues:

a. Whether Royale’s corporate fiction should be pierced for the

purpose of compelling it to recognize the petitioner’s length of service

with Sceptre and for holding it liable for the benefits that have accrued to

him arising from his employment with Sceptre; and

b. Whether the petitioner’s backwages should be limited to his

salary for three (3) months.

OUR RULING

Because his receipt of the proceeds of the award under the NLRC’s November 30, 2005 Decision is qualified and without prejudice to the CA’s resolution of his petition forcertiorari, the petitioner is not barred from exercising his right to elevate the decision of the CA to this Court.

Before this Court proceeds to decide this Petition on its merits, it is imperative to

resolve the respondents’ contention that the full satisfaction of the award under the

NLRC’s November 30, 2005 Decision bars the petitioner from questioning the

validity thereof. The respondents submit that they had paid the petitioner the amount

of P21,521.67 as directed by the NLRC and this constitutes a waiver of his right to file

an appeal to this Court.

The respondents fail to convince.

The petitioner’s receipt of the monetary award adjudicated by the NLRC is not

absolute, unconditional and unqualified. The petitioner’s May 3, 2007 Motion for

Release contains a reservation, stating in his prayer that: “it is respectfully prayed that

the respondents and/or Great Domestic Insurance Co. be ordered to RELEASE/GIVE

the amount of P23,521.67 in favor of the complainant TIMOTEO H. SARONA

without prejudice to the outcome of the petition with the CA.”33

In Leonis Navigation Co., Inc., et al. v. Villamater, et al.,34 this Court ruled that

the prevailing party’s receipt of the full amount of the judgment award pursuant to a

writ of execution issued by the labor arbiter does not 

close or terminate the case if such receipt is qualified as without prejudice to the

outcome of the petition for certiorari pending with the CA.

Simply put, the execution of the final and executory decision or resolution of the NLRC shall proceed despite the pendency of a petition

for certiorari, unless it is restrained by the proper court. In the present case, petitioners already paid Villamater’s widow, Sonia, the amount of P3,649,800.00, representing the total and permanent disability award plus attorney’s fees, pursuant to the Writ of Execution issued by the Labor Arbiter. Thereafter, an Order was issued declaring the case as "closed and terminated". However, although there was no motion for reconsideration of this last Order, Sonia was, nonetheless, estopped from claiming that the controversy had already reached its end with the issuance of the Order closing and terminating the case. This is because the Acknowledgment Receipt she signed when she received petitioners’ payment was without prejudice to the final outcome of the petition for certiorari pending before the CA.35

The finality of the NLRC’s decision does not preclude the filing of a petition

for certiorari under Rule 65 of the Rules of Court. That the NLRC issues an entry of

judgment after the lapse of ten (10) days from the parties’ receipt of its decision 36 will

only give rise to the prevailing party’s right to move for the execution thereof but will

not prevent the CA from taking cognizance of a petition forcertiorari on jurisdictional

and due process considerations.37 In turn, the decision rendered by the CA on a

petition for certiorari may be appealed to this Court by way of a petition for review

on certiorari under Rule 45 of the Rules of Court. Under Section 5, Article VIII of the

Constitution, this Court has the power to “review, revise, reverse, modify, or affirm on

appeal or certiorari as the law or the Rules of Court may provide, final judgments and

orders of lower courts in x x x all cases in which only an error or question of law is

involved.” Consistent with this constitutional mandate, Rule 45 of the Rules of Court

provides the remedy of an appeal by certiorari from decisions, final orders or

resolutions of the CA in any case, i.e., regardless of the nature of the action or

proceedings 

involved, which would be but a continuation of the appellate process over the original

case.38 Since an appeal to this Court is not an original and independent action but a

continuation of the proceedings before the CA, the filing of a petition for review

under Rule 45 cannot be barred by the finality of the NLRC’s decision in the same

way that a petition for certiorari under Rule 65 with the CA cannot.

Furthermore, if the NLRC’s decision or resolution was reversed and set aside for

being issued with grave abuse of discretion by way of a petition for certiorari to the

CA or to this Court by way of an appeal from the decision of the CA, it is considered

void ab initio and, thus, had never become final and executory.39

A Rule 45 Petition should be confined to questions of law. Nevertheless, this Court has the power to resolve a question of fact, such as whether a corporation is a mere alter ego of another entity or whether the corporate fiction was invoked for fraudulent or malevolent ends, if the findings in assailed decision is not supported by the evidence on record or based on a misapprehension of facts.

The question of whether one corporation is merely an alter ego of another is

purely one of fact. So is the question of whether a corporation is a paper company, a

sham or subterfuge or whether the petitioner adduced the requisite quantum of

evidence warranting the piercing of the veil of the respondent’s corporate

personality.40

As a general rule, this Court is not a trier of facts and a petition for review

on certiorari under Rule 45 of the Rules of Court must exclusively raise questions of

law. Moreover, if factual findings of the NLRC and the LA have been affirmed by the

CA, this Court accords them the respect and finality they deserve. It is well-settled

and oft-repeated that findings of fact of administrative agencies and quasi-judicial

bodies, which have acquired expertise because their jurisdiction is confined to specific

matters, are generally accorded not only respect, but finality when affirmed by the

CA. 41

Nevertheless, this Court will not hesitate to deviate from what are clearly

procedural guidelines and disturb and strike down the findings of the CA and those of

the labor tribunals if there is a showing that they are unsupported by the evidence on

record or there was a patent misappreciation of facts. Indeed, that the impugned

decision of the CA is consistent with the findings of the labor tribunals does not per

se conclusively demonstrate the correctness thereof. By way of exception to the

general rule, this Court will scrutinize the facts if only to rectify the prejudice and

injustice resulting from an incorrect assessment of the evidence presented.

A resolution of an issue that has supposedly become final and executory as the petitioner only raised it in his reply to the respondents’ appeal may be revisited by the appellate court if such is necessary for a just disposition of the case.

As above-stated, the NLRC refused to disturb LA Gutierrez’s denial of the

petitioner’s plea to pierce Royale’s corporate veil as the petitioner did not appeal any

portion of LA Gutierrez’s May 11, 2005 Decision.

In this respect, the NLRC cannot be accused of grave abuse of discretion. Under

Section 4(c), Rule VI of the NLRC Rules,42 the NLRC shall limit itself to reviewing

and deciding only the issues that were elevated on appeal. The NLRC, while not

totally bound by technical rules of procedure, is not licensed to disregard and violate

the implementing rules it implemented. 43

Nonetheless, technicalities should not be allowed to stand in the way of equitably and

completely resolving the rights and obligations of the parties. Technical rules are not

binding in labor cases and are not to be applied strictly if the result would be

detrimental to the working man.44 This Court may choose not to encumber itself with

technicalities and limitations consequent to procedural rules if such will only serve as

a hindrance to its duty to decide cases judiciously and in a manner that would put an

end with finality to all existing conflicts between the parties.

Royale is a continuation or successor of Sceptre.

A corporation is an artificial being created by operation of law. It possesses the right

of succession and such powers, attributes, and properties expressly authorized by law

or incident to its existence. It has a personality separate and distinct from the persons

composing it, as well as from any other legal entity to which it may be related. This is

basic.45

Equally well-settled is the principle that the corporate mask may be removed or

the corporate veil pierced when the corporation is just an alter ego of a person or of

another corporation. For reasons of public policy and in the interest of justice, the

corporate veil will justifiably be impaled only when it becomes a shield for fraud,

illegality or inequity committed against third persons.46

Hence, any application of the doctrine of piercing the corporate veil should be

done with caution. A court should be mindful of the milieu where it is to be applied. It

must be certain that the corporate fiction was misused to such an extent that injustice,

fraud, or crime was committed against another, in disregard of rights. The wrongdoing

must be clearly and convincingly established; it cannot be presumed. Otherwise, an

injustice that was never unintended may result from an erroneous application. 47

Whether the separate personality of the corporation should be pierced hinges on

obtaining facts appropriately pleaded or proved. However, any piercing of the

corporate veil has to be done with caution, albeit the Court will not hesitate to

disregard the corporate veil when it is misused or when necessary in the interest of

justice. After all, the concept of corporate entity was not meant to promote unfair

objectives.48

The doctrine of piercing the corporate veil applies only in three (3) basic areas,

namely: 1) defeat of public convenience as when the corporate fiction is used as a

vehicle for the evasion of an existing obligation; 2) fraud cases or when the corporate

entity is used to justify a wrong, protect fraud, or defend a crime; or 3) alter ego cases,

where a corporation is merely a farce since it is a mere alter ego or business conduit of

a person, or where the 

corporation is so organized and controlled and its affairs are so conducted as 

to make it merely an instrumentality, agency, conduit or adjunct of another

corporation.49

In this regard, this Court finds cogent reason to reverse the CA’s findings.

Evidence abound showing that Royale is a mere continuation or successor of Sceptre

and fraudulent objectives are behind Royale’s incorporation and the petitioner’s

subsequent employment therein. These are plainly suggested by events that the

respondents do not dispute and which the CA, the NLRC and LA Gutierrez accept as

fully substantiated but misappreciated as insufficient to warrant the use of the

equitable weapon of piercing.

As correctly pointed out by the petitioner, it was Aida who exercised control

and supervision over the affairs of both Sceptre and Royale. Contrary to the

submissions of the respondents that Roso had been the only one in sole control of

Sceptre’s finances and business affairs, Aida took over as early as 1999 when Roso

assigned his license to operate Sceptre on May 3, 1999.50 As further proof of Aida’s

acquisition of the rights as Sceptre’s sole proprietor, she caused the registration of the

business name “Sceptre Security & Detective Agency” under her name with the DTI a

few months after Roso abdicated his rights to Sceptre in her favor.51 As far as Royale

is concerned, the respondents do not deny that she has a hand in its management and

operation and possesses control and supervision of its employees, including the

petitioner. As the petitioner correctly pointed out, that Aida was the one who decided

to stop giving any assignments to the petitioner and summarily dismiss him is an

eloquent testament of the power she wields insofar as Royale’s affairs are concerned.

The presence of actual common control coupled with the misuse of the corporate form

to perpetrate oppressive or manipulative conduct or evade performance of legal

obligations is patent; Royale cannot hide behind its corporate fiction.

Aida’s control over Sceptre and Royale does not, by itself, call for a disregard

of the corporate fiction. There must be a showing that a fraudulent intent or illegal

purpose is behind the exercise of such control to warrant the piercing of the corporate

veil.52 However, the manner by which the petitioner was made to resign from Sceptre

and how he became an employee of Royale suggest the perverted use of the legal

fiction of the separate corporate personality. It is undisputed that the petitioner

tendered his resignation and that he applied at Royale at the instance of Karen and

Cesar and on the impression they created that these were necessary for his continued

employment. They orchestrated the petitioner’s resignation from Sceptre and

subsequent employment at Royale, taking advantage of their ascendancy over the

petitioner and the latter’s lack of knowledge of his rights and the consequences of his

actions. Furthermore, that the petitioner was made to resign from Sceptre and apply

with Royale only to be unceremoniously terminated shortly thereafter leads to the

ineluctable conclusion that there was intent to violate the petitioner’s rights as an

employee, particularly his right to security of tenure. The respondents’ scheme reeks

of bad faith and fraud and compassionate justice dictates that Royale and Sceptre be

merged as a single entity, compelling Royale to credit and recognize the petitioner’s

length of service with Sceptre. The respondents cannot use the legal fiction of a

separate corporate personality for ends subversive of the policy and purpose behind its

creation53 or which could not have been intended by law to which it owed its being.54

For the piercing doctrine to apply, it is of no consequence if Sceptre is a sole

proprietorship. As ruled in Prince Transport, Inc., et al. v. Garcia, et al.,55 it is the act

of hiding behind the separate and distinct personalities of juridical entities to

perpetuate fraud, commit illegal acts, evade one’s obligations that the equitable

piercing doctrine was formulated to address and prevent:

A settled formulation of the doctrine of piercing the corporate veil is that when two business enterprises are owned, conducted and controlled by the same parties, both law and equity will, when necessary to protect the rights of third parties, disregard the legal fiction that these two entities are distinct and treat them as identical or as one and the same. In the present case, it may be true that Lubas is a single proprietorship and not a corporation. However, petitioners’ attempt to isolate themselves from and hide behind the supposed separate and distinct personality of Lubas so as to evade their liabilities is precisely what the classical doctrine of piercing the veil of corporate entity seeks to prevent and remedy. 56

Also, Sceptre and Royale have the same principal place of business. As early as

October 14, 1994, Aida and Wilfredo became the owners of the property used by

Sceptre as its principal place of business by virtue of a Deed of Absolute Sale they

executed with Roso.57 Royale, shortly after its incorporation, started to hold office in

the same property. These, the respondents failed to dispute.

The respondents do not likewise deny that Royale and Sceptre share the same

officers and employees. Karen assumed the dual role of Sceptre’s Operation Manager

and incorporator of Royale. With respect to the petitioner, even if he has already

resigned from Sceptre and has been employed by Royale, he was still using the

patches and agency cloths of Sceptre during his assignment at Highlight Metal.

Royale also claimed a right to the cash bond which the petitioner posted when

he was still with Sceptre. If Sceptre and Royale are indeed separate entities, Sceptre

should have released the petitioner’s cash bond when he resigned and Royale would

have required the petitioner to post a new cash bond in its favor.

Taking the foregoing in conjunction with Aida’s control over Sceptre’s and

Royale’s business affairs, it is patent that Royale was a mere subterfuge for Aida.

Since a sole proprietorship does not have a separate and distinct personality from that

of the owner of the enterprise, the latter is personally liable. This is what she sought to

avoid but cannot prosper.

Effectively, the petitioner cannot be deemed to have changed employers as

Royale and Sceptre are one and the same. His separation pay should, thus, be

computed from the date he was hired by Sceptre in April 1976 until the finality of this

decision. Based on this Court’s ruling in Masagana Concrete Products, et al. v.

NLRC, et al.,58 the intervening period between the day an employee was illegally

dismissed and the day the decision finding him illegally dismissed becomes final and

executory shall be considered in the computation of his separation pay as a period of

“imputed” or “putative” service:

Separation pay, equivalent to one month's salary for every year of service, is awarded as an alternative to reinstatement when the latter is no longer an option. Separation pay is computed from the commencement of employment up to the time of termination, including the imputed service for which the employee is entitled to backwages, with the salary rate prevailing at the end of the period of putative service being the basis for computation.59

It is well-settled, even axiomatic, that if reinstatement is not possible, the period covered in the computation of backwages is from the time the employee was unlawfully terminated until the finality of the decision finding illegal dismissal.

With respect to the petitioner’s backwages, this Court cannot subscribe to the view

that it should be limited to an amount equivalent to three (3) months of his salary.

Backwages is a remedy affording the employee a way to recover what he has lost by

reason of the unlawful dismissal.60 In awarding backwages, the primordial

consideration is the income that should have accrued to the employee from the time

that he was dismissed up to his reinstatement61 and the length of service prior to his

dismissal is definitely inconsequential.

As early as 1996, this Court, in Bustamante, et al. v. NLRC, et al.,62 clarified in

no uncertain terms that if reinstatement is no longer possible, backwages should be

computed from the time the employee was terminated until the finality of the decision,

finding the dismissal unlawful.

Therefore, in accordance with R.A. No. 6715, petitioners are entitled on their full backwages, inclusive of allowances and other benefits or their monetary equivalent, from the time their actual compensation was withheld on them up to the time of their actual reinstatement.

As to reinstatement of petitioners, this Court has already ruled that reinstatement is no longer feasible, because the company would be adjustly prejudiced by the continued employment of petitioners who at present are overage, a separation pay equal to one-month salary granted to them in the Labor Arbiter's decision was in order and, therefore, affirmed on the Court's decision of 15 March 1996.Furthermore, since reinstatement on this case is no longer feasible, the amount of backwages shall be computed from the time of their illegal termination on 25 June 1990 up to the time of finality of this decision.63 (emphasis supplied)

A further clarification was made in Javellana, Jr. v. Belen:64

Article 279 of the Labor Code, as amended by Section 34 of Republic Act 6715 instructs:

Art. 279. Security of Tenure. - In cases of regular employment, the employer shall not terminate the services of an employee except for a just cause or when authorized by this Title. An employee who is unjustly dismissed from

work shall be entitled to reinstatement without loss of seniority rights and other privileges and to his full backwages, inclusive of allowances, and to his other benefits or their monetary equivalent computed from the time his compensation was withheld from him up to the time of his actual reinstatement.

Clearly, the law intends the award of backwages and similar benefits to accumulate past the date of the Labor Arbiter's decision until the dismissed employee is actually reinstated. But if, as in this case, reinstatement is no longer possible, this Court has consistently ruled that backwages shall be computed from the time of illegal dismissal until the date the decision becomes final.65 (citation omitted)

In case separation pay is awarded and reinstatement is no longer feasible, backwages

shall be computed from the time of illegal dismissal up to the finality of the decision

should separation pay not be paid in the meantime. It is the employee’s actual receipt

of the full amount of his separation pay that will effectively terminate the employment

of an illegally dismissed employee.66 Otherwise, the employer-employee relationship

subsists and the illegally dismissed employee is entitled to backwages, taking into

account the increases and other benefits, including the 13 th month pay, that were

received by his co-employees who are not dismissed.67 It is the obligation of the

employer to pay an illegally dismissed employee or worker the whole amount of the

salaries or wages, plus all other benefits and 

bonuses and general increases, to which he would have been normally entitled had he

not been dismissed and had not stopped working.68

In fine, this Court holds Royale liable to pay the petitioner backwages to be

computed from his dismissal on October 1, 2003 until the finality of this decision.

Nonetheless, the amount received by the petitioner from the respondents in

satisfaction of the November 30, 2005 Decision shall be deducted accordingly.

Finally, moral damages and exemplary damages at P25,000.00 each as

indemnity for the petitioner’s dismissal, which was tainted by bad faith and fraud, are

in order. Moral damages may be recovered where the dismissal of the employee was

tainted by bad faith or fraud, or where it constituted an act oppressive to labor, and

done in a manner contrary to morals, good customs or public policy while exemplary

damages are recoverable only if the dismissal was done in a wanton, oppressive, or

malevolent manner.69

WHEREFORE, premises considered, the Petition is hereby GRANTED.

We REVERSE and SET ASIDE the CA’s May 29, 2008 Decision in C.A.-G.R. SP

No. 02127 and order the respondents to pay the petitioner the following minus the

amount of (P23,521.67) paid to the petitioner in satisfaction of the NLRC’s November

30, 2005 Decision in NLRC Case No. V-000355-05:

a) full backwages and other benefits computed from October 1, 2003 (the date

Royale illegally dismissed the petitioner) until the finality of this decision;

b) separation pay computed from April 1976 until the finality of this decision at the

rate of one month pay per year of service;

c) ten percent (10%) attorney’s fees based on the total amount of the awards

under (a) and (b) above;

d) moral damages of Twenty-Five Thousand Pesos (P25,000.00); and

5. exemplary damages of Twenty-Five Thousand Pesos (P25,000.00).

This case is REMANDED to the labor arbiter for computation of the separation pay,

backwages, and other monetary awards due the petitioner.

SO ORDERED.

 Republic of the Philippines

Supreme CourtManila

THIRD DIVISION 

PHILIPPINE REALTY AND HOLDINGS CORPORATION,                         Petitioner,                 - versus -  LEY CONSTRUCTION AND DEVELOPMENT CORPORATION,                         Respondent.                    x - - - - - - - - - - - - - - - - - - - - - - - xLEY CONSTRUCTION AND DEVELOPMENT CORPORATION,                           Petitioner,                  - versus -  

 PHILIPPINE REALTY AND HOLDINGS CORPORATION,                          Respondent.    

G. R. No. 165548            G. R. No. 167879 Present: CARPIO MORALES, J.,       Chairperson,BRION,BERSAMIN,VILLARAMA, JR., andSERENO, JJ. Promulgated: June 13, 2011

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

D E C I S I O N  SERENO, J.:

These are consolidated petitions for review under Rule 45 of the New Rules of Civil Procedure filed by both parties from a Court of Appeals (CA) Decision in CA-GR No. 71293 dated 30 September 2004. This Decision reversed a Decision of the Regional Trial Court (RTC), National Capital Judicial Region (NCJR), Branch 135 in Makati City dated 31 January 2001 in Civil Case No. 96-160.

The foregoing are the facts culled from the record, and from the findings of the CA and the RTC.

Ley Construction and Development Corporation (LCDC) was the project contractor for the construction of several buildings for Philippine Realty & Holdings Corporation (PRHC), the project owner. Engineer Dennis Abcede (Abcede) was the project construction manager of PRHC, while Joselito Santos (Santos) was its general manager and vice-president for operations.

Sometime between April 1988 and October 1989, the two corporations entered into four major construction projects, as evidenced by four duly notarized “construction agreements.” LCDC committed itself to the construction of the buildings needed by PRHC, which in turn committed itself to pay the contract price agreed upon. These were the four construction projects the parties entered into involving a Project 1, Project 2, Project 3 (all of which involve the Alexandra buildings) and a Tektite Building: 

1.     Construction Agreement dated 25 April 1988 – Alexandra-Cluster C – involving the construction of two units of seven-storey buildings with basement at a contract price of P 68,000,000 (Project 1);

2.     Construction Agreement dated 25 July 1988 – Alexandra-Cluster B – involving the construction of an eleven-storey twin-tower building with a common basement at a contract price of P 140,500,000 (Project 2);

3.     Construction Agreement dated 23 November 1988 – Alexandra-Cluster E – involving the construction of an eleven-storey twin-tower building with common basement at a contract price of P 140,500,000  (Project 3); and

4.     Construction Agreement dated 10 October 1989 – Tektite Towers Phase I – involving the construction of Tektite Tower Building I at Tektite Road at a contract price of P 729,138,964 (Tektite Building).

The agreement covering the construction of the Tektite Building was signed by a Mr. Campos under the words “Phil. Realty & Holdings Corp.” and by Santos as a witness.  Manuel Ley, the president of LCDC, signed under the words “Ley Const. & Dev. Corp.”

The terms embodied in the afore-listed construction agreements were almost identical. Each agreement provided for a fixed price to be paid by PRHC for every project.

All the aforementioned agreements contain the following provisions:

            ARTICLE IV – CONTRACT PRICE

                              . . .                                     . . .                                           . . .

            The Contract Price shall not be subject to escalation except due to work addition, (approved by the OWNER and the ARCHITECT) and to official increase in minimum wage as covered by the Labor Adjustment Clause below. All costs and expenses over and above the Contract Price except as provided in Article V hereof shall be for the account of the CONTRACTOR. It is understood that there shall be no escalation on the price of materials. However, should there be any increase in minimum daily wage level, the adjustment on labor cost only shall be considered based on conditions as stipulated below.

                            . . .                                       . . .                                           . . .     

      ARTICLE VII – TIME OF COMPLETION

               . . .                                        . . .                                           . . .

Should the work be delayed by any act or omission of the OWNER or any other person employed by or contracted by the OWNER in the project, including days in the delivery or (sic) materials furnished by the OWNER or others,  or by any appreciable additions or alterations in the work ordered by the OWNER or the ARCHITECT, under Article V or by force majeure, war, rebellion, strikes, epidemics, fires, riots, or acts of the civil or military authorities, the CONTRACTOR shall be granted time extension.

 

Sometime after the execution of these agreements, two more were entered into by the parties:

1.     Letter-agreement dated 24 August 1989 – Project 3 – for the construction of the drivers’ quarters in Project 3; and

2.     Agreement dated 7 January 1993 – Tektite Towers – for the concreting works on “GL, 5, 9, & A” (ground floor to the 5th floor) of the Tektite Towers.

Santos signed the letter-agreement on the construction of the drivers’ quarters in Project 3,[1] while both he and Abcede signed the letter-agreement on the concreting works on GL, 5, 9, and A, and also of Project 3.[2]

In order to jump-start the construction operations, LCDC was required to submit a performance bond as provided for in the construction agreements. As stated in these agreements, as soon as PRHC received the performance bond, it would deliver its initial payment to LCDC. The remaining balance was to be paid in monthly progress payments based on actual work completed. In practice, these monthly progress payments were used by LCDC to purchase the materials needed to continue the construction of the remaining parts of the building. 

In the course of the construction of the Tektite Building, it became evident to both parties that LCDC would not be able to finish the project within the agreed period.  Thus, through its president, LCDC met with Abcede to discuss the cause of the delay. LCDC explained that the unanticipated delay in construction was due mainly to the sudden, unexpected hike in the prices of cement and other construction materials. It claimed that, without a corresponding increase in the fixed prices found in the agreements, it would be impossible for it to finish the construction of the Tektite Building. In their analysis of the project plans for the building and of all the external factors affecting the completion of the project, the parties discovered that even if LCDC were able to collect the entire balance from the contract, the collected amount would still be insufficient to purchase all the materials needed to complete the construction of the building.

Both parties agreed that their foremost objective should be to ensure that the Tektite Building project would be completed. To achieve this goal, they entered into another agreement. Abcede asked LCDC to advance the amount necessary to complete construction. Its president acceded, on the absolute condition that it be allowed to escalate the contract price. It wanted PRHC to allow the escalation and to disregard

the prohibition contained in Article VII of the agreements. Abcede replied that he would take this matter up with the board of directors of PRHC.

The board of directors turned down the request for an escalation agreement.[3] Neither PRHC nor Abcede gave notice to LCDC of the alleged denial of the proposal. However, on 9 August 1991 Abcede sent a formal letter to LCDC, asking for its conformity, to the effect that should it infuse P36 million into the project, a contract price escalation for the same amount would be granted in its favor by PRHC.[4]

 This letter was signed by Abcede above the title “Construction Manager,” as well as by LCDC.[5]  A plain reading of the letter-agreement will reveal that the blank above the words “PHIL. REALTY & HOLDINGS CORP.” was never signed,[6] viz:

     Very truly yours,             (Signed)DENNIS A. ABCEDEConstruction Manager  C O N F O R M E :                                 (Signed)                                         .     LEY CONST. & DEV. CORP.  APPROVED & ACCEPTED :                                                                                                                                 . PHIL. REALTY & HOLDINGS CORP. 

Notwithstanding the absence of a signature above PRHC’s name, LCDC proceeded with the construction of the Tektite Building, expending the entire amount necessary to complete the project. From August to December 1991, it infused amounts totaling P 38,248,463.92. These amounts were not deposited into the joint account of LCDC and PRHC, but paid directly to the suppliers upon the instruction of Santos.[7]

LCDC religiously submitted to PRHC monthly reports[8] that contained the amounts of infusion it made from the period August 1991 to December 1991. These monthly reports all had the following heading:

 . . .              . . .               . . .MR. JOSELITO L. SANTOSVICE PRESIDENT OPERATIONPHIL. REALTY & HOLDINGS CORP.4TH Floor Quad Alpha Centrum Bldg.125 Pioneer St., Mandaluyong, M.M.                                     T H R U       :   D.A. ABCEDE & ASSOCIATES                                                             Construction Managers                                     SUBJECT     :  P 36.0M INFUSION-TEKTITE                                                                    TOWERS PROJECT

From these monthly reports, it can be gleaned that the following were the cash infusions made by LCDC:

 Month Amount Date of monthly report

August 1991 PhP 6,724,632.26 15 October 1991[9]

September 1991 PhP 7,326,230.69 7 October 1991[10]

October 1991 PhP 7,756,846.88 7 November 1991[11]

November 1991 PhP 8,553,313.50 7 December 1991[12]

December 1991 PhP 7,887,440.50 9 January 1992[13]

    PhP 38,248,463.92  

PRHC never replied to any of these monthly reports.

On 20 January 1992, LCDC wrote a letter addressed to Santos stating that it had already complied with its commitment as of 31 December 1991 and was requesting the release of P 2,248,463.92. It attached a 16 January 1992 letter written by D.A.

Abcede & Associates, informing PRHC of the total cash infusion made by LCDC to the project, to wit:

in compliance with the commitment of Ley Construction and Dev’t Corp. to infuse P36.00M  for the above subject project x x x

x x x we would like to present the total cash infusion by LCDC for the period covering the month of August, 1991 to December 1991 broken down as follows:

                  . . .                                     . . .                               . . .                                                                  

  T O T A L: P 38,248,463.92 

PRHC never replied to this letter.

In another letter dated 7 September 1992, there was a reconciliation of accounts between the two corporations with respect to the balances due for Projects 1, 2, and 3. The reconciliation of accounts resulted in PRHC owing LCDC the sum of P 20,862,546.41, broken down as follows:

 Project 1 P 1,783,046.72

Project 2   P 13,550,003.93

Project 3 P 5,529,495.76

    P 20,862,546.41

 

In a letter dated 8 September 1992,[14] when 96.43% of Tektite Building had been completed, LCDC requested the release of the P 36 million escalation price. PRHC did not reply, but after the construction of the building was completed, it conveyed its decision in a letter on 7 December 1992.[15] That decision was to set off, in the form of liquidated damages, its claim to the supposed liability of LCDC, to wit:

             . . .                                          . . .                                           . . .

In this regard, please be advised that per owner’s decision; your claim of P 36,000,00.00 adjustment will be applied to the liquidated damages for concreting works computed in the amount of Thirty Nine Million Three Hundred Twenty Six Thousand Eight Hundred Seventeen  & 15/100 (P39,326,817.15)  as shown in the attached sheet.

Further, the net difference P 3,326,817.15 will also be considered waived  as additional consideration.

             . . .                                          . . .                                           . . .

 

In a letter dated 18 January 1993, LCDC, through counsel, demanded payment of the agreed escalation price of P 36 million. In its reply on 16 February 1993, PRHC suddenly denied any liability for the escalation price. In the same letter, it claimed that LCDC had incurred 111 days of delay in the construction of the Tektite Building and demanded that the latter pay     P 39,326,817.15 as liquidated damages. This claim was set forth in PRHC’s earlier 7 December 1992 letter.

LCDC countered that there were many times when its requests for time extension – although due to reasonable causes sanctioned by the construction agreement such as power failures, water supply interruption, and scarcity of construction materials – were unreasonably reduced to shorter periods by PRHC. In its letter dated 9 December 1992, LCDC claimed that in a period of over two years, out of the 618 days of extension it requested, only 256 days – or not even half the number of days originally requested – were considered. It further claimed that its president inquired from Abcede and Santos why its requests for extension of time were not granted in full. The two, however, assured him that LCDC would not be penalized with damages for even a single day of delay, because the fact that it was working hard on the Tektite Building project was known to PRHC.[16]

Thereafter, in a letter dated 18 January 1993, LCDC demanded payment of the agreed total balance for Projects 1, 2, and 3. Through a reply letter dated 16 February 1993, PRHC denied any liability. During the course of the proceedings, both parties conducted another reconciliation of their respective records. The reconciliation showed the following balances in favor of LCDC:

 Project 1 P 1,703,955.07

Project 2 P 13,251,152.61

Project 3 P 5,529,495.76

Total: P 20,484,603.44

         

          In addition to the agreed-upon outstanding balance in favor of LCDC, the latter claimed another outstanding balance of P 232,367.96 in its favor for the construction of the drivers’ quarters in Project 3.                                                                                                                                                                                                                                                                           

It also further claimed the amount of P 7,112,738.82, representing the balance for the concreting works from the ground floor to the fifth floor of the Tektite Building.

Seeking to recover all the above-mentioned amounts, LCDC filed a Complaint with Application for the Issuance of a Writ of Preliminary Attachment on 2 February 1996 before the RTC in Makati City docketed as Civil Case No. 96-160:

            WHEREFORE, it is respectfully prayed that:

1.      Immediately upon the filing of this Complaint, an order of preliminary attachment be issued over defendant Philrealty’s properties as security for any judgment which plaintiff may recover against said defendant; and

2.      After trial, judgment be rendered as follows:

2.1.            On the first, second and third alternative causes of action,

(a)                Ordering defendant Philrealty to pay plaintiff actual damages in the amount of P36,000,00.00 with legal interest thereon from the filing of this Complaint until fully paid;

(b)               In the alternative, ordering defendants Abcede and Santos to jointly and severally, in the event that they acted without necessary authority, to pay plaintiff actual damages  in the amount of P36,000,00.00 with legal interest thereon from the filing of this Complaint until fully paid; and

(c)                Ordering defendant Philrealty or defendants Abcede and Santos to pay plaintiff exemplary damages in the amount to be determined by the Honorable Court but not less than P5,000,000.00

2.2.            On the fourth cause of action, ordering defendant Philrealty to pay plaintiff

(a)                Actual damages in the amount of P7,112,738.82 with legal interest thereon from the filing of this Complaint until fully paid; and

(b)               Exemplary damages in the amount to be determined by the Honorable Court but not less than P1,000,000.00

2.3.            On the fifth cause of action, ordering defendant Philrealty to pay plaintiff

(a)                Actual damages in the amount of P20,862,546.41 with legal interest thereon from the filing of this Complaint until fully paid; and

(b)               Exemplary damages in an amount to be determined by the Honorable Court but not less than P5,000,000.00.

2.4.            On the sixth cause of action, ordering defendant Philrealty to pay plaintiff

(a)                Actual damages in the amount of P232,367.96 with legal interest thereon from the filing of this Complaint until fully paid; and

(b)               Exemplary damages in the amount to be determined by the Honorable Court but not less than P100,000.00

2.5.            On the seventh cause of action, ordering defendant Philrealty and/or defendants Abcede and Santos to pay plaintiff attorney’s fees in the amount of P750,000.00 and expenses of litigation in the amount of P50,000.00, plus costs.

Plaintiff prays for such other just and equitable reliefs as may be warranted by the circumstances.

         

On 23 July 1999, a joint Stipulation of Facts[17] was filed by the parties. In the said stipulation, they reconciled their respective claims on the payments made and the balances due for the construction of the Tektite Building project, Project 1, and Project 2. The reconciliation shows that the following amounts are due and/or overpaid:

  Due to LCDC Overpaid to LCDC

Tektite Building   P4,646,947.35

Project 1 P1,703,955.07  

Project 2 P3,251,152.61  

    P14,955,107.68  P4,646,947.35

 

Both parties agreed that the only remaining issues to be resolved by the court, with respect to the Tektite Building project and Projects 1 to 3, were as follows:

a)      The validity of Ley Construction’s claim that Philrealty had granted the former a contract price escalation for Tektite Tower I in the amount of P36,000,000.00

b)      The validity of the claim of Philrealty that the following amounts should be charged to Ley Construction:

Payments/Advances without LCDC’s conformity and recommendation of the Construction Manager, D.A. Abcede & Associates that subject items are LCDC’s account:

a. Esicor, Inc. – waterproofing works Cluster B                                                                           P1,121,000.00                                                                                                           

b. Ideal Marketing, Inc. – waterproofing works at Cluster B, Quadrant 2                                                                                                                                                  P 885,000.00                                                                                           P2,006,000.00

c)      The claim of Philrealty for liquidated damages for delay in completion of the construction as follows:

d)     Tektite Tower I                       -                       P39,326,817.15Alexandra Cluster B                     -                       12,785,000.00Alexandra Cluster C                     -                       1,100,000.00

and

e)      The claim of Ley Construction for additional sum of P2,248,463.92 which it allegedly infused for the Tektite Tower I project over and above the original P36,000,000.00 it had allegedly bound itself to infuse.[18]

On 31 January 2001, the RTC promulgated its Decision. LCDC filed a Motion for Partial Reconsideration, which was granted.

It must be noted that in the Stipulation of Facts, the parties had jointly agreed that the P7,112,738.82 unpaid account in the concreting of Tektite Building would no longer be included in the list of claims submitted to the RTC for decision.  Nonetheless, this amount was still included as an award in the trial court’s 7 May 2001 amended Decision, the dispositive portion of which provides:     

          WHEREFORE, premises considered, judgment is hereby rendered:

A.    Dismissing the counter-claim of defendant DENNIS ABCEDE and the cross-claim of defendant JOSELITO SANTOS; and

B.     Ordering defendant PHILIPPINE REALTY AND HOLDING CORPORATION to pay plaintiff LEY CONSTRUCTION AND DEVELOPMENT CORPORATION:

1.      P33,601,316.17, for the Tektite Tower I Project with legal interest thereon from date of the filing of the complaint until fully paid;

2.      P13,251,152.61 for Alexandra Cluster B with legal interest thereon from date of the filing of the complaint until fully paid;

3.      P1,703,955.07 for Alexandra Cluster C with legal interest thereon from date of the filing of the complaint until fully paid;

4.      P7,112,738.82 in actual damages for the concreting works of Tektite Tower I, with legal interest thereon from the date of the filing of the complaint until fully paid;

5.      P5,529,495.76 in actual damages for the construction of Alexandra Cluster E, with legal interest thereon from the date of the filing of the complaint until fully paid;

6.      P232,367.96 in actual damages for the construction of the driver’s quarters of Alexandra Cluster E, with legal interest thereon from the date of the filing of the complaint until fully paid;

7.      P750,000.00 for attorney’s fees and expenses of litigation; and

8.      Costs.

SO ORDERED.[19]

         

PRHC filed a Notice of Appeal on 14 June 2001. The Court of Appeals, in CA-G.R. CV No. 71293,[20] reversed the lower court’s amended Decision on 30 September 2004 and ruled thus: 

          WHEREFORE, premises considered, the assailed January 31, 2001 decision and the May 7, 2001 amended decision are herebyREVERSED and SET ASIDE and a new one is entered:

I.                   FINDING plaintiff-appellee LCDC LIABLE to defendant-appellant PRHC in the amount of Sixty million Four Hundred Sixty Four (Thousand) Seven Hundred Sixty Four 90/100 (P60,464,764.90) PESOS detailed as follows:

[1] P39,326,817.15 liquidated damages  pursuant to contract for delay incurred by plaintiff-appellee LCDC in the construction of Tektite Tower Phase I, the length of delay having been signed and confirmed by LCDC;

[2] P12,785,000.00 liquidated damages pursuant to contract for delay incurred by plaintiff-appellee LCDC in the construction of Alexandra Cluster B, the length of delay having been signed and confirmed by LCDC;

[3] P1,700,000.00 liquidated damages pursuant to contract for delay incurred by plaintiff appellee LCDC in the construction of Alexandra Cluster C, the length of delay having been confirmed by LCDC;

[4] P4,646,947.75 overpayment by defendant-appellant PRHC to plaintiff-appellee LCDC for the Tektite Tower Phase I Project;

[5] P1,121,000.00 expenses incurred by defendant-appellant PRHC for corrective works to redo/repair allegedly defective Waterproofing construction work or plaintiff-appellee LCDC in the Alexander Cluster B Project which was paid by defendant-appellant PRHC to contractor Escritor, Inc.;

[6] P885,000.00 expenses incurred by defendant-appellant PRHC for corrective works to redo/repair allegedly defective Waterproofing construction work of plaintiff-appellee LCDC at the Alexandra Cluster B Quadrant in the Alexander Cluster B Project which was paid by defendant-appellant PRHC to contractor Ideal Marketing Inc., and

II.                FINDING defendant-appellant PRHC LIABLE to plaintiff-appellee LCDC in the amount of Fifty Six million Seven Hundred Sixteen Thousand Nine Hundred Seventy One 40/100 (P56,716,971.40) detailed as follows:

[1] P36,000,000.00 as acknowledged and agreed to by PHRC as a loan by LCDC, reimbursable when the Tektite Tower I project was 95% completed, but this was not classified by this Court as an escalation for increase in price of materials because an escalation for price increase of cost of materials is expressly prohibited by 10 October 1989 original contract;

[2] All expenditures for the projects are at the risk of the contractor LCDC who is to be paid, according to the contract, a fixed contract price so that there is no such thing as overinfusion of expenses by plaintiff-appellee LCDC guaranteed under the contract that it would pay all costs of materials irregardless (sic) of any increase in costs;

[3] P13,251,152.61 balance yet unpaid by defendant-appellant in the Alexandra Cluster B Project;

[4] P1,703,955.07 balance yet unpaid by defendant-appellant in the Alexander Cluster C Project;

[5] Defendant-appellant PRHC is hereby held not liable for P750,000.00 attorney’s fees;

[6] Plaintiff-appellee LCDC is not entitled to claim P7,112,738.82 for concreting works for Tektite Towers Phase I which cause of action had already been dismissed by the parties in the 23 July 1999 Joint Stipulation  of Facts that the contract price for the October 10, 1989 Construction Agreement had been fully paid;

[7] P5,529,495.76 balance yet unpaid in the Alexandra Cluster E Project;

[8] P232,367.96 balance yet unpaid for construction of the drivers’ quarters at the Alexandra Cluster E.

            The respective liabilities of the parties as set forth above are hereby SET OFF against each other and plaintiff-appellee LCDC is herebyDIRECTED to pay defendant-appellant PRHC the net amount due of Three million Seven Hundred Forty Seven Thousand Seven Hundred Ninety Three 50/100 (P3,747,793.50) PESOS with legal interest from date of filing of complaint.

            SO ORDERED.

         

PRHC came directly to this Court and filed a petition for review on certiorari docketed as SC-G.R. No. 165548 to assail in part the appellate court’s Decision. LCDC, on the other hand, filed on 25 October 2004 a Motion for Reconsideration with the Court of Appeals. In its Resolution dated 12 April 2005, the appellate court denied the motion. LCDC then filed its own Petition for Review on certiorari, which was docketed as SC-G.R. No. 167879.

          In a Resolution dated 6 August 2008, this Court consolidated G.R. Nos. 165548 and 16789.

PRHC, in its Petition for Review[21] in G.R. No. 165548, submits the following issues for resolution:

1.                  Whether the finding and ruling of the Court of Appeals that the letter dated 07 December 1992 was a counter-offer on the part of LCDC and a confirmation to treat the P36,000,000.00 as a loan deductible from liquidated damages is contrary to the allegations in the pleadings and the evidence on record.

2.                  Whether the finding and ruling of the Court of Appeals that LCDC is liable to PRHC in the amount of P5,529,495.76 representing the balance of the contract price for the construction of Alexandra Cluster E Project is contrary to the Stipulation of Facts jointly submitted by the parties to the Trial Court. 

3.                   Whether the finding and ruling of the Court of Appeals that LCDC is liable to PRHC in the amount of P232,367.96 representing the cost of the construction of the driver’s quarters at Alexandra Cluster E Project is contrary to the Stipulation of Facts jointly submitted by the parties to the trial court. [22]

                                                                                                                        

For its part, LCDC submits the following grounds in support of its Petition for Review[23] docketed as G.R. No. 167879:

I.                   The Court of Appeals seriously erred in ruling that there is no P36 million escalation agreement between LCDC and PRHC.

                           . . .                                        . . .                                           . . .

II.                The Court of Appeals seriously erred in ruling that PHRC is not obliged to pay LCDC the sum of P2,248,463.92 representing the cash infused by LCDC over and above the P36 million escalation price.

III.             The Court of Appeals seriously erred in ruling that PRHC is not obliged to pay LCDC the P7,112,738.82 balance for the concreting works of the ground floor to the fifth floor of the PSE.

IV.            The Court of Appeals seriously erred in awarding liquidated damages to PHRC under the TTI Project Agreement and the Alexandra-Clusters B and C agreements.

V.               The Court of Appeals seriously erred in ruling that LCDC is liable for the corrective works in Alexandra-Cluster B.

VI.            The Court of Appeals seriously erred in deleting the lower court’s award of  P750,000.00 attorney’s fees and expenses of litigation to LCDC and holding the latter liable to pay costs.[24]

 

At the outset, it must be noted that PRHC does not question the following amounts granted by the Court of Appeals:

(a)        P13,251,152.61 awarded to LCDC as balance yet unpaid by PRHC for Project 2;

(b)       P1,703,955.07 awarded to LCDC as balance yet unpaid by PRHC for Project 1; and

(c)        P4,646,947.75 awarded to PRHC for its overpayment to LCDC for the Tektite Building.

No appeal having been filed from the immediately preceding rulings, they attained finality.   

We reduce the issues to the following:

I

Whether or not a valid escalation agreement was entered into by the parties and, if so, to what amount;

II

Whether or not LCDC was delayed in the performance of its obligation to construct the buildings for PRHC and, corollary thereto, whether or not the latter is entitled to liquidated damages for this supposed delay in the construction of the Tektite Building and Projects 1 and 2;

III

Whether or not the CA can make an award or should have made an award for the following causes of action not alleged in the pleadings or omitted in the stipulation of facts:

a.              The supposed remaining balance of P5,529,495.76 for Project 3, which was awarded by the appellate court;

b.              The supposed remaining balance of P232,367.96, which the appellate court also awarded, representing the cost of the construction of the drivers’ quarters in Project 3; and

c.                  The supposed remaining balance of P7,112,738.82, the  cost of the concreting works from the ground floor to the fifth floor of the Tektite Building, which was not awarded by the CA but was awarded by the lower court; 

IV

Whether or not LCDC should be held liable for the amount of P2,006,000 for the corrective works to redo or repair the defective waterproofing in Project 2; and

V

Whether or not LCDC is entitled to the appellate court’s award of P750,000 for attorney’s fees and expenses of litigation and costs.

We shall review the findings of fact of the Court of Appeals in view of some inconsistencies with those of the trial court and the evidence on record, and as a result of our analysis of the threshold legal issues.

 

A subsequent escalation agreement was validly entered into by the parties, but only to the extent of P 36 million.

The construction agreements, including the Tektite Building agreement, expressly prohibit any increase in the contracted price. It can be inferred from this prohibition that the parties agreed to place all expenses over and above the contracted price for the account of the contractor.[25] PRHC claims that since its board of directors never acceded to the proposed escalation agreement, the provision in the main agreement prohibiting any increase in the contract price stands. 

LCDC, on the other hand, claims that the fact that any increase in the contract price is prohibited under the Tektite Building agreement does not invalidate the parties’ subsequent decision to supersede or disregard this prohibition. It argues that all the documentary and testimonial evidence it presented clearly established the existence of a P 36 million escalation agreement.[26]

LCDC now comes to this Court, asking that the escalation agreement with PRHC, as represented by Abcede and Santos, be declared to have effectively novated the prohibition in the Tektite Building agreement.  

After examining the extensive evidence presented by both parties, we resolve to rule in favor of LCDC.

LCDC relies in part on PRHC’s 19 August 1991 letter-agreement,[27] which provides as follows:

August 09, 1991 LEY CONSTRUCTION DEV. CORP.10th Flr., Pacific Star Bldg.Makati Avenue, MakatiMetro Manila Attention:        Mr. Manuel LeySubject:           TEKTITE TOWERS Gentlemen: 

            Relative to your contract for subject project this will confirm agreement between your goodselves and Philippine Realty & Holdings Corporation as follows: 1.0  Ley Construction & Development Corporation shall put in funds for Tektite project with a total amount of THIRTY SIX MILLION PESOS (P36,000,000.00) ONLY in accordance with the following schedule:

                                   . . .                                      . . .                                         . . . 

2.0  If Ley Construction & Dev. Corp. faithfully complies with above commitment then Philippine Realty & Holdings Corporation shall grant a contract price escalation to Ley Const. & Dev. Corp. in the amount of THIRTY SIX MILLION PESOS (P36,000,000.00) ONLY in view of the increase in cost of materials during the construction period which amount shall be payable to Ley Const. & Dev. Corp. when the LCDC contract work is at least 95% complete.                                                             (over)

 Very truly yours,             (Signed)DENNIS A. ABCEDEConstruction Manager  C O N F O R M E :                                 (Signed)                                         .     LEY CONST. & DEV. CORP.  APPROVED & ACCEPTED :                                                                                                                                 . PHIL. REALTY & HOLDINGS CORP.

 

It is apparent from its face that the letter was not signed by PRHC. This fact allegedly proves, according to PRHC, that it never expressed its consent to the letter and, hence,

cannot and should not be bound by the contents thereof. It further claims that its internal rules require the signatures of at least two of its officers to bind the corporation.

LCDC, for its part, submits that the fact that the letter is unsigned by PRHC is insignificant, considering that other pieces of documentary and testimonial evidence were presented to prove the existence of the escalation agreement.[28]

The appellate court found for PRHC and ruled that an unsigned letter does not bind the party left out,[29] viz:

But it is patent on the face of that letter that PRHC did not sign the document. It is patent on its face that between the words: “APPROVED:” and the name “Philippine Realty & Holdings Corporation”, there is no signature. Apparent therefore on its face, there was no meeting of the minds between the parties LCDC and PRHC in the P36,000,000.00 escalation for materials.[30]

 

The Court of Appeals further held that a simple letter cannot novate a notarized agreement.[31]

The appellate court is incorrect. The 9 August 1991 letter is not a simple letter, but rather a letter-agreement—a contract—which because of  the existence of the consent of both parties become valid and binding. It is true that no representative of PRHC signed under its typewritten name, where a signature should traditionally appear, to show the company’s acceptance and approval of the contents of the letter-agreement. This Court, however, finds that the signature of Abcede is sufficient to bind PRHC. As its construction manager, his very act of signing a letter embodying the P 36 million escalation agreement produced legal effect, even if there was a blank space for a higher officer of PHRC to indicate approval thereof. At the very least, he indicated authority to make such representation on behalf of PRHC.

On direct examination, Abcede admitted that, as the construction manager, he represented PRHC in running its affairs with regard to the execution of the aforesaid projects. He testified as follows:[32]

Q. What is your profession by the way?

A. I’m a Civil Engineer by profession and presently, I am engaged in the construction management.

Q. And what is your company engaged in the construction management?

A. We actually, as construction managers, we represent the owners, of the construction.[33]

All throughout the existence and execution of the construction agreements, it was the established practice of LCDC, each time it had concerns about the projects or something to discuss with PRHC, to approach Abcede and Santos as representatives of the latter corporation. As far as LCDC was concerned, these two individuals were the fully authorized representatives of PRHC. Thus, when they entered into the P 36 million escalation agreement with LCDC, PRHC effectively agreed thereto.

In fact, correspondences to the construction manager that were addressed to or that had to be noted by PRHC were most of the time coursed through and noted by Santos. Likewise, its correspondences to LCDC were signed by him alone.[34]

Santos testified that, as the vice president and general manager of PRHC, he was responsible for the implementation of the policies of the board,[35] to wit:

Q: Why do you know the defendant Philippine Realty and Holding Corporation?

A: I used to serve that company as Vice President and Director, sir.

Q: During what year did you serve as Vice President and Director of Philippine Realty.

A: I started serving that company as General Manager in 1987 and I resigned in 1993, sir.

Q: Will you state your duties and functions as General Manager and Director of the company?

A: I was responsible for the implementation of the policies approved by the board and the day to day general management of the company from operation to administration to finance and marketing, sir.[36]

In addition, LCDC was able to establish that Abcede and Santos had signed, on behalf of PRHC, other documents that were almost identical to the questioned letter-agreement.[37] Santos was actually the one who signed for PRHC in the letter-agreement for the construction of the drivers’ quarters in Project 3.[38] He signed under the words “Approved: Phil. Realty & Holdings Corp.”[39] While both he and Abcede signed the letter-agreement for concreting works on “GL, 5, 9, and A,”[40] Santos again signed under the word “Approved.”[41] PRHC does not question the validity of

these agreements; it thereby effectively admits that these two individuals had actual authority to sign on its behalf with respect to these construction projects.

We cannot fault LCDC for relying on the representation of PRHC that the authority to contract with the former, in matters relating to the construction agreements, resided in Abcede and Santos.

Furthermore, PRHC does not question the validity of its 7 December 1992 letter to LCDC wherein it seeks to apply LCDC’s claim for the P 36 million escalation price to its counterclaim for liquidated damages, which was signed by Santos under the words “Approved: Phil. Realty & Holdings Corp.”:

07 December 1992LEY CONST. & DEV. CORP.                                                         23rd Floor Pacific Star Bldg.                                                             Sen. Gil Puyat Ave. corner                                                                Makati Avenue, Makati,                                                                                     Metro Manila.

Attention   :     MR. MANUEL T. LEY

Subject       :    TEKTITE TOWERS

 

Gentlemen :

This is in connection with your previous request for materials cost adjustment in the amount of Thirty Six Million & 0/100 (P36,000,000.00).

In this regard, please be advised that per owner’s decision; your claim of P36,000,00.00 adjustment will be applied to the liquidated damages for concreting works computed in the amount of Thirty Nine Million Three Hundred Twenty Six Thousand Eight Hundred Seventeen  & 15/100 (P39,326,817.15)  as shown in the attached sheet.

Further, the net difference P3,326,817.15 will also be considered waived  as additional consideration.

We trust you will find the above fair and equitable. 

Very truly yours,

                         (Signed)

DENNIS A. ABCEDEConstruction Manager Approved:                  (Signed by Santos)PHIL. REALTY & HOLDINGS CORP.

 

This letter was signed by Abcede, again as the construction manager, while Santos signed above “PHIL. REALTY & HOLDINGS CORP.,” which was notably the unsigned part in the 9 August 1991 letter. PRHC claims that neither one of them had the authority to sign on behalf of the corporation; yet, it is not questioning the validity of the above-quoted letter.

We consider this letter as additional evidence that PRHC had given Abcede and Santos the authority to act on its behalf in making such a decision or entering into such agreements with LCDC.

LCDC additionally argues that a subsequent escalation agreement was validly entered into, even on the following assumptions: (a) that Abcede and Santos had no authority to agree to the escalation of the contract price without the approval of the board of directors; and (b) that the 7 December 1992 letter cannot be construed as an acknowledgment by PRHC that it owed LCDC P36 million. It posits that the actions of Abcede and Santos, assuming they were beyond the authority given to them by PRHC which they were representing, still bound PRHC under the doctrine of apparent authority. [42] Thus, the lack of authority on their part should not be used to prejudice it, considering that the two were clothed with apparent authority to execute such agreements. In addition, PRHC is allegedly barred by promissory estoppel from denying the claims of the other corporation.

We agree with LCDC.

In Yao Ka Sin Trading v. Court of Appeals, et al,.[43] this Court discussed the applicable rules on the doctrine of apparent authority, to wit:

The rule is of course settled that “[a]lthough an officer or agent acts without, or in excess of, his actual authority if he acts within the scope of an apparent authority with which the corporation has clothed him by holding him out or permitting him

to appear as having such authority, the corporation is bound thereby in favor of a person who deals with him in good faith in reliance on such apparent authority, as where an officer is allowed to exercise a particular authority with respect to the business, or a particular branch of it, continuously and publicly, for a considerable time.” Also, “if a private corporation intentionally or negligently clothes its officers or agents with apparent power to perform acts for it, the corporation will be estopped to deny that such apparent authority is real, as to innocent third persons dealing in good faith with such officers or agents.” [44]

In People’s Aircargo and Warehousing Co. Inc. v. Court of Appeals, et al.,[45]  we held that apparent authority is derived not merely from practice:

Its existence may be ascertained through (1) the general manner in which the corporation holds out an officer or agent as having the power to act or, in other words, the apparent authority to act in general, with which it clothes him; or (2) the acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, whether within or beyond the scope of his ordinary powers.

We rule that Santos and Abcede held themselves out as possessing the authority to act, negotiate and sign documents on behalf of PRHC; and that PRHC sanctioned these acts. It would be the height of incongruity to now allow PRHC to deny the extent of the authority with which it had clothed both individuals. We find that Abcede’s role as construction manager, with regard to the construction projects, was akin to that of a general manager with regard to the general operations of the corporation he or she is representing.

Consequently, the escalation agreement entered into by LCDC and Abcede is a valid agreement that PRHC is obligated to comply with. This escalation agreement – whether written or verbal – has lifted, through novation, the prohibition contained in the Tektite Building Agreement.

In order for novation to take place, the concurrence of the following requisites is indispensable:

1.       There must be a previous valid obligation.2.       The parties concerned must agree to a new contract.3.       The old contract must be extinguished.4.       There must be a valid new contract.[46]

All the aforementioned requisites are present in this case. The obligation of both parties not to increase the contract price in the Tektite Building Agreement was

extinguished, and a new obligation increasing the old contract price by P 36 million was created by the parties to take its place.

What makes this Court believe that it is incorrect to allow PRHC to escape liability for the escalation price is the fact that LCDC was never informed of the board of directors’ supposed non-approval of the escalation agreement until it was too late. Instead, PRHC, for its own benefit, waited for the former to finish infusing the entire amount into the construction of the building before informing it that the said agreement had never been approved by the board of directors. LCDC diligently informed PRHC each month of the partial amounts the former infused into the project. PRHC must be deemed estopped from denying the existence of the escalation agreement for having allowed LCDC to continue infusing additional money spending for its own project, when it could have promptly notified LCDC of the alleged disapproval of the proposed escalation price by its board of directors.

Estoppel is an equitable principle rooted in natural justice; it is meant to prevent persons from going back on their own acts and representations, to the prejudice of others who have relied on them.[47]  Article 1431 of the Civil Code  provides:

Through estoppel an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon.

Article 1431 is reflected in Rule 131, Section 2 (a) of the Rules of Court, viz.:

Sec. 2. Conclusive presumptions. — The following are instances of conclusive presumptions:

(a)        Whenever a party has by his own declaration, act or omission, intentionally and deliberately led another to believe a particular thing true, and to act upon such belief, he cannot, in any litigation arising out of such declaration, act or omission be permitted to falsify it.   

This Court has identified the elements of estoppel as:

[F]irst, the actor who usually must have knowledge, notice or suspicion of the true facts, communicates something to another in a misleading way, either by words, conduct or silence; second, the other in fact relies, and relies reasonably or justifiably, upon that communication; third, the other would be harmed materially if the actor is later permitted to assert any claim inconsistent with his earlier

conduct; and fourth, the actor knows, expects or foresees that the other would act upon the information given or that a reasonable person in the actor's position would expect or foresee such action.[48]

This liability of PRHC, however, has a ceiling. The escalation agreement entered into was for P 36 million—the maximum amount that LCDC contracted itself to infuse and that PRHC agreed to reimburse. Thus, the Court of Appeals was correct in ruling that the P 2,248,463.92 infused by LCDC over and above the P 36 million should be for its account, since PRHC never agreed to pay anything beyond the latter amount. While PRHC benefited from this excess infusion, this did not result in its unjust enrichment, as defined by law.

Unjust enrichment exists “when a person unjustly retains a benefit to the loss of another, or when a person retains money or property of another against the fundamental principles of justice, equity and good conscience.”[49] Under Art. 22 of the Civil Code, there is unjust enrichment when (1) a person is unjustly benefited, and (2) such benefit is derived at the expense of or with damages to another.[50] The term is further defined thus:

Unjust enrichment is a term used to depict result or effect of failure to make remuneration of or for property or benefits received under circumstances that give rise to legal or equitable obligation to account for them; to be entitled to remuneration, one must confer benefit by mistake, fraud, coercion, or request.[51]

In order for an unjust enrichment claim to prosper, one must not only prove that the other party benefited from one’s efforts or the obligations of others; it must also be shown that the other party was unjustly enriched in the sense that the term “unjustly” could mean “illegally” or “unlawfully.”[52] LCDC was aware that the escalation agreement was limited to P36 million. It is not entitled to remuneration of the excess, since it did not confer this benefit by mistake, fraud, coercion, or request. Rather, it voluntarily infused the excess amount with full knowledge that PRHC had no obligation to reimburse it. 

Parenthetically, we note that the CA had ruled that the 7 December 1992 letter demonstrates that PRHC treated the P 36 million as a loan deductible from the liquidated damages for which LCDC is supposedly liable.[53] It ruled that when PRHC informed LCDC that it would apply the P 36 million to the liquidated damages, PRHC, in effect, acknowledged that it was in debt to LCDC in the amount of  P 36 million, and that forms the basis for PRHC’s liability to LCDC for the said amount.

We disagree with this analysis.

In a contract of loan, ownership of the money is transferred from the lender to the borrower.[54] In this case, ownership of the P 36 million was never transferred to PRHC. As previously mentioned, such amount was paid directly to the suppliers.[55] We find that arrangement between PRHC and LCDC cannot be construed as a loan agreement but rather, it was an agreement to advance the costs of construction. In Liwanag v. Court of Appeals et al., we state:

Neither can the transaction be considered a loan, since in a contract of loan once the money is received by the debtor, ownership over the same is transferred. Being the owner, the borrower can dispose of it for whatever purpose he may deem proper. In the instant petition, however, it is evident that Liwanag could not dispose of the money as she pleased because it was only delivered to her for a single purpose, namely, for the purchase of cigarettes, and if this was not possible then to return the money to Rosales.

 LCDC is not liable for liquidated damages for delay in the construction of the buildings for PRHC.

          There is no question that LCDC was not able to fully construct the Tektite Building and Projects 1, 2, and 3 on time. It reasons that it should not be made liable for liquidated damages, because its rightful and reasonable requests for time extension were denied by PRHC.[56]

It is important to note that PRHC does not question the veracity of the factual representations of LCDC to justify the latter’s requests for extension of time. It insists, however, that in any event LCDC agreed to the limits of the time extensions it granted.[57]

The practice of the parties is that each time LCDC requests for more time, an extension agreement is executed and signed by both parties to indicate their joint approval of the number of days of extension agreed upon.

The applicable provision in the parties’ agreements is as follows:

      ARTICLE VII – TIME OF COMPLETION 

                              . . .                                      . . .                                         . . . 

Should the work be delayed by any act or omission of the OWNER or any other person employed by or contracted by the OWNER in the project, including days in the delivery or (sic) materials furnished by the OWNER or others,  or by any appreciable additions or alterations in the work ordered by the OWNER or the ARCHITECT, under Article V or by force majeure, war, rebellion, strikes, epidemics, fires, riots, or acts of the civil or military authorities, the CONTRACTOR shall be granted time extension.

In case the CONTRACTOR encounters any justifiable cause or reason for delay, the CONTRACTOR shall within ten (10) days, after encountering such cause of delay submit to the OWNER in writing a written request for time extension indicating therein the requested contract time extension. Failure by the CONTRACTOR to comply with this requirements (sic) will be adequate reason for the OWNER not to grant the time extension.

 

The following table shows the dates of LCDC’s letter-requests, the supposed causes justifying them, the number of days requested, and the number of days granted by PRHC and supposedly conformed to by LCDC:

   Cause # of days

requested# of days granted

1 Mar 1990

Due to additional works and shortage of supplies and cement

30 11

14 Apr 1990

Shortage of cement supply 18 6

10 May 1990

Frequent power failures 10 2

9 Jul  1990

Bad weather which endangered the lives of the construction workers (“heavy

winds”)

10 2

4 Sep 1990

Inclement weather that endangered the lives of the construction workers

10 3

28 Feb 1991

 Architectural and structural revisions of R.C. beams at the 8th floor level

20 8

28 Aug For change order work and revisions in 271 136

1991 the plans initiated by the architect and Abcede’s delay in giving the revised

plans to contractor2 Sep 1991

Inclement weather and scarcity of cement

25 17

13 Oct 1991

Water supply interruption and power failures preventing the mixing of cement

15 6

5 Dec 1991

Typhoon Uring and water supply interruption (typhoon Uring alone

caused a delay for more than 10 days due to strong and continuous rains)

15 2

2 Apr 1992

Inadequate supply of Portland cement and frequent power failures

15 12

5 May 1992

Inadequate supply of cement and frequent power failures

17 12

    456 217  additions and alterations in the work

ordered by the owner and architect108 20

    564 237

 

As previously mentioned, LCDC sent a 9 December 1992 letter to PRHC claiming that, in a period of over two years, only 256 out of the 618 days of extension requested were considered. We disregard these numbers presented by LCDC because of its failure to present evidence to prove its allegation. The tally that we will accept—as reflected by the evidence submitted to the lower court—is as follows: out of the 564 days requested, only 237 were considered.

Essentially the same aforementioned reasons or causes are presented by LCDC as defense against liability for both Projects 1 and 2.[58] In this regard, the CA ruled: 

Plaintiff-appellee’s allegation that determination by PHRC of extensions of time were unreasonable or arbitrary is untenable in the light of express provisions of the Construction Agreements which prescribed precise procedures for extensions of time. In fact the procedure is fool-proof because both OWNER and CONTRACTOR sign to indicate approval of the number of days of extension. Computation of the penalty becomes mechanical after that. Each extension as signed by the parties is a contract by itself and has the force of law between them.

In fact, the parties followed that prescribed procedure strictly – the CONTRACTOR first requested the OWNER to approve the number of days applied for as extension of time to finish the particular project and the OWNER will counter-offer by approving only a lower number of days extension of time for CONTRACTOR to finish the contract as recommended by the CONSTRUCTION MANAGER ABCEDE, and in the end, both CONTRACTOR and OWNER sign jointly the approved number of days agreed upon. That signed extension of time is taken to be the contract between the parties.[59]

          The appellate court further ruled that each signed extension is a separate contract that becomes the law between the parties:[60]

there is nothing arbitrary or unreasonable about the number of days extension of time because each extension is a meeting of the minds between the parties, each under joint signature OWNER  and CONTRACTOR witnessed by the CONSTRUCTION MANAGER.[61]

          Inasmuch as LCDC’s claimed exemption from liability are beyond the approved time extensions, LCDC, according to the majority of the CA, is liable therefor.

          Justice Juan Q. Enriquez, in his Dissenting Opinion, held that the reasons submitted by LCDC fell under the definition offorce majeure.[62] This specific point was not refuted by the majority.

We agree with Justice Enriquez on this point and thereby disagree with the majority ruling of the CA.

          Article 1174 of the Civil Code provides: “Except in cases expressly specified by the law, or when it is otherwise declared by stipulation or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen, or which though foreseen, were inevitable.” A perusal of the construction agreements shows that the parties never agreed to make LCDC liable even in cases of force majeure. Neither was the assumption of risk

required. Thus, in the occurrence of events that could not be foreseen, or though foreseen were inevitable, neither party should be held responsible.

          Under Article 1174 of the Civil Code, to exempt the obligor from liability for a breach of an obligation due to an “act of God” or force majeure, the following must concur:

(a) the cause of the breach of the obligation must be independent of the will of the debtor; (b) the event must be either unforseeable or unavoidable; (c) the event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and (d) the debtor must be free from any participation in, or aggravation of the injury to the creditor.[63]

          The shortage in supplies and cement may be characterized as force majeure.[64] In the present case, hardware stores did not have enough cement available in their supplies or stocks at the time of the construction in the 1990s. Likewise, typhoons, power failures and interruptions of water supply all clearly fall under force majeure. Since LCDC could not possibly continue constructing the building under the circumstances prevailing, it cannot be held liable for any delay that resulted from the causes aforementioned.

Further, PRHC is barred by the doctrine of promissory estoppel from denying that it agreed, and even promised, to hold LCDC free and clear of any liquidated damages. Abcede and Santos also promised that the latter corporation would not be held liable for liquidated damages even for a single day of delay despite the non-approval of the requests for extension.[65] Mr. Ley testified to this fact as follows:

Q:        So, Mr. Witness in all those requests for extension and whenever the D.A. Abcede & Associates did not grant you the actual number of days stated in your requests for extension, what did Ley construction and Development do, if any?

A:        We talked to Dennis Abcede and Mr. Santos, Ma’am.

Q:        And what did you tell them?

A:        I will tell them why did you not grant the extension for us, Ma’am.

Q:        What was the response of Mr. Abcede and Mr. Santos?

A:        Mr. Abcede and Mr. Santos told me, Mr. Ley don’t worry, you will not be liquidated of any single day for this because we can see that you worked so hard for this project, Ma’am.

Q:        And what did you do after you were given that response of Mr. Abcede and Mr. Santos?

A:        They told me you just relax and finish the project, and we will pay you up to the last centavos, Ma’am.

Q:        What did you do after taking that statement or assurance?

A:        As gentleman’s agreement I just continued working without complaining anymore, Ma’am.[66]

 

The above testimony is uncontradicted. Even assuming that all the reasons LCDC presented do not qualify as fortuitous events, as contemplated by law, this Court finds that PRHC is estopped from denying that it had granted a waiver of the liquidated damages the latter corporation may collect from the former due to a delay in the construction of any of the buildings.

 

Courts may rule on causes of action not included in the Complaint, as long as these have been proven during trial without the objection of the opposing party.

          PRHC argues that since the parties had already limited the issues to those reflected in their joint stipulation of facts, neither the trial court nor the appellate court has the authority to rule upon issues not included therein. Thus it was wrong for the trial court and the CA to have awarded the amounts of P 5,529,495.76 representing the remaining balance for Project 3 as well as for the P232,367.96 representing the balance for the construction of the drivers’ quarters in Project 3. PRHC claims that in the Stipulation of Facts, all the issues regarding Project 3 were already made part of the computation of the balances for the other projects. It thus argues that the computation for the Tektite Building showed that the

overpayment for Project 3 in the amount of P 9,531,181.80 was credited as payment for the Tektite Tower Project.[67] It reasons that, considering that it actually made an overpayment for Project 3, it should not be made liable for the remaining balances for Project 3 and the drivers’ quarters in Project 3.[68] It is LCDC’s position, however, that the Stipulation of Facts covers the balances due only for the Tektite Tower Project, Project 1, and Project 2.[69] Since Project 3 was not included in the reconciliation contained in the said stipulation, it maintains that the balance for Project 3 remains at P 5,529,495.76,[70] and that the balance for the construction of the drivers’ quarters in Project 3 remains at P232,367.96. 

On its part, LCDC disputes the deletion by the CA of the lower court’s grant of the alleged P 7,112,738.82 unpaid balance for the concreting works in the Tektite Building.  The CA had ruled that this cause of action was withdrawn by the parties when they did not include it in their Joint Stipulation of Facts. LCDC argues that to the contrary, the silence of the Stipulation of Facts on this matter proves that the claim still stands.[71]

Considering that the unpaid balances for Project 3, its driver’s quarters, and the concreting works in the Tektite Building were not covered by the Stipulation of Facts entered into by the parties, we rule that no judicial admission could have been made by LCDC regarding any issue involving the unpaid balances for those pieces of work.

We affirm in this case the doctrine that courts may rule or decide on matters that, although not submitted as issues, were proven during trial. The admission of evidence, presented to support an allegation not submitted as an issue, should be objected to at the time of its presentation by the party to be affected thereby; otherwise, the court may admit the evidence, and the fact that such evidence seeks to prove a matter not included or presented as an issue in the pleadings submitted becomes irrelevant, because of the failure of the appropriate party to object to the presentation.

No objection was raised when LCDC presented evidence to prove the outstanding balances for Project 3, its driver’s quarters, and the concreting works in the Tektite Building.

In Phil. Export and Foreign Loan Guarantee Corp. v. Phil. Infrastructures, et al.,[72] this Court held:

It is settled that even if the complaint be defective, but the parties go to trial thereon, and the plaintiff, without objection, introduces sufficient evidence to

constitute the particular cause of action which it intended to allege in the original complaint, and the defendant voluntarily produces witnesses to meet the cause of action thus established, an issue is joined as fully and as effectively as if it had been previously joined by the most perfect pleadings. Likewise, when issues not raised by the pleadings are tried by express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings. 

          Considering the absence of timely and appropriate objections, the trial court did not err in admitting evidence of the unpaid balances for Project 3, its driver’s quarters, and the concreting works in the Tektite Building. Furthermore, both the lower and the appellate courts found that the supporting evidence presented by LCDC were sufficient to prove that the claimed amounts were due, but that they remained unpaid.         LCDC should be held liable for the corrective works to redo or repair the defective waterproofing in Project 2.

          The waterproofing of Project 2 was not undertaken by LCDC. Instead, Vulchem Corporation (Vulchem), which was recommended by Santos and Abcede, was hired for that task. Vulchem’s waterproofing turned out to be defective. In order to correct or repair the defective waterproofing, PRHC had to contract the services of another corporation, which charged itP2,006,000.

Denying liability by alleging that PRHC forced it into hiring Vulchem Corporation for the waterproofing works in Project 2, LCDC argues that under Article 1892, an agent is responsible for the acts of the substitute if he was given the power to appoint a substitute. Conversely, if it is the principal and not the agent who appointed the substitute, the agent bears no responsibility for the acts of the sub-agent.[73]  The provision reads:

“Art. 1892.      The agent may appoint a substitute if the principal has not prohibited him from doing so; but he shall be responsible for the acts of the substitute:

(1) When he was not given the power to appoint one;

(2) When he was given such power, but without designating the person, and the person appointed was notoriously incompetent or insolvent.”

            LCDC argues that because PRHC, as the principal, had designated Vulchem as sub-agent, LCDC, as the agent, should not be made responsible for the acts of the substitute, even in the instance where the latter were notoriously incompetent.[74]

LCDC’s reliance on Art. 1892 is misplaced. The principles of agency are not to be applied to this case, since the legal relationship between PRHC and LCDC was not one of agency, but was rather that between the owner of the project and an independent contractor under a contract of service. Thus, it is the agreement between the parties and not the Civil Code provisions on agency that should be applied to resolve this issue. 

Art. XIV of the Project 2 Agreement clearly states that if the contractor sublets any part of the agreement to a third party, who in effect becomes a sub-contractor, the losses or expenses that result from the acts/inactions of the sub-contractor should be for the contractor’s account, to wit:

ARTICLE XIV – ASSIGNMENT

This Agreement, and/or any of the payments to be due hereunder shall not be assigned in whole or  in part by the CONTRACTOR nor shall any part of the works be sublet by CONTRACTOR without the prior written consent of OWNER, and such consent shall not relieve the CONTRACTOR from full responsibility and liability for the works hereunder shall not be granted in any event until CONTRACTOR has furnished OWNER with satisfactory evidence that the Sub-Contractor is carrying ample insurance to the same extent and in the same manner as herein provided to be furnished by CONTRACTOR. If the agreement is assigned or any part thereof is sublet, CONTRACTOR shall exonerate, indemnify and save harmless the OWNER from and against any and all losses or expenses caused thereby.[75]

 

LCDC had every right to reject Vulchem as sub-contractor for the waterproofing work of Project 2 but it did not do so and proceeded to hire the latter. It is not unusual for project owners to recommend sub-contractors, and such recommendations do not diminish the liability of contractors in the presence of an Article XIV-type clause in

the construction agreement. The failure of LCDC to ensure that the work of its sub-contractor is satisfactory makes it liable for the expenses PRHC incurred in order to correct the defective works of the sub-contractor. The CA did not err in ruling that the contract itself gave PRHC the authority to recover the expenses for the “re-do” works arising from the defective work of Vulchem.[76]

 LCDC is entitled to attorney’s fees and the expenses of litigation and costs.

            According to the CA, LCDC was not entitled to attorney’s fees, because it was not the aggrieved party, but was the one that violated the terms of the construction agreements and should thus be made to pay costs.[77] LCDC claims, on the other hand, that the CA seriously erred in deleting the lower court’s award of P750,000 attorney’s fees and the expenses of litigation in its favor, since this award is justified under the law.[78] To support its claim, LCDC cites Article 2208(5), which provides:

          ART. 2208. In the absence of stipulation, attorney’s fees and expenses of litigation, other than judicial costs, cannot be recovered, except:            . . .                                           . . .                                           . . .

            (5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff’s plainly valid, just and demandable claim;

            . . .                                           . . .                                           . . .

Attorney's fees may be awarded when the act or omission of the defendant compelled the plaintiff to incur expenses to protect the latter’s interest.[79] InABS-CBN Broadcasting Corp. v. CA,[80] we held thus:

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.

          LCDC has failed to establish bad faith on the part of PRHC so as to sustain its position that it is entitled to attorney’s fees. Nevertheless, the CA erred in reversing the lower court’s Decision granting LCDC’s claim for attorney’s fees considering that the construction agreements contain a penal clause that deals with the award of attorney’s fees, as follows:

In the event the OWNER/CONTRACTOR institutes a judicial proceeding in order to enforce any terms or conditions of this Agreement, the CONTRACTOR/OWNER should it be adjudged liable in whole or in part, shall pay the OWNER/CONTRACTOR reasonable attorney’s fees in the amount equivalent to Twenty Percent (20%) of the total amount claimed in addition to all expenses of litigation and costs of the suit. Equivalent to at least Twenty Percent (20%) of the total amount claimed in addition to all expenses of litigation and costs of the suit.

          As long as a stipulation does not contravene the law, morals, and public order, it is binding upon the obligor.[81] Thus, LCDC is entitled to recover attorney’s fees. Nevertheless, this Court deems it proper to equitably reduce the stipulated amount. Courts have the power to reduce the amount of attorney’s fees when found to be excessive,[82] viz:

We affirm the equitable reduction in attorney’s fees.  These are not an integral part of the cost of borrowing, but arise only when collecting upon the Notes becomes necessary.  The purpose of these fees is not to give respondent a larger compensation for the loan than the law already allows, but to protect it against any future loss or damage by being compelled to retain counsel – in-house or not—to institute judicial proceedings for the collection of its credit.  Courts have has the power to determine their reasonableness based on quantum meruitand to reduce the amount thereof if excessive.[83]

We reverse the appellate court’s Decision and reinstate the lower court’s award of attorney’s fees, but reduce the amount from P750,000 to P200,000.         

WHEREFORE, we SET ASIDE the Decision of the Court of Appeals and RULE as follows:

I.       We find Philippine Realty and Holdings Corporation (PRHC) LIABLE to Ley Construction Development Corporation (LCDC) in the amount of P 64,029,710.22, detailed as follows:1.     P 13,251,152.61 as balance yet unpaid by PRHC for Project 2;

2.     P 1,703,955.07 as balance yet unpaid by PRHC for Project 1;

3.     P 5,529,495.76 as balance yet unpaid by PRHC for Project 3;

4.     P 232,367.96 as balance yet unpaid by PRHC for the drivers’ quarters for Project 3;

5.     P 36,000,000.00 as agreed upon in the escalation agreement entered into by PRHC’s representatives and LCDC for the Tektite Building;

6.     P 7,112,738.82 as balance yet unpaid by PRHC for the concreting works from the ground floor to the fifth floor of the Tektite Building;

7.     P 200,000.00 as LCDC’s reduced attorney’s fees.

II.    Further, we find LCDC LIABLE to PRHC in the amount of P 6,652,947.75 detailed as follows:1.     P 4,646,947.75 for the overpayment made by PRHC for the Tektite

Building;

2.     P 2,006,000.00 for the expenses incurred by PRHC for corrective works to redo/repair the allegedly defective waterproofing construction work done by LCDC in Project 2.

The respective liabilities of the parties as enumerated above are hereby SET OFF against each other, and PRHC is hereby DIRECTED to pay LCDC the net amount due, which is P 57,376,762.47, with legal interest from the date of the filing of Complaint.

SO ORDERED.

 

Republic of the PhilippinesSupreme Court

Manila  

THIRD DIVISION 

ESTATE OF MARGARITA D. CABACUNGAN, represented by LUZ LAIGO-ALI,                                                                            Petitioner, 

                         -  versus  -

  

MARILOU LAIGO, PEDRO ROY LAIGO, STELLA BALAGOT and SPOUSES MARIO B. CAMPOS AND JULIA S. CAMPOS,                                     Respondents.                                  

G.R. No. 175073 Present: CARPIO,* J.,VELASCO, JR., J.,Chairperson,BRION,**

PERALTA, andSERENO,***  JJ.      Promulgated:

       August 15, 2011

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

D E C I S I O N  

PERALTA, J.: 

This Petition for Review under Rule 45 of the Rules of Court assails

the October 13, 2006 Decision[1] of the Court of Appeals in CA-G.R. CV No. 72371.  The assailed decision affirmed the July 2, 2001 judgment[2] rendered by the

Regional Trial Court of La Union, Branch 33 in Civil Case No. 1031-BG – a complaint for annulment of sale of real property, recovery of ownership and

possession, cancellation of tax declarations and damages filed by Margarita Cabacungan,[3] represented by her daughter, Luz Laigo-Ali against Marilou Laigo

and Pedro Roy Laigo, respondents herein, and against Estella Balagot, [4] and the spouses Mario and Julia Campos.

 The facts follow. 

Margarita Cabacungan (Margarita) owned three parcels of unregistered land in Paringao and in Baccuit, Bauang, La Union, each measuring 4,512 square

meters, 1,986 square meters and 3,454 square meters. The properties were individually covered by tax declaration all in her name.[5]  Sometime in 1968,

Margarita’s son, Roberto Laigo, Jr. (Roberto), applied for a non-immigrant visa to the United States, and to support his application, he allegedly asked Margarita to

transfer the tax declarations of the properties in his name.[6]  For said purpose, Margarita, unknown to her other children, executed an Affidavit of Transfer of

Real Property whereby the subject properties were transferred by donation to Roberto.[7] Not long after, Roberto’s visa was issued and he was able to travel to

the U.S. as a tourist and returned in due time.  In 1979, he adopted respondents Pedro Laigo (Pedro) and Marilou Laigo (Marilou),[8] and then he married

respondent Estella Balagot. 

In July 1990, Roberto sold the 4,512 sq m property in Baccuit to the spouses

Mario and Julia Campos for P23,000.00.[9] Then in August 1992, he sold the 1,986 sq m and 3,454 sq m lots in Paringao, respectively, to Marilou for P100,000.00 and

to Pedro for P40,000.00.[10]  Allegedly, these sales were not known to Margarita and her other children.[11]

It was only in August 1995, at Roberto’s wake, that Margarita came to know of the sales as told by Pedro himself.[12]  In February 1996, Margarita, represented

by her daughter, Luz, instituted the instant complaint for the annulment of said

sales and for the recovery of ownership and possession of the subject properties as well as for the cancellation of Ricardo’s tax declarations. Margarita admitted

having accommodated Roberto’s request for the transfer of the properties to his name, but pointed out that the arrangement was only for the specific purpose of

supporting his U.S. visa application.  She emphasized that she never intended to divest herself of ownership over the subject lands and, hence, Roberto had no right

to sell them to respondents and the Spouses Campos.  She likewise alleged that the sales, which were fictitious and simulated considering the gross inadequacy of the

stipulated price, were fraudulently entered into by Roberto.  She imputed bad faith to Pedro, Marilou and the Spouses Campos as buyers of the lots, as they

supposedly knew all along that Roberto was not the rightful owner of the properties.[13]  Hence, she principally prayed that the sales be annulled; that

Roberto’s tax declarations be cancelled; and that the subject properties be reconveyed to her.[14]

 The Spouses Campos advanced that they were innocent purchasers for value

and in good faith, and had merely relied on Roberto’s representation that he had the right to sell the property; and that, hence, they were not bound by whatever

agreement entered by Margarita with her son.  They posited that the alleged gross inadequacy of the price would not invalidate the sale absent a vitiation of consent

or proof of any other agreement.  Further, they noted that Margarita’s claim was already barred by prescription and laches owing to her long inaction in recovering

the subject properties. Finally, they believed that inasmuch as Roberto had already passed away, Margarita must have, instead, directed her claim against his estate.[15]

 In much the same way, Marilou and Pedro,[16] who likewise professed

themselves to be buyers in good faith and for value, believed that Margarita’s cause of action had already been barred by laches, and that even assuming the

contrary, the cause of action was nevertheless barred by prescription as the same had accrued way back in 1968 upon the execution of the affidavit of transfer by

virtue of which an implied trust had been created.  In this regard, they emphasized that the law allowed only a period of ten (10) years within which an action to

recover ownership of real property or to enforce an implied trust thereon may be brought, but Margarita merely let it pass.[17]

 On February 3, 1999, prior to pre-trial, Margarita and the Spouses Campos

amicably entered into a settlement whereby they waived their respective claims against each other.[18]  Margarita died two days later and was forthwith substituted

by her estate.[19]  On February 8, 1999, the trial court rendered a Partial Decision[20] approving the compromise agreement and dismissing the complaint

against the Spouses Campos.  Forthwith, trial on the merits ensued with respect to Pedro and Marilou.

 On July 2, 2001, the trial court rendered judgment dismissing the complaint

as follows: 

WHEREFORE, in view of the foregoing considerations, the complaint is DISMISSED.[21]

 The trial court ruled that the 1968 Affidavit of Transfer operated as a simple

transfer of the subject properties from Margarita to Roberto.  It found no express trust created between Roberto and Margarita by virtue merely of the said document

as there was no evidence of another document showing Roberto’s undertaking to return the subject properties.  Interestingly, it concluded that, instead, an “implied

or constructive trust” was created between the parties, as if affirming that there was indeed an agreement – albeit unwritten – to have the properties returned to

Margarita in due time. [22]

  Moreover, the trial court surmised how Margarita could have failed to

recover the subject properties from Roberto at any time between 1968, following the execution of the Affidavit of Transfer, and Roberto’s return from the United

States shortly thereafter. Finding Margarita guilty of laches by such inaction, the trial court barred recovery from respondents who were found to have acquired the

properties supposedly in good faith and for value.[23]  It also pointed out that recovery could no longer be pursued in this case because Margarita had likewise

exhausted the ten-year prescriptive period for reconveyance based on an implied trust which had commenced to run in 1968 upon the execution of the Affidavit of

Transfer.[24]  Finally, it emphasized that mere inadequacy of the price as alleged would not be a sufficient ground to annul the sales in favor of Pedro and Marilou

absent any defect in consent.[25]

 

Aggrieved, petitioner appealed to the Court of Appeals which, on October 13, 2006, affirmed the trial court’s disposition. The appellate court dismissed

petitioner’s claim that Roberto was merely a trustee of the subject properties as there was no evidence on record supportive of the allegation that Roberto merely

borrowed the properties from Margarita upon his promise to return the same on his arrival from the United States.  Further, it hypothesized that granting the existence

of an implied trust, still Margarita’s action thereunder had already been circumscribed by laches. [26] 

 Curiously, while the appellate court had found no implied trust relation in

the transaction between Margarita and Roberto, nevertheless, it held that the ten-year prescriptive period under Article 1144 of the Civil Code, in relation to an

implied trust created under Article 1456, had already been exhausted by Margarita because her cause of action had accrued way back in 1968; and that while laches

and prescription as defenses could have availed against Roberto, the same would be unavailing against Pedro and Marilou because the latter were supposedly buyers

in good faith and for value.[27]  It disposed of the appeal, thus: 

WHEREFORE, the Appeal is hereby DENIED. The assailed Decision dated 2 July 2001 of the Regional Trial Court of Bauang, La Union, Branch 33 is AFFIRMED.

 SO ORDERED.[28]

 Hence, the instant recourse imputing error to the Court of Appeals in

holding: (a) that the complaint is barred by laches and prescription; (b) that the rule on innocent purchaser for value applies in this case of sale of unregistered land;

and (c) that there is no evidence to support the finding that there is an implied trust created between Margarita and her son Roberto.[29]

 Petitioner posits that the Court of Appeals should not have haphazardly

applied the doctrine of laches and failed to see that the parties in this case are bound by familial ties.  They assert that laches must not be applied when an

injustice would result from it.  Petitioner believes that the existence of such confidential relationship precludes a finding of unreasonable delay on Margarita’s

part in enforcing her claim, especially in the face of Luz’s testimony that she and Margarita had placed trust and confidence in Roberto.  Petitioner also refutes the

Court of Appeals’ finding that there was a donation of the properties to Roberto when the truth is that the subject properties were all that Margarita possessed and

that she could not have failed to provide for her other children nor for means by which to support herself.  It reiterates that the transfer to Roberto was only an

accommodation so that he could submit proof to support his U.S. visa application.  

On the issue of prescription, petitioner advances that it runs from the time Roberto, as trustee, has repudiated the trust by selling the properties to respondents

in August 15, 1992; that hence, the filing of the instant complaint in 1996 was well within the prescriptive period.  Finally, petitioner states that whether a buyer is in

good or bad faith is a matter that attains relevance in sales of registered land, as corollary to the rule that a purchaser of unregistered land uninformed of the seller’s

defective title acquires no better right than such seller. 

Respondents stand by the ruling of the Court of Appeals.  In their Comment, they theorize that if indeed Margarita and Roberto had agreed to have the subject

properties returned following the execution of the Affidavit of Transfer, then there should have been a written agreement evincing such intention of the parties.  They

note that petitioner’s reliance on the Affidavit of Transfer as well as on the alleged unwritten agreement for the return of the properties must fail, simply because they

are not even parties to it.  Be that as it may, the said document had effectively transferred the properties to Roberto who, in turn, had acquired the full capacity to

sell them, especially since these properties could well be considered as Roberto’s inheritance from Margarita who, on the contrary, did have other existing properties

in her name.  Moreover, they believe that the liberal application of the rule on laches between family members does not apply in the instant case because there is

no fiduciary relationship and privity between them and Margarita.  

There is merit in the petition. 

To begin with, the rule is that the latitude of judicial review under Rule 45 generally excludes factual and evidentiary reevaluation, and the Court ordinarily

abides by the uniform conclusions of the trial court and the appellate court.  Yet, in the case at bar, while the courts below have both arrived at the dismissal of

petitioner’s complaint, there still remains unsettled the ostensible incongruence in their respective factual findings.  It thus behooves us to be thorough both in

reviewing the records and in appraising the evidence, especially since an opposite conclusion is warranted and, as will be shown, justified.

 A trust is the legal relationship between one person having an equitable

ownership of property and another person owning the legal title to such property, the equitable ownership of the former entitling him to the performance of certain

duties and the exercise of certain powers by the latter.[30]  Trusts are either express or implied.[31]  Express or direct trusts are created by the direct and positive acts of

the parties, by some writing or deed, or will, or by oral declaration in words evincing an intention to create a trust.[32] Implied trusts – also called “trusts by

operation of law,” “indirect trusts” and “involuntary trusts” – arise by legal implication based on the presumed intention of the parties or on equitable

principles independent of the particular intention of the parties.[33] They are those which, without being expressed, are deducible from the nature of the transaction as

matters of intent or, independently of the particular intention of the parties, as being inferred from the transaction by operation of law basically by reason of

equity.[34]

 

          Implied trusts are further classified into constructive trusts and resulting trusts.  Constructive trusts, on the one hand, come about in the main by operation

of law and not by agreement or intention.  They arise not by any word or phrase, either expressly or impliedly, evincing a direct intention to create a trust, but one

which arises in order to satisfy the demands of justice.[35]  Also known as trusts ex maleficio, trusts ex delicto and trusts de son tort, they are construed against one

who by actual or constructive fraud, duress, abuse of confidence, commission of a wrong or any form of unconscionable conduct, artifice, concealment of

questionable means, or who in any way against equity and good conscience has obtained or holds the legal right to property which he ought not, in equity and good

conscience, hold and enjoy.[36] They are aptly characterized as “fraud-rectifying trust,”[37]imposed by equity to satisfy the demands of justice[38] and to defeat or

prevent the wrongful act of one of the parties.[39] Constructive trusts are illustrated in Articles 1450, 1454, 1455 and 1456.[40]

 On the other hand, resulting trusts arise from the nature or circumstances of

the consideration involved in a transaction whereby one person becomes invested with legal title but is obligated in equity to hold his title for the benefit of another.

This is based on the equitable doctrine that valuable consideration and not legal title is determinative of equitable title or interest and is always presumed to have

been contemplated by the parties.[41]  Such intent is presumed as it is not expressed in the instrument or deed of conveyance and is to be found in the nature of their

transaction.[42] Implied trusts of this nature are hence describable as “intention-enforcing trusts.”[43] Specific examples of resulting trusts may be found in the Civil

Code, particularly Articles 1448, 1449, 1451, 1452 and 1453.[44]

Articles 1448 to 1456 of the Civil Code enumerate cases of implied trust, but

the list according to Article 1447 is not exclusive of others which may be established by the general law on trusts so long as the limitations laid down in

Article 1442 are observed,[45] that is, that they be not in conflict with the New Civil Code, the Code of Commerce, the Rules of Court and special laws.[46]

 While resulting trusts generally arise on failure of an express trust or of the

purpose thereof, or on a conveyance to one person upon a consideration from another (sometimes referred to as a “purchase-money resulting trust”), they may

also be imposed in other circumstances such that the court, shaping judgment in its most efficient form and preventing a failure of justice, must decree the existence of

such a trust.[47] A resulting trust, for instance, arises where, there being no fraud or violation of the trust, the circumstances indicate intent of the parties that legal title

in one be held for the benefit of another.[48] It also arises in some instances where the underlying transaction is without consideration, such as that contemplated in

Article 1449[49] of the Civil Code.  Where property, for example, is gratuitously conveyed for a particular purpose and that purpose is either fulfilled or frustrated,

the court may affirm the resulting trust in favor of the grantor or transferor,[50] where the beneficial interest in property was not intended to vest in the grantee.[51] 

 

Intention – although only presumed, implied or supposed by law from the nature of the transaction or from the facts and circumstances accompanying the

transaction, particularly the source of the consideration – is always an element of a resulting trust[52] and may be inferred from the acts or conduct of the parties rather

than from direct expression of conduct.[53] Certainly, intent as an indispensable element, is a matter that necessarily lies in the evidence, that is, by evidence, even

circumstantial, of statements made by the parties at or before the time title passes.[54]  Because an implied trust is neither dependent upon an express agreement nor

required to be evidenced by writing,[55] Article 1457[56] of our Civil Code authorizes the admission of parole evidence to prove their existence. Parole evidence that is

required to establish the existence of an implied trust necessarily has to be trustworthy and it cannot rest on loose, equivocal or indefinite declarations.[57]

 Thus, contrary to the Court of Appeals’ finding that there was no evidence

on record showing that an implied trust relation arose between Margarita and Roberto, we find that petitioner before the trial court, had actually adduced

evidence to prove the intention of Margarita to transfer to Roberto only the legal title to the properties in question, with attendant expectation that Roberto would

return the same to her on accomplishment of that specific purpose for which the transaction was entered into.  The evidence of course is not documentary, but

rather testimonial. 

We recall that the complaint before the trial court alleged that the 1968 Affidavit of Transfer was executed merely to accommodate Roberto’s request to

have the properties in his name and thereby produce proof of ownership of certain real properties in the Philippines to support his U.S. visa application.  The

agreement, the complaint further stated, was for Margarita to transfer the tax declarations of the subject properties to Roberto for the said purpose and without

the intention to divest her of the rights of ownership and dominion.[58]  Margarita, however, died before trial on the merits ensued;[59] yet the allegation was

substantiated by the open-court statements of her daughter, Luz, and of her niece, Hilaria Costales (Hilaria), a disinterested witness.

 In her testimony, Luz, who affirmed under oath her own presence at the

execution of the Affidavit of Transfer, described the circumstances under which Margarita and Roberto entered into the agreement. She narrated that Roberto had

wanted to travel to the U.S and to show the embassy proof of his financial capacity, he asked to “borrow” from Margarita the properties involved but upon

the condition that he would give them back to her upon his arrival from the United States.  She admitted that Roberto’s commitment to return the properties was not

put in writing because they placed trust and confidence in him, and that while she had spent most of her time in Mindanao since she married in 1956, she would

sometimes come to La Union to see her mother but she never really knew whether at one point or another her mother had demanded the return of the properties from

Roberto.[60]  She further asserted that even after Roberto’s arrival from the United States, it was Margarita who paid off the taxes on the subject properties and that it

was only when her health started to deteriorate that Roberto had taken up those obligations.[61]  Hilaria’s testimony ran along the same line.  Like Luz, she was

admittedly present at the execution of the Affidavit of Transfer which took place at the house she shared with Jacinto Costales, the notarizing officer who was her own

brother.  She told that Roberto at the time had wanted to travel to the U.S. but did not have properties in the Philippines which he could use to back up his visa

application; as accommodation, Margarita “lent” him the tax declarations covering the properties but with the understanding that upon his return he would give them

back to Margarita.  She professed familiarity with the properties involved because one of them was actually sitting close to her own property.[62] 

While indeed at one point at the stand both of Luz‘s and Hilaria’s presence at the execution of the affidavit had been put to test in subtle interjections by

respondents’ counsel to the effect that their names and signatures did not appear in the Affidavit of Transfer as witnesses, this, to our mind, is of no moment inasmuch

as they had not been called to testify on the fact of, or on the contents of, the Affidavit of Transfer or its due execution.  Rather, their testimony was offered to

prove the circumstances surrounding its execution – the circumstances from which could be derived the unwritten understanding between Roberto and Margarita that

by their act, no absolute transfer of ownership would be effected.  Besides, it would be highly unlikely for Margarita to institute the instant complaint if it were

indeed her intention to vest in Roberto, by virtue of the Affidavit of Transfer, absolute ownership over the covered properties.

 It is deducible from the foregoing that the inscription of Roberto’s name in

the Affidavit of Transfer as Margarita’s transferee is not for the purpose of transferring ownership to him but only to enable him to hold the property in trust

for Margarita.  Indeed, in the face of the credible and straightforward testimony of the two witnesses, Luz and Hilaria, the probative value of the ownership record

forms in the names of respondents, together with the testimony of their witness from the municipal assessor’s office who authenticated said forms, are utterly

minimal to show Roberto’s ownership.  It suffices to say that respondents did not bother to offer evidence that would directly refute the statements made by Luz and

Hilaria in open court on the circumstances underlying the 1968 Affidavit of Transfer. 

 As a trustee of a resulting trust, therefore, Roberto, like the trustee of an

express passive trust, is merely a depositary of legal title having no duties as to the management, control or disposition of the property except to make a conveyance

when called upon by the cestui que trust.[63]  Hence, the sales he entered into with respondents are a wrongful conversion of the trust property and a breach of the

trust.  The question is: May respondents now be compelled to reconvey the subject properties to petitioner?  We rule in the affirmative.

 Respondents posit that petitioner’s claim may never be enforced against

them as they had purchased the properties from Roberto for value and in good faith.  They also claim that, at any rate, petitioner’s cause of action has accrued

way back in 1968 upon the execution of the Affidavit of Transfer and, hence, with the 28 long years that since passed, petitioner’s claim had long become stale not

only on account of laches, but also under the rules on extinctive prescription governing a resulting trust.  We do not agree.

 First, fundamental is the rule in land registration law that the issue of

whether the buyer of realty is in good or bad faith is relevant only where the subject of the sale is registered land and the purchase was made from the registered

owner whose title to the land is clean, in which case the purchaser who relies on the clean title of the registered owner is protected if he is a purchaser in good faith

and for value.[64]  Since the properties in question are unregistered lands, respondents purchased the same at their own peril.  Their claim of having bought

the properties in good faith, i.e., without notice that there is some other person with a right to or interest therein, would not protect them should it turn out, as it in fact

did in this case, that their seller, Roberto, had no right to sell them. 

Second, the invocation of the rules on limitation of actions relative to a resulting trust is not on point because the resulting trust relation between Margarita

and Roberto had been extinguished by the latter’s death.  A trust, it is said, terminates upon the death of the trustee, particularly where the trust is personal to

him.[65]  Besides, prescription and laches, in respect of this resulting trust relation, hardly can impair petitioner’s cause of action.  On the one hand, in accordance

with Article 1144[66] of the Civil Code, an action for reconveyance to enforce an implied trust in one’s favor prescribes in ten (10) years from the time the right of

action accrues, as it is based upon an obligation created by law.[67]  It sets in from the time the trustee performs unequivocal acts of repudiation amounting to an

ouster of the cestui que trust which are made known to the latter.[68]  In this case, it was the 1992 sale of the properties to respondents that comprised the act of

repudiation which, however, was made known to Margarita only in 1995 but nevertheless impelled her to institute the action in 1996 – still well within the

prescriptive period.  Hardly can be considered as act of repudiation Roberto’s open court declaration which he made in the 1979 adoption proceedings involving

respondents to the effect that he owned the subject properties,[69] nor even the fact that he in 1977 had entered into a lease contract on one of the disputed properties

which contract had been subject of a 1996 decision of the Court of Appeals.[70]  These do not suffice to constitute unequivocal acts in repudiation of the trust.

 

On the other hand, laches, being rooted in equity, is not always to be applied strictly in a way that would obliterate an otherwise valid claim especially between

blood relatives.  The existence of a confidential relationship based upon consanguinity is an important circumstance for consideration; hence, the doctrine

is not to be applied mechanically as between near relatives.[71] Adaza v. Court of Appeals[72] held that the relationship between the parties therein, who were siblings,

was sufficient to explain and excuse what would otherwise have been a long delay in enforcing the claim and the delay in such situation should not be as strictly

construed as where the parties are complete strangers vis-a-vis each other; thus, reliance by one party upon his blood relationship with the other and the trust and

confidence normally connoted in our culture by that relationship should not be taken against him.  Too, Sotto v. Teves[73] ruled that the doctrine of laches is not

strictly applied between near relatives, and the fact that the parties are connected by ties of blood or marriage tends to excuse an otherwise unreasonable delay.

 Third, there is a fundamental principle in agency that where certain property

entrusted to an agent and impressed by law with a trust in favor of the principal is wrongfully diverted, such trust follows the property in the hands of a third person

and the principal is ordinarily entitled to pursue and recover it so long as the property can be traced and identified, and no superior equities have

intervened.  This principle is actually one of trusts, since the wrongful conversion gives rise to a constructive trust which pursues the property, its product or

proceeds, and permits the beneficiary to recover the property or obtain damages for the wrongful conversion of the property.  Aptly called the “trust pursuit rule,” it

applies when a constructive or resulting trust has once affixed itself to property in a certain state or form.[74] 

 

Hence, a trust will follow the property – through all changes in its state and form as long as such property, its products or its proceeds, are capable of

identification, even into the hands of a transferee other than a bona fide purchaser for value, or restitution will be enforced at the election of the beneficiary through

recourse against the trustee or the transferee personally.  This is grounded on the principle in property law that ownership continues and can be asserted by the true

owner against any withholding of the object to which the ownership pertains, whether such object of the ownership is found in the hands of an original owner or

a transferee, or in a different form, as long as it can be identified. [75]  Accordingly, the person to whom is made a transfer of trust property constituting a wrongful

conversion of the trust property and a breach of the trust, when not protected as a bona fidepurchaser for value, is himself liable and accountable as a constructive

trustee.  The liability attaches at the moment of the transfer of trust property and continues until there is full restoration to the beneficiary. Thus, the transferee is

charged with, and can be held to the performance of the trust, equally with the original trustee, and he can be compelled to execute a reconveyance.[76] 

 This scenario is characteristic of a constructive trust imposed by Article

1456[77] of the Civil Code, which impresses upon a person obtaining property through mistake or fraud the status of an implied trustee for the benefit of the

person from whom the property comes.  Petitioner, in laying claim against respondents who are concededly transferees who professed having validly derived

their ownership from Roberto, is in effect enforcing against respondents a constructive trust relation that arose by virtue of the wrongful and fraudulent

transfer to them of the subject properties by Roberto.           

          Aznar Brother Realty Co. v. Aying,[78] citing Buan Vda. de Esconde v. Court of Appeals,[79] explained this form of implied trust as follows:

 

A deeper analysis of Article 1456 reveals that it is not a trust in the technical sense for in a typical trust, confidence is reposed in one person who is named a trustee for the benefit of another who is called the cestui que trust, respecting property which is held by the trustee for the benefit of the cestui que trust. A constructive trust, unlike an express trust, does not emanate from, or generate a fiduciary relation. While in an express trust, a beneficiary and a trustee are linked by confidential or fiduciary relations, in a constructive trust, there is neither a promise nor any fiduciary relation to speak of and the so-called trustee neither accepts any trust nor intends holding the property for the beneficiary.

 x x x x 

x x x [C]onstructive trusts are created by the construction of equity in order to satisfy the demands of justice and prevent unjust enrichment. They arise contrary to intention against one who, by fraud, duress or abuse of confidence, obtains or holds the legal right to property which he ought not, in equity and good conscience, to hold.[80]

  

            It is settled that an action for reconveyance based on a constructive implied trust prescribes in 10 years likewise in accordance with Article 1144 of the Civil

Code.  Yet not like in the case of a resulting implied trust and an express trust, prescription supervenes in a constructive implied trust even if the trustee does not

repudiate the relationship.  In other words, repudiation of said trust is not a condition precedent to the running of the prescriptive period.[81]

 As to when the prescriptive period commences to run, Crisostomo v.

Garcia[82] elucidated as follows: When property is registered in another's name, an implied or constructive

trust is created by law in favor of the true owner. The action for reconveyance of the title to the rightful owner prescribes in 10 years from the issuance of the title.  An action for reconveyancebased on implied or constructive trust prescribes in ten years from the alleged fraudulent registration or date of issuance of the certificate of title over the property. 

 It is now well settled that the prescriptive period to recover property

obtained by fraud or mistake, giving rise to an implied trust under Art. 1456 of the Civil Code, is 10 years pursuant to Art. 1144. This ten-year prescriptive period begins to run from the date the adverse party repudiates the implied trust, which repudiation takes place when the adverse party registers the land.[83]

          

From the foregoing, it is clear that an action for reconveyance under a constructive implied trust in accordance with Article 1456 does not prescribe

unless and until the land is registered or the instrument affecting the same is inscribed in accordance with law, inasmuch as it is what binds the land and

operates constructive notice to the world.[84]  In the present case, however, the lands involved are concededly unregistered lands; hence, there is no way by which

Margarita, during her lifetime, could be notified of the furtive and fraudulent sales made in 1992 by Roberto in favor of respondents, except by actual notice from

Pedro himself in August 1995.  Hence, it is from that date that prescription began to toll.  The filing of the complaint in February 1996 is well within the prescriptive

period.  Finally, such delay of only six (6) months in instituting the present action hardly suffices to justify a finding of inexcusable delay or to create an inference

that Margarita has allowed her claim to stale by laches. 

WHEREFORE, the Petition is GRANTED.  The October 13, 2006 Decision of the Court of Appeals in CA-G.R. CV No. 72371, affirming the July 2,

2001 judgment of the Regional Trial Court of La Union, Branch 33 in Civil Case No. 1031-BG, isREVERSED and SET ASIDE, and a new one is entered (a)

directing the cancellation of the tax declarations covering the subject properties in the name of Roberto D. Laigo and his transferees; (b) nullifying the deeds of sale

executed by Roberto D. Laigo in favor of respondents Pedro Roy Laigo and Marilou Laigo; and (c) directing said respondents to execute reconveyance in favor

of petitioner. SO ORDERED.   

Republic of the Philippines

SUPREME COURT

Manila

FIRST DIVISION

KUKAN INTERNATIONAL CORPORATION,

Petitioner,

- versus -

HON. AMOR REYES, in her capacity as Presiding Judge of the Regional Trial Court of Manila, Branch 21, and ROMEO M. MORALES, doing business under the name and style “RM Morales Trophies and Plaques,”

Respondents.

G.R. No. 182729

Present:

CORONA, C.J., Chairperson,

CARPIO,*

VELASCO, JR.,

LEONARDO-DE CASTRO, and

PEREZ, JJ.

Promulgated:

September 29, 2010

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

D E C I S I O N

VELASCO, JR., J.:

The Case

This Petition for Review on Certiorari under Rule 45 seeks to nullify and

reverse the January 23, 2008 Decision[1] and the April 16, 2008

Resolution[2] rendered by the Court of Appeals (CA) in CA-G.R. SP No. 100152.

The assailed CA decision affirmed the March 12, 2007 [3] and June 7,

2007[4] Orders of the Regional Trial Court (RTC) of Manila, Branch 21, in Civil Case

No. 99-93173, entitled Romeo M. Morales, doing business under the name and

style RM Morales Trophies and Plaques v. Kukan, Inc. In the said orders, the RTC

disregarded the separate corporate identities of Kukan, Inc. and Kukan

International Corporation and declared them to be one and the same entity.

Accordingly, the RTC held Kukan International Corporation, albeit not impleaded

in the underlying complaint of Romeo M. Morales, liable for the judgment award

decreed in a Decision dated November 28, 2002[5] in favor of Morales and against

Kukan, Inc.

The Facts

Sometime in March 1998, Kukan, Inc. conducted a bidding for the supply

and installation of signages in a building being constructed in Makati City. Morales

tendered the winning bid and was awarded the PhP 5 million contract. Some of

the items in the project award were later excluded resulting in the corresponding

reduction of the contract price to PhP 3,388,502. Despite his compliance with his

contractual undertakings, Morales was only paid the amount of PhP 1,976,371.07,

leaving a balance of PhP 1,412,130.93, which Kukan, Inc. refused to pay despite

demands. Shortchanged, Morales filed a Complaint[6] with the RTC against Kukan,

Inc. for a sum of money, the case docketed as Civil Case No. 99-93173 and

eventually raffled to Branch 17 of the court.

Following the joinder of issues after Kukan, Inc. filed an answer with

counterclaim, trial ensued. However, starting November 2000, Kukan, Inc. no

longer appeared and participated in the proceedings before the trial court,

prompting the RTC to declare Kukan, Inc. in default and paving the way for

Morales to present his evidence ex parte.

On November 28, 2002, the RTC rendered a Decision finding for Morales

and against Kukan, Inc., disposing as follows:

WHEREFORE, consistent with Section 5, Rule 18 of the 1997 Rules of Civil Procedure, and by preponderance of evidence, judgment is hereby rendered in favor of the plaintiff, ordering Kukan, Inc.:

1. to pay the sum of ONE MILLION TWO HUNDRED ONE THOUSAND SEVEN HUNDRED TWENTY FOUR PESOS (P1,201,724.00) with legal interest at 12% per annum from February 17, 1999 until full payment;

2. to pay the sum of FIFTY THOUSAND PESOS (P50,000.00) as moral damages;

3. to pay the sum of TWENTY THOUSAND PESOS, (P20,000.00) as reasonable attorney’s fees; and

4. to pay the sum of SEVEN THOUSAND NINE HUNDRED SIXTY PESOS and SIX CENTAVOS (P7,960.06) as litigation expenses.

For lack of factual foundation, the counterclaim is DISMISSED.

IT IS SO ORDERED.[7]

After the above decision became final and executory, Morales moved for

and secured a writ of execution[8] against Kukan, Inc. The sheriff then levied upon

various personal properties found at what was supposed to be Kukan, Inc.’s office

at Unit 2205, 88Corporate Center, Salcedo Village, Makati City. Alleging that it

owned the properties thus levied and that it was a different corporation from

Kukan, Inc., Kukan International Corporation (KIC) filed an Affidavit of Third-Party

Claim. Notably, KIC was incorporated in August 2000, or shortly after Kukan, Inc.

had stopped participating in Civil Case No. 99-93173.

In reaction to the third party claim, Morales interposed an Omnibus

Motion dated April 30, 2003. In it, Morales prayed, applying the principle of

piercing the veil of corporate fiction, that an order be issued for the satisfaction of

the judgment debt of Kukan, Inc. with the properties under the name or in the

possession of KIC, it being alleged that both corporations are but one and the

same entity. KIC opposed Morales’ motion. By Order of May 29, 2003[9] as

reiterated in a subsequent order, the court denied the omnibus motion.

In a bid to establish the link between KIC and Kukan, Inc., and thus

determine the true relationship between the two, Morales filed a Motion for

Examination of Judgment Debtors dated May 4, 2005. In this motion Morales

sought that subponae be issued against the primary stockholders of Kukan, Inc.,

among them Michael Chan, a.k.a. Chan Kai Kit. This too was denied by the trial

court in an Order dated May 24, 2005.[10]

Morales then sought the inhibition of the presiding judge, Eduardo B.

Peralta, Jr., who eventually granted the motion. The case was re-raffled to Branch

21, presided by public respondent Judge Amor Reyes.

Before the Manila RTC, Branch 21, Morales filed a Motion to Pierce the Veil

of Corporate Fiction to declare KIC as having no existence separate from Kukan,

Inc. This time around, the RTC, by Order dated March 12, 2007, granted the

motion, the dispositive portion of which reads:

WHEREFORE, premises considered, the motion is hereby GRANTED. The Court hereby declares as follows:

1. defendant Kukan, Inc. and newly created Kukan International Corp. as one and the same corporation;

2. the levy made on the properties of Kukan International Corp. is hereby valid;

3. Kukan International Corp. and Michael Chan are jointly and severally liable to pay the amount awarded to plaintiff pursuant to the decision of November [28], 2002 which has long been final and executory.

SO ORDERED.

From the above order, KIC moved but was denied reconsideration in

another Order dated June 7, 2007.

KIC went to the CA on a petition for certiorari to nullify the aforesaid March

12 and June 7, 2007 RTC Orders.

On January 23, 2008, the CA rendered the assailed decision, the dispositive

portion of which states:

WHEREFORE, premises considered, the petition is hereby DENIED and the assailed Orders dated March 12, 2007 and June 7, 2007 of the court a quo are both AFFIRMED. No costs.

SO ORDERED.[11]

The CA later denied KIC’s motion for reconsideration in the assailed

resolution.

Hence, the instant petition for review, with the following issues KIC raises

for the Court’s consideration:

1. There is no legal basis for the [CA] to resolve and declare that petitioner’s Constitutional Right to Due Process was not violated by the public respondent in rendering the Orders dated March 12, 2007 and June 7, 2007 and in declaring petitioner to be liable for the judgment obligations of the corporation “Kukan, Inc.” to private respondent – as petitioner is a stranger to the case and was never made a party in the case before the trial court nor was it ever served a summons and a copy of the complaint.

2. There is no legal basis for the [CA] to resolve and declare that the Orders dated March 12, 2007 and June 7, 2007 rendered by public respondent declaring the petitioner liable to the judgment obligations of the corporation “Kukan, Inc.” to private respondent are valid as said orders of the public respondent modify and/or

amend the trial court’s final and executory decision rendered on November 28, 2002.

3. There is no legal basis for the [CA] to resolve and declare that the Orders dated March 12, 2007 and June 7, 2007 rendered by public respondent declaring the petitioner [KIC] and the corporation “Kukan, Inc.” as one and the same, and, therefore, the Veil of Corporate Fiction between them be pierced – as the procedure undertaken by public respondent which the [CA] upheld is not sanctioned by the Rules of Court and/or established jurisprudence enunciated by this Honorable Supreme Court.[12]

In gist, the issues to be resolved boil down to the question of, first, whether

the trial court can, after the judgment against Kukan, Inc. has attained finality,

execute it against the property of KIC; second, whether the trial court acquired

jurisdiction over KIC; and third, whether the trial and appellate courts correctly

applied, under the premises, the principle of piercing the veil of corporate fiction.

The Ruling of the Court

The petition is meritorious.

First Issue: Against Whom Can a Final and

Executory Judgment Be Executed

The preliminary question that must be answered is whether or not the trial

court can, after adjudging Kukan, Inc. liable for a sum of money in a final and

executory judgment, execute such judgment debt against the property of KIC.

The poser must be answered in the negative.

In Carpio v. Doroja,[13] the Court ruled that the deciding court has

supervisory control over the execution of its judgment:

A case in which an execution has been issued is regarded as still pending so that all proceedings on the execution are proceedings in the suit. There is no question that the court which rendered the judgment has a general supervisory control over its process of execution, and this power carries with it the right to determine every question of fact and law which may be involved in the execution.

We reiterated the above holding in Javier v. Court of Appeals[14] in this wise:

“The said branch has a general supervisory control over its processes in the

execution of its judgment with a right to determine every question of fact and law

which may be involved in the execution.”

The court’s supervisory control does not, however, extend as to authorize

the alteration or amendment of a final and executory decision, save for certain

recognized exceptions, among which is the correction of clerical errors. Else, the

court violates the principle of finality of judgment and its immutability, concepts

which the Court, in Tan v. Timbal,[15] defined:

As we held in Industrial Management International Development Corporation vs. NLRC:

It is an elementary principle of procedure that the resolution of the court in a given issue as embodied in the dispositive part of a decision or order is the controlling factor as to settlement of rights of the parties. Once a decision or order becomes final and executory, it is removed from the power or jurisdiction of the court which rendered it to further alter or amend it. It thereby becomes immutable and unalterable and any amendment or alteration which substantially affects a final and executory judgment is null and void for lack of jurisdiction, including the entire proceedings held for that purpose. An order of execution which varies the tenor of the judgment or exceeds the terms thereof is a nullity. (Emphasis supplied.)

Republic v. Tango[16] expounded on the same principle and its exceptions:

Deeply ingrained in our jurisprudence is the principle that a decision that has acquired finality becomes immutable and unalterable. As such, it may no longer be modified in any respect even if the modification is meant to correct erroneous conclusions of fact or law and whether it will be made by the court that rendered it or by the highest court of the land. x x x

The doctrine of finality of judgment is grounded on the fundamental principle of public policy and sound practice that, at the risk of occasional error, the judgment of courts and the award of quasi-judicial agencies must become final on some definite date fixed by law.The only exceptions to the general rule are the correction of clerical errors, the so-called nunc pro tunc entries which cause no prejudice to any party, void judgments, and whenever circumstances transpire after the finality of the decision

which render its execution unjust and inequitable. None of the exceptions obtains here to merit the review sought. (Emphasis added.)

So, did the RTC, in breach of the doctrine of immutability and inalterability

of judgment, order the execution of its final decision in a manner as would

amount to its prohibited alteration or modification?

We repair to the dispositive portion of the final and executory RTC decision.

Pertinently, it provides:

WHEREFORE, consistent with Section 5, Rule 18 of the 1997 Rules of Civil Procedure, and by preponderance of evidence, judgment is hereby rendered in favor of the plaintiff, ordering Kukan, Inc.:

1. to pay the sum of ONE MILLION TWO HUNDRED ONE THOUSAND SEVEN HUNDRED TWENTY FOUR PESOS (P1,201,724.00) with legal interest at 12% per annum from February 17, 1999 until full payment;

2. to pay the sum of FIFTY THOUSAND PESOS (P50,000.00) as moral damages;

3. to pay the sum of TWENTY THOUSAND PESOS (P20,000.00) as reasonable attorney’s fees; and

4. to pay the sum of SEVEN THOUSAND NINE HUNDRED SIXTY PESOS and SIX CENTAVOS (P7,960.06) as litigation expenses.

x x x x (Emphasis supplied.)

As may be noted, the above decision, in unequivocal terms, directed Kukan,

Inc. to pay the aforementioned awards to Morales. Thus, making KIC, thru the

medium of a writ of execution, answerable for the above judgment liability is a

clear case of altering a decision, an instance of granting relief not contemplated in

the decision sought to be executed. And the change does not fall under any of the

recognized exceptions to the doctrine of finality and immutability of judgment. It

is a settled rule that a writ of execution must conform to the fallo of the

judgment; as an inevitable corollary, a writ beyond the terms of the judgment is a

nullity.[17]

Thus, on this ground alone, the instant petition can already be

granted. Nonetheless, an examination of the other issues raised by KIC would

be proper.

Second Issue: Propriety of the RTC

Assuming Jurisdiction over KIC

The next issue turns on the validity of the execution the trial court

authorized against KIC and its property, given that it was neither made a party nor

impleaded in Civil Case No. 99-93173, let alone served with summons. In other

words, did the trial court acquire jurisdiction over KIC?

In the assailed decision, the appellate court deemed KIC to have voluntarily

submitted itself to the jurisdiction of the trial court owing to its filing of four (4)

pleadings adverted to earlier, namely: (a) the Affidavit of Third-Party Claim;[18] (b)

theComment and Opposition to Plaintiff’s Omnibus Motion;[19] (c) the Motion for

Reconsideration of the RTC Order dated March 12, 2007; [20] and (d) the Motion for

Leave to Admit Reply.[21] The CA, citing Section 20, Rule 14 of the Rules of Court,

stated that “the procedural rule on service of summons can be waived by

voluntary submission to the court’s jurisdiction through any form of appearance

by the party or its counsel.”[22]

We cannot give imprimatur to the appellate court’s appreciation of the

thrust of Sec. 20, Rule 14 of the Rules in concluding that the trial court acquired

jurisdiction over KIC.

Orion Security Corporation v. Kalfam Enterprises, Inc.[23] explains how courts

acquire jurisdiction over the parties in a civil case:

Courts acquire jurisdiction over the plaintiffs upon the filing of the complaint. On the other hand, jurisdiction over the defendants in a civil case is acquired either through the service of summons upon them or through their voluntary appearance in court and their submission to its authority. (Emphasis supplied.)

In the fairly recent Palma v. Galvez,[24] the Court reiterated its holding

in Orion Security Corporation, stating: “[I]n civil cases, the trial court acquires

jurisdiction over the person of the defendant either by the service of summons or

by the latter’s voluntary appearance and submission to the authority of the

former.”

The court’s jurisdiction over a party-defendant resulting from his voluntary

submission to its authority is provided under Sec. 20, Rule 14 of the Rules, which

states:

Section 20. Voluntary appearance. – The defendant’s voluntary appearance in the actions shall be equivalent to service of summons. The inclusion in a motion to dismiss of other grounds aside from lack of jurisdiction over the person of the defendant shall not be deemed a voluntary appearance.

To be sure, the CA’s ruling that any form of appearance by the party or its

counsel is deemed as voluntary appearance finds support in the kindred Republic

v. Ker & Co., Ltd.[25] and De Midgely v. Ferandos.[26]

Republic and De Midgely, however, have already been modified if not

altogether superseded[27] by La Naval Drug Corporation v. Court of Appeals,[28] wherein the Court essentially ruled and elucidated on the current view in our

jurisdiction, to wit: “[A] special appearance before the court––challenging its

jurisdiction over the person through a motion to dismiss even if the movant

invokes other grounds––is not tantamount to estoppel or a waiver by the movant

of his objection to jurisdiction over his person; and such is not constitutive of a

voluntary submission to the jurisdiction of the court.”[29]

In the instant case, KIC was not made a party-defendant in Civil Case No. 99-

93173. Even if it is conceded that it raised affirmative defenses through its

aforementioned pleadings, KIC never abandoned its challenge, however implicit,

to the RTC’s jurisdiction over its person. The challenge was subsumed in KIC’s

primary assertion that it was not the same entity as Kukan, Inc. Pertinently, in

its Comment and Opposition to Plaintiff’s Omnibus Motion dated May 20, 2003,

KIC entered its “special but not voluntary appearance” alleging therein that it

was a different entity and has a separate legal personality from Kukan, Inc. And

KIC would consistently reiterate this assertion in all its pleadings, thus effectively

resisting all along the RTC’s jurisdiction of its person. It cannot be

overemphasized that KIC could not file before the RTC a motion to dismiss and its

attachments in Civil Case No. 99-93173, precisely because KIC was neither

impleaded nor served with summons. Consequently, KIC could only assert and

claim through its affidavits, comments, and motions filed by special appearance

before the RTC that it is separate and distinct from Kukan, Inc.

Following La Naval Drug Corporation,[30] KIC cannot be deemed to have

waived its objection to the court’s lack of jurisdiction over its person. It would

defy logic to say that KIC unequivocally submitted itself to the jurisdiction of the

RTC when it strongly asserted that it and Kukan, Inc. are different entities. In the

scheme of things obtaining, KIC had no other option but to insist on its separate

identity and plead for relief consistent with that position.

Third Issue: Piercing the

Veil of Corporate Fiction

The third and main issue in this case is whether or not the trial and appellate

courts correctly applied the principle of piercing the veil of corporate entity––

called also as disregarding the fiction of a separate juridical personality of a

corporation––to support a conclusion that Kukan, Inc. and KIC are but one and

the same corporation with respect to the contract award referred to at the

outset. This principle finds its context on the postulate that a corporation is an

artificial being invested with a personality separate and distinct from those of the

stockholders and from other corporations to which it may be connected or

related.[31]

In Pantranco Employees Association (PEA-PTGWO) v. National Labor

Relations Commission,[32] the Court revisited the subject principle of piercing the

veil of corporate fiction and wrote:

Under the doctrine of “piercing the veil of corporate fiction,” the court looks at the corporation as a mere collection of individuals or an aggregation of persons undertaking business as a group, disregarding the separate juridical personality of the corporation unifying the group. Another formulation of this doctrine is that when two business enterprises are owned, conducted and controlled by the same parties, both law and equity will, when necessary to protect the rights of third parties, disregard the legal fiction that two corporations are distinct entities and treat them as identical or as one and the same.

Whether the separate personality of the corporation should be pierced hinges on obtaining facts appropriately pleaded or proved. However, any piercing of the corporate veil has to be done with caution, albeit the Court will not hesitate to disregard the corporate veil when it is misused or when necessary in the interest of justice. x x x (Emphasis supplied.)

The same principle was the subject and discussed in Rivera v. United

Laboratories, Inc.:

While a corporation may exist for any lawful purpose, the law will regard it as an association of persons or, in case of two corporations, merge them into one, when its corporate legal entity is used as a cloak for fraud or illegality. This is the doctrine of piercing the veil of corporate fiction. The doctrine applies only when such corporate fiction is used to defeat public convenience, justify wrong, protect fraud, or defend crime, or when it is made as a shield to confuse the legitimate issues , or where a corporation is the mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation.

To disregard the separate juridical personality of a corporation, the wrongdoing must be established clearly and convincingly. It cannot be presumed.[33] (Emphasis supplied.)

Now, as before the appellate court, petitioner KIC maintains that the RTC

violated its right to due process when, in the execution of its November 28, 2002

Decision, the court authorized the issuance of the writ against KIC for Kukan, Inc.’s

judgment debt, albeit KIC has never been a party to the underlying suit. As a

counterpoint, Morales argues that KIC’s specific concern on due process and on

the validity of the writ to execute the RTC’s November 28, 2002 Decision would

be mooted if it were established that KIC and Kukan, Inc. are indeed one and the

same corporation.

Morales’ contention is untenable.

The principle of piercing the veil of corporate fiction, and the resulting

treatment of two related corporations as one and the same juridical person with

respect to a given transaction, is basically applied only to determine established

liability;[34] it is not available to confer on the court a jurisdiction it has not

acquired, in the first place, over a party not impleaded in a case. Elsewise put, a

corporation not impleaded in a suit cannot be subject to the court’s process of

piercing the veil of its corporate fiction. In that situation, the court has not

acquired jurisdiction over the corporation and, hence, any proceedings taken

against that corporation and its property would infringe on its right to due

process. Aguedo Agbayani, a recognized authority on Commercial Law, stated as

much:

23. Piercing the veil of corporate entity applies to determination of liability not of jurisdiction. x x x

This is so because the doctrine of piercing the veil of corporate fiction comes to play only during the trial of the case after the court has already acquired jurisdiction over the corporation. Hence, before this doctrine can be applied, based on the evidence presented, it is imperative that the court must first have jurisdiction over the corporation.[35] x x x (Emphasis supplied.)

The implication of the above comment is twofold: (1) the court must first

acquire jurisdiction over the corporation or corporations involved before its or

their separate personalities are disregarded; and (2) the doctrine of piercing the

veil of corporate entity can only be raised during a full-blown trial over a cause of

action duly commenced involving parties duly brought under the authority of the

court by way of service of summons or what passes as such service.

The issue of jurisdiction or the lack of it over KIC has already been discussed.

Anent the matter of the time and manner of raising the principle in question, it is

undisputed that no full-blown trial involving KIC was had when the RTC

disregarded the corporate veil of KIC. The reason for this actuality is simple and

undisputed: KIC was not impleaded in Civil Case No. 99-93173 and that the RTC

did not acquire jurisdiction over it. It was dragged to the case after it reacted to

the improper execution of its properties and veritably hauled to court, not thru

the usual process of service of summons, but by mere motion of a party with

whom it has no privity of contract and after the decision in the main case had

already become final and executory. As to the propriety of a plea for the

application of the principle by mere motion, the following excerpts are

instructive:

Generally, a motion is appropriate only in the absence of remedies by regular pleadings, and is not available to settle important questions of law, or to dispose of the merits of the case. A motion is usually a proceeding incidental to an action, but it may be a wholly distinct or independent proceeding. A motion in this sense is not within this discussion even though the relief demanded is denominated an “order.”

A motion generally relates to procedure and is often resorted to in order to correct errors which have crept in along the line of the principal action’s progress. Generally, where there is a procedural defect in a proceeding and no method under statute or rule of court by which it may be called to the attention of the court, a motion is an appropriate remedy. In many jurisdictions, the motion has replaced the common-law pleas testing the sufficiency of the pleadings, and various common-law writs, such as writ of error coram nobis and audita querela. In some cases, a motion may be one of several remedies available. For example, in some jurisdictions, a motion to vacate an order is a remedy alternative to an appeal therefrom.

Statutes governing motions are given a liberal construction.[36] (Emphasis supplied.)

The bottom line issue of whether Morales can proceed against KIC for the

judgment debt of Kukan, Inc.––assuming hypothetically that he can, applying the

piercing the corporate veil principle––resolves itself into the question of whether

a mere motion is the appropriate vehicle for such purpose.

Verily, Morales espouses the application of the principle of piercing the

corporate veil to hold KIC liable on theory that Kukan, Inc. was out to defraud him

through the use of the separate and distinct personality of another corporation,

KIC. In net effect, Morales’ adverted motion to pierce the veil of corporate fiction

dated January 3, 2007 stated a new cause of action, i.e., for the liability of

judgment debtor Kukan, Inc. to be borne by KIC on the alleged identity of the two

corporations. This new cause of action should be properly ventilated in another

complaint and subsequent trial where the doctrine of piercing the corporate veil

can, if appropriate, be applied, based on the evidence adduced. Establishing the

claim of Morales and the corresponding liability of KIC for Kukan Inc.’s

indebtedness could hardly be the subject, under the premises, of a mere motion

interposed after the principal action against Kukan, Inc. alone had peremptorily

been terminated. After all, a complaint is one where the plaintiff alleges causes of

action.

In any event, the principle of piercing the veil of corporate fiction finds no

application to the instant case.

As a general rule, courts should be wary of lifting the corporate veil between

corporations, however related. Philippine National Bank v. Andrada Electric

Engineering Company[37] explains why:

A corporation is an artificial being created by operation of law. x x x It has a personality separate and distinct from the persons composing it, as well as from any other legal entity to which it may be related. This is basic.

Equally well-settled is the principle that the corporate mask may be removed or the corporate veil pierced when the corporation is just an alter ego of a person or of another corporation. For reasons of public policy and in the interest of justice, the corporate veil will justifiably be impaled only when it becomes a shield for fraud, illegality or inequity committed against third persons.

Hence, any application of the doctrine of piercing the corporate veil should be done with caution. A court should be mindful of the milieu where it is to be applied. It must be certain that the corporate fiction was misused to such an extent that injustice, fraud, or crime was committed against another, in disregard of its rights. The wrongdoing must be clearly and convincingly established; it cannot be presumed. Otherwise, an injustice that was never unintended may result from an erroneous application.

This Court has pierced the corporate veil to ward off a judgment credit, to avoid inclusion of corporate assets as part of the estate of the decedent, to escape liability arising from a debt, or to perpetuate fraud and/or confuse legitimate issues either to promote or to shield unfair objectives or to cover up an otherwise blatant violation of the prohibition against forum-shopping. Only in these and similar instances may the veil be pierced and disregarded. (Emphasis supplied.)

In fine, to justify the piercing of the veil of corporate fiction, it must be

shown by clear and convincing proof that the separate and distinct personality of

the corporation was purposefully employed to evade a legitimate and binding

commitment and perpetuate a fraud or like wrongdoings. To be sure, the Court

has, on numerous occasions,[38] applied the principle where a corporation is

dissolved and its assets are transferred to another to avoid a financial liability of

the first corporation with the result that the second corporation should be

considered a continuation and successor of the first entity.

In those instances when the Court pierced the veil of corporate fiction of

two corporations, there was a confluence of the following factors:

1. A first corporation is dissolved;

2. The assets of the first corporation is transferred to a second

corporation to avoid a financial liability of the first corporation;

and

3. Both corporations are owned and controlled by the same persons

such that the second corporation should be considered as a

continuation and successor of the first corporation.

In the instant case, however, the second and third factors are

conspicuously absent. There is, therefore, no compelling justification for

disregarding the fiction of corporate entity separating Kukan, Inc. from KIC. In

applying the principle, both the RTC and the CA miserably failed to identify the

presence of the abovementioned factors. Consider:

The RTC disregarded the separate corporate personalities of Kukan, Inc. and

KIC based on the following premises and arguments:

While it is true that a corporation has a separate and distinct personality from its stockholder, director and officers, the law expressly provides for an exception. When Michael Chan, the Managing Director of defendant Kukan, Inc. (majority stockholder of the newly formed corporation [KIC]) confirmed the award to plaintiff to supply and install interior signages in the Enterprise Center he (Michael Chan, Managing Director of defendant Kukan, Inc.) knew that there was no sufficient corporate funds to pay its obligation/account, thus implying bad faith on his part and fraud in contracting the obligation. Michael Chan neither returned the interior signages nor tendered payment to the plaintiff. This circumstance may warrant the piercing of the veil of corporation fiction. Having been guilty of bad faith in the management of corporate matters the corporate trustee, director or officer may be held personally liable.x x x

Since fraud is a state of mind, it need not be proved by direct evidence but may be inferred from the circumstances of the case. x x x [A]nd the circumstances are: the signature of Michael Chan, Managing Director of Kukan, Inc. appearing in the

confirmation of the award sent to the plaintiff; signature of Chan Kai Kit, a British National appearing in the Articles of Incorporation and signature of Michael Chan also a British National appearing in the Articles of Incorporation [of] Kukan International Corp. give the impression that they are one and the same person, that Michael Chan and Chan Kai Kit are both majority stockholders of Kukan International Corp. and Kukan, Inc. holding 40% of the stocks; that Kukan International Corp. is practically doing the same kind of business as that of Kukan, Inc.[39] (Emphasis supplied.)

As is apparent from its disquisition, the RTC brushed aside the separate

corporate existence of Kukan, Inc. and KIC on the main argument that Michael

Chan owns 40% of the common shares of both corporations, obviously oblivious

that overlapping stock ownership is a common business phenomenon. It must be

remembered, however, that KIC’s properties were the ones seized upon levy on

execution and not that of Kukan, Inc. or of Michael Chan for that matter. Mere

ownership by a single stockholder or by another corporation of a substantial block

of shares of a corporation does not, standing alone, provide sufficient justification

for disregarding the separate corporate personality.[40] For this ground to hold

sway in this case, there must be proof that Chan had control or complete

dominion of Kukan and KIC’s finances, policies, and business practices; he used

such control to commit fraud; and the control was the proximate cause of the

financial loss complained of by Morales. The absence of any of the elements

prevents the piercing of the corporate veil.[41] And indeed, the records do not

show the presence of these elements.

On the other hand, the CA held:

In the present case, the facts disclose that Kukan, Inc. entered into a contractual obligation x x x worth more than three million pesos although it had only Php5,000.00 paid-up capital; [KIC] was incorporated shortly before Kukan, Inc. suddenly ceased to appear and participate in the trial; [KIC’s] purpose is related and somewhat akin to that of Kukan, Inc.; and in [KIC] Michael Chan, a.k.a., Chan Kai Kit, holds forty percent of the outstanding stocks, while he formerly held the same amount of stocks in Kukan Inc. These would lead to the inescapable conclusion that Kukan, Inc. committed fraudulent representation by awarding to the private respondent the contract with full knowledge that it was not in a position to comply with the obligation it had assumed because of inadequate paid-up capital. It bears stressing that shareholders should in good faith put at the risk of the business, unencumbered capital reasonably adequate for its prospective liabilities. The capital should not be illusory or trifling compared with the business to be done and the risk of loss.

Further, it is clear that [KIC] is a continuation and successor of Kukan, Inc. Michael Chan, a.k.a. Chan Kai Kit has the largest block of shares in both business enterprises. The emergence of the former was cleverly timed with the hasty withdrawal of the latter during the trial to avoid the financial liability that was eventually suffered by the latter. The two companies have a related business purpose. Considering these circumstances, the obvious conclusion is that the creation of Kukan International Corporation served as a device to evade the obligation incurred by Kukan, Inc. and yet profit from the goodwill attained by the name “Kukan” by continuing to engage in the same line of business with the same list of clients.[42] (Emphasis supplied.)

Evidently, the CA found the meager paid-up capitalization of Kukan, Inc. and

the similarity of the business activities in which both corporations are engaged as

a jumping board to its conclusion that the creation of KIC “served as a device to

evade the obligation incurred by Kukan, Inc.” The appellate court, however, left a

gaping hole by failing to demonstrate that Kukan, Inc. and its stockholders

defrauded Morales. In fine, there is no showing that the incorporation, and the

separate and distinct personality, of KIC was used to defeat Morales’ right to

recover from Kukan, Inc. Judging from the records, no serious attempt was made

to levy on the properties of Kukan, Inc. Morales could not, thus, validly argue that

Kukan, Inc. tried to avoid liability or had no property against which to proceed.

Morales further contends that Kukan, Inc.’s closure is evidenced by its

failure to file its 2001 General Information Sheet (GIS) with the Securities and

Exchange Commission. However, such fact does not necessarily mean that Kukan,

Inc. had altogether ceased operations, as Morales would have this Court believe,

for it is stated on the face of the GIS that it is only upon a failure to file the

corporate GIS for five (5) consecutive years that non-operation shall be

presumed.

The fact that Kukan, Inc. entered into a PhP 3.3 million contract when it

only had a paid-up capital of PhP 5,000 is not an indication of the intent on the

part of its management to defraud creditors. Paid-up capital is merely seed

money to start a corporation or a business entity. As in this case, it merely

represented the capitalization upon incorporation in 1997 of Kukan, Inc. Paid-up

capitalization of PhP 5,000 is not and should not be taken as a reflection of the

firm’s capacity to meet its recurrent and long-term obligations. It must be borne

in mind that the equity portion cannot be equated to the viability of a business

concern, for the best test is the working capital which consists of the liquid assets

of a given business relating to the nature of the business concern.

Neither should the level of paid-up capital of Kukan, Inc. upon its

incorporation be viewed as a badge of fraud, for it is in compliance with Sec. 13 of

the Corporation Code,[43] which only requires a minimum paid-up capital of PhP

5,000.

The suggestion that KIC is but a continuation and successor of Kukan, Inc.,

owned and controlled as they are by the same stockholders, stands without

factual basis. It is true that Michael Chan, a.k.a. Chan Kai Kit, owns 40% of the

outstanding capital stock of both corporations. But such circumstance, standing

alone, is insufficient to establish identity. There must be at least a substantial

identity of stockholders for both corporations in order to consider this factor to

be constitutive of corporate identity.

It would not avail Morales any to rely[44] on General Credit Corporation v.

Alsons Development and Investment Corporation.[45] General Credit Corporation is

factually not on all fours with the instant case. There, the common stockholders

of the corporations represented 90% of the outstanding capital stock of the

companies, unlike here where Michael Chan merely represents 40% of the

outstanding capital stock of both KIC and Kukan, Inc., not even a majority of it. In

that case, moreover, evidence was adduced to support the finding that the funds

of the second corporation came from the first. Finally, there was proof in General

Credit Corporation of complete control, such that one corporation was a mere

dummy or alter ego of the other, which is absent in the instant case.

Evidently, the aforementioned case relied upon by Morales cannot justify

the application of the principle of piercing the veil of corporate fiction to the

instant case. As shown by the records, the name Michael Chan, the similarity of

business activities engaged in, and incidentally the word “Kukan” appearing in the

corporate names provide the nexus between Kukan, Inc. and KIC. As illustrated,

these circumstances are insufficient to establish the identity of KIC as the alter

ego or successor of Kukan, Inc.

It bears reiterating that piercing the veil of corporate fiction is frowned

upon. Accordingly, those who seek to pierce the veil must clearly establish that

the separate and distinct personalities of the corporations are set up to justify a

wrong, protect fraud, or perpetrate a deception. In the concrete and on the

assumption that the RTC has validly acquired jurisdiction over the party

concerned, Morales ought to have proved by convincing evidence that Kukan, Inc.

was collapsed and thereafter KIC purposely formed and operated to defraud him.

Morales has not to us discharged his burden.

WHEREFORE, the petition is hereby GRANTED. The CA’s January 23, 2008

Decision and April 16, 2008 Resolution in CA-G.R. SP No. 100152 are

hereby REVERSED and SET ASIDE. The levy placed upon the personal properties

of Kukan International Corporation is hereby ordered lifted and the personal

properties ordered returned to Kukan International Corporation. The RTC of

Manila, Branch 21 is hereby directed to execute the RTC Decision dated

November 28, 2002 against Kukan, Inc. with reasonable dispatch.

No costs.

SO ORDERED.

FIRST DIVISION

GOVERNMENT SERVICE INSURANCE SYSTEM (GSIS),

Petitioner,

- versus -

GROUP MANAGEMENT CORPORATION (GMC) AND LAPU-LAPU DEVELOPMENT & HOUSING CORPORATION (LLDHC),

Respondents.

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

GROUP MANAGEMENT CORPORATION (GMC),

Petitioner,

- versus -

G.R. No. 167000

            G.R. No. 169971

Present:

CORONA, C.J.,

Chairperson,

VELASCO, JR.,

LEONARDO-DE CASTRO,

LAPU-LAPU DEVELOPMENT & HOUSING CORPORATION (LLDHC) and GOVERNMENT SERVICE INSURANCE SYSTEM (GSIS),

Respondents.

DEL CASTILLO, and

PEREZ, JJ.

Promulgated:

June 8, 2011

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

D E C I S I O N

LEONARDO-DE CASTRO, J.:

At bar are two consolidated Petitions for Review on Certiorari concerning

78 parcels of land located in Barrio Marigondon,Lapu-Lapu City. The parties in

both cases have been in litigation over these lots for the last two decades in what

seems to be an endless exercise of filing repetitious suits before the Court of

Appeals and even this Court, questioning the various decisions and

resolutions issued by the two separate trial courts involved. With this decision, it

is intended that all legal disputes among the parties concerned, particularly over

all the issues involved in these cases, will finally come to an end

In the Petition in G.R. No. 167000, the Government Service Insurance

System (GSIS) seeks to reverse and set aside the November 25, 2004

Decision[1] and January 20, 2005 Resolution[2] of the Twentieth Division of the

Court of Appeals in CA-G.R. SP No. 85096 and to annul and set aside the March

11, 2004[3] and May 7, 2004[4] Orders of the Regional Trial Court (RTC) of Lapu-

Lapu City (Lapu-Lapu RTC) in Civil Case No. 2203-L.

In the Petition in G.R. No. 169971, Group Management Corporation (GMC)

seeks to reverse and set aside the September 23, 2005 Decision [5] in CA-G.R. SP

No. 84382 wherein the Special Nineteenth Division of the Court of Appeals

annulled and set aside the March 11, 2004 Order of the Lapu-Lapu RTC in Civil

Case No. 2203-L.

Both these cases stem from the same undisputed factual antecedents as

follows:

Lapu-Lapu Development & Housing Corporation[6] (LLDHC) was the

registered owner of seventy-eight (78) lots (subject lots), situated in Barrio

Marigondon, Lapu-Lapu City.

On February 4, 1974, LLDHC and the GSIS entered into a Project and Loan

Agreement for the development of the subject lots. GSIS agreed to extend a

Twenty-Five Million Peso-loan (P25,000,000.00) to LLDHC, and in return, LLDHC

will develop, subdivide, and sell its lots to GSIS members. To secure the payment

of the loan, LLDHC executed a real estate mortgage over the subject lots in favor

of GSIS.

For LLDHC’s failure to fulfill its obligations, GSIS foreclosed the

mortgage. As the lone bidder in the public auction sale, GSIS acquired the subject

lots, and eventually was able to consolidate its ownership over the subject lots

with the corresponding transfer certificates of title (TCTs) issued in its name.

On November 19, 1979, GMC offered to purchase on installments the

subject lots from GSIS for a total price of One Million One Hundred Thousand

Pesos (P1,100,000.00), with the aggregate area specified as 423,177 square

meters. GSIS accepted the offer and on February 26, 1980, executed a Deed of

Conditional Sale over the subject lots. However, when GMC discovered that the

total area of the subject lots was only 298,504 square meters, it wrote GSIS and

proposed to proportionately reduce the purchase price to conform to the actual

total area of the subject lots. GSIS approved this proposal and an Amendment to

the Deed of Conditional Sale was executed to reflect the final sales agreement

between GSIS and GMC.

On April 23, 1980, LLDHC filed a complaint for Annulment of Foreclosure

with Writ of Mandatory Injunction against GSIS before the RTC of Manila (Manila

RTC). This became Civil Case No. R-82-3429[7] and was assigned to Branch 38.

On November 3, 1989, GMC filed its own complaint against GSIS for Specific

Performance with Damages before the Lapu-Lapu RTC. The complaint was

docketed as Civil Case No. 2203-L and it sought to compel GSIS to execute a Final

Deed of Sale over the subject lots since the purchase price had already been fully

paid by GMC. GSIS, in defense, submitted to the court a Commission on Audit

(COA) Memorandum dated April 3, 1989, purportedly disallowing in audit the sale

of the subject lots for “apparent inherent irregularities,” the sale price to GMC

being lower than GSIS’s purchase price at the public auction. LLDHC, having been

allowed to intervene, filed a Motion to Dismiss GMC’s complaint. When this

motion was denied, LLDHC filed its Answer-in-Intervention and participated in the

ensuing proceedings as an intervenor.

GMC, on February 1, 1992, filed its own Motion to Intervene with a

Complaint-in-Intervention in Civil Case No. R-82-3429. This was dismissed on

February 17, 1992 and finally denied on March 23, 1992 by the Manila RTC on the

ground that GMC can protect its interest in another proceeding.[8]

On February 24, 1992, after a full-blown trial, the Lapu-Lapu RTC rendered

its Decision[9] in Civil Case No. 2203-L, the dispositive portion of which reads:

            WHEREFORE, judgment is hereby rendered ordering defendant to:

1. Execute the final deed of absolute sale and deliver the seventy-eight (78) certificates of title covering said seventy-eight (78) parcels of land to the [Group Management Corporation (GMC)];

2. Pay [GMC] actual damages, plus attorney’s fees and expenses of litigation, in the amount of P285,638.88 and P100,000.00 exemplary damages;

 3. [D]ismissing in toto intervenor’s complaint-in-intervention for lack of

evidence of legal standing and legal interest in the suit, as well as failure to substantiate any cause of action against either [GMC] or [GSIS].[10]

In deciding in favor of GMC, the Lapu-Lapu RTC held that there existed a

valid and binding sales contract between GSIS and GMC, which GSIS could not

continue to ignore without any justifiable reason especially since GMC had

already fully complied with its obligations. [11]

The Lapu-Lapu RTC found GSIS’s invocation of COA’s alleged disapproval of

the sale belated and self-serving. The Lapu-Lapu RTC said that COA, in

disapproving GSIS’s sale of the subject lots to GMC, violated its own circular which

excludes the disposal by a government owned and/or controlled corporation of

its “acquired assets” (e.g., foreclosed assets or collaterals acquired in the regular

course of business).[12] The Lapu-Lapu RTC also held that COA may not intrude

into GSIS’s charter-granted power to dispose of its acquired assets within five

years from acquisition by “preventing/aborting the sale in question by refusing to

pass it in audit.”[13] Moreover, the Lapu-Lapu RTC held that the GSIS-proferred

COA Memorandum was inadmissible in evidence not only because as a mere

photocopy it failed to measure up to the “best evidence” rule under the Revised

Rules of Court, but also because no one from COA, not even the auditor who

supposedly prepared it, was ever presented to testify to the veracity of its

contents or its due execution.[14]

In dismissing LLDHC’s complaint-in-intervention, the Lapu-Lapu RTC held

that LLDHC failed to prove its legal personality as a party-intervenor and all it was

able to establish was a “suggestion of right for [GSIS] to renege [on] the sale for

reasons peculiar to [GSIS] but not transmissible nor subject to invocation by

[LLDHC].”[15]

LLDHC and GSIS filed their separate Notices of Appeal but these were

dismissed by the Lapu-Lapu RTC on December 6, 1993.[16]

On May 10, 1994, the Manila RTC rendered a Decision[17] in Civil Case No. R-

82-3429. The Manila RTC held that GSIS was unable to prove the alleged

violations committed by LLDHC to warrant the foreclosure of the mortgage over

the subject lots. Thus, the Manila RTC annulled the foreclosure made by GSIS and

ordered LLDHC to pay GSIS the balance of its loan with interest, to wit:

WHEREFORE, judgment is hereby rendered:

1. ANNULLING the foreclosure by the defendant GSIS of the mortgage over the seventy-eight (78) parcels of land here involved:

2. CANCELLING the consolidated certificates of [title] issued in the name of GSIS and directing the Register of Deeds of Lapu-Lapu City to issue new certificates of [title] over those seventy-eight (78) parcels of land in the name of the plaintiff, in exactly the same condition as they were before the foreclosure;

 3. ORDERING the plaintiff to pay the GSIS the amount of P9,200,000.00 with

interest thereon at the rate of twelve (12%) percent per annum commencing from October 12, 1989 until fully paid; and

 4. ORDERING defendant GSIS to execute a properly registrable release of

discharge of mortgage over the parcels of land here involved after full payment of such amount by the plaintiff.

            All claims and counterclaims by the parties as against each other are hereby dismissed.

No pronouncement as to costs.[18]

Armed with the Manila RTC decision, LLDHC, on July 27, 1994, filed before

the Court of Appeals a Petition for Annulment of Judgment of the Lapu-Lapu RTC

Decision in Civil Case No. 2203-L.[19] LLDHC alleged that the Manila RTC decision

nullified the sale of the subject lots to GMC and consequently, the Lapu-Lapu RTC

decision was also nullified.

This petition, docketed as CA-G.R. SP No. 34696, was dismissed by the Court

of Appeals on December 29, 1994.[20] The Court of Appeals, in finding that the

grounds LLDHC relied on were without merit, said:

In fine, there being no showing from the allegations of the petition that the respondent court is without jurisdiction over the subject matter and of the parties in Civil Case No. 2309 [2203-L], petitioner has no cause of action for the annulment of judgment. The complaint must allege ultimate facts for the annulment of the decision (Avendana v. Bautista, 142 SCRA 41). We find none in this case.[21]

No appeal having been taken by LLDHC, the decision of the Court of

Appeals in CA-G.R. SP No. 34696 became final and executory on January 28, 1995,

as stated in the Entry of Final Judgment dated August 18, 1995.[22]

On February 2, 1995, LLDHC filed before this Court a Petition

for Certiorari[23] docketed as G.R. No. 118633. LLDHC, in seeking to annul the

February 24, 1992 Decision of the Lapu-Lapu RTC, again alleged that the Manila

RTC Decision nullified the Lapu-Lapu RTC Decision.

Finding the petition a mere reproduction of the Petition for Annulment filed

before the Court of Appeals in CA-G.R. SP No. 34696, this Court, in a

Resolution[24] dated September 6, 1996, dismissed the petition in this wise:

In a last ditch attempt to annul the February 24, 1992 Decision of the respondent court, this petition was brought before us on February 2, 1995.

Dismissal of this petition is inevitable.

The instant petition which is captioned, For: Certiorari With Preliminary Injunction, is actually another Petition for Annulment of Judgment of the February 24,

1992 Decision of the respondent Regional Trial Court of Lapu-lapu City, Branch 27 in Civil Case No. 2203-L. A close perusal of this petition as well as the Petition for Annulment of Judgment brought by the petitioner before the Court of Appeals in CA-G.R. SP No. 34696 reveals that the instant petition is a mere reproduction of the petition/complaint filed before the appellate tribunal for annulment of judgment. Paragraphs two (2) to eighteen (18) of this petition were copied verbatim from the Petition for Annulment of Judgment earlier filed in the court a quo, except for the designation of the parties thereto, i.e., plaintiff was changed to petitioner, defendant to respondent. In fact, even the prayer in this petition is the same prayer in the Petition for Annulment of Judgment dismissed by the Court of Appeals, x x x.

x x x x

Under Section 9(2) of Batas Pambansa Blg. 129, otherwise known as “The Judiciary Reorganization Act of 1980,” it is the Court of Appeals (then the Intermediate Appellate Court), and not this Court, which has jurisdiction to annul judgments of Regional Trial Courts,viz:

SEC. 9. Jurisdiction -- The Intermediate Appellate Court shall exercise:

x x x x

(2) Exclusive original jurisdiction over actions for annulment of judgments of Regional Trial Courts; and

x x x x

Thus, this Court apparently has no jurisdiction to entertain a petition which is evidently another petition to annul the February 24, 1992 Decision of the respondent Branch 27, Regional Trial Court of Lapu-lapu City, it appearing that jurisdiction thereto properly pertains to the Court of Appeals. Such a petition was brought before the appellate court, but due to petitioner’s failure to nullify Judge Risos’ Decision in said

forum, LLDHC, apparently at a loss as to what legal remedy to take, brought the instant petition under the guise of a petition for certiorari under Rule 65 seeking once again to annul the judgment of Branch 27.

Instead of filing this petition for certiorari under Rule 65, which is essentially another Petition to Annul Judgment, petitioner LLDHC should have filed a timely Petition for Review under Rule 45 of the Revised Rules of Court of the decision of the Court of Appeals, dated December 29, 1994, dismissing the Petition for Annulment of Judgment filed by the petitioner LLDHC before the court a quo. But, this is all academic now. The appellate court’s decision had become final and executory on January 28, 1995. [25]

Despite such pronouncements, this Court, nevertheless, passed upon the

merits of LLDHC’s Petition for Certiorari in G.R. No. 118633. This Court said that

the petition, “which was truly for annulment of judgment,”[26] cannot prosper

because the two grounds on which a judgment may be annulled were not present

in the case.[27] Going further, this Court held that even if the petition were to be

given due course as a petition for certiorari under Rule 65 of the Revised Rules of

Court, it would still be dismissible for not being brought within a reasonable

period of time as it took LLDHC almost three years from the time it received the

February 24, 1992 decision until the time it brought this action.[28]

LLDHC’s motion for reconsideration was denied with finality[29] on November

18, 1996, and on February 18, 1997, an Entry of Judgment [30] was made certifying

that the September 6, 1996 Resolution of this Court in G.R. No. 118633 had

become final and executory on December 23, 1996.

Consequently, on November 28, 1996, the Lapu-Lapu RTC issued an

Order[31] directing the execution of the judgment in Civil Case No. 2203-L. A

corresponding Writ of Execution[32] was issued on December 17, 1996. The

Motions to Stay Execution filed by LLDHC and GSIS were denied by the Lapu-Lapu

RTC on February 19, 1997.[33]

Meanwhile, on December 27, 1996, the Court of Appeals rendered a

Decision[34] in the separate appeals taken by GSIS and LLDHC from the May 10,

1994 Manila RTC Decision in Civil Case No. R-82-3429. This case, docketed as CA-G.R. CV No. 49117, affirmed the Manila RTC decision with modification insofar as

awarding LLDHC attorney’s fees and litigation expenses.

On March 3, 1997, GSIS came to this Court on a Petition for Review of the

Court of Appeals’ decision in CA-G.R. CV No. 49117. This was docketed as G.R. No. 127732 and was dismissed on April 14, 1997[35] due to late filing, the due date

being January 31, 1997. This dismissal became final and executory on May 30,

1997.[36]

On March 8, 1997, LLDHC filed a Petition for Certiorari with preliminary

injunction before the Court of Appeals, praying that GMC and the Lapu-Lapu RTC

be ordered to cease and desist from proceeding with the execution of its Decision

in Civil Case No. 2203-L, on the theory that the Manila RTC decision was a

supervening event which made it mandatory for the Lapu-Lapu RTC to stop the

execution of its decision. This case was docketed as CA-G.R. SP No. 44052. On

July 16, 1997, the Court of Appeals issued an Order temporarily restraining the

Lapu-Lapu RTC and GMC from executing the February 24, 1992 decision in Civil

Case No. 2203-L so as not to render the resolution of the case moot and

academic.[37]

On July 21, 1997, because of GSIS’s continued refusal to implement the

December 17, 1996 Writ of Execution, the Lapu-Lapu RTC, upon GMC’s motion,

issued an Order[38] redirecting its instructions to the Register of Deeds of Lapu-

Lapu City, to wit:

WHEREFORE, the defendant GSIS having refused to implement the Order of this Court dated December 17, 1996 the Court in accordance with Rule 39, Sec. 10-a of the 1997 Rules of Procedure, hereby directs the Register of Deeds of Lapu-lapu City to cancel the Transfer Certificate of Titles of the properties involved in this case and to issue new ones in the name of the plaintiff and to deliver the same to the latter within ten (10) days after this Order shall have become final.[39]

While the TRO issued by the Court of Appeals in CA-G.R. SP No. 44052 was

in effect, the Manila RTC, on August 1, 1997, issued a Writ of Execution [40] of its

judgment in Civil Case No. R-82-3429. On August 7, 1997, the

Sheriff implemented the Writ and ordered the Register of Deeds of Lapu-Lapu City

to cancel the consolidated certificates of title issued in the name of GSIS and to

issue new ones in favor of LLDHC. In conformity with the TRO, the Lapu-Lapu RTC

on August 19, 1997, ordered[41] the suspension of its July 21, 1997 Order. With no

similar restraining order against the execution of the Manila RTC Decision, a Writ

of Possession was issued on August 21, 1997 to cause GSIS and all persons

claiming rights under it to vacate the properties in question and to place LLDHC in

peaceful possession thereof.[42]

On October 23, 1997, the Lapu-Lapu RTC, being aware of the events that

have taken place while the TRO was in effect, issued an Order [43] reiterating its

previous Orders of November 28, 1996, December 17, 1996, and July 21,

1997. The Lapu-Lapu RTC held that since the restraining order issued by the Court

of Appeals in CA-G.R. SP No. 44052 had already lapsed by operation of law, and

the February 24, 1992 Decision in Civil Case No. 2203-L had not only become final

and executory but had been affirmed and upheld by both the Court of Appeals

and this Court, the inescapable mandate was to give due course to the efficacy of

its decision. The Lapu-Lapu RTC thus directed the Register of Deeds of Lapu-Lapu

City to effect the transfer of the titles to the subject lots in favor of GMC and

declared “any and all acts done by the Register of Deeds of Lapu-Lapu City null

and void starting with the surreptitious issuance of the new certificates of title in

the name of [LLDHC], contrary” to its decision and orders.[44]

On November 13, 1997, LLDHC filed before the Court of Appeals another

Petition for Certiorari with preliminary injunction and motion to consolidate

with CA-G.R. SP No. 44052. This case was docketed as CA-G.R. SP No. 45946, but

was dismissed[45]on November 20, 1997 for LLDHC’s failure to comply with Section

1, Rule 65 of the 1997 Rules of Civil Procedure which requires the petition to be

accompanied by, among others, “copies of all pleadings and documents relevant

and pertinent thereto.”[46]

The petition in CA-G.R. SP No. 44052 would likewise be dismissed [47] by the

Court of Appeals on January 9, 1998, but this time, on the merits, to wit:

The validity of the decision of the respondent judge in Civil Case No. 2303-L has thus been brought both before this Court and to the Supreme Court by the petitioner. In both instances the respondent judge has been upheld. The instant petition is petitioner’s latest attempt to resist the implementation or execution of that decision using as a shield a decision of a Regional Trial Court in the National Capital Region. We are not prepared to allow it. The applicable rule and jurisprudence are clear. The prevailing party is entitled as a matter of right to a writ of execution, and the issuance thereof is a ministerial duty compellable by mandamus. We do not believe that there exists in this instance a supervening event which would justify a deviation from this rule.[48]

Prior to this, however, on November 28, 1997, the Lapu-Lapu RTC, acting

on GMC’s Omnibus Motion, made the following orders: for LLDHC to show cause

why it should not be declared in contempt; for a writ of preliminary prohibitory

injunction to be issued to restrain all persons acting on LLDHC’s orders from

carrying out such orders in defiance of its final and executory judgment; and for a

writ of preliminary mandatory injunction to be issued to direct the ouster of

LLDHC. The Lapu-Lapu RTC also declared the Register of Deeds of Lapu-Lapu City

in contempt and directed the Office of the City Sheriff to implement the above

orders and to immediately detain and confine the Register of Deeds of Lapu-Lapu

City at the City Jail if he continues to refuse to transfer the titles of the subject lots

after ten days from receipt of this order.[49]

On December 22, 1997, the Lapu-Lapu RTC denied[50] the motion for

reconsideration filed by the Register of Deeds of Lapu-Lapu City. In separate

motions, LLDHC, and again the Register of Deeds of Lapu-Lapu City, sought the

reconsideration of the November 28, 1997 and December 22, 1997 Orders. On

May 27, 1998, the Lapu-Lapu RTC, acting under a new judge,[51]granted both

motions and accordingly set aside the November 28, 1997 and December 22,

1997 Orders.[52]

With the denial[53] of its motion for reconsideration on August 4, 1998, GMC

came to this Court on a Petition for Certiorari, Prohibition and Mandamus,

seeking to set aside the May 27, 1998 Order of the Lapu-Lapu RTC in Civil Case No.

2203-L. The Petition was referred to the Court of Appeals, which under Batas

Pambansa Blg. 129, exercises original jurisdiction to issue such writs. [54] This was

docketed as CA-G.R. SP No. 50650.

On April 30, 1999, the Court of Appeals rendered its Decision[55] in CA-G.R.

SP No. 50650, the dispositive portion of which reads:

            WHEREFORE, the petition being partly meritorious, the Court hereby resolves as follows:

(1) To AFFIRM the Orders of May 28, 1998 and August 4, 1998 in Civil Case No. 2203-L insofar as they set aside the order holding respondent Register of Deeds guilty of indirect contempt of court and to NULLIFY said orders in so far as they set aside the directives contained in paragraphs (a) and (b) and (c) of the order dated November 28, 1997.

(2) To DECLARE without FORCE and EFFECT insofar as petitioner Group Management Corporation is concerned the decision in Civil Case No. R-82-3429 as well as the orders and writs issued for its execution and enforcement: and

 (3) To ENJOIN respondent Lapu-Lapu Development and Housing

Corporation, along with its agents and representatives and/or persons/public officials/employees acting in its interest, specifically respondent Regional Trial Court of Manila Branch 38, and respondent Register of Deeds of Lapu-Lapu City, from obstructing, interfering with or in any manner delaying the implementation/execution/ enforcement by the Lapu-Lapu City RTC of its order and writ of execution in Civil Case No. 2203-L.

  For lack of sufficient basis the charge of contempt of court against respondent Lapu-Lapu Development and Housing Corporation and the public respondents is hereby DISMISSED.[56]

With the denial of LLDHC’s motion for reconsideration on December 29,

1999,[57] LLDHC, on January 26, 2000, filed before this Court a Petition for Review

on Certiorari assailing the April 30, 1999 decision of the Court of Appeals in CA-

G.R. SP No. 50650. This petition was docketed as G.R. No. 141407.

This Court dismissed LLDHC’s petition and upheld the decision of the Court

of Appeals in CA-G.R. SP No. 50650 in its decision dated September 9, 2002.[58] LLDHC’s Motion for Reconsideration and Second Motion for Reconsideration

were also denied on November 13, 2002[59] and February 3, 2003,[60] respectively.

The September 9, 2002 decision of this Court in G.R. No. 141407 became

final on March 10, 2003.[61]

On March 11, 2004, the Lapu-Lapu RTC, acting on GMC’s Motion for

Execution, issued an Order[62] the dispositive portion of which reads:

WHEREFORE, in light of the foregoing considerations, plaintiff Group Management Corporation’s motion is GRANTED, while defendant GSIS’ motion to stay the issuance of a writ of execution is denied for lack of merit. Consequently, the Sheriff of this Court is directed to proceed with the immediate implementation of this Court’s decision dated February 24, 1992, by enforcing completely this Court’s Order of

Execution dated November 28, 1996, the writ of execution dated December 17, 1996, the Order dated July 21, 1997, the Order dated October 23 1997, the Order dated November 28, 1997 and the Order dated December 22, 1997. [63]

On May 7, 2004, the Lapu-Lapu RTC denied[64] the motions for

reconsideration filed by LLDHC and GSIS.

On May 27, 2004, LLDHC filed before the Court of Appeals a Petition

for Certiorari, Prohibition and Mandamus[65] against the Lapu-Lapu RTC for having

issued the Orders of March 11, 2004 and May 7, 2004 (assailed Orders). This

petition docketed asCA-G.R. SP No. 84382, sought the annulment of the assailed

Orders and for the Court of Appeals to command the Lapu-Lapu RTC to desist

from further proceeding in Civil Case No. 2203-L, to dismiss GMC’s Motion for

Execution, and for the issuance of a Temporary Restraining Order (TRO)/Writ of

Preliminary Injunction against the Lapu-Lapu RTC and GMC.

On July 6, 2004, GSIS filed its own Petition for Certiorari and Prohibition with

Preliminary Injunction and Temporary Restraining Order[66] before the Court of

Appeals to annul the assailed Orders of the Lapu-Lapu RTC, to prohibit the judge

therein and the Register of Deeds of Lapu-Lapu City from implementing such

assailed Orders, and for the issuance of a TRO and writ of preliminary injunction

to maintain the status quo while the case is under litigation. This petition was

docketed as CA-G.R. SP No. 85096.

The Court of Appeals initially dismissed outright LLDHC’s petition for failure

to attach the Required Secretary’s Certificate/Board Resolution authorizing

petitioner to initiate the petition,[67] but in a Resolution[68] dated August 2, 2004,

after having found the explanation for the mistake satisfactory, the Court of

Appeals, “on equitable consideration and for the purpose of preserving the status

quo during the pendency of the appeal,”[69] issued a TRO against the Lapu-Lapu

RTC from enforcing its jurisdiction and judgment/order in Civil Case No. 2203-L

until further orders. In its August 30, 2004 Resolution,[70] the Court of Appeals,

without resolving the case on its merits, also issued a Writ of Preliminary

Injunction, commanding the Lapu-Lapu RTC to cease and desist from

implementing the assailed Orders in Civil Case No. 2203-L, until further orders.

On November 25, 2004, the Twentieth Division of the Court of Appeals

promulgated its decision in CA-G.R. SP No. 85096. It dismissed GSIS’s petition and

affirmed the assailed Orders of March 11, 2004 and May 7, 2004. The Court of

Appeals found no merit in GSIS’s petition since the judgment in Civil Case No.

2203-L, which was decided way back on February 24, 1992, had long become final

and executory, which meant that the Lapu-Lapu RTC had no legal obstacle to

cause said judgment to be executed and enforced. The Court of Appeals quoted

in full, portions of this Court’s Decision in G.R. No. 141407 to underscore the fact

that no less than the Supreme Court had declared that the decision in Civil Case

No. 2203-L was valid and binding and had become final and executory a long time

ago and had not been in any way nullified by the decision rendered by the Manila

RTC on May 10, 1994 in Civil Case No. R-82-3429. On January 20, 2005, the Court

of Appeals upheld its decision and denied GSIS’s Motion for Reconsideration.[71]

However, on September 23, 2005, the Special Nineteenth Division of the

Court of Appeals came out with its own decision in CA-G.R. SP No. 84382. It

granted LLDHC’s petition, contrary to the Court of Appeals’ decision in CA-G.R. SP

No. 85096, and annulled and set aside the March 11, 2004 Order of the Lapu-Lapu

RTC in this wise:

WHEREFORE, finding merit in the instant Petition for Certiorari, Prohibition and Mandamus, the same is hereby GRANTED, and the assailed Order, dated March 11, 2004, of the Regional Trial Court, 7th Judicial Region, Branch 27, Lapulapu City, in Civil Case No. 2203-L is ANNULLED AND SET ASIDE.

Accordingly, respondent Judge Benedicto Cobarde is hereby ORDERED:

a) to DESIST from further proceeding in Civil Case No. 2203-L; and

b) to DISMISS GMC’s Motion for Execution in the abovementioned case;

Meanwhile, the Writ of Preliminary Injunction earlier issued is hereby declared PERMANENT. No pronouncement as to costs.[72]

GSIS[73] and GMC[74] are now before this Court, with their separate Petitions

for Review on Certiorari, assailing the decisions of the Court of Appeals in CA-G.R. SP No. 85096 and CA-G.R. SP No. 84382, respectively.

G.R. No. 167000

In G.R. No. 167000, GSIS is assailing the Orders issued by the Lapu-Lapu RTC

on March 11, 2004 and May 7, 2004 for being legally unenforceable on GSIS

because the titles of the 78 lots in Marigondon, Lapu-Lapu City were already in

LLDHC’s name, due to the final and executory judgment rendered by the Manila

RTC in Civil Case No. R-82-3429. GSIS contends that it is legally and physically

impossible for it to comply with the assailed Orders as the “subject matter to be

delivered or performed have already been taken away from” [75] GSIS. GSIS asserts

that the circumstances which have arisen, from the judgment of the Manila RTC

to the cancellation of GSIS’s titles, are “supervening events” which should be

considered as an exception to the doctrine of finality of judgments because they

render the execution of the final and executory judgment of the Lapu-Lapu RTC in

Civil Case No. 2203-L unjust and inequitable. GSIS further claims that it should

not be made to pay damages of any kind because its funds and properties are

exempt from execution, garnishment, and other legal processes under Section 39

of Republic Act No. 8291.

LLDHC, in its Compliance,[76] believes that it was impleaded in this case as a

mere nominal party since it filed its own Petition for Certiorari before the Court of

Appeals, which was granted in CA-G.R. SP No. 84382. LLDHC essentially agrees

with GSIS that the implementation of the assailed Orders have become legally

impossible due to the fully implemented Writ of Execution issued by the Manila

RTC in Civil Case No. R-82-3429. LLDHC alleges that because of this “supervening

event,” GSIS cannot be compelled to execute a final deed of sale in GMC’s favor,

and “LLDHC cannot be divested of its titles, ownership and possession” of the

subject properties.[77]

GMC in its comment[78] argues that GSIS has no legal standing to institute

this petition because it has no more interest in the subject lots, since it is no

longer in possession and the titles thereto have already been registered in

LLDHC’s name. GMC claims that the decision of the Special Nineteenth Division of

the Court of Appeals is barred by res judicata, and that LLDHC is guilty of forum

shopping for filing several petitions before the Court of Appeals and this Court

with the same issues and arguments. GMC also asserts that the judgment in Civil

Case No. R-82-3429 is enforceable only between GSIS and LLDHC as GMC was not

a party to the case, and that the Manila RTC cannot overrule the Lapu-Lapu RTC,

they being co-equal courts.

G.R. No. 169971

In G.R. No. 169971, GMC is praying that the decision of the Special

Nineteenth Division of the Court of Appeals in CA-G.R. SP No. 84382 be reversed

and set aside. GMC is claiming that the Court of Appeals, in rendering the said

decision, committed a palpable legal error by overruling several final decisions

rendered by the Lapu-Lapu RTC, the Court of Appeals, and this Court. [79] GMC

claims that the Lapu-Lapu RTC’s duty to continue with the implementation of its

orders is purely ministerial as the judgment has not only become final and

executory, but has been affirmed by both the Court of Appeals and the Supreme

Court in several equally final and executory decisions.[80] GMC, repeating its

arguments in G.R. No. 167000, maintains that the petition is barred by res

judicata, that there is forum shopping, and that the Manila RTC decision is not

binding on GMC.

LLDHC in its comment[81] insists that there is a supervening event which

rendered it necessary to stay the execution of the judgment of the Lapu-Lapu

RTC. LLDHC also asserts that, as correctly found by the Court of Appeals in CA-G.R. SP No. 84382, the Lapu-Lapu RTC decision in Civil Case No. 2203-L was not

affirmed with finality by the Court of Appeals and the Supreme Court as the

decision was not reviewed on the merits.

SUMMARY OF THE ISSUES

The present case is peculiar in the sense that it involves two conflicting final

and executory decisions of two different trial courts. Moreover, one of the RTC

decisions had been fully executed and implemented. To complicate things

further, the parties have previously filed several petitions, which have reached

not only the Court of Appeals but also this Court. Upon consolidation of the two

petitions, this Court has narrowed down the issues to the following:

1. Whether or not the decision of the Manila RTC in Civil Case No. R-82-

3429 constitutes a supervening event, which should be admitted as an

exception to the doctrine of finality of judgments.

2. Whether or not the September 23, 2005 Decision of the Special

Nineteenth Division of the Court of Appeals in CA-G.R. SP No. 84382 and

GSIS’s Petition in G.R. No. 167000 are barred by res judicata.

 3. Whether or not there is a legal and physical impossibility for GSIS to

comply with the March 11, 2004 and May 7, 2004 Orders of the Lapu-

Lapu RTC in Civil Case No. 2203-L.

 4. Whether or not LLDHC and GSIS are guilty of forum shopping.

DISCUSSION

First Issue:

Supervening Event

It is well-settled that once a judgment attains finality, it becomes

immutable and unalterable. It may not be changed, altered or modified in any

way even if the modification were for the purpose of correcting an erroneous

conclusion of fact or law. This is referred to as the “doctrine of finality of

judgments,” and this doctrine applies even to the highest court of the land.[82] This Court explained its rationale in this wise:

The doctrine of finality of judgment is grounded on fundamental considerations of public policy and sound practice, and that, at the risk of occasional errors, the judgments or orders of courts must become final at some definite time fixed by law; otherwise, there would be no end to litigations, thus setting to naught the main role of courts of justice which is to assist in the enforcement of the rule of law and the maintenance of peace and order by settling justiciable controversies with finality. [83]

This Court has, on several occasions, ruled that the doctrine of finality of

judgments admits of certain exceptions, namely: “the correction of clerical errors,

the so-called nunc pro tunc entries which cause no prejudice to any party, void

judgments, and whenever circumstances transpire after the finality of the

decision which render its execution unjust and inequitable.”[84]

Both GSIS and LLDHC claim that the execution of the decision and orders in

Civil Case No. 2203-L should be stayed because of the occurrence of “supervening

events” which render the execution of the judgment “impossible, unfair, unjust

and inequitable.”[85] However, in order for an event to be considered a

supervening event to justify the alteration or modification of a final judgment, the

event must have transpired after the judgment has become final and executory, to wit:

Supervening events refer to facts which transpire after judgment has become final and executory or to new circumstances which developed after the judgment has acquired finality, including matters which the parties were not aware of prior to or during the trial as they were not yet in existence at that time.[86]

The Lapu-Lapu RTC Decision in Civil Case No. 2203-L was promulgated

on February 24, 1992, while the Manila RTC Decision in Civil Case No. R-82-3429

was promulgated on May 10, 1994. As early as December 6, 1993, both GSIS’s

and LLDHC’s appeals of the Lapu-Lapu RTC Decision were dismissed by the said

RTC.[87] Only GSIS moved to reconsider this dismissal, which was denied on July 6,

1994.[88] Strictly speaking, the Lapu Lapu RTC Decision should have attained

finality at that stage; however, LLDHC filed with the Court of Appeals its Petition

for Annulment of Judgment (CA-G.R. SP No. 34696) on July 27, 1994 and it used

therein the Manila RTC Decision as its main ground for annulment of the Lapu-

Lapu RTC decision.

The Court of Appeals nonetheless dismissed LLDHC’s Petition for

Annulment of Judgment, in CA-G.R. SP No. 34696, [89]and that became final and

executory on January 28, 1995,[90] after LLDHC interposed no appeal. The entry of

judgment in this case was issued on August 18, 1995. [91] Moreover, the similar

petition of LLDHC before this Court in G.R. No. 118633 was decided on September

6, 1996 and became final and executory on December 23, 1996. Therefore, the

ruling by the Manila RTC is evidently not a supervening event. It was already in

existence even before the decision in Civil Case No. 2203-L attained finality.

Just as LLDHC and GSIS, as the losing parties, had the right to file their

respective appeals within the prescribed period, GMC, as the winning party in

Civil Case No. 2203-L, equally had the correlative right to benefit from the finality

of the resolution of its case,[92] to wit:

A final judgment vests in the prevailing party a right recognized and protected by law under the due process clause of the Constitution. A final judgment is “a vested interest which it is right and equitable that the government should recognize and protect, and of which the individual could not be deprived arbitrarily without injustice.”[93] (Citations omitted.)

Since the Manila RTC decision does not constitute a supervening event,

there is therefore neither reason nor justification to alter, modify or annul the

Lapu-Lapu RTC Decision and Orders, which have long become final and

executory. Thus, in the present case, GMC must not be deprived of its right to

enjoy the fruits of a final verdict.

It is settled in jurisprudence that to stay execution of a final judgment, a

supervening event “must create a substantial change in the rights or relations of

the parties which would render execution of a final judgment unjust, impossible

or inequitable making it imperative to stay immediate execution in the interest of

justice.”[94]

However, what would be unjust and inequitable is for the Court to accord

preference to the Manila RTC Decision on this occasion when in the past, the

Court of Appeals and this Court have repeatedly, consistently, and with finality

rejected LLDHC’s moves to use the Manila RTC Decision as a ground to annul,

and/or to bar the execution of, the Lapu Lapu RTC Decision. To be sure, in the

Decision dated September 9, 2002 in G.R. No. 141407, penned by former Chief

Justice Artemio V. Panganiban, the Court already passed upon the lack of effect of

the Manila RTC Decision on the finality of the Lapu Lapu RTC decision in this wise:

The records of the case clearly show that the Lapulapu Decision has become final and executory and is thus valid and binding upon the parties. Obviously, petitioner [LLDHC] is again trying another backdoor attempt to annul the final and executory Decision of the Lapulapu RTC.

First, it was petitioner that filed on March 11, 1992 a Notice of Appeal contesting the Lapulapu RTC Judgment in Civil Case No. 2203-L rendered on February 24, 1992. The Notice was however rejected by the said RTC for being frivolous

and dilatory. Since petitioner had done nothing thereafter, the Decision clearly became final and executory.

However, upon receipt of the Manila RTC Decision, petitioner found a new tool to evade the already final Lapulapu Decision by seeking the annulment of the latter in a Petition with the CA. However, the appellate court dismissed the action, because petitioner had been unable to prove any of the grounds for annulment; namely lack of jurisdiction or extrinsic fraud. Because no appeal had been taken by petitioner, the ruling of the CA also became final and executory.

Second, the Supreme Court likewise recognized the finality of the CA Decision when it threw out LLDHC’s Petition for Certiorari in GR No. 118633. This Court ruled thus:

“Instead of filing this petition for certiorari under Rule 65, which is essentially another Petition to Annul Judgment, petitioner LLDHC should have filed a timely Petition for Review under Rule 45 of the Revised Rules of Court of the decision of the Court of Appeals, dated December 29, 1994, dismissing the Petition for Annulment of Judgment filed by the petitioner LLDHC before the court a quo. But this is all academic now. The appellate court’s decision had become final and executory on January 28, 1995.”

Jurisprudence mandates that when a decision becomes final and executory, it becomes valid and binding upon the parties and their successors in interest. Such decision or order can no longer be disturbed or reopened no matter how erroneous it may have been. Petitioner’s failure to file an appeal within the reglementary period renders the judgment final and executory. The perfection of an appeal in the manner and within the period prescribed by law is mandatory. Failure to conform to the rules regarding appeal will render the judgment final and executory and, hence, unappealable. Therefore, since the Lapulapu Decision has become final and executory, its execution has become mandatory and ministerial on the part of the judge.

The CA correctly ruled that the Lapulapu Judgment is binding upon petitioner [LLDHC] which, by its own motion, participated as an intervenor. In fact, the latter filed

an Answer in Intervention and thereafter actively took part in the trial. Thus, having had an opportunity to be heard and to seek a reconsideration of the action or ruling it complained of, it cannot claim that it was denied due process of law. What the law prohibits is the absolute absence of the opportunity to be heard. Jurisprudence teaches that a party cannot feign denial of due process if it has been afforded the opportunity to present its side.

Petitioner likewise claims that Private Respondent GMC cannot escape the adverse effects of the final and executory judgment of the Manila RTC.

Again, we do not agree. A trial court has no power to stop an act that has been authorized by another trial court of equal rank. As correctly stated by the CA, the Decision rendered by the Manila RTC -- while final and executory -- cannot bind herein private respondent [GMC], which was not a party to the case before the said RTC. A personal judgment is binding only upon the parties, their agents, representatives and successors in interest.

Third, petitioner grievously errs in insisting that the judgment of the Manila RTC nullified that of the Lapulapu RTC. As already adverted to earlier, courts of coequal and coordinate jurisdiction may not interfere with or pass upon each other’s orders or processes, since they have the same power and jurisdiction. Except in extreme situations authorized by law, they are proscribed from doing so.[95](Emphases supplied.)

It likewise does not escape the attention of this Court that the only reason

the Manila RTC Decision was implemented ahead of the Lapu Lapu RTC Decision

was that LLDHC successfully secured a TRO from the Court of Appeals through its

petition forcertiorari docketed as CA-G.R. SP No. 44052, which was eventually

dismissed by the appellate court. The Court of Appeals ruled that the Manila RTC

Decision did not constitute a supervening event that would forestall the execution

of the Lapu Lapu RTC Decision. This decision of the Court of Appeals likewise

became final and executory in 1998.

It bears repeating that the issue of whether or not the Manila RTC Decision

could nullify or render unenforceable the Lapu Lapu RTC Decision has been

litigated many times over in different fora. It would be the height of inequity if

the Court were to now reverse the Court of Appeals’ and its own final and

executory rulings and allow GSIS to prevent the execution of the Lapu Lapu RTC

Decision on the same legal grounds previously discredited by the courts.

Second Issue:

Res Judicata

GMC asserts that the September 23, 2005 Decision of the Special

Nineteenth Division of the Court of Appeals in CA-G.R. SP No. 84382 and the

petition herein by GSIS in G.R. No. 167000 are barred by res judicata as the issues

involved had been fully resolved not only by the lower courts but by this Court as

well. GSIS and LLDHC both insist that res judicata does not apply as this Court

“has not yet rendered a decision involving the same or any similar

petition.”[96] The petitions by LLDHC before the Court of Appeals and GSIS before

this Court both prayed for the annulment of the March 11, 2004 and May 7, 2004

Orders of the Lapu-Lapu RTC in Civil Case No. 2203-L. These assailed Orders were

both issued to resolve the parties’ motions and to have the February 24, 1992

judgment implemented and executed.

          In Republic of the Philippines (Civil Aeronautics Administration) v.

Yu, [97] this Court expounded on the concept of res judicata and explained it in this wise:

 Res judicata literally means “a matter adjudged; a thing judicially acted

upon or decided; a thing or matter settled by judgment.” Res judicata lays the rule that an existing final judgment or decree rendered on the merits, and without fraud or collusion, by a court of competent jurisdiction, upon any matter within its jurisdiction, is conclusive of the rights of the parties or their privies, in all other actions or suits in the same or any other judicial tribunal of concurrent jurisdiction on the points and matters in issue in the first suit.[98]

  

          In Villanueva v. Court of Appeals,[99] we enumerated the elements of res

judicata as follows: 

a)        The former judgment or order must be final; 

b)           It must be a judgment or order on the merits, that is, it was rendered after a consideration of the evidence or stipulations submitted by the parties at the trial of the case;

 c)           It must have been rendered by a court having jurisdiction over the subject

matter and the parties; and 

d)          There must be, between the first and second actions, identity of parties, of subject matter and of cause of action.  This requisite is satisfied if the two (2) actions are substantially between the same parties.[100]

  

All three parties herein are in agreement with the facts that led to the petitions in this case.  However, not all of them agree that the matters involved in

this case have already been judicially settled.  While GMC contends that GSIS’s petition is barred byres judicata, both GSIS and LLDHC assert that this Court has

not yet decided any similar petition, thus disputing the claim of res judicata.  

          Res judicata has two concepts: (1) "bar by prior judgment" as enunciated in Rule 39, Section 47(b) of the 1997 Rules of Civil Procedure; and (2)

"conclusiveness of judgment" in Rule 39, Section 47(c), which reads as follows: 

(b)  In other cases, the judgment or final order is, with respect to the matter directly adjudged or as to any other matter that could have been raised in relation thereto, conclusive between the parties and their successors in interest by title subsequent to the commencement of the action or special proceeding, litigating for the same thing and under the same title and in the same capacity; and 

(c)  In any other litigation between the same parties or their successors in interest, that only is deemed to have been adjudged in a former judgment or final order which appears upon its face to have been so adjudged, or which was actually and necessarily included therein or necessary thereto.  

          In explaining the two concepts of res judicata, this Court held that: 

There is "bar by prior judgment" when, as between the first case where the judgment was rendered, and the second case that is sought to be barred, there is identity of parties, subject matter, and causes of action.  But where there is identity of parties and subject matter in the first and second cases, but no identity of causes of action, the first judgment is conclusive only as to those matters actually and directly controverted and determined and not as to matters merely involved therein. This is "conclusiveness of judgment."  Under the doctrine of conclusiveness of judgment, facts and issues actually and directly resolved in a former suit cannot again be raised in any future case between the same parties, even if the latter suit may involve a different claim or cause of action.  The identity of causes of action is not required but merely identity of issues.[101]

  

In Peñalosa v. Tuason,[102] we laid down the test in determining whether or not the causes of action in the first and second cases are identical: 

 Would the same evidence support and establish both the present and

former cause of action?  If so, the former recovery is a bar; if otherwise, it does not stand in the way of the former action.[103]

  

Res judicata clearly exists in G.R. No. 167000 and in CA-G.R. SP No. 84382 because both GSIS’s and LLDHC’s actions put in issue the validity of the

Lapu-Lapu RTC Decision and were based on the assumption that it has either been modified, altered or nullified by the Manila RTC Decision.

 In CA-G.R. SP No. 84382, LLDHC sought to annul the assailed Orders of

the Lapu-Lapu RTC and to order the judge therein to desist from further proceeding in Civil Case No. 2203-L.  LLDHC sought for the same reliefs in its

Petition for Annulment of Judgment in CA-G.R. SP No. 34696 and G.R. No. 118633, in its Petition for Certiorari in CA-G.R. SP No. 44052, and in its Petition

for Review on Certiorari in G.R. No. 141407, all of which have been decided with finality. 

 In G.R. No. 167000, GSIS is praying for the reversal of the November 25,

2004 Decision and January 20, 2005 Resolution in CA-G.R. SP No. 85096, wherein the Court of Appeals affirmed the assailed Orders.  The validity of these

assailed Orders hinges on the validity of the Lapu-Lapu RTC Decision, which issue had already been decided with finality by both the Court of Appeals and this

Court.

Notwithstanding the difference in the forms of actions GSIS and LLDHC filed,

the doctrine of res judicata still applies considering that the parties were litigating

the same thing, i.e., the 78 lots in Marigondon, Lapu-Lapu City, and more

importantly, the same contentions and evidence were used in all causes of

action. As this Court held in Mendiola v. Court of Appeals[104]:

The test of identity of causes of action lies not in the form of an action but on whether the same evidence would support and establish the former and the present causes of action. The difference of actions in the aforesaid cases is of no moment. x x x.[105]

The doctrine of res judicata makes a final judgment on the merits rendered

by a court of competent jurisdiction conclusive as to the rights of the parties and

their privies and amounts to an absolute bar to subsequent actions involving the

same claim, demand, or cause of action.[106] Even a finding of conclusiveness of

judgment operates as estoppel with respect to matters in issue or points

controverted, on the determination of which the finding or judgment was

anchored.[107]

Evidently, this Court could dispose of this case simply upon the application

of the principle of res judicata. It is clear that GSIS’s petition in G.R. No. 167000

and LLDHC’s petition in CA-G.R. SP No. 84382 should have never reached those

stages for having been barred by a final and executory judgment on their

claims. However, considering the nature of the case before us, this Court is

compelled to make a final determination of the issues in the interest of

substantial justice and to end the wasteful use of our courts’ time and resources.

Third Issue:

GSIS’s Compliance with the

Lapu-Lapu RTC Judgment and Orders

          GSIS asserts that the assailed Orders cannot be enforced upon it given the physical and legal impossibility for it to comply as the titles over the subject

properties were transferred to LLDHC under the Manila RTC writ of execution. 

          A closer perusal of the March 11, 2004 and May 7, 2004 Orders shows that GSIS’s argument holds no water.  The May 7, 2004 Order denied GSIS’s and

LLDHC’s motions for reconsideration of the March 11, 2004 Order.  The March 11, 2004 Order resolved GMC’s urgent manifestation and motion to proceed with

the implementation of the February 24, 1992 final and executory decision and GSIS’s and LLDHC’s opposition thereto, as well as GSIS’s motion to stay the

issuance of a writ of execution against it.  The dispositive portion of the Order reads:

 WHEREFORE, in the light of the foregoing considerations, plaintiff

Group Management Corporation’s motion is GRANTED, while defendant GSIS’ motion to stay the issuance of a writ of execution is denied for lack of merit.  Consequently, the Sheriff of this Court is directed to proceed with the immediate implementation of this Court’s decision dated February 24, 1992, by enforcing completely this Court’s Order of Execution dated November 28, 1996, the writ of execution dated December 17, 1996, the Order dated July 21, 1997, the Order dated October 23, 1997, the Order dated November 28, 1997 and the Order dated December 22, 1997.[108](Emphasis ours.)

  

          While the previous orders and writs of execution issued by the Lapu-Lapu

RTC required the GSIS to execute the final deed of sale and to deliver the subject properties, the Lapu-Lapu RTC, in its subsequent Orders, modified this by

directing its order to the Register of Deeds of Lapu-Lapu City.  In its July 21, 1997 Order,[109] the Lapu-Lapu RTC, seeing GSIS’s obstinate refusal to implement the

court’s previous orders, directed the Register of Deeds of Lapu-Lapu City to cancel the Transfer Certificates of Title of the subject properties and to issue new ones in

the name of GMC, and to deliver the same to GMC.  Moreover, in its October 23, 1997 Order, the Lapu-Lapu RTC, noting the implemented judgment of the Manila

RTC, declared the issuance of new titles to LLDHC null and void for being contrary to the court’s February 24, 1992 decision and directed the Register of

Deeds to effect the transfer of the titles to GMC. 

          Considering that the assailed Orders merely directed the Lapu-Lapu RTC’s Sheriff to proceed with the implementation of the court’s previous orders, that is,

to make sure that the Register of Deeds of Lapu-Lapu City complied with the orders, GSIS had nothing to comply with insofar as the titles to, and possession of,

the subject properties were concerned, the Orders being clearly directed towards the Sheriff of the Lapu-Lapu RTC and the Register of Deeds of Lapu-Lapu

City.  Hence, GSIS’s argument of legal and physical impossibility of compliance with the assailed Orders is baseless.

 GSIS also argues that it cannot be the “subject [of any] execution including

[the] payment of any damage and other monetary judgments because all GSIS funds and properties are absolutely and expressly exempt from execution and other

legal processes under Section 39 of Republic Act No. 8291.”[110]

 

Section 39 of Republic Act No. 8291 provides:  SECTION 39. Exemption from Tax, Legal Process and Lien. —It is hereby declared to be the policy of the State that the actuarial solvency of the funds of the GSIS shall be preserved and maintained at all times and that contribution rates necessary to sustain the benefits under this Act shall be kept as low as possible in order not to burden the members of the GSIS and their employers. Taxes imposed on the GSIS tend to impair the actuarial solvency of its funds and increase the contribution rate necessary to sustain the benefits of this Act. Accordingly, notwithstanding any laws to the contrary, the GSIS, its assets, revenues including all accruals thereto, and benefits paid, shall be exempt from all taxes, assessments, fees, charges or duties of all kinds. These exemptions shall continue unless expressly and specifically revoked and any assessment against the GSIS as of the approval of this Act are hereby considered paid. Consequently, all laws, ordinances, regulations, issuances, opinions or jurisprudence contrary to or in

derogation of this provision are hereby deemed repealed, superseded and rendered ineffective and without legal force and effect.

x x x x

            The funds and/or the properties referred to herein as well as the benefits, sums or monies corresponding to the benefits under this Act shall be exempt from attachment, garnishment, execution, levy or other processes issued by the courts, quasi judicial agencies or administrative bodies including Commission on Audit (COA) disallowances and from all financial obligations of the members, including his pecuniary accountability arising from or caused or occasioned by his exercise or performance of his official functions or duties, or incurred relative to or in connection with his position or work except when his monetary liability, contractual or otherwise, is in favor of the GSIS.  

This Court, in Rubia v. Government Service Insurance System,[111] held that

the exemption of GSIS is not absolute and does not encompass all of its funds, to

wit:

In so far as Section 39 of the GSIS charter exempts the GSIS from execution, suffice it to say that such exemption is not absolute and does not encompass all the GSIS funds. By way of illustration and as may be gleaned from the Implementing Rules and Regulation of the GSIS Act of 1997, one exemption refers to social security benefits and other benefits of GSIS members under Republic Act No. 8291 in connection with financial obligations of the members to other parties. The pertinent GSIS Rule provides:

 Rule XV. Funds of the GSIS 

Section 15.7 Exemption of Benefits of Members from Tax, Attachment, Execution, Levy or other Legal Processes.– The social security benefits and other benefits of GSIS members under R.A. 8291 shall be exempt from tax, attachment, garnishment, execution, levy or other processes issued by the courts, quasi-judicial agencies or administrative bodies in connection with all financial obligations of the member, including his pecuniary accountability arising from or caused or occasioned by his exercise or performance of his official functions or duties or incurred in

connection with his position or work, as well as COA disallowances. Monetary liability in favor of the GSIS, however, may be deducted from the benefits of the member.  [Emphasis supplied] The processual exemption of the GSIS funds and properties under Section

39 of the GSIS Charter, in our view, should be read consistently with its avowed principal purpose: to maintain actuarial solvency of the GSIS in the protection of assets which are to be used to finance the retirement, disability and life insurance benefits of its members. Clearly, the exemption should be limited to the purposes and objects covered. Any interpretation that would give it an expansive construction to exempt all GSIS assets from legal processes absolutely would be unwarranted.

 Furthermore, the declared policy of the State in Section 39 of the GSIS

Charter granting GSIS an exemption from tax, lien, attachment, levy, execution, and other legal processes should be read together with the grant of power to the GSIS to invest its "excess funds" under Section 36 of the same Act.  Under Section 36, the GSIS is granted the ancillary power to invest in business and other ventures for the benefit of the employees, by using its excess funds for investment purposes. In the exercise of such function and power, the GSIS is allowed to assume a character similar to a private corporation.  Thus, it may sue and be sued, as also, explicitly granted by its charter.  Needless to say, where proper, under Section 36, the GSIS may be held liable for the contracts it has entered into in the course of its business investments.  For GSIS cannot claim a special immunity from liability in regard to its business ventures under said Section. Nor can it deny contracting parties, in our view, the right of redress and the enforcement of a claim, particularly as it arises from a purely contractual relationship, of a private character between an individual and the GSIS.[112]

  

          This ruling has been reiterated in the more recent case of Government Service Insurance System v. Regional Trial Court of Pasig City, Branch 71,[113] wherein GSIS, which was also the petitioner in that case, asked to reverse this Court’s findings inRubia and grant GSIS absolute immunity.  This Court rejected

that plea and held that GSIS should not be allowed to hide behind such immunity especially since its obligation arose from its own wrongful action in a business

transaction. 

In this case, the monetary judgments against GSIS arose from its failure to comply with its private and contractual obligation to GMC.  As such, GSIS cannot

claim immunity from the enforcement of the final and executory judgment against it.[114]

 Fourth Issue:

Forum Shopping  

On the issue of forum shopping, this Court already found LLDHC guilty of

forum shopping and was adjudged to pay treble costs way back in 2002 in G.R.

No. 141407[115]:

There is forum shopping whenever, as a result of an adverse opinion in one forum, a party seeks a favorable opinion (other than by appeal or certiorari) from another. In Gatmaytan v. CA, the petitioner therein repeatedly availed itself of several judicial remedies in different courts, simultaneously or successively. All those remedies were substantially founded on the same transactions and the same essential facts and circumstances; and all raised substantially the same issues either pending in, or already resolved adversely by, some other court. This Court held that therein petitioner was trying to increase his chances of obtaining a favorable decision by filing multiple suits in several courts. Hence, he was found guilty of forum shopping.

In the present case, after the Lapulapu RTC had rendered its Decision in favor of private respondent, petitioner filed several petitions before this Court and the CA essentially seeking the annulment thereof. True, petitioner had filed its Complaint in the Manila RTC before private respondent filed its own suit in the Lapulapu RTC. Records, however, show that private respondent learned of theManila case only when petitioner filed its Motion for Intervention in the Lapulapu RTC. When GMC filed its own Motion to Intervene in the Manila RTC, it was promptly rebuffed by the judge therein. On the other hand, petitioner was able to present its side and to participate fully in the proceedings before the Lapulapu RTC.

On July 27, 1994, almost two years after the dismissal of its appeal by the Lapulapu RTC, petitioner filed in the CA a suit for the annulment of that RTC judgment. On December 29, 1994, this suit was rejected by the CA in a Decision which became final and executory on January 28, 1995, after no appeal was taken by petitioner. However, this action did not stop petitioner. On February 2, 1995, it filed with this Court another Petition deceptively cloaked as certiorari, but which in reality sought the annulment of the Lapulapu Decision. This Court dismissed the Petition on September 6, 1996. Petitioner’s Motion for Reconsideration was denied with finality on November 18, 1996.

On November 28, 1996, Judge Risos of the Lapulapu RTC directed the execution of the judgment in the case filed before it. The Motion to Stay Execution filed by petitioner was denied on February 19, 1997. Undaunted, it filed in this Court another Petition forCertiorari, Prohibition and Mandamus. On September 21, 1998, we referred the Petition to the CA for appropriate action. This new Petition again essentially sought to annul the final and executory Decision rendered by the Lapulapu RTC. Needless to say, the new suit was unsuccessful. Still, this rejection did not stop petitioner. It brought before this Court the present Petition for Review on Certiorarialleging the same facts and circumstances and raising the same issues already decided by this Court in G.R. No. 118633.

First Philippine International Bank v. CA stresses that what is truly important to consider in determining whether forum shopping exists is the vexation caused the courts and the parties-litigants by one who asks different courts and/or administrative agencies to rule on the same or related facts and causes and/or to grant the same or substantially the same relief, in the process creating the possibility of conflicting rulings and decisions.

Petitioner in the present case sued twice before the CA and thrice before this Court, alleging substantially the same facts and circumstances, raising essentially the same issues, and praying for almost identical reliefs for the annulment of the Decision rendered by the Lapulapu RTC. This insidious practice of repeatedly bringing essentially the same action -- albeit disguised in various nomenclatures -- before different courts at different times is forum shopping no less. Because of petitioner’s actions, the execution of the Lapulapu Decision has been needlessly delayed and several courts vexed. [116]

There is forum shopping when two or more actions or proceedings, other

than appeal or certiorari, involving the same parties for the same cause of action,

are instituted either simultaneously or successively to obtain a more favorable

decision.[117] This Court, in Spouses De la Cruz v. Joaquin,[118] explained why forum

shopping is disapproved of:

            Forum shopping trifles with the courts, abuses their processes, degrades the administration of justice, and congests court dockets. Willful and deliberate violation of the rule against it is a ground for the summary dismissal of the case; it may also constitute direct contempt of court.[119]

  

It is undeniable that both LLDHC and GSIS are guilty of forum shopping,

for having gone through several actions and proceedings from the lowest court to this Court in the hopes that they will obtain a decision favorable to them.  In all

those actions, only one issue was in contention: the ownership of the subject lots.  In the process, the parties degraded the administration of justice, congested

our court dockets, and abused our judicial system.  Moreover, the simultaneous and successive actions filed below have resulted in conflicting decisions rendered by

not only the trial courts but also by different divisions of the Court of Appeals. 

The very purpose of the rule against forum shopping was to stamp out the abominable practice of trifling with the administration of justice. [120]  It is evident

from the history of this case that not only were the parties and the courts vexed, but more importantly, justice was delayed.  As this Court held in the earlier case of

LLDHC against GMC: “[The] insidious practice of repeatedly bringing essentially the same action – albeit disguised in various nomenclatures – before different

courts at different times is forum shopping no less.”[121]

 

Conclusion 

Nonetheless, like we said, substantial justice requires the resolution of this controversy on its merits.  It is the duty of this Court to put an end to this long-

delayed litigation and render a decision, which will bind all parties with finality. 

Although it is settled that the Lapu-Lapu RTC Decision was not in any way nullified by the Manila RTC Decision, it is this Court’s duty to resolve the legal

implications of having two conflicting, final, and executory decisions in existence.  In Collantes v. Court of Appeals,[122] this Court, faced with the similar

issue of having two conflicting, final and executory decisions before it, offered three options to solve the dilemma: “the first is for the parties to assert their claims

anew, the second is to determine which judgment came first, and the third is to determine which of the judgments had been rendered by a court of last resort.”[123]

 In Collantes, this Court applied the first option and resolved the conflicting

issues anew. However, resorting to the first solution in the case at bar would

entail disregarding not only the final and executory decisions of the Lapu-Lapu

RTC and the Manila RTC, but also the final and executory decisions of the Court of

Appeals and this Court. Moreover, it would negate two decades’ worth of

litigating. Thus, we find it more equitable and practicable to apply the second and

third options consequently maintaining the finality of one of the conflicting

judgments. The primary criterion under the second option is the time when the

decision was rendered and became final and executory, such that earlier

decisions should prevail over the current ones since final and executory decisions

vest rights in the winning party. In the third solution, the main criterion is the

determination of which court or tribunal rendered the decision. Decisions of this

Court should be accorded more respect than those made by the lower courts.[124]

Applying these criteria to the case at bar, the February 24, 1992 Decision of

the Lapu-Lapu RTC in Civil Case No. 2203-L was not only promulgated first; it also

attained finality on January 28, 1995, before the Manila RTC’s May 10, 1994

Decision in Civil Case No. R-82-3429 became final on May 30, 1997. It is especially

noteworthy that months after the Lapu-Lapu RTC issued its writ of execution on

December 17, 1996, the Manila RTC issued its own writ of execution on August 1,

1997. To recall, the Manila RTC writ was only satisfied first because the Court of

Appeals in CA-G.R. SP No. 44052 deemed it appropriate to issue a temporary

restraining order against the execution of the Lapu-Lapu RTC Decision, pending

the case before it. Hence, the fact that the Manila RTC Decision was

implemented and executed first does not negate the fact that the Lapu-Lapu RTC

Decision was not only rendered earlier, but had also attained finality

earlier. Furthermore, while both judgments reached the Court of Appeals, only

Civil Case No. 2203-L was passed upon on the merits by this Court. In G.R. No.

141407, this Court resolved LLDHC’s petition for review on certiorari seeking to

annul the Court of Appeals’ Decision in CA-G.R. SP No. 50650. This Court, in

dismissing the petition, upheld the validity of the Lapu-Lapu RTC Decision and

declared that the Manila RTC Decision cannot bind GMC. That decision became

final and executory way back on March 10, 2003.

While this Court cannot blame the parties for exhausting all available

remedies to obtain a favorable judgment, the issues involved in this case should

have been resolved upon the finality of this Court’s decision in G.R. No.

141407. As pronounced by this Court in Villanueva v. Court of Appeals[125]:

The interest of the judicial system in preventing relitigation of the same dispute recognizes that judicial resources are finite and the number of cases that can be heard by the court is limited. Every dispute that is reheard means that another will be delayed. In modern times when court dockets are filled to overflowing, this concern is

of critical importance. x x x.[126]

In summary, this Court finds the execution of the Lapu-Lapu RTC Decision in Civil Case No. 2203-L to be in order.  We affirm the assailed Orders of March

11, 2004 and May 7, 2004, which reiterate, among others, the October 23, 1997 Order issued by the Lapu-Lapu RTC, directing the Register of Deeds of Lapu-Lapu

City to cancel the certificates of title of LLDHC and to issue new ones in GMC’s name.  Whatever rights are due LLDHC from GSIS as a result of the final

judgment of the Manila RTC in Civil Case No. R-82-3429, which we have previously held to be binding between GSIS and LLDHC, may be threshed out in

an appropriate proceeding.  Such proceeding shall not further delay the execution of the Lapu-Lapu RTC Decision.

WHEREFORE, in view of the foregoing, the petition in G.R. No. 167000 is DENIED and the Decision dated November 25, 2004 and Resolution dated January 20, 2005 of the Twentieth Division of the Court of Appeals

are AFFIRMED. The petition in G.R. No. 169971 is GRANTED and the Decision dated September 23, 2005 of the Special Nineteenth Division of the Court of

Appeals is hereby REVERSED AND SET ASIDE.

SO ORDERED.

  

THIRD DIVISION  

DANTE T. TAN,                  Petitioner,    

- versus -     

PEOPLE OF THEPHILIPPINES,             Respondents.                  

  G.R. No. 173637 Present: YNARES-SANTIAGO, J.,      Chairperson,CARPIO MORALES,*

CHICO-NAZARIO,VELASCO, JR., ** andLEONARDO-DE CASTRO,*** JJ. Promulgated: April 21, 2009

x - - - - - - - - - - - - - - - - - - - - - - - - - - - -  - - - - - - - - - - - - - - - - - - - - - - - x                                                  D E C I S I O N  CHICO-NAZARIO, J.:  

          Before this Court is a Petition for Review on Certiorari filed under Rule 45 of the Revised Rules of Court seeking the reversal and setting aside of the

Decision[1] dated 22 February 2006 and Resolution[2] dated 17 July 2006 issued by the Court of Appeals in CA-G.R. SP No. 83068 entitled, “People of the

Philippines v. Hon. Briccio C. Ygana, in his capacity as Presiding Judge of Branch 153, Regional Trial Court, Pasig City and Dante Tan.”

         

          The assailed Decision reinstated Criminal Case No. 119830, earlier dismissed by the trial court due to an alleged violation of petitioner Dante T. Tan’s

right to speedy trial. The assailed Resolution denied his Motion for Reconsideration and Motion to Inhibit.

           The factual and procedural antecedents of the instant petition are as follows:

           On 19 December 2000, a Panel of Prosecutors of the Department of Justice

(DOJ), on behalf of the People of the Philippines(People), filed three Informations against Dante T. Tan (petitioner) before the Regional Trial Court (RTC)

of Pasig City. The cases were docketed as Criminal Cases No. 119830, No. 119831 and No. 119832, all entitled, “People of the Philippines v. Dante Tan.”

           Criminal Case No. 119830[3] pertains to allegations that petitioner employed

manipulative devises in the purchase of Best World Resources Corporation (BW) shares. On the other hand, Criminal Cases No. 119831[4] and No. 119832[5] involve

the alleged failure of petitioner to file with the Securities and Exchange Commission (SEC) a sworn statement of his beneficial ownership of BW shares.

           In two other related cases, two Informations were filed against a certain

Jimmy Juan and Eduardo G. Lim for violation of the Revised Securities Act involving BW shares of stock. These were docketed as Criminal Cases No. 119828

and No. 119829. 

          On the same day, the DOJ, through Assistant Chief State Prosecutor Nilo C. Mariano, filed a Motion for Consolidation praying that Criminal Cases No.

119830, No. 119831 and No. 119832 be consolidated together with Criminal Cases No. 119828 and No. 119829, which the trial court granted.

                   On 21 December 2000, Criminal Cases No. 119830, No. 119831 and No.

119832 were raffled off to the Pasig RTC, Branch 153, presided by Judge Briccio C. Ygana.  Criminal Cases No. 119828 and No. 119829 also went to the same

court.         

          Petitioner was arraigned on 16 January 2001, and pleaded not guilty to the charges.[6]

           On 6 February 2001, the pre-trial was concluded, and a pre-trial order set,

among other things, the first date of trial on 27 February 2001.[7]

         

          Atty. Celia Sandejas of the Securities and Exchange Commission (SEC), under the direct control and supervision of Public Prosecutor Nestor Lazaro,

entered her appearance for the People; Atty. Agnes Maranan for petitioner Dante Tan; Atty. Sigfrid Fortun for Eduardo Lim, Jr.; and Atty. Rudolf Brittanico for

Jimmy Juan. State Prosecutors Susan Dacanay and Edna Villanueva later on took over as lawyers for the People.

           The People insists that during the pendency of the initial hearing on 27

February 2001, the parties agreed that Criminal Cases No. 119831 and No. 119832 would be tried ahead of Criminal Case No. 119830, and that petitioner would not

interpose any objection to its manifestation, nor would the trial court disapprove it. 

          Thereafter, the People presented evidence for Criminal Cases No. 119831 and No. 119832.  On 18 September 2001, the prosecution completed the

presentation of its evidence and was ordered by the RTC to file its formal offer of evidence within thirty days.

           After being granted extensions to its filing of a formal offer of evidence, the

prosecution was able to file said formal offer for Criminal Cases No. 119831 and No. 119832 on 25 November 2003.[8]

           On 2 December 2003, petitioner moved to dismiss Criminal Case No.

119830 due to the People’s alleged failure to prosecute. Claiming violation of his right to speedy trial, petitioner faults the People for failing to prosecute the case for

an unreasonable length of time and without giving any excuse or justification for the delay.  According to petitioner, he was persistent in asserting his right to

speedy trial, which he had allegedly done on several instances.  Finally, he claimed to have been substantially prejudiced by this delay.

                   The prosecution opposed the Motion, insisting on its claim that the parties

had an earlier agreement to defer the trial of Criminal Case No. 119830 until after that of Criminal Cases No. 119831-119832, as the presentation of evidence and

prosecution in each of the five cases involved were to be done separately.  The presentation of evidence in Criminal Cases No. 119831-119832, however, were

done simultaneously, because they involved similar offenses of non-disclosure of beneficial ownership of stocks proscribed under Rule 36(a)-1[9] in relation to

Sections 32(a)-1[10] and 56[11] of Batas Pambansa Bilang 178, otherwise known as the “Revised Securities Act.” Criminal Case No. 119830 pertains to alleged

violation of Section 27 (b),[12] in relation to Section 56 of said act. 

          On 22 December 2003, Judge Briccio C. Ygana of the Pasig RTC, Branch 153, ruled that the delays which attended the proceedings of petitioner’s case

(Criminal Case No. 119830) were vexatious, capricious and oppressive, resulting

in violation of petitioner’s right to speedy trial.  The RTC ordered[13] the dismissal of Criminal Case No. 119830, disposing as follows:

             WHEREFORE, foregoing premises duly considered and finding the motion to dismiss to be meritorious, the Court hereby orders Criminal Case No. 119830 DISMISSED.  

          On motion for reconsideration, the prosecution insisted that the parties

agreed to hold separate trials of the BW cases, with petitioner acquiescing to the prosecution of Criminal Cases No. 119831 and No. 119832 ahead of Criminal

Case No. 119830.  In an Order dated 20 January 2004, the RTC denied the Motion for Reconsideration for lack of merit.

           The RTC’s order of dismissal was elevated to the Court of Appeals via a

petition for certiorari, with the People contending that: RESPONDENT JUDGE GRAVELY ABUSED HIS DISCRETION IN RULING THAT THE PEOPLE VIOLATED DANTE TAN’S RIGHT TO SPEEDY TRIAL, ALBEIT, THE LATTER AND RESPONDENT JUDGE HIMSELF HAVE CONFORMED TO THE DEFERMENT OF CRIMINAL CASE NO. 119830 PENDING HEARING OF THE TWO OTHER RELATED CASES.  

          Setting aside the trial court’s order of dismissal, the Court of Appeals granted the petition for certiorari in its Decision dated22 February 2006.  In

resolving the petition, the appellate court reinstated Criminal Case No. 119830 in this wise:

             WHEREFORE, the petition is granted and the assailed Orders dated December 22, 2003 and January 20, 2004 are set aside. Criminal Case No. 119830 is reinstated and the trial court is ordered to conduct further proceedings in said case immediately.[14]

  

          Petitioner moved for a reconsideration of the Decision and filed a motion for inhibition of the Justices who decided the case.

           On 17 July 2006, the Court of Appeals denied both motions.

           Petitioner Dante Tan, henceforth, filed the instant petition for review

on certiorari, raising the following issues: 

                                                                 I. WHETHER OR NOT THE ACTING SECRETARY OF JUSTICE MAY VALIDLY EXECUTE THE CERTIFICATE OF NON-FORUM SHOPPING ATTACHED TO THE PETITION FOR CERTIORARI FILED BY THE PEOPLE WITH THE COURT OF APPEALS EVEN THOUGH THE CRIMINAL ACTION WAS INSTITUTED BY A COMPLAINT SUBSCRIBED BY THE AUTHORIZED OFFICERS OF THE SECURITIES AND EXCHANGE COMMISSION. 

II. 

WHETHER OR NOT THE PETITION FOR CERTIORARI VIOLATED TAN’S RIGHT AGAINST DOUBLE JEOPARDY. 

III. 

WHETHER OR NOT CRIMINAL CASE NO. 119830 WAS CORRECTLY DISMISSED BY THE TRIAL COURT ON THE GROUND OF VIOLATION OF TAN’S RIGHT TO SPEEDY TRIAL.

 IV.

 WHETHER OR NOT THE TRIAL COURT COMMITTED GRAVE ABUSE OF DISCRETION.  

We first resolve the preliminary issues. 

          In an attempt at having the instant petition dismissed, petitioner contends that the certificate of non-forum shopping attached to the People’s appeal before

the Court of Appeals should have been signed by the Chairman of the SEC as complainant in the cases instead of Acting DOJ Secretary Merceditas N. Gutierrez.

 Petitioner’s argument is futile. The Court of Appeals was correct in

sustaining the authority of Acting DOJ Secretary Merceditas Gutierrez to sign the certificate of non-forum shopping of the petition for certiorari before said court.  It

must be stressed that the certification against forum shopping is required to be executed by the plaintiff.[15] Although the complaint-affidavit was signed by the

Prosecution and Enforcement Department of the SEC, the petition before the Court of Appeals originated from Criminal Case No. 119830, where the plaintiff or the

party instituting the case was the People of the Philippines. Section 2, Rule 110 of the Rules of Court leaves no room for doubt and establishes that criminal cases are

prosecuted in the name of the People of the Philippines, the offended party in criminal cases. Moreover, pursuant to Section 3, paragraph (2) of the Revised

Administrative Code, the DOJ is the executive arm of the government mandated to investigate the commission of crimes, prosecute offenders and administer the

probation and correction system.  It is the DOJ, through its prosecutors, which is authorized to prosecute criminal cases on behalf of the People of the Philippines.[16]  Prosecutors control and direct the prosecution of criminal offenses, including the conduct of preliminary investigation, subject to review by the Secretary of

Justice.  Since it is the DOJ which is the government agency tasked to prosecute criminal cases before the trial court, the DOJ is best suited to attest whether a

similar or related case has been filed or is pending in another court of tribunal.  Acting DOJ Secretary Merceditas N. Gutierrez, being the head of the

DOJ, therefore, had the authority to sign the certificate of non-forum shopping for Criminal Case No. 119830, which was filed on behalf of the People of

the Philippines. 

          The preliminary issues having been resolved, the Court shall proceed to discuss the main issues.

           At the crux of the controversy is the issue of whether there was a violation of

petitioner Dante Tan’s right to speedy trial.

           

          Petitioner Dante Tan assails the Decision and Resolution of the Court of Appeals in CA-G.R. SP No. 83068.  The appellate court determined that he

“impliedly agreed” that Case No. 119830 would not be tried until after termination of Criminal Cases No. 119831-119832, which finding was grounded entirely on

speculations, surmises and conjectures. 

          Both parties concede that this issue is factual. It is a basic rule that factual issues are beyond the province of this Court in a petition for review, for it is not

our function to review evidence all over again.[17]  Rule 45 of the Rules of Court provides that only questions of law may be raised in this Court in a petition for

review on certiorari.[18]  The reason is that the Court is not a trier of facts.[19]  However, the rule is subject to several exceptions.[20]  Under these exceptions, the

Court may delve into and resolve factual issues, such as in cases where the findings of the trial court and the Court of Appeals are absurd, contrary to the evidence on

record, impossible, capricious or arbitrary, or based on a misappreciation of facts. 

In this case, the Court is convinced that the findings of the Court of Appeals on the substantial matters at hand, while conflicting with those of the RTC, are

adequately supported by the evidence on record.  We, therefore, find no reason to deviate from the jurisprudential holdings and treat the instant case differently.

 

          An accused’s right to “have a speedy, impartial, and public trial” is guaranteed in criminal cases by Section 14(2) of Article III of the

Constitution.  This right to a speedy trial may be defined as one free from vexatious, capricious and oppressive delays, its “salutary objective” being to assure

that an innocent person may be free from the anxiety and expense of a court litigation or, if otherwise, of having his guilt determined within the shortest

possible time compatible with the presentation and consideration of whatsoever legitimate defense he may interpose.[21]  Intimating historical perspective on the

evolution of the right to speedy trial, we reiterate the old legal maxim, “justice delayed is justice denied.”  This oft-repeated adage requires the expeditious

resolution of disputes, much more so in criminal cases where an accused is constitutionally guaranteed the right to a speedy trial.[22]

                   Following the policies incorporated under the 1987 Constitution, Republic

Act No. 8493, otherwise known as “The Speedy Trial Act of 1998,” was enacted, with Section 6 of said act limiting the trial period to 180 days from the first day of

trial.[23]  Aware of problems resulting in the clogging of court dockets, the Court implemented the law by issuing Supreme Court Circular No. 38-98, which has

been incorporated in the 2000 Rules of Criminal Procedure, Section 2 of Rule 119.[24]

                             In Corpuz v. Sandiganbayan,[25]  the Court had occasion to state –

             The right of the accused to a speedy trial and to a speedy disposition of the case against him was designed to prevent the oppression of the citizen by holding criminal prosecution suspended over him for an indefinite time, and to prevent delays in the administration of justice by mandating the courts to proceed with reasonable dispatch in the trial of criminal cases.  Such right to a speedy trial and a speedy disposition of a case is violated only when the proceeding is attended by vexatious, capricious and oppressive delays. The inquiry as to whether or not an accused has been denied such right is not susceptible by precise qualification. 

The concept of a speedy disposition is a relative term and must necessarily be a flexible concept.             While justice is administered with dispatch, the essential ingredient is orderly, expeditious and not mere speed.  It cannot be definitely said how long is too long in a system where justice is supposed to be swift, but deliberate.  It is consistent with delays and depends upon circumstances.  It secures rights to the accused, but it does not preclude the rights of public justice.  Also, it must be borne in mind that the rights given to the accused by the Constitution and the Rules of Court are shields, not weapons; hence, courts are to give meaning to that intent.  

          The Court emphasized in the same case that:  A balancing test of applying societal interests and the rights of the accused

necessarily compels the court to approach speedy trial cases on an ad hoc basis. 

In determining whether the accused has been deprived of his right to a speedy disposition of the case and to a speedy trial, four factors must be considered: (a) length of delay; (b) the reason for the delay; (c) the defendant’s assertion of his right; and (d) prejudice to the defendant. x x x.  

Closely related to the length of delay is the reason or justification of the State for such delay.  Different weights should be assigned to different reasons or justifications invoked by the State. x x x.[26] 

  

          Exhaustively explained in Corpuz v. Sandiganbayan, an accused’s right to speedy trial is deemed violated only when the proceeding is attended by vexatious,

capricious, and oppressive delays. In determining whether petitioner was deprived of this right, the factors to consider and balance are the following: (a) duration of

the delay; (b) reason therefor; (c) assertion of the right or failure to assert it; and (d) prejudice caused by such delay.[27]

           From the initial hearing on 27 February 2001 until the time the prosecution

filed its formal offer of evidence for Criminal Cases No. 119831-119832 on 25 November 2003, both prosecution and defense admit that no evidence was

presented for Criminal Case No. 119830.  Hence, for a period of almost two years and eight months, the prosecution did not present a single evidence for Criminal

Case No. 119830. 

The question we have to answer now is whether there was vexatious, capricious, and oppressive delay.  To this, we apply the four-factor test previously

mentioned. 

We emphasize that in determining the right of an accused to speedy trial, courts are required to do more than a mathematical computation of the number of

postponements of the scheduled hearings of the case.  A mere mathematical reckoning of the time involved is clearly insufficient,[28] and particular regard must

be given to the facts and circumstances peculiar to each case.[29]

 

          In Alvizo v. Sandiganbayan,[30] the Court ruled that there was no violation of the right to speedy trial and speedy disposition. The Court took into account the

reasons for the delay, i.e., the frequent amendments of procedural laws by presidential decrees, the structural reorganizations in existing prosecutorial

agencies and the creation of new ones by executive fiat, resulting in changes of personnel, preliminary jurisdiction, and the functions and powers of prosecuting

agencies.  The Court also considered the failure of the accused to assert such right, and the lack of prejudice caused by the delay to the accused.

 In Defensor-Santiago v. Sandiganbayan,[31] the complexity of the issues and

the failure of the accused to invoke her right to speedy disposition at the appropriate time spelled defeat for her claim to the constitutional guarantee.

 

In Cadalin v. Philippine Overseas Employment Administration’s Administrator,[32] the Court, considering also the complexity of the cases and the

conduct of the parties’ lawyers, held that the right to speedy disposition was not violated therein.

 Petitioner’s objection to the prosecution’s stand that he gave an implied

consent to the separate trial of Criminal Case No. 119830 is belied by the records of the case.  No objection was interposed by his defense counsel when this matter

was discussed during the initial hearing.[33] Petitioner’s conformity thereto can be deduced from his non-objection at the preliminary hearing when the prosecution

manifested that the evidence to be presented would be only for Criminal Cases No. 119831-119832.  His failure to object to the prosecution’s manifestation that the

cases be tried separately is fatal to his case.  The acts, mistakes and negligence of counsel bind his client, except only when such mistakes would result in serious

injustice.[34]  In fact, petitioner’s acquiescence is evident from the transcript of stenographic notes during the initial presentation of the People’s evidence in the

five BW cases on 27 February 2001, herein quoted below: COURT:  Atty. Sandejas, call your witness. ATTY. SANDEJAS [SEC Prosecuting Lawyer]:      May we make some

manifestation first, your Honor, before we continue presenting our witness. First of all, this witness will only be testifying as to two (2) of the charges: non-disclosure of beneficial ownership of Dante Tan x x x.

 x x x x COURT:  (to Atty. Sandejas) Call your witness. ATTY. SANDEJAS:  Our witness is Mr. Wilfredo Baltazar of the Securities and

Exchange Commission, your Honor. We are presenting this witness for the purpose of non-disclosure of beneficial ownership case…

 COURT:  I would advise the counsel from the SEC to make it very clear your

purpose in presenting your first witness.

 ATTY. SANDEJAS:  Yes, your Honor. Can I borrow the file? COURT:  Show it to counsel. ATTY. SANDEJAS:  Crim. Case Nos. 119831 and 119832, for Violation of RA

Rule 36(a)1, in relation to Sec. 32 (a)-1 of the Revised Securities Act when he failed to disclose his beneficial ownership amounting to more than 10% which requires disclosure of such fact.[35] 

  

          During the same hearing, the People manifested in open court that the parties had agreed to the separate trials of the BW Cases:

 PROSECUTOR LAZARO: May we be allowed to speak, your Honor? Your Honor please, as we x x x understand, this is not a joint trial but a separate trial x x x so as manifested by the SEC lawyer, the witness is being presented insofar as 119831 and 119832 as against Dante Tan only x x x.[36]

  

          The transcript of stenographic notes taken from the 3 April 2001 hearing

further clarifies that only the two cases against Dante Tan were being prosecuted:         

ATTY. DE LA CRUZ [new counsel for accused Eduardo Lim, Jr.]:           Your Honor, please, may I request clarification from the prosecutors regarding the purpose of the testimony of the witness in the stand. While the Private Prosecutor stated the purpose of the testimony of the witness. . . x x x x PROSECUTOR LAZARO:             I was present during the last hearing. I was then going over the transcript of this case, well, I believe the testimony x x x mainly [is] on accused Dante Tan, your Honor. As a matter of fact, there was a clarification made by the parties and counsels after the witness had testified that the hearing in these cases is not a joint trial because it involves separate charges, involving different documents, your Honor. That is why the witness already testified only concerning Dante Tan. Per the query made by Atty. Fortun, because at that time, Atty. Fortun was still

representing Mr. Lim, I believe, your Honor, then I understand that the testimony of this witness cannot just be adopted insofar as the other accused, your Honor. ATTY. MARANAN:             We confirm that, your Honor, since x x x particularly since this is already cross, it is clear that the direct examination dealt exclusively with Mr. Dante Tan. PROS. LAZARO: Mr. Dante Tan, involving the 2 (two) cases.[37]

  

          Moreover, although periods for trial have been stipulated, these periods are not absolute.  Where periods have been set, certain exclusions are allowed by law.[38]  After all, this Court and the law recognize that it is but a fact that judicial proceedings do not exist in a vacuum and must contend with the realities of

everyday life.  In spite of the prescribed time limits, jurisprudence continues to adopt the view that the fundamentally recognized principle is that the concept of

speedy trial is a relative term and must necessarily be a flexible concept.[39]

                                        

          As to the assertion that delay in the presentation of evidence for Criminal Case No. 119830 has prejudiced petitioner because the witnesses for the defense

may no longer be available at this time, suffice it to say that the burden of proving his guilt rests upon the prosecution.[40]  Should the prosecution fail for any reason

to present evidence sufficient to show his guilt beyond reasonable doubt, petitioner will be acquitted.  It is safely entrenched in our jurisprudence that unless the

prosecution discharges its burden to prove the guilt of an accused beyond reasonable doubt, the latter need not even offer evidence in his behalf.[41]   

 In the cases involving petitioner, the length of delay, complexity of the

issues and his failure to invoke said right to speedy trial at the appropriate time tolled the death knell on his claim to the constitutional guarantee.[42]  More

importantly, in failing to interpose a timely objection to the prosecution’s manifestation during the preliminary hearings that the cases be tried separately,

one after the other, petitioner was deemed to have acquiesced and waived his objection thereto.

           For the reasons above-stated, there is clearly insufficient ground to conclude

that the prosecution is guilty of violating petitioner’s right to speedy trial.  Grave abuse of discretion defies exact definition, but generally refers to “capricious or

whimsical exercise of judgment as is equivalent to lack of jurisdiction.”  Any capricious or whimsical exercise of judgment in dismissing a criminal case is

equivalent to lack of jurisdiction.  This is true in the instant case. 

There is also no merit to petitioner’s claim that a reversal of the RTC’s Order dismissing Criminal Case No. 119830 is a violation of his constitutional

right against double jeopardy which dismissal was founded on an alleged violation of his right to speedy trial.

           The constitutional protection against double jeopardy shields one from a

second or later prosecution for the same offense. Article III, Section 21 of the 1987 Constitution declares that no person shall be twice put in jeopardy of punishment

for the same offense, providing further that if an act is punished by a law and an ordinance, conviction or acquittal under either shall constitute a bar to another

prosecution for the same act.         

          Following the above constitutional provision, Section 7, Rule 117 of the Revised Rules of Court found it apt to stipulate:

             SEC. 7. Former conviction or acquittal; double jeopardy. – When an accused has been convicted or acquitted, or the case against him dismissed or otherwise terminated without his express consent by a court of competent

jurisdiction, upon a valid complaint or information or other formal charge sufficient in form and substance to sustain a conviction and after the accused had pleaded to the charge, the conviction or acquittal of the accused or the dismissal of the case shall be a bar to another prosecution for the offense charged, or for any attempt to commit the same or frustration thereof, or for any offense which necessarily includes or is necessarily included in the offense charged in the former complaint or information.  

          For double jeopardy to attach then, the following elements in the first criminal case must be present:

 (a) The complaint or information or other formal charge was sufficient in form and substance to sustain a conviction; (b)  The court had jurisdiction; (c)  The accused had been arraigned and had pleaded; and (d)  He was convicted or acquitted or the case was dismissed or otherwise terminated without the express consent of the accused.[43]

  

          Among the above-cited elements, we are concerned with the fourth element,

conviction or acquittal, or the case was dismissed or otherwise terminated without the express consent of the accused.  This element is crucial since, as a general rule,

the dismissal of a criminal case resulting in acquittal, made with the express consent of the accused or upon his own motion, will not place the accused in

double jeopardy.[44]  This rule, however, admits of two exceptions, namely: insufficiency of evidence and denial of the right to speedy trial. [45]  While indeed

petitioner was in fact the one who filed the Motion to Dismiss Criminal Case No. 119830, the dismissal thereof was due to an alleged violation of his right to speedy

trial, which would otherwise put him in double jeopardy should the same charges be revived. Petitioner’s situation is different.  Double jeopardy has not attached,

considering that the dismissal of Criminal Case No. 119830 on the ground of violation of his right to speedy trial was without basis and issued with grave abuse

of discretion amounting to lack or excess of jurisdiction.  Where the right of the accused to speedy trial has not been violated, there is no reason to support the

initial order of dismissal.         

          Following this Court’s ruling in Almario v. Court of Appeals,[46] as petitioner’s right to speedy trial was not transgressed, this exception to the fourth

element of double jeopardy – that the defendant was acquitted or convicted, or the case was dismissed or otherwise terminated without the express consent of the

accused – was not met.  Where the dismissal of the case was allegedly capricious, certiorari lies from such order of dismissal and does not involve double jeopardy,

as the petition challenges not the correctness but the validity of the order of dismissal; such grave abuse of discretion amounts to lack of jurisdiction, which

prevents double jeopardy from attaching.[47]

 

          As this Court ruled in People v. Tampal,[48] reiterated in People v. Leviste,[49] where we overturned an order of dismissal by the trial court predicated on the

right to speedy trial – 

          It is true that in an unbroken line of cases, we have held that dismissal of cases on the ground of failure to prosecute is equivalent to an acquittal that would bar further prosecution of the accused for the same offense.  It must be stressed, however, that these dismissals were predicated on the clear right of the accused to speedy trial.  These cases are not applicable to the petition at bench considering that the right of the private respondents to speedy trial has not been violated by the State. x x x.   

          From the foregoing, it follows that petitioner cannot claim that double jeopardy attached when said RTC order was reversed by the Court of

Appeals.  Double jeopardy does not apply to this case, considering that there is no violation of petitioner’s right to speedy trial.

 

          The old adage that justice delayed is justice denied has never been more valid than in our jurisdiction, where it is not a rarity for a case to drag in our courts

for years and years and even decades.  It was this difficulty that inspired the constitutional requirement that the rules of court to be promulgated by the Supreme

Court shall provide for a simplified and inexpensive procedure for the speedy trial and disposition of cases.[50]  Indeed, for justice to prevail, the scales must balance,

for justice is not to be dispensed for the accused alone.[51]

 

Evidently, the task of the pillars of the criminal justice system is to preserve our democratic society under the rule of law, ensuring that all those who appear

before or are brought to the bar of justice are afforded a fair opportunity to present their side.  As correctly observed by the Court of Appeals, Criminal Case No.

119830 is just one of the many controversial cases involving the BW shares scam where public interest is undoubtedly at stake.  The State, like any other litigant, is

entitled to its day in court, and to a reasonable opportunity to present its case.  A hasty dismissal, instead of unclogging dockets, has actually increased the workload

of the justice system and unwittingly prolonged the litigation.[52]

 

          Finally, we reiterate that the rights given to the accused by the Constitution and the Rules of Court are shields, not weapons. Courts are tasked to give meaning

to that intent.  There being no capricious, vexatious, oppressive delay in the proceedings, and no postponements unjustifiably sought, we concur in the

conclusions reached by the Court of Appeals. 

          WHEREFORE, the petition is DISMISSED.  The assailed 22 February 2006 Decision and 17 July 2006 Resolution issued by the Court of Appeals in CA-

G.R. SP No. 83068 are hereby AFFIRMED.         

          The instant case is REMANDED to the Regional Trial Court, Branch 153, Pasig City for further proceedings in Criminal Case No. 119830 with

reasonable dispatch.           SO ORDERED.   

Republic of the Philippines

SUPREME COURTManila

 FIRST DIVISION

 ANTHONY ORDUÑA, DENNIS ORDUÑA, and ANTONITA ORDUÑA,                      Petitioners,

          -  versus  -

  EDUARDO J. FUENTEBELLA, MARCOS S. CID, BENJAMIN F. CID, BERNARD G. BANTA, and ARMANDO GABRIEL, JR.,                      Respondents.

  G.R. No. 176841 Present: CORONA, C.J., Chairperson,VELASCO, JR.,LEONARDO-DE CASTRO,DEL CASTILLO, andPEREZ, JJ. Promulgated: June 29, 2010

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

D E C I S I O N  VELASCO, JR., J.: 

In this Petition for Review[1] under Rule 45 of the Rules of Court, Anthony Orduña, Dennis Orduña and Antonita Orduñaassail and seek to set

aside the Decision[2] of the Court of Appeals (CA) dated December 4, 2006 in CA-G.R. CV No. 79680, as reiterated in its Resolution of March 6, 2007, which

affirmed the May 26, 2003 Decision[3] of the Regional Trial Court (RTC), Branch 3 in Baguio City, in Civil Case No. 4984-R, a suit for annulment of title and

reconveyance commenced by herein petitioners against herein respondents. 

Central to the case is a residential lot with an area of 74 square meters located at Fairview Subdivision, Baguio City, originally registered in the name of

Armando Gabriel, Sr. (Gabriel Sr.) under Transfer Certificate of Title (TCT) No. 67181 of the Registry of Deeds of Baguio City.[4] 

 As gathered from the petition, with its enclosures, and the comments thereon

of four of the five respondents,[5] the Court gathers the following relevant facts: 

 Sometime in 1996 or thereabouts, Gabriel Sr. sold the subject lot to petitioner Antonita Orduña (Antonita), but no formal deed was executed to

document the sale. The contract price was apparently payable in installments as Antonita remitted from time to time and Gabriel Sr. accepted partial payments.

One of the Orduñas would later testify that Gabriel Sr. agreed to execute a final deed of sale upon full payment of the purchase price.[6]

  As early as 1979, however, Antonita and her sons, Dennis and Anthony

Orduña, were already occupying the subject lot on the basis of some arrangement undisclosed in the records and even constructed their house thereon.  They also

paid real PROPERTY TAXES  for the house and declared it for tax purposes, as evidenced by Tax Declaration No. (TD) 96-04012-111087[7] in which they place

the assessed value of the structure at PhP 20,090. 

After the death of Gabriel Sr., his son and namesake, respondent Gabriel Jr., secured TCT No. T-71499[8] over the subject lot and continued accepting payments

from the petitioners.  On December 12, 1996, Gabriel Jr. wrote Antonita authorizing her to fence off the said lot and to construct a road in the adjacent lot.[9]  On December 13, 1996, Gabriel Jr. acknowledged receipt of a PhP 40,000 payment from petitioners.[10] Through a letter[11] dated May 1, 1997, Gabriel Jr.

acknowledged that petitioner had so far made an aggregate payment of PhP

65,000, leaving an outstanding balance of PhP 60,000. A receipt Gabriel Jr. issued dated November 24, 1997 reflected a PhP 10,000 payment.

 Despite all those payments made for the subject lot, Gabriel Jr. would later

sell it to Bernard Banta (Bernard) obviously without the knowledge of petitioners, as later developments would show.

 As narrated by the RTC, the lot conveyance from Gabriel Jr. to Bernard was

effected against the following backdrop: Badly in need of money, Gabriel Jr. borrowed from Bernard the amount of PhP 50,000, payable in two weeks at a fixed

interest rate, with the further condition that the subject lot would answer for the loan in case of default.  Gabriel Jr.  failed to pay the loan and this led to the

execution of a Deed of Sale[12] dated June 30, 1999 and the issuance later of TCT No. T-72782[13] for subject lot in the name of Bernard upon cancellation of TCT

No. 71499 in the name of Gabriel, Jr. As the RTC decision indicated, the reluctant Bernard agreed to acquire the lot, since he had by then ready buyers in respondents

Marcos Cid and Benjamin F. Cid (Marcos and Benjamin or the Cids). 

Subsequently, Bernard sold to the Cids the subject lot for PhP 80,000. Armed with a Deed of Absolute Sale of a Registered Land[14] dated January 19,

2000, the Cids were able to cancel TCT No. T-72782 and secure TCT No. 72783[15] covering the subject lot. Just like in the immediately preceding

transaction, the deed of sale between Bernard and the Cids had respondent Eduardo J. Fuentebella (Eduardo) as one of the instrumental witnesses.

 Marcos and Benjamin, in turn, ceded the subject lot to Eduardo through a

Deed of Absolute Sale[16] dated May 11, 2000. Thus, the consequent cancellation of

TCT No. T-72782 and issuance on May 16, 2000 of TCT No. T-3276[17] over subject lot in the name of Eduardo.

 As successive buyers of the subject lot, Bernard, then Marcos and Benjamin,

and finally Eduardo, checked, so each claimed, the title of their respective predecessors-in-interest with the Baguio Registry and discovered said title to be

free and unencumbered at the time each purchased the property. Furthermore, respondent Eduardo, before buying the property, was said to have inspected the

same and found it unoccupied by the Orduñas.[18]

 

Sometime in May 2000, or shortly after his purchase of the subject lot, Eduardo, through his lawyer, sent a letter addressed to the residence of Gabriel Jr.

demanding that all persons residing on or physically occupying the subject lot vacate the premises or face the prospect of being ejected.[19] 

 Learning of Eduardo’s threat, petitioners went to the residence of Gabriel Jr.

at No. 34 Dominican Hill, Baguio City.  There, they met Gabriel Jr.’s estranged wife, Teresita, who informed them about her having filed an affidavit-complaint

against her husband and the Cids for falsification of public documents on March 30, 2000. According to Teresita, her signature on the June 30, 1999 Gabriel Jr.–

Bernard deed of sale was a forgery. Teresita further informed the petitioners of her intent to honor the aforementioned 1996 verbal agreement between Gabriel Sr. and

Antonita and the partial payments they gave her father-in-law and her husband for the subject lot.

 On July 3, 2001, petitioners, joined by Teresita, filed a

Complaint[20] for Annulment of Title, Reconveyance with Damagesagainst the respondents before the RTC, docketed as Civil Case No. 4984-R, specifically

praying that TCT No. T-3276 dated May 16, 2000 in the name of Eduardo be annulled. Corollary to this prayer, petitioners pleaded that Gabriel Jr.’s title to the

lot be reinstated and that petitioners be declared as entitled to acquire ownership of the same upon payment of the remaining balance of the purchase price therefor

agreed upon by Gabriel Sr. and Antonita. 

While impleaded and served with summons, Gabriel Jr. opted not to submit an answer.

 Ruling of the RTC

 By Decision dated May 26, 2003, the RTC ruled for the respondents, as

defendants a quo, and against the petitioners, as plaintiffs therein,  the dispositive portion of which reads: 

           WHEREFORE, the instant complaint is hereby DISMISSED for lack of merit.  The four (4) plaintiffs are hereby ordered by this Court to pay each defendant (except Armando Gabriel, Jr., Benjamin F. Cid, and Eduardo J. Fuentebella who did not testify on these damages),  Moral Damages of Twenty Thousand (P20,000.00) Pesos, so that each defendant shall receive Moral Damages of Eighty Thousand (P80,000.00) Pesos each.  Plaintiffs shall also pay all defendants (except Armando Gabriel, Jr., Benjamin F. Cid, and Eduardo J. Fuentebella who did not testify on these damages), Exemplary Damages of Ten Thousand (P10,000.00) Pesos each so that each defendant shall receive Forty Thousand (P40,000.00) Pesos as Exemplary Damages.  Also, plaintiffs are ordered to pay each defendant (except Armando Gabriel, Jr., Benjamin F. Cid, and Eduardo J. Fuentebella who did not testify on these damages), Fifty Thousand (P50,000.00) Pesos as Attorney’s Fees, jointly and solidarily.

 

            Cost of suit against the plaintiffs.[21]

  

          On the main, the RTC predicated its dismissal action on the basis of the

following grounds and/or premises:

  

 1. Eduardo was a purchaser in good faith and, hence, may avail himself of the provision of Article 1544[22] of the Civil Code, which provides that in case of

double sale, the party in good faith who is able to register the property has better right over the property; 

 2. Under Arts. 1356[23] and 1358[24] of the Code, conveyance of real property

must be in the proper form, else it is unenforceable; 

3. The verbal sale had no adequate consideration; and   

4. Petitioners’ right of action to assail Eduardo’s title prescribes in one year from date of the issuance of such title and the one-year period has already lapsed.

 From the above decision, only petitioners appealed to the CA, their appeal

docketed as CA-G.R. CV No. 79680. 

The CA Ruling 

On December 4, 2006, the appellate court rendered the assailed Decision affirming the RTC decision.  The fallo reads:

WHEREFORE, premises considered, the instant appeal is hereby DISMISSED and the 26 May 2003 Decision of the Regional Trial Court, Branch 3 of Baguio City in Civil Case No. 4989-R is hereby AFFIRMED.

 SO ORDERED.[25]

  

          Hence, the instant petition on the submission that the appellate court committed reversible error of law: 

 1.      xxx WHEN IT HELD THAT THE SALE OF THE

SUBJECT LOT BY ARMANDO GABRIEL, SR. AND RESPONDENT ARMANDO GABRIEL, JR. TO THE PETITIONERS IS UNENFORCEABLE.

 2.      xxx  IN NOT FINDING THAT THE SALE OF THE

SUBJECT LOT BY RESPONDENT ARMANDO GABRIEL, JR. TO RESPONDENT BERNARD BANTA AND ITS SUBSEQUENT SALE BY THE LATTER TO HIS CO-RESPONDENTS ARE NULL AND VOID.

 3.      xxx IN NOT FINDING THAT THE RESPONDENTS ARE

BUYERS IN BAD FAITH 4.      xxx IN FINDING THAT THE SALE OF THE SUBJECT LOT

BETWEEN GABRIEL, SR. AND RESPONDENT GABRIEL, JR. AND THE PETITIONERS HAS NO ADEQUATE CONSIDERATION.

 5.      xxx IN RULING THAT THE INSTANT ACTION HAD

ALREADY PRESCRIBED. 6.      xxx  IN FINDING THAT THE PLAINTIFFS-APPELLANTS

ARE LIABLE FOR MORAL AND EXEMPLARY DAMAGES AND ATTORNEY’S FEES.[26]

  

The Court’s Ruling The core issues tendered in this appeal may be reduced to four and

formulated as follows, to wit:  first, whether or not the sale of the subject lot by Gabriel Sr. to Antonita is unenforceable under the Statute of Frauds; second,

whether or not such sale has adequate consideration; third, whether the instant action has already prescribed; and, fourth, whether or not respondents are

purchasers in good faith.The petition is meritorious.

 Statute of Frauds Inapplicableto Partially Executed Contracts

  

It is undisputed that Gabriel Sr., during his lifetime, sold the subject property to Antonita, the purchase price payable on installment basis.  Gabriel Sr. appeared

to have been a recipient of some partial payments. After his death, his son duly recognized the sale by accepting payments and issuing what may be considered as

receipts therefor. Gabriel Jr., in a gesture virtually acknowledging the petitioners’ dominion of the property, authorized them to construct a fence around it.  And no

less than his wife, Teresita, testified as to the fact of sale and of payments received. 

Pursuant to such sale, Antonita and her two sons established their residence on the lot, occupying the house they earlier constructed thereon.  They later

declared the property for tax purposes, as evidenced by the issuance of TD 96-04012-111087 in their or Antonita’s name, and paid the real estates due thereon,

obviously as sign that they are occupying  the lot in the concept of owners.  

Given the foregoing perspective, Eduardo’s assertion in his Answer  that “persons appeared in the property”[27]  only after “he initiated ejectment

proceedings”[28] is clearly baseless. If indeed petitioners entered and took possession of the property after he (Eduardo) instituted the ejectment suit, how

could they explain the fact that he sent a demand letter to vacate sometime in May 2000?

 With the foregoing factual antecedents, the question to be resolved is

whether or not the Statute of Frauds bars the enforcement of the verbal sale contract between Gabriel Sr. and Antonita. 

The CA, just as the RTC, ruled that the contract is unenforceable for non-compliance with the Statute of Frauds.

 

We disagree for several reasons. Foremost of these is that the Statute of Frauds expressed in Article 1403, par. (2),[29] of the Civil Code applies only to

executory contracts, i.e., those where no performance has yet been made. Stated a bit differently, the legal consequence of non-compliance with the Statute does not

come into play where the contract in question is  completed, executed, or partially consummated.[30]

 The Statute of Frauds, in context, provides that a contract for the sale of real

property or of an interest therein shall be unenforceable unless the sale or some note or memorandum thereof is in writing and subscribed by the party or his

agent.  However, where the verbal contract of sale has been partially executed through the partial payments made by one party duly received by the vendor, as

in the present case, the contract is taken out of the scope of the Statute. 

The purpose of the Statute is to prevent fraud and perjury in the enforcement of obligations depending for their evidence on the unassisted memory of witnesses,

by requiring certain enumerated contracts and transactions to be evidenced by a writing signed by the party to be charged.[31]  The Statute requires certain contracts

to be evidenced by some note or memorandum in order to be enforceable.  The term “Statute of Frauds” is descriptive of statutes that require certain classes of

contracts to be in writing.  The Statute does not deprive the parties of the right to contract with respect to the matters therein involved, but merely regulates the

formalities of the contract necessary to render it enforceable.[32]

 

Since contracts are generally obligatory in whatever form they may have been entered into, provided all the essential requisites for their validity are present,[33] the Statute simply provides the method by which the contracts enumerated in Art. 1403 (2) may be proved but does not declare them invalid because they are not

reduced to writing.  In fine, the form required under the Statute is for convenience or evidentiary purposes only. 

 There can be no serious argument about the partial execution of the sale in

question.  The records show that petitioners had, on separate occasions, given Gabriel Sr. and Gabriel Jr. sums of money as partial payments of the purchase

price. These payments were duly receipted by Gabriel Jr.  To recall, in his letter of May 1, 1997, Gabriel, Jr. acknowledged having received the aggregate payment of

PhP 65,000 from petitioners with the balance of PhP 60,000 still remaining unpaid. But on top of the partial payments thus made, possession of the subject of the sale

had been transferred to Antonita as buyer. Owing thus to its partial execution, the subject sale is no longer within the purview of the Statute of Frauds.

 Lest it be overlooked, a contract that infringes the Statute of Frauds is

ratified by the acceptance of benefits under the contract.[34] Evidently, Gabriel, Jr., as his father earlier, had benefited from the partial payments made by the

petitioners. Thus, neither Gabriel Jr. nor the other respondents—successive purchasers of subject lots—could plausibly set up the Statute of Frauds to thwart

petitioners’ efforts towards establishing their lawful right over the subject lot and removing any cloud in their title.  As it were, petitioners need only to pay the

outstanding balance of the purchase price and that would complete the execution of the oral sale.

 There was Adequate Consideration

 Without directly saying so, the trial court held that the petitioners cannot sue

upon the oral sale since in its own words: “x x x for more than a decade, [petitioners] have not paid in full Armando Gabriel, Sr. or his estate, so that the

sale transaction between Armando Gabriel Sr. and [petitioners] [has] no adequate consideration.”

 The trial court’s posture, with which the CA effectively concurred, is

patently flawed. For starters, they equated incomplete payment of the purchase price with inadequacy of price or what passes as lesion, when both are different

civil law concepts with differing legal consequences, the first being a ground to rescind an otherwise valid and enforceable contract. Perceived inadequacy of price,

on the other hand, is not a sufficient ground for setting aside a sale freely entered into, save perhaps when the inadequacy is shocking to the conscience.[35]

 The Court to be sure takes stock of the fact that the contracting parties to the

1995 or 1996 sale agreed to a purchase price of PhP 125,000 payable  on installments.  But the original lot owner, Gabriel Sr., died before full payment can

be effected. Nevertheless, petitioners continued remitting payments to Gabriel, Jr., who sold the subject lot to Bernard on June 30, 1999. Gabriel, Jr., as may be noted,

parted with the property only for PhP 50,000. On the other hand, Bernard sold it for PhP 80,000 to Marcos and Benjamin.   From the foregoing price figures, what

is abundantly clear is that what Antonita agreed to pay Gabriel, Sr., albeit in installment, was very much more than what his son, for the same lot, received from

his buyer and the latter’s buyer later. The Court, therefore, cannot see its way clear as to how the RTC arrived at its simplistic conclusion about the transaction

between Gabriel Sr. and Antonita being without “adequate consideration.” 

The Issues of Prescription and the Bona Fides of the Respondents as Purchasers

  

Considering the interrelation of these two issues, we will discuss them jointly.

  There can be no quibbling about the fraudulent nature of the conveyance of

the subject lot effected by Gabriel Jr. in favor of Bernard. It is understandable that after his father’s death, Gabriel Jr. inherited subject lot and for which he was

issued TCT No. No. T-71499.  Since the Gabriel Sr. – Antonita sales transaction called for payment of the contract price in installments, it is also understandable

why the title to the property remained with the Gabriels. And after the demise of his father, Gabriel Jr. received payments from the Orduñas and even authorized

them to enclose the subject lot with a fence. In sum, Gabriel Jr. knew fully well about the sale and is bound by the contract as predecessor-in-interest of Gabriel Sr.

over the property thus sold. 

Yet, the other respondents (purchasers of subject lot) still maintain that they are innocent purchasers for value whose rights are protected by law and besides

which prescription has set in against petitioners’ action for annulment of title and reconveyance.

 The RTC and necessarily the CA found the purchaser-respondents’ thesis on

prescription correct stating in this regard that Eduardo’s TCT No. T-3276 was issued on May 16, 2000 while petitioners filed their complaint for annulment only

on July 3, 2001. To the courts below, the one-year prescriptive period to assail the issuance of a certificate of title had already elapsed.

 We are not persuaded. 

 

The basic complaint, as couched, ultimately seeks the reconveyance of a fraudulently registered piece of residential land. Having possession of the subject

lot, petitioners’ right to the reconveyance thereof, and the annulment of the covering title, has not prescribed or is not time-barred.  This is so for an action for

annulment of title or reconveyance based on fraud is imprescriptible where the suitor is in possession of the property subject of the acts, [36] the action partaking as

it does of a suit for quieting of title which is imprescriptible. [37]  Such is the case in this instance. Petitioners have possession of subject lots as owners having

purchased the same from Gabriel, Sr. subject only to the full payment of the agreed price. 

 The prescriptive period for the reconveyance of fraudulently registered real

property is 10 years, reckoned from the date of the issuance of the certificate of title, if the plaintiff is not in possession, but imprescriptible if he is in possession of

the property.[38]  Thus, one who is in actual possession of a piece of land claiming to be the owner thereof may wait until his possession is disturbed or his title is

attacked before taking steps to vindicate his right.[39]  As it is, petitioners’ action for reconveyance is imprescriptible.

  

 This brings us to the question of whether or not the respondent-

purchasers, i.e., Bernard, Marcos and Benjamin, and Eduardo, have the status of innocent purchasers for value, as was the thrust of the trial court’s disquisition and

disposition. 

We are unable to agree with the RTC. 

It is the common defense of the respondent-purchasers that they each checked the title of the subject lot when it was his turn to acquire the same and

found it clean, meaning without annotation of any encumbrance or adverse third party interest. And it is upon this postulate that each claims to be an innocent

purchaser for value, or one who buys the property of another without notice that some other person has a right to or interest in it, and who pays therefor a full and

fair price at the time of the purchase or before receiving such notice.[40]

 

The general rule is that one dealing with a parcel of land registered under the Torrens System may safely rely on the correctness of the certificate of title issued

therefor and is not obliged to go beyond the certificate.[41]  Where, in other words, the certificate of title is in the name of the seller, the innocent purchaser for value

has the right to rely on what appears on the certificate, as he is charged with notice only of burdens or claims on the res as noted in the certificate. Another

formulation of the rule is that (a) in the absence of anything to arouse suspicion or (b) except where the party has actual knowledge of facts and circumstances that

would impel a reasonably cautious man to make such inquiry or (c) when the purchaser has knowledge of a defect of title in his vendor or of sufficient facts to

induce a reasonably prudent man to inquire into the status of the title of the property,[42] said purchaser is without obligation to look beyond the certificate and

investigate the title of the seller.Eduardo and, for that matter, Bernard and Marcos and Benjamin, can hardly

claim to be innocent purchasers for value or purchasers in good faith. For each knew or was at least expected to know that somebody else other than Gabriel, Jr.

has a right or interest over the lot.  This is borne by the fact that the initial seller, Gabriel Jr., was not in possession of subject property. With respect to Marcos and

Benjamin, they knew as buyers that Bernard, the seller, was not also in possession

of the same property. The same goes with Eduardo, as buyer, with respect to Marcos and Benjamin.  

 Basic is the rule that a buyer of a piece of land which is in the actual

possession of persons other than the seller must be wary and should investigate the rights of those in possession.  Otherwise, without such inquiry, the buyer can

hardly be regarded as a buyer in good faith. When a man proposes to buy or deal with realty, his duty is to read the public manuscript, i.e., to look and see who is

there upon it and what his rights are.  A want of caution and diligence which an honest man of ordinary prudence is accustomed to exercise in making purchases is,

in contemplation of law, a want of good faith. The buyer who has failed to know or discover that the land sold to him is in adverse possession of another is a buyer in

bad faith.[43]

 

Where the land sold is in the possession of a person other than the vendor, the purchaser must go beyond the certificates of title and make inquiries

concerning the rights of the actual possessor.[44]  And where, as in the instant case, Gabriel Jr. and the subsequent vendors were not in possession of the property, the

prospective vendees are obliged to investigate the rights of the one in possession.  Evidently, Bernard, Marcos and Benjamin, and Eduardo did not

investigate the rights over the subject lot of the petitioners who, during the period material to this case, were in actual possession thereof.   Bernard, et al. are, thus,

not purchasers in good faith and, as such, cannot be accorded the protection extended by the law to such purchasers.[45]  Moreover, not being purchasers in good

faith, their having registered the sale, will not, as against the petitioners, carry the day for any of them under Art. 1544 of the Civil Code prescribing rules on

preference in case of double sales of immovable property. Occeña v. Esponilla[46] laid down the following rules in the application of

Art. 1544: (1) knowledge by the first buyer of the second sale cannot defeat the first buyer’s rights except when the second buyer first register in good faith the

second sale; and (2) knowledge gained by the second buyer of the first sale defeats his rights even if he is first to register, since such knowledge taints his registration

with bad faith. 

Upon the facts obtaining in this case, the act of registration by any of the three respondent-purchasers was not coupled with good faith. At the minimum,

each was aware or is at least presumed to be aware of facts which should put him upon such inquiry and investigation as might be necessary to acquaint him with the

defects in the title of his vendor. 

The award by the lower courts of damages and attorney’s fees to some of the herein respondents was predicated on the filing by the original plaintiffs of what

the RTC characterized as an unwarranted suit. The basis of the award, needless to stress, no longer obtains and, hence, the same is set aside.         

 WHEREFORE, the petition is hereby GRANTED. The appealed

December 4, 2006 Decision and the March 6, 2007 Resolution of the Court of Appeals in CA-G.R. CV No. 79680 affirming the May 26, 2003 Decision of the

Regional Trial Court, Branch 3 in Baguio City are hereby REVERSED and SET ASIDE.  Accordingly, petitioner Antonita Orduña is hereby recognized to have the

right of ownership over subject lot covered by TCT No. T-3276 of the Baguio Registry registered in the name of Eduardo J. Fuentebella.  The Register of Deeds

of Baguio City is hereby ORDERED to cancel said TCT No. T-3276 and to issue a new one in the name of Armando Gabriel, Jr. with the proper annotation of the

conditional sale of the lot covered by said title in favor of Antonita Orduña subject to the payment of the PhP 50,000 outstanding balance. Upon full payment of the

purchase price by Antonita Orduña, Armando Gabriel, Jr. is ORDERED to execute a Deed of Absolute Sale for the transfer of title of subject lot to the name

of Antonita Orduña, within three (3) days from receipt of said payment. 

No pronouncement as to costs. 

SO ORDERED.  

 

Republic of the Philippines

Supreme Court

Manila

 SECOND DIVISION

 

 INSURANCE OF THE PHILIPPINE ISLANDS CORPORATION,

Petitioner,

 

 

 

- versus -

 

 

 

SPOUSES VIDAL S. GREGORIO and JULITA GREGORIO,

Respondents.

G.R. No. 174104 

Present: 

CARPIO, J., Chairperson,NACHURA,PERALTA,ABAD, andMENDOZA, JJ. 

Promulgated: 

February 14, 2011

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - xDECISION

 

 

PERALTA, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the Rules of

Court seeking the reversal and nullification of the Decision1 of the Court of Appeals

(CA), dated June 14, 2006 and its Resolution2 dated August 10, 2006 in CA-G.R. CV

No. 82303. The assailed CA Decision reversed the Decision3 of the Regional Trial

Court (RTC) of Morong, Rizal, Branch 79, in Civil Case No. 748-M in favor of herein

petitioner, while the questioned CA Resolution denied petitioner's motion for

reconsideration.

 

The pertinent antecedent facts of the case, as summarized by the CA, are as follows: On January 10, 1968, the spouses Vidal Gregorio and Julita Gregorio [herein respondents] obtained a loan from the Insurance of the Philippine Islands Corporation [herein petitioner] (formerly known as Pyramid Insurance Co., Inc.) in the sum of P2,200.00, payable on or before January 10, 1969, with interest thereon at the rate of 12% per annum. By way of security for the said loan, [respondents] executed a Real Estate Mortgage in favor of [petitioner] over a parcel of land known as Lot 6186 of the Morong Cadastre, then covered by Tax Declaration No. 7899 issued by the Municipal Assessor's Office of Morong, Rizal. On February 14, 1968, [respondents] again obtained another loan from [petitioner] in the sum of P2,000.00, payable on or before February 14, 1969, with 12% interest per annum. Another Real Estate Mortgage, covering a parcel of land known as Lot No. 6190 of the MorongCadastre under Tax Declaration No. 10518, was executed by [respondents] in favor of [petitioner]. On April 10, 1968, [respondents] obtained, for the third time, another loan from [petitioner] in the amount of P4,500.00 payable on or before

April 10, 1969 with 12% interest per annum. As a security for the loan, [respondents] again executed a Real Estate Mortgage, this time covering two parcels of land: Lot 3499 under Tax Declaration No. 10631-Rizal and a lot situated in Brgy. Kay Kuliat under Tax Declaration No. 3918. [Respondents] failed to pay their loans, as a result of which the [mortgaged] properties were extrajudicially foreclosed. The extrajudicial foreclosure sale was conducted on December 11, 1969 where [petitioner] was the highest bidder. Since [respondents] failed to redeem the property, [petitioner] consolidated its ownership over the properties. The corresponding Tax Declarations were thereafter issued in the name of [petitioner].4

 

 

On February 20, 1996, petitioner filed a Complaint5 for damages against respondents

alleging that in 1995, when it was in the process of gathering documents for the

purpose of filing an application for the registration and confirmation of its title over

the foreclosed properties, it discovered that the said lots were already registered in the

names of third persons and transfer certificates of title (TCT) were issued to them.

 

Claiming that respondents acted in a fraudulent and malevolent manner in

enticing it to grant their loan applications by misrepresenting ownership of the subject

properties, petitioner prayed for the grant of actual and exemplary damages as well as

attorney's fees and litigation expenses.

 

In their Amended Answer,6 respondents contended that their obligations in favor of

petitioner were all settled by the foreclosure of the properties given as

security therefor. In the alternative, respondents argue that petitioner's cause of action

and right of action are already barred by prescription and laches.

 

In its Decision dated February 23, 2004, the RTC of Morong, Rizal, ruled in favor of

petitioner, the dispositive portion of which reads:

 WHEREFORE, premises considered, judgment is hereby rendered

in favor of the plaintiff and as against the defendants, directing the latter to pay the plaintiff, jointly and severally, as follows: 

a. Actual damages in the amount of P1,000,000.00, representing the fair market value of the real properties subject matter of this suit; b. For defendants' deceit and bad faith, exemplary damage in the sum of P300,000.00; c. Attorney's fees and litigation expenses in the amount of P200,000.00; and d. Costs of suit.

 SO ORDERED.7

 

Aggrieved, respondents appealed the judgment of the trial court to the CA.

 

On June 14, 2006, the CA rendered a Decision reversing and setting aside the

decision of the RTC and dismissing the complaint of petitioner. It ruled that

petitioner's action for damages is barred by prescription and laches.

 

Petitioner filed a Motion for Reconsideration but the CA denied it in its Resolution of

August 10, 2006.

 

Hence, the instant petition.

 

Petitioner's main contention is that the CA erred in ruling that petitioner's right to any

relief under the law has already prescribed or is barred by laches. Petitioner argues

that the prescriptive period of its action for damages should be counted from 1995,

which it alleges to be the time that it discovered the fraud committed by respondents

against it.

 

On the other hand, the CA ruled that petitioner's right of action prescribed four years

after the subject properties were registered with the Register of Deeds of Morong,

Rizal and TCTs were subsequently issued in the names of third persons in the years

1970, 1973 and 1989.

 

The Court finds the petition meritorious.

 

Petitioner filed an action for damages on the ground of fraud committed against it by

respondents. Under the provisions of Article 1146 of the Civil Code, actions upon an

injury to the rights of the plaintiff or upon a quasi-delict must be instituted within four

years from the time the cause of action accrued.8

 

The Court finds no error in the ruling of the CA that petitioner's cause of action

accrued at the time it discovered the alleged fraud committed by respondents. It is at

this point that the four-year prescriptive period should be counted. However, the Court

does not agree with the CA in its ruling that the discovery of the fraud should be

reckoned from the time of registration of the titles covering the subject properties.

 

The Court notes that what has been given by respondents to petitioner as evidence of

their ownership of the subject properties at the time that they mortgaged the same are

not certificates of title but tax declarations, in the guise that the said properties are

unregistered. On the basis of the tax declarations alone and by reason of respondent's

misrepresentations, petitioner could not have been reasonably expected to acquire

knowledge of the fact that the said properties were already titled. As a consequence,

petitioner may not be charged with any knowledge of any subsequent entry of an

encumbrance which may have been annotated on the said titles, much less any change

of ownership of the properties covered thereby. As such, the Court agrees with

petitioner that the reckoning period for prescription of petitioner's action should be

from the time of actual discovery of the fraud in 1995. Hence, petitioner's suit for

damages, filed on February 20, 1996, is well within the four-year prescriptive period.

 

Neither may the principle of laches apply in the present case.

 

The essence of laches or “stale demands” is the failure or neglect for an unreasonable

and unexplained length of time to do that which, by exercising due diligence, could or

should have been done earlier, thus, giving rise to a presumption that the party entitled

to assert it either has abandoned or declined to assert it. 9 It is not concerned with mere

lapse of time; the fact of delay, standing alone, being insufficient to constitute laches. 10

 

In addition, it is a rule of equity and applied not to penalize neglect or sleeping on

one's rights, but rather to avoid recognizing a right when to do so would result in a

clearly unfair situation.11 There is no absolute rule as to what constitutes laches or

staleness of demand; each case is to be determined according to its particular

circumstances.12 Ultimately, the question of laches is addressed to the sound discretion

of the court and, being an equitable doctrine, its application is controlled by equitable

considerations.13 It cannot be used to defeat justice or perpetrate fraud and injustice. 14 It

is the better rule that courts, under the principle of equity, will not be guided or bound

strictly by the statute of limitations or the doctrine of laches when to be so, a manifest

wrong or injustice would result.15

 

It is significant to point out at this juncture that the overriding consideration in the

instant case is that petitioner was deprived of the subject properties which it should

have rightly owned were it not for the fraud committed by respondents. Hence, it

would be the height of injustice if respondents would be allowed to go scot-free

simply because petitioner relied in good faith on the former's false representations.

Besides, as earlier discussed, even in the exercise of due diligence, petitioner could

not have been expected to immediately discover respondents' fraudulent scheme.

 

WHEREFORE, the instant petition is GRANTED. The Decision and Resolution,

dated June 14, 2006 and August 10, 2006, respectively, of the Court of Appeals in

CA-G.R. CV No. 82303, are REVERSED and SET ASIDE. The Decision of the

Regional Trial Court ofMorong, Rizal, Branch 79, dated February 23, 2004 in Civil

Case No. 748-M, is REINSTATED.

 

SO ORDERED.

 

 

  

Republic of the PhilippinesSupreme Court

Manila   

SECOND DIVISION

JESSE YAP,

Petitioner,

- versus -

COURT OF APPEALS (SPECIAL

ELEVENTH [11TH] DIVISION),

and ELIZA CHUA and EVELYN TE,

Respondents.

G.R. No. 186730

Present:

CARPIO, J.,

Chairperson,

BRION,

PEREZ,

SERENO, and

REYES, JJ.

Promulgated:

June 13, 2012

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

R E S O L U T I O N

REYES, J.:

This is a petition for review on certiorari of the Decision[1] dated December

10, 2008 and Resolution[2] dated February 19, 2009 of the Court of Appeals (CA) in

CA-G.R. SP No. 93974. The dispositive portion of the CA’s assailed Decision states:

WHEREFORE, in view of the foregoing premises, judgment is hereby rendered by us GRANTING the petition filed in this case and the Orders issued by the public respondent Judge Rommel O. Baybay dated October 21, 2005 and January 18, 2006 are hereby SET ASIDE. Consequently, Civil Case No. 04-030 is hereby ordered as DISMISSED on account of litis pendentia and violation of the rule against forum-shopping.

SO ORDERED.[3]

On January 9, 2004, petitioner Jesse Yap (Yap) filed a complaint against

respondents Eliza Chua (Chua) and Evelyn Te (Te) with the Regional Trial Court

(RTC) of Makati City principally praying for the cancellation or discharge of several

checks that he drew against his account with the Bank of the Philippine Islands

(BPI). Yap’s complaint was docketed as Civil Case No. 04-030 and raffled to

Branch 66.

Yap alleged that he purchased several real properties through Te, a real

estate broker, and as payment, delivered to her a number of checks either

payable to her, the property owners or to the various individuals who agreed to

finance his acquisitions. He agreed to effect payment in such manner on Te’s

claim that this will expedite the transfer of the titles in his favor.

Chua, one of those who funded his purchases, asked him to issue checks

with her as payee to replace the checks he delivered to Te. Obliging, he drew six

(6) checks payable to her against his account with BPI, which were uniformly

postdated July 30, 1997. Particularly:

Check No. Amount

659599 P3,000,000.00

708158 P2,500,000.00

708160 P2,756,666.00

712418 P10,900,000.00

712417 P10,900,000.00

727214 P960,000.00

He stopped payment on the above checks and closed his account when Te

failed to deliver the titles on the properties. He also did the same on the

following checks that Te endorsed to Chua for rediscounting without his consent:

Check No. Date Amount

0727205 September 15, 1997 P770,833.33

0727206 September 30, 1997 P770,833.33

He delivered to Te these checks, which were payable to a certain Badoria

Bagatao (Bagatao), for the purchase of a parcel of land that, as Te represented,

Bagatao supposedly owns. He, however, was later informed of the contrary

leading to the conclusion that as no consideration attended the contract with

Bagatao and all the other contracts of sale that he entered into through Te, it was

just proper that the checks he issued as payment be cancelled or annulled.

Chua presented an altogether different version of the facts. According to

Chua, she released P9,415,000.00 to Yap through a certain Jovita Dimalanta

(Dimalanta) sometime in January 1997 in exchange for two (2) postdated checks

payable to her with a face value of P5,000,000.00 each. A similar transaction took

place in February 1997, where she delivered to Dimalanta P9,415,000.00 upon

request of Yap, with the latter issuing in her favor two (2) postdated checks

payable to her in the total amount ofP10,000,000.00. Yap twice requested for an

extension and for Chua not to encash the four (4) checks. In return, he issued two

(2) checks payable to Chua with a face value of P1,400,000.00 and P1,206,066.66

to cover the interest due.

Yap later replaced the four (4) checks with a face value of P5,000,000.00

each with a check payable to Chua forP20,000,000.00 and postdated April 22,

1997. When this check became due, Yap once again requested Chua for an

extension and replaced it with BPI Check Nos. 712418 and 712417 to include the

interest that would accrue until June 15, 1997. Thereafter, Yap, who asked for

another extension, issued to Chua BPI Check No. 727214 to include payment of

the interest that would accrue until July 30, 1997 on the P20,000,000.00 covered

by BPI Check Nos. 712418 and 712417.

Apparently, Yap also delivered to Chua BPI Check Nos. 659599 and 708158

to replace the checks drawn against his account, which a certain Jesus Dy

endorsed to her. Yap likewise delivered a check payable to Canda Medical Clinic

and Hospital to Te, who in turn, endorsed it to Chua for rediscounting. Sometime

in June 1997, Yap replaced this check with BPI Check No. 708160 to cover the

interest from March to May 1997. Yap also gave Te two (2) checks payable to

Bagatao, BPI Check Nos. 0727205 and 0727206, which were subsequently

endorsed to Chua for rediscounting.

BPI Check Nos. 659599, 708158, 708160, 712418, 712417 and 727214 were

dishonored for the reason “account closed”. On the other hand, Yap stopped

payment on BPI Check Nos. 727205 and 727206.[4]

Verbal demands for Yap to make good the checks he issued proved to be

futile. Thus, Chua filed with the RTC of General Santos City a complaint [5] for sum

of money against Yap and his wife, Bessie. Chua’s complaint was docketed as Civil

Case No. 6236 and raffled to Branch 23.

On June 8, 2001, the RTC of General Santos City issued a Decision,[6] the

dispositive portion of which states:

WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendants, ordering the latter to pay the former the following:

1. P32,558,332.00 as principal with interest at 6% per annum from the date of the filing of the case until the whole amount is fully paid;

2. P150,000.00 as moral damages;

3. P50,000,00 as exemplary damages;

4. P1,000,000.00 in concept of attorney’s fees; and

5. The cost of suit.

The third-party complaint is DISMISSED.[7]

Armed with the foregoing narration, Chua moved for the dismissal of Civil

Case No. 04-030 on the twin grounds of litis pendentia and forum shopping. Chua

averred that Yap violated the rule against forum shopping when he failed to

inform the RTC of Makati City of Civil Case No. 6236 and the pendency of his

appeal of the decision rendered therein. The elements of litis pendentia exist,

and forum shopping as the logical consequence thereof, considering that the two

(2) cases arose from the same set of facts and involve the same parties.

In an Order[8] dated October 21, 2005, the RTC of Makati City refused to

dismiss the case, ratiocinating as follows:

On litis pendentia as a ground for dismissal, the Court is not convinced. As correctly stated by the plaintiff, the reliefs prayed for in the two cases are different from each other considering that the collection case before the RTC of General Santos City is different from the instant case praying for the discharge/annulment of issued checks. As such the fundamental requisites of [litis pendentia] have not been met.

Anent dismissal on ground of forum shopping, the same is likewise denied for lack of merit. It is well-settled that it is the duty of the plaintiff, not the defendant, to declare pending suits it initiated between and among parties in its verification and certificate of non-forum shopping and not the other way around. A plaintiff in a civil case therefore, is not mandated under the Rules to declare that said plaintiff was a defendant in a prior suit instituted against him and other defendants by the defendant in a subsequent case of different nature.[9]

In an Order[10] dated January 18, 2006, the RTC of Makati City denied Chua’s

motion for reconsideration.

Chua filed a petition for certiorari with the CA, alleging that grave abuse of

discretion attended the Orders of the RTC of Makati City dated October 21, 2005

and January 18, 2006. By virtue of the assailed decision, this was given due

course and the CA ordered the dismissal of Civil Case No. 04-030.

After a careful and judicious scrutiny of the whole matter, together with the applicable laws and jurisprudence on the premises, we have come up with a finding that the respondent judge committed grave abuse of discretion in issuing the assailed orders.

The requisites of [litis pendentia] are: (a) the identity of parties or at least such as representing the same interests in both actions; (b) the identity of rights asserted and the relief prayed for, the relief being founded on the same facts; and (c) the identity of the two cases such that judgment in one, regardless of which party is successful, would amount to res judicata in the other.

The relief sought in Chua in Civil Case No. 6236 was for Yap to pay the amount that he owed to Chua based on BPI Checks (sic) Nos. 0727205, 0727206, 659599, 708158, 708160, 712418, 712417 and 727214 that he issued. On the other hand, the relief prayed for byYap in Civil Case No. 04-030 was for BPI Checks (sic) Nos. 0727205, 0727206, 659599, 708158, 708160, 712418, 712417 and 727214 that he issued to Chua purportedly without any valid consideration to be declared as null and void.

The cause of action of Yap in Civil Case No. 04-030 was also his defense in Civil Case No. 6236. Necessarily, in determining the liability of Yap in Civil Case No. 6236, the lower court addressed the issue of the validity of the subject checks. Branch 23 of the RTC inGeneral Santos City ruled that the checks were validly issued and declared Chua as a holder in due course thereof. Moreover, the lack of consideration was raised as an affirmative defense and as the basis for his counterclaim and third-party complaint by Yap in Civil Case No. 6236. Therefore, Branch 66 of the RTC in Makati City committed grave abuse of discretion amounting to lack of jurisdiction when it took cognizance of Civil Case No. 04-030 and denied Chua’s motion to dismiss it on account of the pendency of another action in another court between them for the same case.

Yap, in filing Civil Case No. 04-030, also violated the rule against forum shopping. In the test to determine whether a party violated the rule against forum shopping, the most important factor to ask is whether the elements of litis pendencia (sic) are present, or whether a final judgment in one case will amount to res judicata in another, i.e., whether in the two or more cases pending, there is identity of parties, rights or causes of action, and the reliefs sought.

A Motion to Dismiss was timely filed by Chua invoking litis pendencia (sic) and violation of the rule against forum shopping. After having been appraised of the pending appeal before the Supreme Court of a case involving the same parties based on the same rights and reliefs sought, the respondent judge should have granted the said motion of Chua and dismissed Civil Case No. 04-030.[11] (Citations omitted)

Yap urges this Court to reverse and set aside the CA’s dismissal of his

complaint against Chua and Te, claiming that he is not guilty of forum shopping as

the alleged existence of litis pendentia is belied by the incomparable causes of

action he and Chua advanced in the separate complaints they initiated against

each other. Yap claimed that his prayer for the cancellation or discharge of the

subject checks entails a determination of their validity and on whether a valid

consideration exists for their issuance, which is immaterial or irrelevant in

determining whether he should be liable for the amounts that Chua released to

Te and Dimalanta.

Forum shopping is the institution of two or more actions or proceedings

involving the same parties for the same cause of action, either simultaneously or

successively, on the supposition that one or the other court would make a

favorable disposition. Forum shopping may be resorted to by any party against

whom an adverse judgment or order has been issued in one forum, in an attempt

to seek a favorable opinion in another, other than by appeal or a special civil

action for certiorari. Forum shopping trifles with the courts, abuses their

processes, degrades the administration of justice and congest court dockets.[12] What is critical is the vexation brought upon the courts and the litigants by a

party who asks different courts to rule on the same or related causes and grant

the same or substantially the same reliefs and in the process creates the

possibility of conflicting decisions being rendered by the different fora upon the

same issues.[13] Willful and deliberate violation of the rule against forum shopping

is a ground for summary dismissal of the case; it may also constitute direct

contempt.[14]

To determine whether a party violated the rule against forum shopping, the

most important factor to ask is whether the elements of litis pendentia are

present, or whether a final judgment in one case will amount to res judicata in

another; otherwise stated, the test for determining forum shopping is whether in

the two (or more) cases pending, there is identity of parties, rights or causes of

action, and reliefs sought.[15]

Litis pendentia as a ground for the dismissal of a civil action refers to that

situation wherein another action is pending between the same parties for the

same cause of action, such that the second action becomes unnecessary and

vexatious. The underlying principle of litis pendentia is the theory that a party is

not allowed to vex another more than once regarding the same subject matter

and for the same cause of action. This theory is founded on the public policy that

the same subject matter should not be the subject of controversy in courts more

than once, in order that possible conflicting judgments may be avoided for the

sake of the stability of the rights and status of persons.

The requisites of litis pendentia are: (a) the identity of parties, or at least

such as representing the same interests in both actions; (b) the identity of rights

asserted and relief prayed for, the relief being founded on the same facts; and (c)

the identity of the two cases such that judgment in one,

regardless of which party is successful, would amount to res judicata in the other.[16]

The foregoing guided this Court in determining whether Yap is liable for

forum shopping for filing a complaint for annulment or discharge of checks

following Chua’s filing of a complaint for a sum of money with the two cases

allegedly involving the same factual antecedents, issues and arguments. In so

doing, this Court agrees with the CA that all the elements of litis pendentia exist

and that Yap had indulged in the detestable act of forum shopping, warranting

the outright and summary dismissal of Civil Case No. 04-030.

The first requisite of litis pendentia is present as there is identity of

parties. The second and third requisites are likewise present. Apart from the fact

that the same factual antecedents prompted the filing of the two cases, that Yap’s

defense in Civil Case No. 6236 constitutes his cause of action in Civil Case No. 04-

030 necessarily implies reliance on the same evidence for the resolution of both

cases.

Hornbook is the rule that identity of causes of action does not mean

absolute identity; otherwise, a party could easily escape the operation of res

judicata by changing the form of the action or the relief sought. The test to

determine whether the causes of action are identical is to ascertain whether the

same evidence will sustain both actions, or whether there is an identity in the

facts essential to the maintenance of the two actions. If the same facts or

evidence would sustain both, the two actions are considered the same, and a

judgment in the first case is a bar to the subsequent action. Hence, a party

cannot, by varying the form of action or adopting a different method of

presenting his case, escape the operation of the principle that one and the same

cause of action shall not be twice litigated between the same parties or their

privies. Among the several tests resorted to in ascertaining whether two suits

relate to a single or common cause of action are: (1) whether the same evidence

would support and sustain both the first and second causes of action; and (2)

whether the defenses in one case may be used to substantiate the complaint in

the other.[17] Also fundamental is the test of determining whether the cause of

action in the second case existed at the time of the filing of the first complaint.[18]

This Court takes note of the fact that Yap filed his complaint for the

annulment of the checks he issued to Chua after he was adjudged by the RTC of

General Santos City liable. This strikes the Court as indicative of his deliberate

and willful attempt to render nugatory and defeat the adverse decision of the RTC

of General Santos City and relieve himself of his obligation to pay by having the

checks he issued annulled, albeit the remedy of appeal was available and which

he, in fact, resorted to. Chua’s complaint is anchored on the amounts Yap

received from her and the RTC of General Santos City decided in her favor on the

strength of the checks that Yap issued and endorsed to her. By seeking to cancel

or discharge such checks, Yap attempted to use the RTC of Makati City to destroy

the evidentiary foundation of the decision of the RTC of General Santos City. In

doing so, Yap trifled with court processes and exposed the courts to the

possibility of rendering conflicting decisions. Worse, Yap sought to accomplish

the prohibited - a court reversing a decision rendered by a court of co-equal

rank. Thus, it matters not that the factual findings and conclusions of law of the

RTC of General Santos City, the RTC of Makati City, the CA and even of this Court

may concur. It is the fact that our judicial system is rendered vulnerable to such

uncertainties and vexations that any and all efforts to forum shop should be

treated with aversion.

As this Court held in Madara v. Perello:[19]

Other permutations depending on the rulings of the two courts and the timing of these rulings are possible. In every case, our justice system suffers as this kind of sharp practice opens the system to the possibility of manipulation; to uncertainties when conflict of rulings arise; and at least to vexation for complications other than conflict of rulings. Thus, it matters not that ultimately the Court of Appeals may completely agree with the RTC; what the rule on forum shopping addresses are the possibility and the actuality of its harmful effects on our judicial system. [20]

WHEREFORE, premises considered, the petition is DENIED. The Decision

dated December 10, 2008 and Resolution dated February 19, 2009 of the Court of

Appeals in CA-G.R. SP No. 93974 are AFFIRMED. Costs against the petitioner.

SO ORDERED.