Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-6220 May 7, 1954
MARTINA QUIZANA, plaintiff-appellee,
vs.
GAUDENCIO REDUGERIO and JOSEFA POSTRADO, defendants-appellants.
Samson and Amante for appellants.
Sabino Palomares for appellee.
LABRADOR, J.:
This is an appeal to this Court from a decision rendered by the Court of First Instance of Marinduque, wherein the
defendants-appellants are ordered to pay the plaintiff-appellee the sum of P550, with interest from the time of the
filing of the complaint, and from an order of the same court denying a motion of the defendants-appellants for the
reconsideration of the judgment on the ground that they were deprived of their day in court.
The action was originally instituted in the justice of the peace court of Sta. Cruz, Marinduque, and the same is based
on an actionable document attached to the complaint, signed by the defendants-appellants on October 4, 1948, and
containing the following pertinent provisions:
Na alang-alang sa aming mahigpit na pangangailangan ay kaming magasawa ay lumapit kay Ginang
Martina Quizana, balo, at naninirahan sa Hupi, Sta. Cruz, Marinduque, at kami ay umutang sa kanya ng
halagang Limang Daan at Limang Pung Piso (P550.00), Salaping umiiral dito sa Filipinas na aming
tinanggap na husto at walang kulang sa kanya sa condicion na ang halagang aming inutang ay ibabalik o
babayaran namin sa kanya sa katapusan ng buwan ng Enero, taong 1949.
Pinagkasunduan din naming magasawa sa sakaling hindi kami makabayad sa taning na panahon ay aming
ipifrenda o isasangla sa kanya ang isa naming palagay na niogan sa lugar nang Cororocho, barrio ng
Balogo, municipio ng Santa Cruz, lalawigang Marinduque, Kapuluang Filipinas at ito ay nalilibot ng mga
kahanganang sumusunod:
Sa Norte, Dalmacio Constantino; sa este, Catalina Reforma; sa sur, Dionisio Ariola; at sa Oeste, Reodoro
Ricamora, no natatala sa gobierno sa ilalim ng Declaracion No. ______ na nasa pangalan ko, Josefa
Postrado.
The defendants-appellants admit the execution of the document, but claim, as special defense, that since the 31st
of January, 1949, they offered to pledge the land specified in the agreement and transfer possession thereof to the
plaintiff-appellee, but that the latter refused said offer. Judgement having been rendered by the justice of the peace
court of Sta. Cruz, the defendants-appellants appealed to the Court of First Instance. In that court they reiterated the
defenses that they presented in the justice of the peace court. The case was set for hearing in the Court of First
Instance on August 16, 1951. As early as July 30 counsel for the defendants-appellants presented an "Urgent
Motion for Continuance," alleging that on the day set for the hearing (August 16, 1951), they would appear in the
hearing of two criminal cases previously set for trial before they received notice of the hearing on the aforesaid date.
The motion was submitted on August 2, and was set for hearing on August 4.
This motion was not acted upon until the day of the trial. On the date of the trial the court denied the defendants-
appellants' motion for continuance, and after hearing the evidence for the plaintiff, in the absence of the defendants-
appellants and their counsel, rendered the decision appealed from. Defendants-appellants upon receiving copy of
the decision, filed a motion for reconsideration, praying that the decision be set aside on the ground that sufficient
time in advance was given to the court to pass upon their motion for continuance, but that the same was not passed
upon. This motion for reconsideration was denied.
The main question raised in this appeal is the nature and effect of the actionable document mentioned above. The
trial court evidently ignored the second part of defendants-appellants' written obligation, and enforced its last first
part, which fixed payment on January 31, 1949.
The plaintiff-appellee, for his part, claims that this part of the written obligation is not binding upon him for the reason
that he did not sign the agreement, and that even if it were so, the defendants-appellants did not execute the
document as agreed upon, but, according to their answer, demanded the plaintiff-appellee to do so. This last
contention of the plaintiff-appellee is due to a loose language in the answer filed with the Court of First Instance. But
upon careful scrutiny, it will be seen that what the defendants-appellants wanted to allege is that they themselves
had offered to execute the document of mortgage and deliver the same to the plaintiff-appellee, but that the latter
refused to have it executed unless, an additional security was furnished. Thus the answer reads:
5. That immediately after the due date of the loan Annex "A" of the complaint, the defendants made efforts
to execute the necessary documents of mortgage and to deliver the same to the plaintiff, in compliance with
the terms and conditions thereof, but the plaintiff refused to execute the proper documents and insisted on
another portion of defendants' as additional security for the said loan; (emphasis ours.)
In our opinion it is not true that defendants-appellants had not offered to execute the deed of mortgage.
The other reasons adduced by the plaintiff-appellee for claiming that the agreement was not binding upon him also
deserves scant consideration. When plaintiff-appellee received the document, without any objection on his part to
the paragraph thereof in which the obligors offered to deliver a mortgage on a property of theirs in case they failed
to pay the debt on the day stipulated, he thereby accepted the said condition of the agreement. The acceptance by
him of the written obligation without objection and protest, and the fact that he kept it and based his action thereon,
are concrete and positive proof that he agreed and contested to all its terms, including the paragraph on the
constitution of the mortgage.
The decisive question at issue, therefore, is whether the second part of the written obligation, in which the obligors
agreed and promised to deliver a mortgage over the parcel of land described therein, upon their failure to pay the
debt on a date specified in the proceeding paragraph, is valid and binding and effective upon the plaintiff-appellee,
the creditor. This second part of the obligation in question is what is known in law as a facultative obligation, defined
in article 1206 of Civil Code of the Philippines, which provides:
ART. 1206. When only one prestation has been agreed upon, but the obligor may render another in
substitution, the obligation is called facultative.
xxx xxx xxx
This is a new provision and is not found in the old Spanish Civil Code, which was the one in force at the time of the
execution of the agreement.
There is nothing in the agreement which would argue against its enforcement. it is not contrary to law or public
morals or public policy, and notwithstanding the absence of any legal provision at the time it was entered into
government it, as the parties had freely and voluntarily entered into it, there is no ground or reason why it should not
be given effect. It is a new right which should be declared effective at once, in consonance with the provisions of
article 2253 of the Civil Code of the Philippines, thus:
ART. 2253. . . . But if a right should be declared for the first time in this Code, it shall be effective at once,
even though the act or event which gives rise thereto may have been done or may have occurred under the
prior legislation, provided said new right does not prejudice or impair any vested or acquired right, of the
same origin.
In view of our favorable resolution on the important question raised by the defendants-appellants on this appeal, it
becomes unnecessary to consider the other question of procedure raised by them.
For the foregoing considerations, the judgment appealed from is hereby reversed, and in accordance with the
provisions of the written obligation, the case is hereby remanded to the Court of First Instance, in which court the
defendants-appellants shall present a duly executed deed of mortgage over the property described in the written
obligation, with a period of payment to be agreed upon by the parties with the approval of the court. Without costs.
Paras, C.J., Pablo, Bengzon, Montemayor, Jugo, Bautista Angelo, and Concepcion, JJ., concur.

G.R. No. 188944 July 9, 2014

SPOUSES RODOLFO BEROT AND LILIA BEROT, Petitioners,

vs.
FELIPE C. SIAPNO, Respondent.

DECISION

SERENO, CJ:

Before us is a Petition for Review on Certiorari under Rule 45 of the 1997 Revised Rules on Civil Procedure
assailing the Court of Appeals (CA) Decision dated 29 January 2009 in CA-G.R. CV No. 87995. The assailed CA
1
Decision affirmed with modification the Decision in Civil Case No. 2004-0246-D issued by the Regional Trial Court
2

(RTC), First Judicial Region of Dagupan City, Branch 42. The RTC Decision allowed the foreclosure of a mortgaged
property despite the objections of petitioners claiming, among others, that its registered owner was impleaded in the
suit despite being deceased.

THE FACTS

Considering that there are no factual issues in this case, we adopt the findings of fact of the CA, as follows:

On May 23, 2002, Macaria Berot (or "Macaria") and spouses Rodolfo A. Berot (or "appellant") and Lilia P. Berot (or
"Lilia") obtained a loan from Felipe C. Siapno (or "appellee") in the sum of ₱250,000.00, payable within one year
together with interest thereon at the rate of 2% per annum from that date until fully paid.

As security for the loan, Macaria, appellant and Lilia (or "mortgagors", when collectively)mortgaged to appellee a
portion, consisting of 147 square meters (or "contested property"), of that parcel of land with an area of 718 square
meters, situated in Banaoang, Calasiao, Pangasinan and covered by Tax Declaration No. 1123 in the names of
Macaria and her husband Pedro Berot (or "Pedro"), deceased. On June 23, 2003, Macaria died.

Because of the mortgagors’ default,appellee filed an action against them for foreclosure of mortgage and damages
on July 15, 2004 in the Regional Trial Court of Dagupan City (Branch 42). The action was anchored on the
averment that the mortgagors failed and refused to pay the abovementioned sum of ₱250,000.00 plus the stipulated
interest of 2% per month despite lapse of one year from May 23, 2002.

In answer, appellant and Lilia (or "Berot spouses", when collectively [referred to]) alleged that the contested property
was the inheritance of the former from his deceased father, Pedro; that on said property is their family home; that
the mortgage is void as it was constituted over the family home without the consent of their children, who are the
beneficiaries thereof; thattheir obligation is only joint; and that the lower court has no jurisdiction over Macaria for
the reason that no summons was served on her as she was already dead.

With leave of court, the complaint was amended by substituting the estate of Macaria in her stead. Thus, the
defendants named in the amended complaint are now the "ESTATE OF MACARIA BEROT, represented by Rodolfo
A. Berot, RODOLFO A. BEROT and LILIA P. BEROT".

After trial, the lower court rendered a decision dated June 30, 2006, the decretal portion of which reads:

WHEREFORE, the Court hereby renders judgment allowing the foreclosure of the subject mortgage. Accordingly,
the defendants are hereby ordered to pay to the plaintiff within ninety (90) days from notice of thisDecision the
amount of ₱250,000.00 representing the principal loan, with interest at two (2%) percent monthly from February,
2004 the month when they stopped paying the agreed interest up to satisfaction of the claim and 30% of the amount
to be collected as and for attorney’s fees. Defendants are also assessed to pay the sum of ₱20,000.00 as litigation
expenses and another sum of ₱10,000.00 as exemplary damages for their refusal to pay their aforestated loan
obligation. If within the aforestated 90-day period the defendants fail to pay plaintiff the above-mentioned amounts,
the sale of the property subject of the mortgage shall be made and the proceeds of the sale to be delivered to the
plaintiff to cover the debt and charges mentioned above, and after such payments the excess, if any shall be
delivered to the defendants.

SO ORDERED.

Appellant filed a motion for reconsideration of the decision but it was denied per order dated September 8, 2006.
Hence, this appeal interposed by appellant imputing errors to the lower court in –

1. SUBSTITUTING AS DEFENDANT THE ESTATE OF MACARIA BEROT WHICH HAS NO PERSONALITY TO

SUE AND TO BE SUED;

2. APPOINTING RODOLFO BEROT AS A REPRESENTATIVE OF THE ESTATE OF THE DECEASED MACARIA

BEROT TO THE PREJUDICE OF THE OTHER HEIRS, GRANTING FOR THE SAKE OF ARGUMENT THAT THE
ESTATE OF MACARIA BEROT HAS A PERSONALITY TO SUE AND BE SUED;
3. NOT FINDING THE MORTGAGE NULL AND VOID, WHICH WAS ENTERED INTO WITHOUT THE WRITTEN
CONSENT OF THE BENEFICIARIES OF THE FAMILY HOME WHO WERE OF LEGAL AGE;

4. MAKING DEFENDANTS LIABLE FOR THE ENTIRE OBLIGATION OF PH250,000.00, WHEN THE OBLIGATION
IS ONLY JOINT;

5. IMPOSING ATTORNEY’S FEE(S) IN THE DISPOSITIVE PORTION WITHOUT MAKING A FINDING OF THE
BASIS THEREOF IN THE BODY; and

6. IMPOSING EXEMPLARY DAMAGES AND LITIGATION EXPENSES.

Appellant contends that the substitution of the estate of Macaria for her is improper as the estate has no legal
personality to be sued. 3

On 29 January 2009, the CA, through its Seventh Division, promulgated a Decision that affirmed the RTC Decision
but with modification where it deleted the award of exemplary damages, attorney’s fees and expenses of litigation.
The appellate court explained in its ruling that petitioners correctly argued that a decedent’s estate is not a legal
entity and thus, cannot sue or be sued. However,it noted that petitioners failed to object to the trial court’s exercise
of jurisdiction over the estate of Macaria when the latter was impleaded by respondents by amending the original
complaint. Adopting the rationale of the trial court on this matter, the CA held:
4

As aptly observed by the trial court:

It may be recalled that when the plaintiff filed his Amended Complaint substituting the estate of Macaria Berot in
place of Macaria Berot as party defendant, defendants made no objection thereto. Not even an amended answer
was filed by the defendants questioning the substitution of the estate of Macaria Berot. For these reasons, the
defendants are deemed to have waivedany objection on the personality of the estate of Macaria Berot. Section 1,
Rule 9 of the Rules of Court provides that, ‘Defenses and objections not pleaded either in a motion to dismiss or in
the answer are deemed waived. (Order dated September 8, 2006) [Underscoring supplied]
5

The CA also found the action of respondent to be procedurally correct under Section 7, Rule 86 of the Rules
ofCourt, when it decided to foreclose on the mortgage of petitioner and prove his deficiency as an ordinary
claim. The CA did not make a categorical finding that the nature of the obligation was joint or solidary on the part of
6

petitioners. It neither sustained their argument that the mortgage was invalidfor having beenconstituted over a
7

family home without the written consent of the beneficiaries who were of legal age. However, it upheld their
8

argument that the award of exemplary damages and attorney’s fees in favor ofrespondent was improper for lack of
basis, when it ruled thus:
9

WHEREFORE, the appealed decision is AFFIRMED with MODIFICATION in that the award of exemplary damages,
attorney’s fees and expenses of litigation is DELETED.

SO ORDERED. 10

Petitioners moved for the reconsideration of the CA Decision, but their motion was denied through a Resolution
dated 9 July 2009. Aggrieved by the denial of their Motion for Reconsideration, they now come to us through a
11

Petition for Review on Certiorari under Rule 45, proffering purely questions of law.

THE ISSUES

The following are the issues presented by petitioners for resolution by this Court:

The Court of Appeals erred in:

1. Holding that the intestate estate of Macaria Berot could be a proper party by waiver expressly or impliedly by
voluntary appearance;

2. In not holding that the obligation is joint 12

THE COURT’S RULING

We DENY the Petition for lack of merit.

Petitioners were correct when they argued that upon Macaria Berot’s death on 23 June 2003, her legal personality
ceased, and she could no longer be impleaded as respondent in the foreclosure suit. It is also true that her death
opened to her heirs the succession of her estate, which in this case was an intestate succession. The CA, in fact,
sustained petitioners’ position that a deceased person’s estate has no legal personality to be sued. Citing the
Court’s ruling in Ventura v. Militante, it correctly ruled that a decedent does not have the capacity to be sued and
13

may not be madea defendant in a case:

A deceased person does not have such legal entity as is necessary to bring action so much so that a motion to
substitute cannot lie and should be denied by the court. An action begun by a decedent’s estate cannot be said to
have been begun by a legal person, since an estate is not a legal entity; such an action is a nullity and a motion to
amend the party plaintiff will not, likewise, lie, there being nothing before the court to amend. Considering that
capacity to be sued is a correlative of the capacity to sue, to the same extent, a decedent does not have the
capacity to be sued and may not be named a party defendant in a court action.

When respondent filed the foreclosure case on 15 June 2004 and impleaded Macaria Berot as respondent, the
latter had already passed away the previous year, on 23 June 2003. In their Answer to the Complaint, petitioners
14

countered among others, that the trial court did not have jurisdiction over Macaria, because no summons was
served on her, precisely for the reason that she had already died. Respondent then amended his Complaint with
leave of court and substituted the deceased Macaria by impleading her intestate estate and identified Rodolfo Berot
as the estate’s representative. Thereafter, the case proceeded on the merits at the trial, where this case originated
and where the Decision was promulgated.

It can be gleaned from the records of the case that petitioners did not object when the estate of Macaria was
impleaded as respondent in the foreclosure case. Petitioner Rodolfo Berot did not object either when the original
Complaint was amended and respondent impleaded him as the administrator of Macaria’s estate, in addition to his
being impleaded as an individual respondent in the case. Thus, the trial and appellate courts were correct in ruling
that, indeed, petitionersimpliedly waived any objection to the trial court’s exercise of jurisdiction over their persons at
the inception of the case. In resolving the Motion for Reconsideration of petitioners as defendants in Civil Case No.
2004-0246-D, the RTC was in point when it ruled:

It may be recalled that when the plaintiff filed his Amended Complaint substituting the estate of Macaria Berot in
place of Macaria Berot as party defendant, defendants made no objections thereto. Not even an amended answer
was filed by the defendants questioning the substitution of the estate of Macaria Berot. For these reasons, the
defendants are deemed to have waivedany objection on the personality of the estate of Macaria Berot. Section 1,
Rule 9 of the Rules of Court provides that, "Defenses and objections not pleaded either in a motion to dismiss or in
the answer are deemed waived. x x x. (Underscoring ours) 15

Indeed, the defense of lack of jurisdiction over the person of the defendant is one that may be waived by a party to a
case. In order to avail of that defense, one must timely raise an objection before the court. 16

The records of the case show that on 9 November 2004, a hearing was held on the Motion for Leave to Filefiled by
respondent to have her amended Complaint admitted. During the said hearing, the counsel for petitioners did not
interpose an objection to the said Motion for Leave. On 18 March 2005, a hearing was held on respondent’s Motion
17

to Admit Amended Complaint, wherein counsel for petitioners again failed to interpose any objection. Thus, the trial
18

court admitted respondent’s Amended Complaint and ordered that a copy and a summons be served anew on
petitioners.
19

In an Order dated 14 April 2005, the RTC noted that petitioners received the summons and the copy of the
20

amended Complaint on 3 February 2005 and yet they did not file an Answer. During the trial on the merits that
followed, petitioners failed to interpose any objection to the trial court’s exercise of jurisdiction over the estate of
Macaria Berot. Clearly, their full participation in the proceedings of the case can only be construed as a waiver of
any objection to or defense of the trial court’s supposed lack of jurisdiction over the estate.

In Gonzales v. Balikatan Kilusang Bayan sa Panlalapi, Inc., we held that a party’s appearance in a case is
21

equivalent to a service of summons and that objections must be timely raised:

In this regard, petitioners should be reminded of the provision in the Rules of Court that a defendant’svoluntary
appearance in an action shall be equivalent to service of summons. Further, the lack of jurisdiction over the person
of the defendant may be waived either expressly or impliedly. When a defendant voluntarily appears, he is deemed
to have submitted himself to the jurisdiction of the court. If he does not wish to waive this defense, he must do so
seasonably by motion, and object thereto.

It should be noted that Rodolfo Berot is the son of the deceased Macaria and as such, he is a compulsory heir of
22

his mother. His substitution is mandated by Section 16, Rule 3 of the Revised Rules of Court. Notably, there is no
indication in the records of the case that he had other siblings who would have been his co-heirs. The lower and
appellate courts veered from the real issue whether the proper parties have been impleaded. They instead focused
on the issue whether there was need for a formal substitution when the deceased Macaria, and later its estate, was
impleaded. As the compulsory heir of the estate of Macaria, Rodolfo is the real party in interest in accordance with
Section 2, Rule 3 of the Revised Rules of Court. At the time of the filing of the complaint for foreclosure, as well as
the time it was amended to implead the estate of Macaria, it is Rodolfo – as heir – who is the real party in interest.
He stands to be benefitted or injured by the judgment in the suit.

Rodolfo is also Macaria’s co-defendant in the foreclosure proceedings in his own capacity as co-borrower ofthe
loan. He participated in the proceedings of the case, from the initial hearing of the case, and most particularly when
respondent filed his amended complaint impleading the estate of Macaria. When respondent amended his
complaint, Rodolfo did not file an amended Answer nor raise any objection, even if he was also identified therein as
the representative ofthe estate of the deceased Macaria. The lower court noted this omission by Rodolfo in its Order
dated 8 September 2006 ruling on his Motionfor Reconsideration to the said court’s Decision dated 30 June 2006.
Thus, his continued participation in the proceedings clearly shows that the lower court acquired jurisdiction over the
heir of Macaria.

In Regional Agrarian Reform Adjudication Board v. Court of Appeals, we ruled that:

23

[W]e have to point out that the confusion in this case was brought about by respondents themselves when they
included in their complaint two defendants who were already dead. Instead of impleading the decedent’s heirs and
current occupants of the landholding, respondents filed their complaint against the decedents, contrary to the
following provision of the 1994 DARAB Rules of Procedure:

RULE V

PARTIES, CAPTION AND SERVICE OF PLEADINGS

SECTION 1. Parties in Interest. Every agrarian case must be initiated and defended inthe name of the real party in
interest. x x x.

A real party in interest is defined as "the party who stands to be benefited or injured by the judgment in the suit, or
the party entitled to the avails of a suit." The real parties in interest, at the time the complaint was filed, were no
longer the decedents Avelino and Pedro, but rather their respective heirs who are entitled to succeed to their rights
(whether as agricultural lessees or as farmers-beneficiaries) under our agrarian laws. They are the ones who, as
heirs of the decedents and actualtillers, stand to be removed from the landholding and made to pay back rentals to
respondents if the complaint is sustained.

Since respondents failed to correcttheir error (they did not amend the erroneous caption of their complaint to include
the real parties-ininterest), they cannot be insulated from the confusion which it engendered in the proceedings
below. But at any rate, notwithstanding the erroneous caption and the absence of a formal substitution of parties,
jurisdiction was acquired over the heirs of Avelino and Pedro who voluntarily participated in the proceedings below.
This Court has ruled that formal substitution of parties is not necessary when the heirs themselves voluntarily
appeared, participated, and presented evidence during the proceedings.

As such, formal substitution of the parties in this case is not necessary.

In Vda. De Salazar v. Court of Appeals we ruled that a formal substitution of the heirs in place of the deceased is
24

no longer necessary if the heirs continued to appear and participated in the proceedings of the case. In the cited
case, we explained the rationale of our ruling and related it to the due process issue, to wit:

We are not unaware of several cases where we have ruled that a party having died in an action that survives, the
trial held by the court without appearance of the deceased's legal representative or substitution of heirs and the
judgment rendered after such trial, are null and void because the court acquired no jurisdiction over the persons of
the legal representatives or of the heirs upon whom the trial and the judgment would be binding. This general rule
notwithstanding, in denying petitioner's motion for reconsideration, the Court of Appeals correctly ruled that formal
substitution of heirs is not necessary when the heirs themselves voluntarily appeared, participated in the case and
presented evidence in defense of deceased defendant. Attending the case at bench, after all, are these particular
circumstances which negate petitioner's belated and seemingly ostensible claim of violation of her rights to due
process. We should not lose sight of the principle underlying the general rule that formal substitution of heirs must
be effectuated for them to be bound by a subsequent judgment. Such had been the general rule established not
because the rule on substitution of heirs and that on appointment of a legal representative are jurisdictional
requirements per se but because non-compliance therewith results in the undeniable violation of the right to due
process of those who, though not duly notified of the proceedings, are substantially affected by the decision
rendered therein. Viewing the rule on substitution of heirs in this light, the Court of Appeals,in the resolution denying
petitioner's motion for reconsideration, thus expounded:

Although the jurisprudential rule is that failure to make the substitution is a jurisdictional defect, it should be noted
that the purpose of this procedural rule is to comply with due process requirements. The original party having died,
he could not continue, to defend himself in court despite the fact that the action survived him. For the case to
continue, the real party in interest must be substituted for the deceased. The real party in interest is the one who
would beaffected by the judgment. It could be the administrator or executor or the heirs. In the instant case, the
heirs are the proper substitutes. Substitution gives them the opportunity to continue the defense for the deceased.
Substitution is important because such opportunity to defend is a requirement to comply with due process. Such
substitution consists of making the proper changes in the caption of the case which may be called the formal aspect
of it. Such substitution also includes the process of letting the substitutes know that they shall be bound by any
judgment in the case and that they should therefore actively participate in the defense of the deceased. This part
may be called the substantive aspect. This is the heart of the procedural rule because this substantive aspect is the
one that truly embodies and gives effect to the purpose of the rule. It is this court's view that compliance with the
substantive aspect of the rule despite failure to comply with the formal aspect may he considered substantial
compliance.Such is the situation in the case at bench because the only inference that could be deduced from the
following facts was that there was active participation of the heirs in the defense ofthe deceased after his death:

1. The original lawyer did not stop representing the deceased. It would be absurd to think that the lawyer would
continue to represent somebody if nobody is paying him his fees. The lawyer continued to represent him in the
litigation before the trial court which lasted for about two more years. A dead party cannot pay him any fee. With or
without payment of fees, the fact remains that the said counsel was allowed by the petitioner who was well aware of
the instant litigation to continue appearing as counsel until August 23, 1993 when the challenged decision was
rendered;

2. After the death of the defendant, his wife, who is the petitioner in the instant case, even testified in the court and
declared that her husband is already deceased. She knew therefore that there was a litigation against her husband
and that somehow her interest and those of her children were involved;

3. This petition for annulmentof judgment was filed only after the appeal was decided against the defendant on April
3, 1995, more than one and a half year (sic) after the decision was rendered (even if we were to give credence to
petitioner's manifestation that she was notaware that an appeal had been made);

4. The Supreme Court has already established that there is such a thing as jurisdiction byestoppel. This principle
was established even in cases where jurisdiction over the subject matter was being questioned. In the instant case,
only jurisdiction over the person of the heirs is in issue. Jurisdiction over the person may be acquired by the court
more easily than jurisdiction over the subject matter. Jurisdiction over the person may be acquired by the simple
appearance of the person in court as did herein petitioner appear;

5. The case cited by the herein petitioner (Ferreria et al. vs. Manuela Ibarra vda. de Gonzales, etal.) cannot be
availed of to support the said petitioner's contention relative to nonacquisition of jurisdiction by the court. In that
case, Manolita Gonzales was not served notice and, more importantly, she never appeared in court, unlike herein
petitioner who appeared and even testified regarding the death of her husband.

In this case, Rodolfo’s continued appearance and participation in the proceedings of the case dispensed with the
formal substitution of the heirs in place of the deceased Macaria. The failure of petitioners to timely object to the trial
court’s exercise of jurisdiction over the estate of Macaria Berot amounted to a waiver on their part. Consequently, it
would be too late for them at this point to raise that defense to merit the reversal of the assailed decision of the trial
court. We are left with no option other than to sustain the CA’s affirmation of the trial court’s Decision on this matter.

On the second issue of whether the nature of the loan obligation contracted by petitioners is joint or solidary, we rule
that it is joint.

Under Article 1207 of the Civil Code of the Philippines, the general rule is that when there is a concurrence of two or
more debtors under a single obligation, the obligation is presumed to be joint:

Art. 1207. The concurrence of two or more creditors or of two or more debtors in one and the same obligation does
not imply that each one of the former has a right to demand, orthat each one of the latter is bound to render, entire
compliance with the prestations. There is a solidary liability only when the obligation expressly so states, or when
the law or the nature of the obligation requires solidarity.

The law further provides that to consider the obligation as solidary in nature, it must expressly be stated as such, or
the law or the nature of the obligation itself must require solidarity. In PH Credit Corporation v. Court of Appeals, we
25

held that:

A solidary obligation is one in which each of the debtors is liable for the entire obligation, and each of the creditors is
entitled to demand the satisfaction of the whole obligation from any or all of the debtors. On the other hand, a joint
obligation is one in which each debtors is liable only for a proportionate part of the debt, and the creditor is entitled
to demand only a proportionate part of the credit from each debtor. The well entrenched rule is that solidary
obligations cannot be inferred lightly. They must be positively and clearly expressed. A liability is solidary "only when
the obligation expressly so states, when the law so provides or when the nature of the obligation so requires."

In the instant case, the trial court expressly ruled that the nature of petitioners’ obligation to respondent was
solidary. It scrutinized the real estate mortgage and arrived at the conclusion that petitioners had bound themselves
26
to secure their loan obligation by way of a real estate mortgage in the event that they failed to settle it. But such
27

pronouncement was not expressly stated in its 30 June 2006 Decision. This was probably the reason why, when the
trial court Decision was appealed to it, the CA did not squarely address the issue when the latter ruled that:

It is noteworthy that the appealed decision makes no pronouncement that the obligation of the mortgagors is
solidary; and that said decision has not been modified by the trial court. Hence, it is unnecessary for US to make a
declaration on the nature of the obligation of the mortgagors. However, a closer scrutiny of the records would
28

reveal that the RTC expressly pronounced that the obligation of petitioners to the respondent was solidary. In
resolving petitioners’ Motion for Reconsideration to its 30 June 2006 Decision, the trial court categorically ruled that:

Defendants [sic] obligation with plaintiff is solidary. A careful scrutiny of the Real Estate Mortgage(Exh. "A") will
show that all the defendants, for a single loan, bind themselves to cede, transfer, and convey by way of real estate
mortgage all their rights, interest and participation in the subject parcel of land including the improvements thereon
in favor of the plaintiff, and warrant the same to be free from liens and encumbrances, and that should they fail to
perform their obligation the mortgage will be foreclosed. From this it can be gleaned that each of the defendants
obligated himself/herself to perform the said solidary obligation with the plaintiff. We do not agree with this finding
29

by the trial court.

We have scoured the records of the case, but found no record of the principal loan instrument, except an evidence
that the real estate mortgage was executed by Macaria and petitioners. When petitioner Rodolfo Berot testified in
court, he admitted that he and his mother, Macaria had contracted the loan for their benefit:

Q: On the Real Estate Mortgage, you and your mother obtained a loan from Mr. Siapno in the amount of
₱250,000.00, now as between you and your mother whose loan is that?

A: It is the loan of my mother and myself, sir. 30

The testimony of petitioner Rodolfo only established that there was that existing loan to respondent, and that the
subject property was mortgaged as security for the said obligation. His admission of the existence of the loan made
him and his late mother liable to respondent. We have examined the contents of the real estate mortgage but found
no indication in the plain wordings of the instrument that the debtors – the late Macaria and herein petitioners – had
expressly intended to make their obligation to respondent solidary in nature. Absent from the mortgage are the
express and indubitable terms characterizing the obligation as solidary. Respondent was not able to prove by a
preponderance of evidence that petitioners' obligation to him was solidary. Hence, applicable to this case is the
presumption under the law that the nature of the obligation herein can only be considered as joint. It is incumbent
upon the party alleging otherwise to prove with a preponderance of evidence that petitioners' obligation under the
loan contract is indeed solidary in character. 31

The CA properly upheld respondent's course of action as an availment of the second remedy provided under
Section 7, Rule 86 of the 1997 Revised Rules of Court. Under the said provision for claims against an estate, a
32

mortgagee has the legal option to institute a foreclosure suit and to recover upon the security, which is the
mortgaged property.

During her lifetime, Macaria was the registered owner of the mortgaged property, subject of the assailed foreclosure.
Considering that she had validly mortgaged the property to secure a loan obligation, and given our ruling in this
case that the obligation is joint, her intestate estate is liable to a third of the loan contracted during her lifetime.
Thus, the foreclosure of the property may proceed, but would be answerable only to the extent of the liability of
Macaria to respondent. WHEREFORE, the CA Decision in CA-G.R. CV No. 87995 sustaining the RTC Decision in
Civil Case No. 2004-0246-D is hereby AFFIRMED with the MODIFICATION that the obligation of petitioners and the
estate of Macaria Berot is declared as joint in nature.

SO ORDERED.

MARIA LOURDES P.A. SERENO

Chief Justice, Chairperson

G.R. No. 188944. July 09, 2014 (Case Brief / Digest) **Title: Spouses Rodolfo and Lilia Berot vs. Felipe C. Siapno**

**Facts:**

On May 23, 2002, Macaria Berot, along with her son Rodolfo A. Berot and his wife Lilia P. Berot, borrowed PHP 250,000
from Felipe C. Siapno, agreeing to pay it back within a year at an annual interest rate of 2%. They secured the loan with a
mortgage on a portion of land in Pangasinan. Macaria Berot, who co-owned the mortgaged property, died on June 23,
2003. After the borrowers defaulted, Siapno filed a foreclosure suit on July 15, 2004, in the RTC of Dagupan City (Branch
42). The Berots countered that the mortgaged property was a family home and the mortgage was void, as it was
constituted without the consent of their children, who were beneficiaries. They also challenged the court’s jurisdiction
over Macaria since she was deceased.
The court allowed the amendment of the complaint to substitute Macaria with her estate. Despite Rodolfo being
appointed to represent Macaria’s estate without objection, the Berots disputed the estate’s legal capacity in subsequent
appeals.

**Issues:**

1. Whether the intestate estate of Macaria Berot could be a proper party to the suit by implied waiver.

2. Whether the loan obligation was joint or solidary.

3. The validity of substituting a deceased party with her estate and appointing a representative without other heirs’
consent.

4. Whether the mortgage over the family home without beneficiaries’ consent was valid.

5. The basis for awarding attorney’s fees, exemplary damages, and litigation expenses.

**Court’s Decision:**

The Supreme Court denied the petition, finding no merit in the Berots’ arguments. It ruled that the objections to the
representation of Macaria’s estate and the appellate court’s jurisdiction had been waived due to the Berots’
participation in the proceedings without raising these issues.

Regarding the obligation’s nature, the Supreme Court found it was joint, not solidary, due to no express indication or
evidence of a solidary intent. It emphasized that obligations are presumed to be joint unless expressly stated or required
by law or the obligation’s nature to be solidary. The foreclosure could proceed, but only to the extent of Macaria’s debt
share.

**Doctrine:**

1. Substitution of a deceased party with their estate is proper if the heirs voluntarily appear, participate, and evidence
no objection, essentially waiving any jurisdictional challenges.

2. Obligations are presumed to be joint unless explicitly stated or required by law to be solidary.

**Class Notes:**

1. **Jurisdiction and Participation:** A party’s voluntary appearance and participation in court proceedings can amount
to an implied waiver of jurisdictional objections (Gonzales v. Balikatan Kilusang Bayan sa Panlalapi, Inc.).

2. **Substitution of Deceased Parties:** Under Rule 3, Section 16 of the Revised Rules of Court, heirs can be substituted
for deceased parties without a formal substitution if they voluntarily appear and participate in the proceedings (Regional
Agrarian Reform Adjudication Board v. Court of Appeals).

3. **Nature of Obligations:** Obligations are presumed joint unless specifically stated or required by law or the
obligation’s nature to be solidary (Article 1207, Civil Code of the Philippines).

4. **Mortgage of Family Homes:** The case reiterates the requirements and legality surrounding the mortgage of
properties deemed family homes, particularly the need for family beneficiaries’ consent.

**Historical Background:** The case illustrates the complexities surrounding the foreclosure of mortgaged properties,
representation of deceased parties’ estates, and the determination of the nature of parties’ obligations under Philippine
law. It provided clarity on procedural and substantive issues, particularly the effects of participation in proceedings on
jurisdictional objections and the principles guiding the characterization of financial obligations.

G.R. No. 109648 November 22, 2001

PH CREDIT CORPORATION, petitioner,
vs.
COURT OF APPEALS and CARLOS M. FARRALES, respondents.
PANGANIBAN, J.:
When there is a conflict between the dispositive portion or fallo of a decision and the opinion of the court contained
in the text or body of the judgment, the former prevails over the latter. An order of execution is based on the
disposition, not on the body, of the decision.
The Case
Before us is a Petition for Review under Rule 451 of the Rules of Court, assailing the October 28, 1992
Decision2 and the April 6, 1993 Resolution3 of the Court of Appeals (CA) in CA-GR SP Nos. 23324 and 25714. The
dispositive portion of the said Decision reads as follows:
"WHEREFORE, judgment is hereby rendered DISMISSING: a) CA-G.R. SP No 23324, for being moot and
academic, and b) CA-G.R. SP No. 25714, for lack of merit."4
The assailed Resolution denied petitioner's Motion for Reconsideration.
The Facts
The facts of the case are summarized by the Court of Appeals in this wise:
"These two cases have been consolidated because they involve the same parties and/or related questions
of [f]act and/or law.
xxx xxx xxx
"I. CA-G.R. SP NO. 23324
"PH Credit Corp., filed a case against Pacific Lloyd Corp., Carlos Farrales, Thomas H. Van Sebille and
Federico C. Lim, for [a] sum of money. The case was docketed as Civil Case No. 83-17751 before the
Regional Trial Court, Branch 51, Manila. After service of summons upon the defendants, they failed to file
their answer within the reglementary period, hence they were declared in default. PH Credit Corp., was then
allowed to present its evidence ex-parte.
"On January 31, 1984, a decision was rendered, the dispositive portion of which reads as follows:
"WHEREFORE, judgment is hereby rendered in favor of plaintiff PH Credit Corporation and against
defendants Pacific Lloyd Corporation, Thomas H. Van Sebille, Carlos M. Farrales, and Federico C.
Lim, ordering the latter to pay the former, the following:
'A) The sum of P118,814.49 with interest of 18% per annum, starting December 20, 1982 until fully
paid;
'B) Surcharge of 16% per annum from December 20, 1982;
'C) Penalty Charge of 2% per month from December 20, 1982, computed on interest and principal
compounded;
'D) Attorney's fees in an amount equivalent to 25% of the total sum due; and
'E) Costs of suit.
'SO ORDERED.'
"After the aforesaid decision has become final and executory, a Writ of Execution was issued and
consequently implemented by the assigned Deputy Sheriff. Personal and real properties of defendant Carlos
M. Farrales were levied and sold at public auction wherein PH Credit Corp. was the highest bidder. The
personal properties were sold on August 2, 1984 at P18,900.00 while the real properties were sold on June
21, 1989 for P1,294,726.00.
"On July 27, 1990, a motion for the issuance of a writ of possession was filed and on October 12, 1990, the
same was granted. The writ of possession itself was issued on October 26, 1990. Said order and writ of
possession are now the subject of this petition.
"Petitioner claims that she, as a third-party claimant with the court below, filed an 'Urgent Motion for
Reconsideration and/or to Suspend the Order dated October 12, 1990', but without acting there[on],
respondent Judge issued the writ of possession on October 26, 1990. She claims that the actuations of
respondent Judge was tainted with grave abuse of discretion.
"We deem it unnecessary to pass upon the issue raised in view of the supervening event which had
rendered the same moot and academic. @lawphil.net

"It appears that on January 31, 1991, respondent Judge issued an order considering the assailed Order
dated October 12, 1990 as well as the writ of possession issued on October 26, 1990 as 'of no force and
effect.'
@lawphil.net

"The purpose of the petition is precisely to have the aforesaid order and writ of possession declared null and
void, but the same had already been declared 'of no force and effect' by the respondent Judge. It is a well-
settled rule that courts will not determine a moot question or abstract proposition nor express an opinion in a
case in which no practical relief can be granted.
"II. CA-G.R. SP NO. 25714
"Petitioner claims that the respondent Judge's Order dated January 31, 1991 was tainted with grave abuse
of discretion based on the following grounds:
 "1. Respondent Judge refused to consider as waived private respondent's objection that his obligation in the
January 31, 1984 decision was merely joint and not solidary with the defendants therein. According to
petitioner, private respondent assailed the levy on execution twice in 1984 and once in 1985 but not once
did the latter even mention therein that his obligation was joint for failure of the dispositive portion of the
decision to indicate that it was solidary. Thus, private respondent must be deemed to have waived that
objection, petitioner concludes.
"2. The redemption period after the auction sale of the properties had long lapsed so much [so] that the
purchaser therein became the absolute owner thereof. Thus, respondent Judge allegedly abused his
discretion in setting aside the auction sale after the redemption period had expired.
"3. Respondent Judge erred in applying the presumption of a joint obligation in the face of the conclusion of
fact and law contained in the decision showing that the obligation is solidary." 5 (Citations omitted)
@lawphil.net

Ruling of the Court of Appeals

The Court of Appeals affirmed the trial court's ruling declaring null and void (a) the auction sale of Respondent
Ferrales' real property and (b) the Writ of Possession issued in consequence thereof. It held that, pursuant to the
January 31, 1984 Decision of the trial court, the liability of Farrales was merely joint and not solidary. Consequently,
there was no legal basis for levying and selling Farrales' real and personal properties in order to satisfy the whole
obligation.
Hence, this Petition.6
The Issues
In its Memorandum,7 petitioner submits the following issues for our consideration:
"I
Whether or not the Court of Appeals disregarded the basic policy of avoiding multiplicity of motions.
"II
Whether or not the Court of Appeals erred when it disregarded the body of the decision and concluded that the
obligation was merely a joint obligation due to the failure of the dispositive portion of the decision dated 31 January
1984 to state that the obligation was joint and solidary.
"III
Whether or not the Court of Appeals disregarded the policy of upholding executions." 8
The Courts Ruling
The Petition is devoid of merit.
First Issue:
Omnibus Motion Rule
Petitioner contends that because private respondent did not question the joint and solidary nature of his liability in
his (a) Motion to Quash Levy Execution9 dated August 23, 1984, (b) Urgent Motion to Order Sheriff to Suspend Sale
on Execution10 dated December 3, 1984, and (c) Motion to Declare Certificate of Sale Null and Void 11 dated January
9, 1985, he cannot now raise it as an objection. Petitioner argues that the "Omnibus Motion Rule" bars private
respondent's belated objection. We do not agree.
The Omnibus Motion Rule is found in Section 8 of Rule 15 of the Rules of Court, which we quote:
"Subject to the provisions of section 1 of Rule 9, a motion attacking a pleading, order, judgment, or
proceeding shall include all objections then available, and all objections not so included shall be deemed
waived. (8a)"
As an aid to the proper understanding of this case, we should at the outset point out that the objections of private
respondent contained in his Omnibus Motion12 dated November 5, 1990 were directed at the proceedings and the
orders issued after the auction sale of his real property covered by TCT No. 82531. In his Omnibus Motion, he
asked for the recall and quashal of the Writ of Possession issued on October 26, 1990; the annulment of the June
21, 1989 auction sale of the said real property and the recomputation of his liability to petitioner.
However, the three (3) Motions that petitioner referred to above were clearly directed against the execution of
private respondent's personal properties. A perusal of these Motions will show that at the time, his objections were
directed at the acts of execution against his personal properties.
In his Motion to Quash Levy Execution,13 private respondent pointed to the properties of herein moving defendant x
x x located at his residence at No. 17, Bunker Hill St., New Manila, Quezon City, per the Notice of Levy and
Sale,"14 and asked for the quashal and setting aside of such Notice. He was thus referring to the levy on his personal
properties. By the same token, in his Urgent Motion to Order Sheriff to Suspend Sale on Execution, 15 he referred to
a copy of a sheriff's notice of sale dated November 22, 1984,"16 which in turn alluded to the sale of his levied
personal properties.
Similarly, in his Motion to Declare Certificate of Sale Null and Void,17 he once again assailed the sale at public
auction of his personal properties. It is thus clear that up to that point, he was questioning the levy and sale of his
personal properties. He could not have known at the time that he would be made to answer for the entire liability,
which he and his co-respondents were adjudged to pay petitioner by reason of the trial court's judgment of January
31, 1984.
After private respondent realized that he was being made to answer on the entire liability as a solidary debtor, he
filed his Omnibus Motion questioning the Writ of Possession and all incident orders and proceedings relevant
thereto. This realization dawned on him, because his real property was levied and sold despite the previous sale of
his personal property. Only at this point was he in a position to assert his objections to the auction sale of his real
property and to put up the defense of joint liability among all the respondents.
The Rules of Court requires that all available objections to a judgment or proceeding must be set up in an Omnibus
Motion assailing it; otherwise, they are deemed waived. In the case at bar, the objection of private respondent to
his solidary liability became available to him, only after his real property was sold at public auction. At the time his
personal properties were levied and sold, it was not evident to him that he was being held solely liable for the
monetary judgment rendered against him and his co-respondents. That was why his objections then did not include
those he asserted when his solidary liability became evident.
Prior to his Omnibus Motion, he was not yet being made to pay for the entire obligation. Thus, his objection to his
being made solidarily liable with the other respondents was not yet available to him at the time he filed the Motions
referred to by petitioner. Not being available, these objections could not have been deemed waived when he filed
his three earlier Motions, which pertained to matters different from those covered by his Omnibus Motion;
True, the Omnibus Motion Rule requires the movant to raise all available exceptions in a single opportunity to avoid
multiple piecemeal objections.18 But to apply that statutory norm, the objections must have been available to the
party at the time the Motion was filed.

Second Issue:
Basis of Private Respondent's Liability
Petitioner argues that the CA erred in disregarding the text of the January 31, 1984 Decision of the trial court. In
concluding that the obligation was merely joint, the CA was allegedly mistaken in relying on the failure of the
dispositive portion of the Decision to state that the obligation was solidary.
We are not impressed. A solidary obligation is one in which each of the debtors is liable for the entire obligation, and
each of the creditors is entitled to demand the satisfaction of the whole obligation from any or all of the debtors. On
the other hand,
a joint obligation is one in which each debtors is liable only for a proportionate part of the debt, and the creditor is
entitled to demand only a proportionate part of the credit from each debtor. 19
The well-entrenched rule is that solidary obligations cannot be inferred lightly. They must be positively and clearly
expressed.20 A liability is solidary "only when the obligation expressly so states, when the law so provides or when
the nature of the obligation so requires."21 Article 1207 of the Civil Code explains the nature of solidary obligations in
this wise.
"ARTICLE 1207. The concurrence of two or more creditors or of two or more debtors in one and the same
obligation does not imply that each one of the former has a right to demand, or that each one of the latter is
bound to render, entire compliance with the prestations. There is a solidary liability only when the obligation
expressly so states, or when the law or the nature of the obligation requires solidarity."
In the dispositive portion of the January 31, 1984 Decision of the trial court, the word solidary neither appears nor
can it be inferred therefrom. The fallo merely stated that the following respondents were liable: Pacific Lloyd
Corporation, Thomas H. Van Sebille, Carlos M. Farrales and Federico C. Lim. Under the circumstances, the liability
is joint, as provided by the Civil Code, which we quote:
"ARTICLE 1208. If from the law, or the nature or the wording of the obligations to which the preceding article
refers[,] the contrary does not appear, the credit or debt shall be presumed to be divided into as many equal
shares as there are creditors or debtors x x x"22
We should stress that respondent's obligation is based on the judgment rendered by the trial court. The dispositive
portion or the fallo is its decisive resolution and is thus the subject of execution. The other parts of the decision may
be resorted to in order to determine the ratio decidendi for the disposition.
Where there is a conflict between the dispositive part and the opinion of the court contained in the text or body of
the decision, the former must prevail over the latter on the theory that the dispositive portion is the final order, while
the opinion is merely a statement ordering nothing23 Hence the execution must conform with that which is ordained
or decreed in the dispositive portion of the decision.
Petitioner maintains that the Court of Appeals improper and incorrectly disregarded the body of the trial court's
Decision, which clearly stated as follows:
 "To support the Promissory Note, a Continuing Suretyship Agreement was executed by the defendants,
Federico C. Lim, Carlos M. Farrales and Thomas H. Van Sebille, in favor of the plaintiff corporation, to the
effect that if Pacific Lloyd Corporation cannot pay the amount loaned by plaintiff to said corporation, then
Federico C. Lim, Carlos M. Farrales and Thomas H. Van Sebille will hold themselves jointly and severally
together with defendant Pacific Lloyd Corporation to answer for the payment of said obligation." 24
As early as 1934 in Oriental Commercial Co. v. Abeto and Mabanag,25 this Court has already answered such
argument in this wise:
"It is of no consequence that, under the written contract of suretyship executed by the parties, the obligation
contracted by the sureties was joint and several in character. The final judgment, which superseded the
action brought for the enforcement of said contract, declared the obligation to be merely joint, and the same
cannot be executed otherwise."26
The same reasoning was recently adopted by this Court in Industrial Management International Development Corp.
v. NLRC,27 promulgated on May 11, 2000.
Doctrinally, the basis of execution is the January 31, 1984 Decision rendered by the trial court, not the "written
contract of suretyship" executed by the parties. As correctly observed by the trial judge:
"x x x [W]hat was stated in the body of the decision of January 31, 1984 [was] only part of the narration of
facts made by the Judge[,] and the dispositive portion is to prevail." 28
The only exception when the body of a decision prevails over the fallo is when the inevitable conclusion from the
former is that there was a glaring error in the latter, in which case the body of the decision will prevail. 29 In this
instance, there was no clear declaration in the body of the January 31, 1984 Decision to warrant a conclusion that
there was an error in the fallo. Nowhere in the former can we find a definite declaration of the trial court that, indeed,
respondent's liability was solidary. If petitioner had doubted this point, it should have filed a motion for
reconsideration before the finality of the Decision of the trial court.
Third Issue:
The Policy of Upholding Executions
Petitioner argues "that the issue of whether or not the judgment debt should be construed as joint or solidary can
only affect the determination of the existence or absence of an excess in the proceeds of the sale." 30 He further
maintains that private respondent's interests are protected anyway even if all his properties are sold, because "any
excess in the proceeds of the sale over the judgment and accruing costs must be delivered to the judgment
debtor."31
We cannot accept these arguments. What can be sold on execution is limited by the Rules of Court, as follows:
"When there is more property of the judgment obligor than is sufficient to satisfy the judgment and lawful
fees, he (sheriff) must sell only so much of the personal or real property as is sufficient to satisfy the
judgment and lawful fees."32
A writ of execution is void when issued for a sum greater than that which is warranted by the judgment or for the
original amount it states despite partial payment thereof. The exact amount due cannot be left to the determination
of the sheriff.33
Petitioner finally insists that it is "futile for private respondent to contest the sale in execution conducted in the case
at bar because of the general policy of the law to sustain execution sales." 34
Simple logic dictates that a general policy to sustain execution sales does not guarantee that they will be upheld at
every instance. Petitioner itself quotes grounds for setting aside such sales: a resulting injury or prejudice, fraud,
mistake or irregularity.35
Being made to pay for an obligation in its entirety when one's liability is merely for a portion is a sufficient ground to
contest an execution sale. It would be the height of inequity if we allow judgment obligors to shoulder entire
monetary judgments when their legal liabilities are limited only to their proportionate shares in the entire obligation.
WHEREFORE, the Petition is hereby DENIED and the assailed Decision AFFIRMED. No pronouncement as to
costs.
SO ORDERED.
Melo, Vitug, Sandoval-Gutierrez, and Carpio, JJ., concur.
PH Credit Corp V CA
GR No. 109648
November 22, 2001
FACTS:
PH Credit Corp. filed a case against Pacific Lloyd Corp et al. for a sum of money. The trial court ruled in favor of
PH Credit Corp and the defendants Were ordered to pay the former. However, it was not clear
whether the obligation to pay was joint or solidary because the dispositive portion of the decision merely stated
that the defendants were liable. Consequently, the personal and real properties of one of the defendants were
levied and sold at public auction wherein PH Credit Corp. was the highest bidder. Later, the trial court declared the
auction as null and void because there was no legal basis for levying and selling one of the defendant’s real and
personal properties in order to satisfy the whole obligation since it presumed the obligation to be joint. PH Credit
Corp contends that respondent Judge erred in applying the presumption of a joint obligation in the face of the
conclusion of fact and law contained in the decision showing that the obligation is solidary. The CA
affirmed the ruling of the trial court declaring that the liability of Farrales was merely joint and not solidary.
ISSUE:
Whether or not the obligation was solidary
HELD:
The obligation was not solidary. The liability is joint. The well-entrenched rule is that solidary obligations cannot be
inferred lightly. They must be positively and clearly expressed. Under Article 1207 of the Civil Code,
“there is asolidary liability only when the obligation expressly so states, or when the law or the nature of the
obligation requires solidarity.” In the dispositive portion of the decision of the trial court, the word solidary
neither appears
nor can it be inferred therefrom. The fallo merely stated that the following respondents were liable. Under the
circumstances, the liability is joint because under Article 1208 of the Civil Code, “if from the law, or the nature
or the wording of the obligations, it does not appear to be solidary, the credit or debt shall be presumed to be
divided into as many equal shares as there are creditors or debtors.”

G.R. No. 101723 May 11, 2000

INDUSTRIAL MANAGEMENT INTERNATIONAL DEVELOPMENT CORP. (INIMACO), petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION, (Fourth Division) Cebu City, and ENRIQUE SULIT,
SOCORRO MAHINAY, ESMERALDO PEGARIDO, TITA BACUSMO, GINO NIERE, VIRGINIA BACUS,
ROBERTO NEMENZO, DARIO GO, and ROBERTO ALEGARBES, respondents.

BUENA, J.:

This is a petition for certiorari assailing the Resolution dated September 4, 1991 issued by the National Labor
Relations Commission in RAB-VII-0711-84 on the alleged ground that it committed a grave abuse of discretion
amounting to lack of jurisdiction in upholding the Alias Writ of Execution issued by the Labor Arbiter which deviated
from the dispositive portion of the Decision dated March 10, 1987, thereby holding that the liability of the six
respondents in the case below is solidary despite the absence of the word "solidary" in the dispositive portion of the
Decision, when their liability should merely be joint.

The factual antecedents are undisputed:

In September 1984, private respondent Enrique Sulit, Socorro Mahinay, Esmeraldo Pegarido, Tita Bacusmo, Gino
Niere, Virginia Bacus, Roberto Nemenzo, Dariogo, and Roberto Alegarbes filed a complaint with the Department of
Labor and Employment, Regional Arbitration Branch No. VII in Cebu City against Filipinas Carbon Mining
Corporation, Gerardo Sicat, Antonio Gonzales, Chiu Chin Gin, Lo Kuan Chin, and petitioner Industrial Management
Development Corporation (INIMACO), for payment of separation pay and unpaid wages.

In a Decision dated March 10, 1987, Labor Arbiter Bonifacio B. Tumamak held that:

RESPONSIVE, to all the foregoing, judgment is hereby entered, ordering respondents Filipinas
Carbon and Mining Corp. Gerardo Sicat, Antonio Gonzales/Industrial Management Development
Corp. (INIMACO), Chiu Chin Gin and Lo Kuan Chin, to pay complainants Enrique Sulit, the total
award of P82,800.00; ESMERALDO PEGARIDO the full award of P19,565.00; Roberto Nemenzo
the total sum of P29,623.60 and DARIO GO the total award of P6,599.71, or the total aggregate
award of ONE HUNDRED THIRTY-EIGHT THOUSAND FIVE HUNDRED EIGHTY-EIGHT PESOS
AND 31/100 (P138,588.31) to be deposited with this Commission within ten (10) days from receipt of
this Decision for appropriate disposition. All other claims are hereby Dismiss (sic) for lack of merit.

SO ORDERED.

Cebu City, Philippines.

10 March 1987. 1

No appeal was filed within the reglementary period thus, the above Decision became final and executory. On June
16, 1987, the Labor Arbiter issued a writ of execution but it was returned unsatisfied. On August 26, 1987, the Labor
Arbiter issued an Alias Writ of Execution which ordered thus:

NOW THEREFORE, by virtue of the powers vested in me by law, you are hereby commanded to
proceed to the premises of respondents Antonio Gonzales/Industrial Management Development
 Corporation (INIMACO) situated at Barangay Lahug, Cebu City, in front of La Curacha
Restaurant, and/or to Filipinas Carbon and Mining corporation and Gerardo Sicat at 4th Floor
Universal RE-Bldg. 106 Paseo de Roxas, Legaspi Village, Makati Metro Manila and at Philippine
National Bank, Escolta, Manila respectively, and collect the aggregate award of ONE HUNDRED
THIRTY-EIGHT THOUSAND FIVE HUNDRED EIGHTY-EIGHT PESOS AND THIRTY ONE
CENTAVOS (P138,588.31) and thereafter turn over said amount to complainants ENRIQUE SULIT,
ESMERALDO PEGARIDO, ROBERTO NEMENZO AND DARIO GO or to this Office for appropriate
disposition. Should you fail to collect the said sum in cash, you are hereby authorized to cause the
satisfaction of the same on the movable or immovable property(s) of respondents not exempt from
execution. You are to return this writ sixty (6) (sic) days from your receipt hereof, together with your
corresponding report.

You may collect your legal expenses from the respondents as provided for by law.

SO ORDERED. 2

On September 3, 1987, petitioner filed a "Motion to Quash Alias Writ of Execution and Set Aside Decision," alleging 3

among others that the alias writ of execution altered and changed the tenor of the decision by changing the liability
of therein respondents from joint to solidary, by the insertion of the words "AND/OR" between "Antonio
Gonzales/Industrial Management Development Corporation and Filipinas Carbon and Mining Corporation, et al."
However, in an order dated September 14, 1987, the Labor Arbiter denied the motion.

On October 2, 1987, petitioner appealed the Labor Arbiter's Order dated September 14, 1987 to the respondent
4

NLRC.

The respondent NLRC dismissed the appeal in a Decision dated August 31, 1988, the pertinent portions of which
5

read:

In matters affecting labor rights and labor justice, we have always adopted the liberal approach
which favors the exercise of labor rights and which is beneficial to labor as a means to give full
meaning and import to the constitutional mandate to afford protection to labor.

Considering the factual circumstances in this case, there is no doubt in our mind that the
respondents herein are called upon to pay, jointly and severally, the claims of the complainants as
was the latters' prayers.

Inasmuch as respondents herein never controverted the claims of the complainants below, there is
no reason why complainants' prayer should not be granted. Further, in line with the powers granted
to the Commission under Article 218 (c) of the Labor code, "to waive any error, defect or irregularity
whether in substance or in form" in a proceeding before Us, We hold that the Writ of Execution be
given due course in all respects.

On July 31, 1989, petitioner filed a "Motion To Compel Sheriff To Accept Payment Of P23,198.05 Representing One
Sixth Pro Rata Share of Respondent INIMACO As Full and Final Satisfaction of Judgment As to Said
Respondent." The private respondents opposed the motion. In an Order dated August 15, 1989, the Labor Arbiter
6 7

denied the motion ruling thus:

WHEREFORE, responsive to the foregoing respondent INIMACO's Motions are hereby DENIED.
The Sheriff of this Office is order (sic) to accept INIMACO's tender payment (sic) of the sum of
P23,198.05, as partial satisfaction of the judgment and to proceed with the enforcement of the Alias
Writ of Execution of the levied properties, now issued by this Office, for the full and final satisfaction
of the monetary award granted in the instant case.

SO ORDERED.

Petitioner appealed the above Order of the Labor Arbiter but this was again dismissed by the respondent NLRC in
its Resolution dated September 4, 1991 which held that:
8

The arguments of respondent on the finality of the dispositive portion of the decision in this case is
beside the point. What is important is that the Commission has ruled that the Writ of Execution
issued by the Labor Arbiter in this case is proper. It is not really correct to say that said Writ of
Execution varied the terms of the judgment.

At most, considering the nature of labor proceedings there was, an ambiguity in said dispositive
portion which was subsequently clarified by the Labor Arbiter and the Commission in the incidents
which were initiated by INIMACO itself.
 By sheer technicality and unfounded assertions, INIMACO would now reopen the issue which was
already resolved against it. It is not in keeping with the established rules of practice and procedure to
allow this attempt of INIMACO to delay the final disposition of this case.

WHEREFORE, in view of all the foregoing, this appeal is DISMISSED and the Order appealed from
is hereby AFFIRMED.

With double costs against appellant.

Dissatisfied with the foregoing, petitioner filed the instant case, alleging that the respondent NLRC committed grave
abuse of discretion in affirming the Order of the Labor Arbiter dated August 15, 1989, which declared the liability of
petitioner to be solidary.

The only issue in this petition is whether petitioner's liability pursuant to the Decision of the Labor Arbiter dated
March 10, 1987, is solidary or not.

Upon careful examination of the pleadings filed by the parties, the Court finds that petitioner INIMACO's liability is
not solidary but merely joint and that the respondent NLRC acted with grave abuse of discretion in upholding the
Labor Arbiter's Alias Writ of Execution and subsequent Orders to the effect that petitioner's liability is solidary.

A solidary or joint and several obligation is one in which each debtor is liable for the entire obligation, and each
creditor is entitled to demand the whole obligation.

9
In a joint obligation each obligor answers only for a part of the whole liability and to each obligee belongs only a
part of the correlative
rights. 10

Well-entrenched is the rule that solidary obligation cannot lightly be inferred. There is a solidary liability only when
11

the obligation expressly so states, when the law so provides or when the nature of the obligation so requires. 12

In the dispositive portion of the Labor Arbiter, the word "solidary" does not appear. The said fallo expressly states
the following respondents therein as liable, namely: Filipinas Carbon and Mining Corporation, Gerardo Sicat,
Antonio Gonzales, Industrial Management Development Corporation (petitioner INIMACO), Chiu Chin Gin, and Lo
Kuan Chin. Nor can it be inferred therefrom that the liability of the six (6) respondents in the case below is solidary,
thus their liability should merely be joint.

Moreover, it is already a well-settled doctrine in this jurisdiction that, when it is not provided in a judgment that the
defendants are liable to pay jointly and severally a certain sum of money, none of them may be compelled to satisfy
in full said judgment. In Oriental Commercial Co. vs. Abeto and Mabanag 1 this Court held:

It is of no consequence that, under the contract of suretyship executed by the parties, the obligation
contracted by the sureties was joint and several in character. The final judgment, which superseded
the action for the enforcement of said contract, declared the obligation to be merely joint, and the
same cannot be executed otherwise. 14

Granting that the Labor Arbiter has committed a mistake in failing to indicate in the dispositive portion that the
liability of respondents therein is solidary, the correction — which is substantial — can no longer be allowed in this
case because the judgment has already become final and executory.

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
15

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
16

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
17

nullity. 18

None of the parties in the case before the Labor Arbiter appealed the Decision dated March 10, 1987, hence the
same became final and executory.
It was, therefore, removed from the jurisdiction of the Labor Arbiter or the NLRC to further alter or amend it. Thus,
the proceedings held for the purpose of amending or altering the dispositive portion of the said decision are null and
void for lack of jurisdiction.

Also, the Alias Writ of Execution is null and void because it varied the tenor of the judgment in that it sought to
enforce the final judgment against "Antonio Gonzales/Industrial Management Development Corp.
(INIMACO) and/or Filipinas Carbon and Mining Corp. and Gerardo Sicat," which makes the liability solidary.

WHEREFORE, the petition is hereby GRANTED. The Resolution dated September 4, 1991 of the respondent
National Labor Relations is hereby declared NULL and VOID. The liability of the respondents in RAB-VII-0711-84
pursuant to the Decision of the Labor Arbiter dated March 10, 1987 should be, as it is hereby, considered joint and
petitioner's payment which has been accepted considered as full satisfaction of its liability, without prejudice to the
enforcement of the award, against the other five (5) respondents in the said case.

SO ORDERED.

*************ACTIVE SOLIDARITY*******************
OBLI0022: ACTIVE SOLIDARITY: A, B, and C are SOLIDARY CREDITORS. D, E, and F are JOINT DEBTORS.
CREDIT or DEBT is P90,000.
- A can only demand from D P30,000. If D pays, A has to give B and C P10,000 each.
- If A wants to collect his whole share in the credit, he has to demand payment from D, E, and F, for P10,000
each.
- A can demand from D P20,000 as payment for the shares of B and C (P10,000 each).
- A cannot demand from D the payment of the shares of the other co-debtors, E and F.
- If A remits or condones D’s share in the debt, the remission shall only cover P30,000. A can still collect
from E and F, P10,000 each. Also, A shall be liable to B and C for P10,000 each since such remission is
prejudicial to B and C.
- If A remits or condones the entire debt, the entire obligation is extinguished but A shall be liable to B and C
for P30,000 each, since such remission is prejudicial to B and C.
- If D is insolvent, E and F are not liable for his share.
- If D does not pay after demand, only D shall be liable for damages. E and F will not be in delay due to D’s
failure to pay upon demand. Separate demands must be made against E and F.
- D may pay A, B, or C, but if A made a demand from D, payment must be made A only.
- In order for the entire obligation to be extinguished through payment, ANY of the creditors must demand
from EACH debtor the payment of P30,000 to ANY creditor.
G.R. No. 104408 June 21, 1993

METRO MANILA TRANSIT CORPORATION, petitioner,

vs.
THE COURT OF APPEALS AND NENITA CUSTODIA, respondents.

Office of the Government Corporate Counsel for petitioner.

Renato P. Decena and Restituto Abjero for private respondent.

REGALADO, J.:

This appeal calls for a review of the legal validity and sufficiency of petitioner's invocation of due diligence in the
selection and supervision of employees as its defense against liability resulting from a vehicular collision. With the
facility by which such a defense can be contrived and our country having reputedly the highest traffic accident rate
in its geographical region, it is indeed high time for us to once again address this matter which poses not only a
litigation issue for the courts but affects the very safety of our streets.

The facts of the case at bar are recounted for us by respondent court, thus —

At about six o'clock in the morning of August 28, 1979, plaintiff-appellant Nenita Custodio boarded as a paying
passenger a public utility jeepney with plate No. D7 305 PUJ Pilipinas 1979, then driven by defendant Agudo
Calebag and owned by his co-defendant Victorino Lamayo, bound for her work at Dynetics Incorporated located in
Bicutan, Taguig, Metro Manila, where she then worked as a machine operator earning P16.25 a day. While the
passenger jeepney was travelling at (a) fast clip along DBP Avenue, Bicutan, Taguig, Metro Manila another fast
moving vehicle, a Metro Manila Transit Corp. (MMTC, for short) bus bearing plate no. 3Z 307 PUB (Philippines) "79
driven by defendant Godofredo C. Leonardo was negotiating Honeydew Road, Bicutan, Taguig, Metro Manila bound
for its terminal at Bicutan. As both vehicles approached the intersection of DBP Avenue and Honeydew Road they
failed to slow down and slacken their speed; neither did they blow their horns to warn approaching vehicles. As a
consequence, a collision between them occurred, the passenger jeepney ramming the left side portion of the MMTC
bus. The collision impact caused plaintiff-appellant Nenita Custodio to hit the front windshield of the passenger
jeepney and (she) was thrown out therefrom, falling onto the pavement unconscious with serious physical injuries.
She was brought to the Medical City Hospital where she regained consciousness only after one (1) week. Thereat,
she was confined for twenty-four (24) days, and as a consequence, she was unable to work for three and one half
1
months (31/2).

2
A complaint for damages was filed by herein private respondent, who being then a minor was assisted by her
parents, against all of therein named defendants following their refusal to pay the expenses incurred by the former
as a result of the collision.

Said defendants denied all the material allegations in the complaint and pointed an accusing finger at each other as
being the party at fault. Further, herein petitioner Metro Manila Transit Corporation (MMTC), a government-owned
corporation and one of the defendants in the court a quo, along with its driver, Godofredo Leonardo, contrarily
3
averred in its answer with cross-claim and counterclaim that the MMTC bus was driven in a prudent and careful
manner by driver Leonardo and that it was the passenger jeepney which was driven recklessly considering that it hit
the left middle portion of the MMTC bus, and that it was defendant Lamayo, the owner of the jeepney and employer
of driver Calebag, who failed to exercise due diligence in the selection and supervision of employees and should
thus be held solidarily liable for damages caused to the MMTC bus through the fault and negligence of its
employees.

4
Defendant Victorino Lamayo, for his part, alleged in his answer with cross-claim and counterclaim that the
damages suffered by therein plaintiff should be borne by defendants MMTC and its driver, Godofredo Leonardo,
because the latter's negligence was the sole and proximate cause of the accident and that MMTC failed to exercise
due diligence in the selection and supervision of its employees.

5
By order of the trial court, defendant Calebag was declared in default for failure to file an answer. Thereafter, as no
6
amicable settlement was reached during the pre-trial conference, trial on the merits ensued with the opposing
parties presenting their respective witnesses and documentary evidence.

Herein private respondent Nenita Custodia, along with her parents, were presented as witnesses for the
prosecution. In addition, Dr. Edgardo del Mundo, the attending physician, testified on the cause, nature and extent
7
of the injuries she sustained as a result of the vehicular mishap. On the other hand, defendant MMTC presented
as witnesses Godofredo Leonardo, Christian Bautista and Milagros Garbo. Defendant Lamayo, however, failed to
present any witness.
Milagros Garbo testified that, as a training officer of MMTC, she was in charge of the selection of the company's bus
drivers, conducting for this purpose a series of training programs and examinations. According to her, new
applicants for job openings at MMTC are preliminarily required to submit certain documents such as National
Bureau of Investigation (NBI) clearance, birth or residence certificate, ID pictures, certificate or diploma of highest
educational attainment, professional driver's license, and work experience certification. Re-entry applicants, aside
from the foregoing requirements, are additionally supposed to submit company clearance for shortages and
damages and revenue performance for the preceding year. Upon satisfactory compliance with said requisites,
applicants are recommended for and subjected to a Preliminary interview, followed by a record check to find out
whether they are included in the list of undesirable employees given by other companies.

Thereafter, she continued, if an applicant is found to be acceptable, a final interview by the Chief Supervisor is
scheduled and followed by a training program which consists of seminars and actual driving and Psycho-physical
tests and X-ray examinations. The seminars, which last for a total of eighteen (18) days, include familiarization with
assigned routes, existing traffic rules and regulations, Constabulary Highway Patrol Group (CHPG) seminar on
defensive driving, preventive maintenance, proper vehicle handling, interpersonal relationship ,and administrative
rules on discipline and on-the-job training. Upon completion of all the seminars and tests, a final clearance is issued,
8
an employment contract is executed and the driver is ready to report for duty.

MMTC's Transport Supervisor, Christian Bautista, testified that it was his duty to monitor the daily operation of
buses in the field, to countercheck the dispatcher on duty prior to the operation of the buses in the morning and to
see to it that the bus crew follow written guidelines of the company, which include seeing to it that its employees are
in proper uniform, briefed in traffic rules and regulations before the start of duty, fit to drive and, in general, follow
9
other rules and regulations of the Bureau of Land Transportation as well as of the company.

10
The reorganized trial court, in its decision of August 1, 1989, found both drivers of the colliding vehicles
concurrently negligent for non-observance of appropriate traffic rules and regulations and for failure to take the
usual precautions when approaching an intersection. As joint tortfeasors, both drivers, as well as defendant
Lamayo, were held solidarily liable for damages sustained by plaintiff Custodio. Defendant MMTC, on the bases of
the evidence presented was, however, absolved from liability for the accident on the ground that it was not only
careful and diligent in choosing and screening applicants for job openings but was also strict and diligent in
supervising its employees by seeing to it that its employees were in proper uniforms, briefed in traffic rules and
regulations before the start of duty, and that it checked its employees to determine whether or not they were positive
for alcohol and followed other rules and regulations and guidelines of the Bureau of Land Transportation and of the
company.

The trial court accordingly ruled:

WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered dismissing the complaint against the
Metro Manila Transit Corporation and ordering defendants Agudo P. Calebag, Victorino Lamayo and Godofredo C.
Leonardo to pay plaintiffs, jointly and severally, the following:

a) the sum of P10,000.00 by way of medical expenses;

b) the sum of P5,000.00 by way of expenses of litigation;

c) the sum of P15,000.00 by way of moral damages;

d) the sum of P2,672.00 by way of loss of earnings;

e) the sum of P5,000.00 by way of exemplary damages;

f) the sum of P6,000.00 by way of attorney's fees; and

g) costs of suit.

11
SO ORDERED.

12
Plaintiff's motion to have that portion of the trial court's decision absolving MMTC from liability reconsidered
13
having been denied for lack of merit, an appeal was filed by her with respondent appellate court. After
consideration of the appropriate pleadings on appeal and finding the appeal meritorious,

the Court of Appeals modified the trial court's decision by holding MMTC solidarily liable with the other defendants
for the damages awarded by the trial court because of their concurrent negligence, concluding that while there is no
hard and fast rule as to what constitutes sufficient evidence to prove that an employer has exercised the due
diligence required of it in the selection and supervision of its employees, based on the quantum of evidence
adduced the said appellate court was not disposed to say that MMTC had exercised the diligence required of a
14
good father of a family in the selection and supervision of its driver, Godofredo Leonardo.

The Court of Appeals was resolute in its conclusion and denied the motions for reconsideration of appellee Custodio
15
and appellant MMTC in a resolution dated February 17, 1982, thus prompting MMTC to file the instant petition
invoking the review powers of this Court over the decision of the Court of Appeals, raising as issues for resolution
whether or not (1) the documentary evidence to support the positive testimonies of witnesses Garbo and Bautista
are still necessary; (2) the testimonies of witnesses Garbo and Bautista may still be disturbed on appeal; and (3) the
evidence presented during the trial with respect to the proof of due diligence of petitioner MMTC in the selection and
supervision of its employees, particularly driver Leonardo, is sufficient.

Prefatorily, private respondent questions the timeliness of the filing of the petition at bar in view of the procedural
stricture that the timely perfection of an appeal is both a mandatory and jurisdictional requirement. This is a
legitimate concern on the part of private respondent and presents an opportune occasion to once again clarify this
point as there appears to be some confusion in the application of the rules and interpretative rulings regarding the
computation of reglementary periods at this stage of the proceedings.

The records of this case reveal that the decision of respondent Court of Appeals, dated October 31, 1991, was
16
received by MMTC on November 18, 1991 and it seasonably filed a motion for the reconsideration thereof on
17
November 28, 1991. Said motion for reconsideration was denied by respondent court in its resolution dated
18
February 17, 1992, which in turn was received by MMTC on March 9, 1992. Therefore, it had, pursuant to
Section 1, Rule 45 of the Rules of Court, fifteen (15) days therefrom or up to March 24, 1992 within which to file its
petition, for review on certiorari. Anticipating, however, that it may not be able to file said petition before the lapse of
the reglementary period therefor, MMTC filed a motion on March 19, 1992 for an extension of thirty (30) days to file
the present petition, with proof of service of copies thereof to respondent court and the adverse parties. The Court
19
granted said motion, with the extended period to be counted from the expiration of the reglementary period.
Consequently, private respondent had thirty (30) days from March 24, 1992 within which to file its petition, or up to
April 23, 1992, and the eventual filing of said petition on April 14, 1992 was well within the period granted by the
Court.

We digress to reiterate, in view of erroneous submissions that we continue to receive, that in the case of a petition
for review on certiorari from a decision rendered by the Court of Appeals, Section 1, Rule 45 of the Rules of Court,
which has long since been clarified in Lacsamana vs. The Hon. Second Special Cases Division of the Intermediate
20
Appellate Court, et al., allows the same to be filed "within fifteen (15) days from notice of judgment or of the
denial of the motion for reconsideration filed in due time, and paying at the same time to the corresponding docket
fee." In other words, in the event a motion for reconsideration is filed and denied, the period of fifteen (15) days
begins to run all over again from notice of the denial resolution. Otherwise put, if a motion for reconsideration is filed,
the reglementary period within which to appeal the decision of the Court of Appeals to the Supreme Court is
reckoned from the date the party who intends to appeal received the order denying the motion for reconsideration.
21
Furthermore, a motion for extension of time to file a petition for review may be filed with this Court within said
reglementary period, paying at the same time the corresponding docket fee.

1. The first two issues raised by petitioner shall be correlatively discussed in view of their interrelation.

In its present petition, MMTC insists that the oral testimonies of its employees were presented as witnesses in its
behalf sufficiently prove, even without the presentation documentary evidence, that driver Leonardo had complied
with all the hiring and clearance requirements and had undergone all trainings, tests and examinations preparatory
to actual employment, and that said positive testimonies spell out the rigid procedure for screening of job applicants
and the supervision of its employees in the field. It underscored the fact that it had indeed complied with the
measure of diligence in the selection and supervision of its employees as enunciated in Campo, et al. vs. Camarote,
22
et al. requiring an employer, in the exercise of the diligence of a good father of a family, to carefully examine the
applicant for employment as to his qualifications, experience and record service, and not merely be satisfied with the
possession of a professional driver's license.

It goes on to say since the testimonies of these witnesses were allegedly neither discredited nor impeached by the
adverse party, they should be believed and not arbitrarily disregarded or rejected nor disturbed on appeal.
 It assiduously argues that inasmuch as there is no law requiring that facts alleged by petitioner be established by
documentary evidence, the probative force and weight of their testimonies should not be discredited, with the further
note that the lower court having passed upon the relevancy of the oral testimonies and considered the same as
23
unrebutted, its consideration should no longer be disturbed on appeal.

Private respondent, on the other hand, retorts that the factual findings of respondent court are conclusive upon the
24
High Court which cannot be burdened with the task of analyzing and weighing the evidence all over again.

At this juncture, it suffices to note that factual findings of the trial court may be reversed by the Court of Appeals,
which is vested by law with the power to review both legal and factual issues, if on the evidence of record, it appears
25
that the trial court may have been mistaken particularly in the appreciation of evidence, which is within the
26
domain of the Court of Appeals.

The general rule laid down in a plethora of cases is that such findings of fact by the Court of Appeals are conclusive
27
upon and beyond the power of review of the Supreme Court.

However, it is now well-settled that while the findings of fact of the Court of Appeals are entitled to great respect,
and even finality at times, that rule is not inflexible and is subject to well established exceptions,

to wit:

(1) when the conclusion is a finding grounded entirely on speculation, surmises and conjectures;

(2) when the inference made is manifestly mistaken, absurd or impossible;

(3) where there is grave abuse of discretion;

(4) when the judgment is based on a misapprehension of facts;

(5) when the findings of fact are conflicting;

(6) when the Court of Appeals, in making its findings, went beyond the issues of the case and the same are contrary
to the admissions of both appellant and appellee;

(7) when the findings of the Court of Appeals are contrary to those of the trial court;

(8) when the findings of fact are conclusions without citation of specific evidence on which they are based;

(9) when the facts set forth in the petition, as well as in the petitioner's main and reply briefs are not disputed by the
respondents and (10) when the findings of fact of the Court of Appeals are premised on the supposed absence of
28
evidence and are contradicted by the evidence on record.

When as in this case, the findings of the Court of Appeals and the trial court are contrary to each other, this court
29 30
may scrutinize the evidence on record, in order to arrive at a correct finding based thereon.

A perusal of the same shows that since there is no dispute as to the finding of concurrent negligence on the part of
the defendant Calebag, the driver of the passenger jeepney, and co-defendant Leonardo, the bus driver of petitioner
MMTC, both of whom were solidarily held liable with defendant Lamayo, the owner of the jeepney, we are spared
31
the necessity of determining the sufficiency of evidence establishing the fact of negligence. The contrariety is in
the findings of the two lower courts, and which is the subject of this present controversy, with regard to the liability of
MMTC as employer of one the erring drivers.

The trial court, in absolving MMTC from liability ruled that —

On the question as to whether defendant MMTC was successful in proving its defense that indeed it had exercised
the due diligence of a good father of a family in the selection and supervision of defendant Leonardo, this Court
finds that based on the evidence presented during the trial, defendant MMTC was able to prove that it was not only
careful and diligent in choosing and screening applicants for job openings but also strict (and) diligent in supervising
its employees by seeing to it that its employees were in proper uniforms, briefed in traffic rules and regulations
before the start of duty, checked employees to determine whether they were positive for alcohol and followed other
rules and regulations and guidelines of the Bureau of Land Transportation as well as its company. Having
successfully proven such defense, defendant MMTC therefore, cannot be held liable for the accident.
Having reached this conclusion, the Court now, holds that defendant MMTC be totally absolved from liability and
32
that the complaint against it be dismissed. . . .

whereas respondent court was of the opinion that —

It is surprising though that witness Milagros Garbo did not testify nor present any evidence that defendant-appellee's
driver, defendant Godofredo Leonardo has complied with or has undergone all clearances and trainings she
referred to. The clearances, result of seminars and tests which Godofredo Leonardo submitted and complied with, if
any, were not presented in court despite the fact that they are obviously in the possession and control of defendant-
appellee. Instead, it resorted to generalities. The Court has ruled that due diligence in (the) selection and
supervision of employee(s) are not proved by mere testimonies to the effect that its applicant has complied with all
the company requirements before one is admitted as an employee but without proof thereof. . . .

On the part of Christian Bautista, the transport supervisor of defendant-appellee, he testified that it is his duty to
monitor the operation of buses in the field; to countercheck the dispatchers' duty prior to the operation of the buses
in the morning; to see to it that bus crew follows written guidelines of the company (t.s.n., April 29, 1988, pp. 4-5),
but when asked to present in court the alleged written guidelines of the company he merely stated that he brought
with him a "wrong document" and defendant-appellee's counsel asked for reservation to present such written
33
guidelines in the next hearing but the same was (sic) never presented in court.

A thorough and scrupulous review of the records of this case reveals that the conclusion of respondent Court of
Appeals is more firmly grounded on jurisprudence and amply supported by the evidence of record than that of the
court below.

It is procedurally required for each party in a case to prove his own affirmative assertion by the degree of evidence
34
required by law. In civil cases, the degree of evidence required of a party in order to support his claim is
preponderance of evidence, or that evidence adduced by one party which is more conclusive and credible than that
of the other party. It is, therefore, incumbent on the plaintiff who is claiming a right to prove his case. Corollarily,
35
defendant must likewise prove own allegation to buttress its claim that it is not liable.

In fine, the party, whether plaintiff or defendant, who asserts the affirmative of the issue has the burden of
36
presenting at the trial such amount of evidence required by law to obtain a favorable judgment. It is entirely
within each of the parties discretion, consonant with the theory of the case it or he seeks to advance and subject to
such procedural strategy followed thereby, to present all available evidence at its or his disposal in the manner
which may be deemed necessary and beneficial to prove its or his position, provided only that the same shall
measure up to the quantum of evidence required by law. In making proof in its or his case, it is paramount that the
37
best and most complete evidence be formally entered.

Coming now to the case at bar, while there is no rule which requires that testimonial evidence, to hold sway, must
be corroborated by documentary evidence, or even subject evidence for that matter, inasmuch as the witnesses'
testimonies dwelt on mere generalities, we cannot consider the same as sufficiently persuasive proof that there was
38
observance of due diligence in the selection and supervision of employees. Petitioner's attempt to prove its
diligentissimi patris familias in the selection and supervision of employees through oral evidence must fail as it was
unable to buttress the same with any other evidence, object or documentary, which might obviate the apparent
39
biased nature of the testimony.

Our view that the evidence for petitioner MMTC falls short of the required evidentiary quantum as would
convincingly and undoubtedly prove its observance of the diligence of a good father of a family has its precursor in
the underlying rationale pronounced in the earlier case of Central Taxicab Corp. vs. Ex-Meralco Employees
40
Transportation Co., et al., set amidst an almost identical factual setting, where we held that:

. . . . This witness spoke of an "affidavit of experience" which a driver-applicant must accomplish before he is
employed by the company, a written "time schedule" for each bus, and a record of the inspections and thorough
checks pertaining to each bus before it leaves the car barn; yet no attempt was ever made to present in evidence
any of these documents, despite the fact that they were obviously in the possession and control of the defendant
company.

xxx xxx xxx

Albert also testified that he kept records of the preliminary and final tests given him as well as a record of the
qualifications and experience of each of the drivers of the company. It is rather strange, therefore, that he failed to
produce in court the all important record of Roberto, the driver involved in this case.
The failure of the defendant company to produce in court any "record" or other documentary proof tending to
establish that it had exercised all the diligence of a good father of a family in the selection and supervision of its
drivers and buses, notwithstanding the calls therefor by both the trial court and the opposing counsel, argues
strongly against its pretensions.

We are fully aware that there is no hard-and-fast rule on the quantum of evidence needed to prove due observance
of all the diligence of a good father of a family as would constitute a valid defense to the legal presumption of
negligence on the part of an employer or master whose employee has by his negligence, caused damage to
another. . . . (R)educing the testimony of Albert to its proper proportions, we do not have enough trustworthy
evidence left to go by. We are of the considered opinion, therefore, that the believable evidence on the degree of
care and diligence that has been exercised in the selection and supervision of Roberto Leon y Salazar, is not legally
sufficient to overcome the presumption of negligence against the defendant company.

Whether or not the diligence of a good father of a family has been observed by petitioner is a matter of proof which
under the circumstances in the case at bar has not been clearly established. It is not felt by the Court that there is
enough evidence on record as would overturn the presumption of negligence, and for failure to submit all evidence
within its control, assuming the putative existence thereof, petitioner MMTC must suffer the consequences of its own
inaction and indifference.

2. In any event, we do not find the evidence presented by petitioner sufficiently convincing to prove the diligence of
a good father of a family, which for an employer doctrinally translates into its observance of due diligence in the
selection and supervision of its employees but which mandate, to use an oft-quoted phrase, is more often honored
in the breach than in the observance.

Petitioner attempted to essay in detail the company's procedure for screening job applicants and supervising its
employees in the field, through the testimonies of Milagros Garbo, as its training officer, and Christian Bautista, as
its transport supervisor, both of whom naturally and expectedly testified for MMTC. It then concluded with its
sweeping pontifications that "thus, there is no doubt that considering the nature of the business of petitioner, it would
not let any applicant-drivers to be (sic) admitted without undergoing the rigid selection and training process with the
end (in) view of protecting the public in general and its passengers in particular; . . . thus, there is no doubt that
applicant had fully complied with the said requirements otherwise Garbo should not have allowed him to undertake
the next set of requirements . . . and the training conducted consisting of seminars and actual driving tests were
41
satisfactory otherwise he should have not been allowed to drive the subject vehicle.

These statements strike us as both presumptuous and in the nature of petitio principii, couched in generalities and
shorn of any supporting evidence to boost their verity. As earlier observed, respondent court could not but express
surprise, and thereby its incredulity, that witness Garbo neither testified nor presented any evidence that driver
Leonardo had complied with or had undergone all the clearances and trainings she took pains to recite and
enumerate. The supposed clearances, results of seminars and tests which Leonardo allegedly submitted and
complied with were never presented in court despite the fact that, if true, then they were obviously in the possession
42
and control of petitioner.

The case at bar is clearly within the coverage of Article 2176 and 2177, in relation to Article 2180, of the Civil Code
provisions on quasi-delicts as all the elements thereof are present, to wit: (1) damages suffered by the plaintiff, (2)
fault or negligence of the defendant or some other person for whose act he must respond, and (3) the connection of
43
cause and effect between fault or negligence of the defendant and the damages incurred by plaintiff. It is to be
noted that petitioner was originally sued as employer of driver Leonardo under Article 2180, the pertinent parts of
which provides that:

The obligation imposed by article 2176 is demandable not only for one's own acts or omissions, but also for those of
persons for whom one is responsible.

xxx xxx xxx

Employers shall be liable for damages caused by their employees and household helpers acting within the scope of
their assigned tasks, even though the former are not engaged in any business or industry.

xxx xxx xxx

The responsibility treated of in this article shall cease when the persons herein mentioned prove that they observed
all the diligence of a good father of a family to prevent damage.

The basis of the employer's vicarious liability has been explained under this ratiocination:

The responsibility imposed by this article arises by virtue of a presumption juris tantum of negligence on the part of
the persons made responsible under the article, derived from their failure to exercise due care and vigilance over
the acts of subordinates to prevent them from causing damage. Negligence is imputed to them by law, unless they
prove the contrary. Thus, the last paragraph of the article says that such responsibility ceases if is proved that the
persons who might be held responsible under it exercised the diligence of a good father of a family ( diligentissimi
patris familias) to prevent damage. It is clear, therefore, that it is not representation, nor interest, nor even the
necessity of having somebody else answer for the damages caused by the persons devoid of personality, but it is
the non-performance of certain duties of precaution and prudence imposed upon the persons who become
44
responsible by civil bond uniting the actor to them, which forms the foundation of such responsibility.

The above rule is, of course, applicable only where there is an employer-employee relationship, although it is not
necessary that the employer be engaged in business or industry. Whether or not engaged in any business or
industry, the employer under Article 2180 is liable for torts committed by his employees within the scope of their
assigned tasks. But, it is necessary first to establish the employment relationship. Once this is done, the plaintiff
must show, to hold the employer liable, that the employee was acting within the scope of his assigned task when the
tort complained of was committed. It is only then that the defendant, as employer, may find it necessary to interpose
45
the defense of due diligence in the selection and supervision of employees. The diligence of a good father of a
family required to be observed by employers to prevent damages under Article 2180 refers to due diligence in the
46
selection and supervision of employees in order to protect the public.

With the allegation and subsequent proof of negligence against the defendant driver and of an employer-employee
relation between him and his co-defendant MMTC in this instance, the case in undoubtedly based on a quasi-delict
47
under Article 2180 When the employee causes damage due to his own negligence while performing his own
48
duties, there arises the juris tantum presumption that the employer is negligent, rebuttable only by proof of
observance of the diligence of a good father of a family. For failure to rebut such legal presumption of negligence in
49
the selection and supervision of employees, the employer is likewise responsible for damages, the basis of the
50
liability being the relationship of pater familias or on the employer's own negligence.

51
As early as the case of Gutierrez vs. Gutierrez, and thereafter, we have consistently held that where the injury is
due to the concurrent negligence of the drivers of the colliding vehicles, the drivers and owners of the said vehicles
shall be primarily, directly and solidarily liable for damages and it is immaterial that one action is based on quasi-
52
delict and the other on culpa contractual, as the solidarily of the obligation is justified by the very nature thereof.

It should be borne in mind that the legal obligation of employers to observe due diligence in the selection and
supervision of employees is not to be considered as an empty play of words or a mere formalism, as appears to be
the fashion of the times, since the non-observance thereof actually becomes the basis of their vicarious liability
under Article 2180.

On the matter of selection of employees, Campo vs. Camarote, supra, lays down this admonition:

. . . . In order tat the owner of a vehicle may be considered as having exercised all diligence of a good father of a
family, he should not have been satisfied with the mere possession of a professional driver's license; he should
have carefully examined the applicant for employment as to his qualifications, his experience and record of service.
These steps appellant failed to observe; he has therefore, failed to exercise all due diligence required of a good
father of a family in the choice or selection of driver.

Due diligence in the supervision of employees, on the other hand, includes the formulation of suitable rules and
regulations for the guidance of employees and the issuance of proper instructions intended for the protection of the
public and persons with whom the employer has relations through his or its employees and the imposition of
necessary disciplinary measures upon employees in case of breach or as may be warranted to ensure the
53
performance of acts indispensable to the business of and beneficial to their employer. To this, we add that actual
implementation and monitoring of consistent compliance with said rules should be the constant concern of the
employer, acting through dependable supervisors who should regularly report on their supervisory functions.

In order that the defense of due diligence in the selection and supervision of employees may be deemed sufficient
and plausible, it is not enough to emptily invoke the existence of said company guidelines and policies on hiring and
supervision. As the negligence of the employee gives rise to the presumption of negligence on the part of the
employer, the latter has the burden of proving that it has been diligent not only in the selection of employees but
also in the actual supervision of their work. The mere allegation of the existence of hiring procedures and
supervisory policies, without anything more, is decidedly not sufficient to overcome presumption.

We emphatically reiterate our holding, as a warning to all employers, that "(t)he mere formulation of various
company policies on safety without showing that they were being complied with is not sufficient to exempt petitioner
from liability arising from negligence of its employees. It is incumbent upon petitioner to show that in recruiting and
employing the erring driver the recruitment procedures and company policies on efficiency and safety were
54
followed." Paying lip-service to these injunctions or merely going through the motions of compliance therewith
will warrant stern sanctions from the Court.
These obligations, imposed by the law and public policy in the interests and for the safety of the commuting public,
herein petitioner failed to perform. Respondent court was definitely correct in ruling that ". . . due diligence in the
selection and supervision of employee (is) not proved by mere testimonies to the effect that its applicant has
55
complied with all the company requirements before one is admitted as an employee but without proof thereof." It
is further a distressing commentary on petitioner that it is a government-owned public utility, maintained by public
funds, and organized for the public welfare.

The Court it is necessary to once again stress the following rationale behind these all-important statutory and
jurisprudential mandates, for it has been observed that despite its pronouncement in Kapalaran Bus Line vs.
Coronado, et al., supra, there has been little improvement in the transport situation in the country:

In requiring the highest possible degree of diligence from common carriers and creating a presumption of
negligence against them, the law compels them to curb the recklessness of their drivers.

While the immediate beneficiaries of the standard of extraordinary diligence are, of course, the passengers and
owners of the cargo carried by a common carrier, they are not the only persons that the law seeks to benefit. For if
common carriers carefully observe the statutory standard of extraordinary diligence in respect of their own
passengers, they cannot help but simultaneously benefit pedestrians and the owners and passengers of other
vehicles who are equally entitled to the safe and convenient use of our roads and highways. The law seeks to stop
and prevent the slaughter and maiming of people (whether passengers or not) and the destruction of property
(whether freight or not) on our highways by buses, the very size and power of which seem often to inflame the
minds of their drivers. . . .

Finally, we believe that respondent court acted in the exercise of sound discretion when it affirmed the trial court's
award, without requiring the payment of interest thereon as an item of damages just because of delay in the
determination thereof, especially since private respondent did not specifically pray therefor in her complaint. Article
2211 of the Civil Code provides that in quasi-delicts, interest as a part of the damages may be awarded in the
discretion of the court, and not as a matter of right. We do not perceive that there have been international dilatory
maneuvers or any special circumstances which would justify that additional award and, consequently, we find no
reason to disturb said ruling.

WHEREFORE, the impugned decision of respondent Court of Appeals is hereby AFFIRMED.

SO ORDERED.

Narvasa, C.J. and Nocon, JJ., concur.

Padilla, J., is on leave.

SECOND DIVISION G.R. No. 206147,

January 13, 2016
MICHAEL C. GUY, Petitioner, v. ATTY. GLENN C. GACOTT, Respondent. D E C I S I O N MENDOZA, J.:
FACTS:
Atty. Gacott from Palawan purchased two (2) brand new transreceivers from Quantech Systems Corporation
(QSC) in Manila through its employee Rey Medestomas. After some time, he returned it due to major defects.
But time passed, he was not able to get the replacement units and he was informed that there were no
available units and he cannot refund the purchase price. He filed a complaint for damages. But during
execution, he learned that QSC was not a corporation but, a general partnership with Mr. Guy as a partner and
its general manager. Because of that, Gacott instructed the sheriff to proceed with the attachment of one of
the motor vehicles of Guy. After that, Guy filed a Motion to lift Attachment upon Personalty arguing that he
was not a judgment debtor and, therefore, his vehicle could not be attached buut it has been denied by the
RTC and CA stating that he is solidarily liable to the liability of the partnership since he is the general manager.
ISSUE:
Whether or not Guy is solidarily liable with the partnership for damages arising from the breach of contract of
sale with Gacott.

RULING:
The Supreme Court stated that a partner must be separately and distinctly impleaded before he can be bound
by a judgment. It is not conclusive that a suit against a partnership will also be a suit impleading each partner
unless it was shown that the legal fiction of a different juridical personality was being used for fraudulent,
unfair, or illegal purposes. Since a partnership has a separate legal personality from the partners, the partners'
obligation with respect to partnership liabilities is joint and subsidiary in nature which means all partners shall
be liable pro rata with all their property and partners shall only be liable with their property after the
partnership assets have been exhausted. Therefore, since Guy did not act maliciously, he and his personal
properties cannot be made directly and solely accountable for the liability of QSC and that he was not the
judgment debtor in the case before the RTC, with that, his levied vehicle was released.

RATIO:

--Although a partnership is based on delectus personae or mutual agency, whereby any partner can generally
represent the partnership in its business affairs, it is non sequitur that a suit against the partnership is
necessarily a suit impleading each and every partner. It must be remembered that a partnership is a juridical
entity that has a distinct and separate personality from the persons composing it
--The effect of a judgment could not be extended to non-parties by simply issuing an alias writ of execution
against them, for no man should be prejudiced by any proceeding to which he was a stranger.

-- It would be the height of injustice to rob an innocent partner of his hard-earned personal belongings
without giving him an opportunity to be heard. Without any showing that Guy himself acted maliciously on
behalf of the company, causing damage or injury to the complainant, then he and his personal properties
cannot be made directly and solely accountable for the liability of QSC, the judgment debtor, because he was
not a party to the case.

SECOND DIVISION
[ G.R. No. 206147, January 13, 2016 ]
MICHAEL C. GUY, PETITIONER, VS. ATTY. GLENN C. GACOTT, RESPONDENT.

DECISION
MENDOZA, J.:
Before this Court is a petition for review on certiorari under Rule 45 of the Rules of Court filed by petitioner Michael C. Guy (Guy),
assailing the June 25, 2012 Decision[1] and the March 5, 2013 Resolution[2] of the Court of Appeals (CA) in CA-G.R. CV No. 94816,
which affirmed the June 28, 2009[3] and February 19, 2010[4] Orders of the Regional Trial Court, Branch 52, Puerto Princesa City,
Palawan (RTC), in Civil Case No. 3108, a case for damages. The assailed RTC orders denied Guy's Motion to Lift Attachment Upon
Personalty[5] on the ground that he was not a judgment debtor.

The Facts

It appears from the records that on March 3, 1997, Atty. Glenn Gacott (Gacott) from Palawan purchased two (2) brand new
transreceivers from Quantech Systems Corporation (QSC) in Manila through its employee Rey Medestomas (Medestomas), amounting
to a total of PI 8,000.00. On May 10, 1997, due to major defects, Gacott personally returned the transreceivers to QSC and requested
that they be replaced. Medestomas received the returned transreceivers and promised to send him the replacement units within two
(2) weeks from May 10, 1997.

Time passed and Gacott did not receive the replacement units as promised. QSC informed him that there were no available units and
that it could not refund the purchased price. Despite several demands, both oral and written, Gacott was never given a replacement or
a refund. The demands caused Gacott to incur expenses in the total amount of P40,936.44. Thus, Gacott filed a complaint for
damages. Summons was served upon QSC and Medestomas, afterwhich they filed their Answer, verified by Medestomas himself and
a certain Elton Ong (Ong). QSC and Medestomas did not present any evidence during the trial. [6]

In a Decision,[7] dated March 16, 2007, the RTC found that the two (2) transreceivers were defective and that QSC and Medestomas
failed to replace the same or return Gacott's money. The dispositive portion of the decision reads:

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

1. Purchase price plus 6% per annum from March 3,1997 up to and until fully paid -------------------------------------------------------- P
18,000.00
2. Actual Damages ----------------------------------- 40,936.44
3. Moral Damages ----------------------------------- 75,000.00
4. Corrective Damages ---------------------------- 100,000.00
5. Attorney's Fees ------------------------------------ 60,000.00
6. Costs.

SO ORDERED.

The decision became final as QSC and Medestomas did not interpose an appeal. Gacott then secured a Writ of Execution, [8] dated
September 26, 2007.

During the execution stage, Gacott learned that QSC was not a corporation, but was in fact a general partnership registered with the
Securities and Exchange Commission (SEC). In the articles of partnership,[9] Guy was appointed as General Manager of QSC.

To execute the judgment, Branch Sheriff Ronnie L. Felizarte (Sheriff Felizarte) went to the main office of the Department of
Transportation and Communications, Land Transportation Office (DOTC-LTO), Quezon City, and verified whether Medestomas, QSC
and Guy had personal properties registered therein.[10] Upon learning that Guy had vehicles registered in his name, Gacott instructed
the sheriff to proceed with the attachment of one of the motor vehicles of Guy based on the certification issued by the DOTC-LTO. [11]

On March 3, 2009, Sheriff Felizarte attached Guy's vehicle by virtue of the Notice of Attachment/Levy upon Personalty [12] served upon
the record custodian of the DOTC-LTO of Mandaluyong City. A similar notice was served to Guy through his housemaid at his
residence.

Thereafter, Guy filed his Motion to Lift Attachment Upon Personalty, arguing that he was not a judgment debtor and, therefore, his
vehicle could not be attached.[13] Gacott filed an opposition to the motion.

The RTC Order

On June 28, 2009, the RTC issued an order denying Guy's motion. It explained that considering QSC was not a corporation, but a
registered partnership, Guy should be treated as a general partner pursuant to Section 21 of the Corporation Code, and he may be
held jointly and severally liable with QSC and Medestomas. The trial court wrote:

All persons who assume to act as a corporation knowing it to be without authority to do so shall be liable as general partners for all
debts, liabilities and damages incurred or arising as a result thereof x x x. Where, by any wrongful act or omission of any partner
acting in the ordinary course of the business of the partnership x x x, loss or injury is caused to any person, not being a partner in the
partnership, or any penalty is incurred, the partnership is liable therefore to the same extent as the partner so acting or omitting to act.
All partners are liable solidarity with the partnership for everything chargeable to the partnership under Article 1822 and 1823. [14]

Accordingly, it disposed:

WHEREFORE, with the ample discussion of the matter, this Court finds and so holds that the property of movant Michael Guy may be
validly attached in satisfaction of the liabilities adjudged by this Court against Quantech Co., the latter being an ostensible Corporation
and the movant being considered by this Court as a general partner therein in accordance with the order of this court impressed in its
decision to this case imposing joint and several liability to the defendants. The Motion to Lift Attachment Upon Personalty submitted
by the movant is therefore DENIED for lack of merit.

SO ORDERED.[15]

Not satisfied, Guy moved for reconsideration of the denial of his motion. He argued that he was neither impleaded as a defendant nor
validly served with summons and, thus, the trial court did not acquire jurisdiction over his person; that under Article 1824 of the Civil
Code, the partners were only solidarily liable for the partnership liability under exceptional circumstances; and that in order for a
partner to be liable for the debts of the partnership, it must be shown that all partnership assets had first been exhausted. [16]

On February 19, 2010, the RTC issued an order[17] denying his motion.

The denial prompted Guy to seek relief before the CA.

The CA Ruling

On June 25, 2012, the CA rendered the assailed decision dismissing Guy's appeal for the same reasons given by the trial court. In
addition thereto, the appellate court stated:

We hold that Michael Guy, being listed as a general partner of QSC during that time, cannot feign ignorance of the existence of the
court summons. The verified Answer filed by one of the partners, Elton Ong, binds him as a partner because the Rules of Court does
not require that summons be served on all the partners. It is sufficient that service be made on the "president, managing partner,
general manager, corporate secretary, treasurer or in-house counsel." To Our mind, it is immaterial whether the summons to QSC was
served on the theory that it was a corporation. What is important is that the summons was served on QSC's authorized officer xxx. [18]

The CA stressed that Guy, being a partner in QSC, was bound by the summons served upon QSC based on Article 1821 of the Civil
Code. The CA further opined that the law did not require a partner to be actually involved in a suit in order for him to be made liable.
He remained "solidarity liable whether he participated or not, whether he ratified it or not, or whether he had knowledge of the act or
omission."[19]

Aggrieved, Guy filed a motion for reconsideration but it was denied by the CA in its assailed resolution, dated March 5, 2013.
Hence, the present petition raising the following

ISSUE

THE HONORABLE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN HOLDING THAT PETITIONER GUY IS
SOLIDARILY LIABLE WITH THE PARTNERSHIP FOR DAMAGES ARISING FROM THE BREACH OF THE CONTRACT OF SALE
WITH RESPONDENT GACOTT.[20]

Guy argues that he is not solidarity liable with the partnership because the solidary liability of the partners under Articles 1822, 1823
and 1824 of the Civil Code only applies when it stemmed from the act of a partner. In this case, the alleged lapses were not
attributable to any of the partners. Guy further invokes Article 1816 of the Civil Code which states that the liability of the partners to
the partnership is merely joint and subsidiary in nature.

In his Comment,[21] Gacott countered, among others, that because Guy was a general and managing partner of QSC, he could not
feign ignorance of the transactions undertaken by QSC. Gacott insisted that notice to one partner must be considered as notice to the
whole partnership, which included the pendency of the civil suit against it.

In his Reply,[22] Guy contended that jurisdiction over the person of the partnership was not acquired because the summons was never
served upon it or through any of its authorized office. He also reiterated that a partner's liability was joint and subsidiary, and not
solidary.

The Court's Ruling

The petition is meritorious.

The service of summons was

flawed; voluntary appearance
cured the defect

Jurisdiction over the person, or jurisdiction in personam - the power of the court to render a personal judgment or to subject the
parties in a particular action to the judgment and other rulings rendered in the action - is an element of due process that is essential in
all actions, civil as well as criminal, except in actions in rem or quasi in rem.[23] Jurisdiction over the person of the plaintiff is acquired
by the mere filing of the complaint in court. As the initiating party, the plaintiff in a civil action voluntarily submits himself to the
jurisdiction of the court. As to the defendant, the court acquires jurisdiction over his person either by the proper service of the
summons, or by his voluntary appearance in the action.[24]

Under Section 11, Rule 14 of the 1997 Revised Rules of Civil Procedure, when the defendant is a corporation, partnership or
association organized under the laws of the Philippines with a juridical personality, the service of summons may be made on the
president, managing partner, general manager, corporate secretary, treasurer, or in-house counsel. Jurisprudence is replete with
pronouncements that such provision provides an exclusive enumeration of the persons authorized to receive summons for juridical
entities.[25]

The records of this case reveal that QSC was never shown to have been served with the summons through any of the enumerated
authorized persons to receive such, namely: president, managing partner, general manager, corporate secretary, treasurer or in-house
counsel. Service of summons upon persons other than those officers enumerated in Section 11 is invalid. Even substantial
compliance is not sufficient service of summons. The CA was obviously mistaken when it opined that it was immaterial whether the
summons to QSC was served on the theory that it was a corporation.[27]

Nevertheless, while proper service of summons is necessary to vest the court jurisdiction over the defendant, the same is merely
procedural in nature and the lack of or defect in the service of summons may be cured by the defendant's subsequent voluntary
submission to the court's jurisdiction through his filing a responsive pleading such as an answer. In this case, it is not disputed that
QSC filed its Answer despite the defective summons. Thus, jurisdiction over its person was acquired through voluntary appearance.

A partner must be separately

and distinctly impleaded before
he can be bound by a judgment

The next question posed is whether the trial court's jurisdiction over QSC extended to the person of Guy insofar as holding him
solidarity liable with the partnership. After a thorough study of the relevant laws and jurisprudence, the Court answers in the negative.

Although a partnership is based on delectus personae or mutual agency, whereby any partner can generally represent the partnership
in its business affairs, it is non sequitur that a suit against the partnership is necessarily a suit impleading each and every partner. It
must be remembered that a partnership is a juridical entity that has a distinct and separate personality from the persons composing it.
[28]

In relation to the rules of civil procedure, it is elementary that a judgment of a court is conclusive and binding only upon the parties
and their successors-in-interest after the commencement of the action in court.[29] A decision rendered on a complaint in a civil action
or proceeding does not bind or prejudice a person not impleaded therein, for no person shall be adversely affected by the outcome of
a civil action or proceeding in which he is not a party.[30] The principle that a person cannot be prejudiced by a ruling rendered in an
action or proceeding in which he has not been made a party conforms to the constitutional guarantee of due process of law. [31]

In Muñoz v. Yabut, Jr.,[32] the Court declared that a person not impleaded and given the opportunity to take part in the proceedings
was not bound by the decision declaring as null and void the title from which his title to the property had been derived. The effect of a
judgment could not be extended to non-parties by simply issuing an alias writ of execution against them, for no man should be
prejudiced by any proceeding to which he was a stranger.

In Aguila v. Court of Appeals[33] the complainant had a cause of action against the partnership. Nevertheless, it was the partners
themselves that were impleaded in the complaint. The Court dismissed the complaint and held that it was the partnership, not its
partners, officers or agents, which should be impleaded for a cause of action against the partnership itself. The Court added that the
partners could not be held liable for the obligations of the partnership unless it was shown that the legal fiction of a different juridical
personality was being used for fraudulent, unfair, or illegal purposes. [34]

Here, Guy was never made a party to the case. He did not have any participation in the entire proceeding until his vehicle was levied
upon and he suddenly became QSC's "co-defendant debtor" during the judgment execution stage. It is a basic principle of law that
money judgments are enforceable only against the property incontrovertibly belonging to the judgment debtor. [35]

Indeed, the power of the court in executing judgments extends only to properties unquestionably belonging to the judgment debtor
alone. An execution can be issued only against a party and not against one who did not have his day in court. The duty of the sheriff is
to levy the property of the judgment debtor not that of a third person. For, as the saying goes, one man's goods shall not be sold for
another man's debts.[36]

In the spirit of fair play, it is a better rule that a partner must first be impleaded before he could be prejudiced by the judgment against
the partnership. As will be discussed later, a partner may raise several defenses during the trial to avoid or mitigate his obligation to
the partnership liability. Necessarily, before he could present evidence during the trial, he must first be impleaded and informed of the
case against him.

It would be the height of injustice to rob an innocent partner of his hard-earned personal belongings without giving him an opportunity
to be heard. Without any showing that Guy himself acted maliciously on behalf of the company, causing damage or injury to the
complainant, then he and his personal properties cannot be made directly and solely accountable for the liability of QSC, the
judgment debtor, because he was not a party to the case.

Further, Article 1821 of the Civil Code does not state that there is no need to implead a partner in order to be bound by the
partnership liability. It provides that:

Notice to any partner of any matter relating to partnership affairs, and the knowledge of the partner acting in the particular
matter, acquired while a partner or then present to his mind, and the knowledge of any other partner who reasonably could and
should have communicated it to the acting partner, operate as notice to or knowledge of the partnership, except in the case of
fraud on the partnership, committed by or with the consent of that partner.

[Emphases and Underscoring Supplied]

A careful reading of the provision shows that notice to any partner, under certain circumstances, operates as notice to or knowledge
to the partnership only. Evidently, it does not provide for the reverse situation, or that notice to the partnership is notice to the
partners. Unless there is an unequivocal law which states that a partner is automatically charged in a complaint against the
partnership, the constitutional right to due process takes precedence and a partner must first be impleaded before he can be
considered as a judgment debtor. To rule otherwise would be a dangerous precedent, harping in favor of the deprivation of property
without ample notice and hearing, which the Court certainly cannot countenance.

Partners' liability is subsidiary

and generally joint; immediate levy
upon the property of a partner
cannot be made

Granting that Guy was properly impleaded in the complaint, the execution of judgment would be improper. Article 1816 of the Civil
Code governs the liability of the partners to third persons, which states that:

Article 1816. All partners, including industrial ones, shall be liable pro rata with all their property and after all the partnership
assets have been exhausted, for the contracts which may be entered into in the name and for the account of the partnership, under
its signature and by a person authorized to act for the partnership. However, any partner may enter into a separate obligation to
perform a partnership contract.

[Emphasis Supplied]

This provision clearly states that, first, the partners' obligation with respect to the partnership liabilities is subsidiary in nature. It
provides that the partners shall only be liable with their property after all the partnership assets have been exhausted.

To say that one's liability is subsidiary means that it merely becomes secondary and only arises if the one primarily liable fails to
sufficiently satisfy the obligation.

Resort to the properties of a partner may be made only after efforts in exhausting partnership assets have failed or that such
partnership assets are insufficient to cover the entire obligation.
The subsidiary nature of the partners' liability with the partnership is one of the valid defenses against a premature execution of
judgment directed to a partner.

In this case, had he been properly impleaded, Guy's liability would only arise after the properties of QSC would have been exhausted.

The records, however, miserably failed to show that the partnership's properties were exhausted. The report [37] of the sheriff showed
that the latter went to the main office of the DOTC-LTO in Quezon City and verified whether Medestomas, QSC and Guy had personal
properties registered therein. Gaeott then instructed the sheriff to proceed with the attachment of one of the motor vehicles of Guy.
[38]
The sheriff then served the Notice of Attachment/Levy upon Personalty to the record custodian of the DOTC-LTO of Mandaluyong
City. A similar notice was served to Guy through his housemaid at his residence.

Clearly, no genuine efforts were made to locate the properties of QSC that could have been attached to satisfy the judgment -
contrary to the clear mandate of Article 1816. Being subsidiarily liable, Guy could only be held personally liable if properly impleaded
and after all partnership assets had been exhausted.

Second, Article 1816 provides that the partners' obligation to third persons with respect to the partnership liability is pro rata or joint.
Liability is joint when a debtor is liable only for the payment of only a proportionate part of the debt. In contrast, a solidary liability
makes a debtor liable for the payment of the entire debt. In the same vein, Article 1207 does not presume solidary liability unless: 1)
the obligation expressly so states; or 2) the law or nature requires solidarity. With regard to partnerships, ordinarily, the liability of
the partners is not solidary.[39] The joint liability of the partners is a defense that can be raised by a partner impleaded in a complaint
against the partnership.

In other words, only in exceptional circumstances shall the partners' liability be solidary in nature. Articles 1822, 1823 and 1824 of the
Civil Code provide for these exceptional conditions, to wit:

Article 1822. Where, by any wrongful act or omission of any partner acting in the ordinary course of the business of the partnership or
with the authority of his co-partners, loss or injury is caused to any person, not being a partner in the partnership, or any penalty is
incurred, the partnership is liable therefor to the same extent as the partner so acting or omitting to act.

Article 1823. The partnership is bound to make good the loss:

(1) Where one partner acting within the scope of his apparent authority receives money or property of a third person and misapplies
it; and

(2) Where the partnership in the course of its business receives money or property of a third person and the money or property so
received is misapplied by any partner while it is in the custody of the partnership.

Article 1824. All partners are liable solidarity with the partnership for everything chargeable to the partnership under Articles 1822
and 1823.

[Emphases Supplied]

In essence, these provisions articulate that it is the act of a partner which caused loss or injury to a third person that makes all other
partners solidarity liable with the partnership because of the words "any wrongful act or omission of any partner acting in the ordinary
course of the business, " "one partner acting within the scope of his apparent authority" and "misapplied by any partner while it is in
the custody of the partnership." The obligation is solidary because the law protects the third person, who in good faith relied upon the
authority of a partner, whether such authority is real or apparent.[40]

In the case at bench, it was not shown that Guy or the other partners did a wrongful act or misapplied the money or property he or the
partnership received from Gacott.

A third person who transacted with said partnership can hold the partners solidarity liable for the whole obligation if the case of the
third person falls under Articles 1822 or 1823.[41]

Gacott's claim stemmed from the alleged defective transreceivers he bought from QSC, through the latter's employee, Medestomas.
It was for a breach of warranty in a contractual obligation entered into in the name and for the account of QSC, not due to the acts of
any of the partners.

For said reason, it is the general rule under Article 1816 that governs the joint liability of such breach, and not the exceptions under
Articles 1822 to 1824. Thus, it was improper to hold Guy solidarity liable for the obligation of the partnership.

Finally, Section 21 of the Corporation Code,[42] as invoked by the RTC, cannot be applied to sustain Guy's liability. The said provision
states that a general partner shall be liable for all debts, liabilities and damages incurred by an ostensible corporation. It must be read,
however, in conjunction with Article 1816 of the Civil Code, which governs the liabilities of partners against third persons. Accordingly,
whether QSC was an alleged ostensible corporation or a duly registered partnership, the liability of Guy, if any, would remain to be
joint and subsidiary because, as previously stated, all partners shall be liable pro rata with all their property and after all the
partnership assets have been exhausted for the contracts which may be entered into in the name and for the account of the
partnership.

WHEREFORE, the petition is GRANTED. The June 25, 2012 Decision and the March 5, 2013 Resolution of the Court of Appeals in
CA-G.R. CV No. 94816 are hereby REVERSED and SET ASIDE. Accordingly, the Regional Trial Court, Branch 52, Puerto Princesa
City, is ORDERED TO RELEASE Michael C. Guy's Suzuki Grand Vitara subject of the Notice of Levy/Attachment upon Personalty.

SO ORDERED.
Carpio, (Chairperson), Brion, Del Castillo, and Leonen, JJ., concur.

THIRD DIVISION

[ G.R. NO. 150402, November 28, 2006 ]

EPARWA SECURITY AND JANITORIAL SERVICES, INC., PETITIONER, VS. LICEO DE CAGAYAN UNIVERSITY, RESPONDENT.

DECISION

CARPIO, J.:

The Case

This is a petition for certiorari[1] of the Decision[2] dated 20 April 2001 and the Resolution dated 21 September 2001 of
the Court of Appeals ("appellate court") in CA-G.R. SP No. 59120, Liceo de Cagayan University v. The Hon. National Labor
Relations Commission, Fifth Division, Eparwa Security and Janitorial Services, Inc., et al. The appellate court reinstated
the 18 August 1999 decision[3] of the Labor Arbiter and remanded the case to the Regional Arbitration Board, Branch No.
10 of Cagayan de Oro City to compute what is due to Liceo de Cagayan University (LDCU) from Eparwa Security and
Janitorial Services, Inc. ("Eparwa").

The Facts

On 1 December 1997, Eparwa and LDCU, through their representatives, entered into a Contract for Security Services.
The pertinent portion of the contract provides that:

5. For and in consideration of this security, protective and safety services, [LDCU] agrees to pay [Eparwa] FIVE
THOUSAND PESOS ONLY (P5,000.00), Philippine Currency per guard a month payable within fifteen (15) days
after [Eparwa] presents its service invoice. [Eparwa] shall furnish [LDCU] a monthly copy of SSS contribution of
guards and monthly payroll of each guard assigned at [LDCU's] premises on a monthly basis[.][4]

Eparwa allocated the contracted amount of P5,000 per security guard per month in the following manner:

Basic Pay (P104.50 x 391.5/12)

Night Diff. Pay P3,409.31

13th mo. Pay 113.64

 5 day incentive leave 284.10

Uniform allowance 43.54

Employer's SSS, Medicare, ECC contribution 50.00

Agency share 224.80

VAT 420.53

CONTRACT RATE 454.59

(rounded off to P5,000.00)[5] P5,000.50

On 21 December 1998, 11 security guards ("security guards") whom Eparwa assigned to LDCU from 1 December 1997 to
30 November 1998 filed a complaint before the National Labor Relations Commission's (NLRC) Regional Arbitration
Branch No. 10 in Cagayan de Oro City. Docketed as NLRC-RABX Case No. 10-01-00102-99, the complaint was filed against
both Eparwa and LDCU for underpayment of salary, legal holiday pay, 13th month pay, rest day, service incentive leave,
night shift differential, overtime pay, and payment for attorney's fees.

LDCU made a cross-claim and prayed that Eparwa should reimburse LDCU for any payment to the security guards.

The Ruling of the Labor Arbiter

In its decision dated 18 August 1999, the Labor Arbiter found that the security guards are entitled to wage differentials
and premium for holiday and rest day work. The Labor Arbiter held Eparwa and LDCU solidarily liable pursuant to Article
109 of the Labor Code. The dispositive portion of the Labor Arbiter's decision reads:
WHEREFORE, judgment is rendered[:]

1. Ordering respondents [LDCU] and [Eparwa] solidarily liable to pay [the security guards] for underpayment,
holiday and rest day, as follows:

Name Amount

1. CasiAero , Jovencio P 46,819.95

2. Villarino , Leonardo 46,819.95

3. Lumbab , Adriano 46,819.95

4. Caballero , Gregorio, Jr. 46,819.95

5. Cajilla , Delfin, Jr. 37,918.95

6. Paduanga , Arnold 20,321.10

 7. Dungog , Achimedes 46,819.95

8. Magallanes , Eduardo 46,819.95

9. Dungog , Luigi 46,819.95

10. Dungog , Telford 46,819.95

11. Bahian , Wilfredo 30,741.30

P 463,540.95

2.

3. Denying the claim of unpaid 13th month pay, service incentive leave and night shift premium pay for lack of
merit;

4. Ordering respondent [Eparwa] to reimburse respondent [LDCU] for whatever amount the latter may be required
to pay [the security guards];

5. Ordering respondent [Eparwa] to pay respondent [LDCU] P20,000.00 and P5,000.00 each of the [security
guards], moral and exemplary damages;

6. Ordering [Eparwa] to pay 10% of attorney's fee[s][;]

7. The rest of the claims are denied for lack of merit.

So Ordered.[6]

LDCU filed an appeal before the NLRC. LDCU agreed with the Labor Arbiter's decision on the security guards' entitlement
to salary differential but challenged the propriety of the amount of the award. LDCU alleged that security guards not
similarly situated were granted uniform monetary awards and that the decision did not include the basis of the
computation of the amount of the award.

Eparwa also filed an appeal before the NLRC. For its part, Eparwa questioned its liability for the security guards' claims
and the awarded cross-claim amounts.

The Ruling of the NLRC

The Fifth Division of the NLRC resolved Eparwa and LDCU's separate appeals in its Resolution [7] dated 19 January 2000.
The NLRC found that the security guards are entitled to wage differentials and premium for holiday and rest day work.
Although the NLRC held Eparwa and LDCU solidarily liable for the wage differentials and premium for holiday and rest
day work, the NLRC did not require Eparwa to reimburse LDCU for its payments to the security guards. The NLRC also
ordered the recomputation of the monetary awards according to the dates actually worked by each security guard. The
dispositive portion of the NLRC Resolution reads thus:
WHEREFORE, the appealed decision is AFFIRMED, subject to the modification that the portions thereof directing
respondent EPARWA Security Agency and Janitorial Services, Inc. to reimburse respondent Liceo de Cagayan University
for whatever amount the latter may have paid complainants and to pay respondent Liceo de Cagayan University the sum
[sic] [of] P20,000.00 and P5,000.00, representing moral and exemplary damages, respectively, of each complainants
[sic], are deleted for lack of legal basis. Further the monetary awards for wage differential and premiums for holiday and
rest day works shall be recomputed by the Regional Arbitration Branch of origin at the execution stage of the
proceedings.

Co[n]formably, the award of Attorney's fee[s] is equivalent to ten (10%) percent of the aggregate monetary award as
finally adjusted.

SO ORDERED.[8]
Eparwa and LDCU again filed separate motions for partial reconsideration of the 19 January 2000 NLRC Resolution. LDCU
questioned the NLRC's deletion of LDCU's entitlement to reimbursement by Eparwa. Eparwa, on the other hand, prayed
that LDCU be made to reimburse Eparwa for whatever amount it may pay to the security guards.

In its Resolution dated 14 March 2000, the NLRC declared that although Eparwa and LDCU are solidarily liable to the
security guards for the monetary award, LDCU alone is ultimately liable. The NLRC resolved the issue thus:
WHEREFORE, the assailed resolution, dated 19 January 2000, is MODIFIED in that respondent Liceo de Cagayan
University (LICEO) is ordered to reimburse respondent Eparwa Security and Janitorial Services, Inc. (EPARWA) for
whatever amount the latter may have paid to complainants arising from this case.

SO ORDERED.[9]
LDCU filed a petition for certiorari[10] before the appellate court assailing the NLRC's decision. LDCU took issue with the
NLRC's order that LDCU should reimburse Eparwa. LDCU stated that this would free Eparwa from any liability for
payment of the security guards' money claims.

The Ruling of the Appellate Court

In its Decision promulgated on 20 April 2001, the appellate court granted LDCU's petition and reinstated the Labor
Arbiter's decision. The appellate court also allowed LDCU to claim reimbursement from Eparwa. The appellate court's
decision reads thus:
WHEREFORE, foregoing considered, the petition is hereby GRANTED. The decision dated August 18, 1999 of Labor
Arbiter Celenito N. Daing is REINSTATED. The case is hereby REMANDED to the Regional Arbitration Board, Branch No.
10 of Cagayan de Oro City to compute what is due to LDCU from EPARWA.

SO ORDERED.[11]
Eparwa filed a motion for reconsideration of the appellate court's decision. Eparwa stressed that jurisprudence is
consistent in ruling that the ultimate liability for the payment of the monetary award rests with LDCU alone.

The appellate court denied Eparwa's motion for reconsideration for lack of merit.

Hence, this petition.

The Issue

The petition raises this sole legal issue: Is LDCU alone ultimately liable to the security guards for the wage differentials
and premium for holiday and rest day pay?

The Ruling of the Court

The petition has merit.

Eparwa and LDCU's Solidary Liability and

LDCU's Ultimate Liability

Articles 106, 107 and 109 of the Labor Code read:

Art. 106. Contractor or subcontractor. a Whenever an employer enters into a contract with another person for the
performance of the former's work, the employees of the contractor and of the latter's subcontractor, if any, shall be paid
in accordance with the provisions of this Code.

In the event that the contractor or subcontractor fails to pay the wages of his employees in accordance with this Code,
the employer shall be jointly and severally liable with his contractor or subcontractor to such employees to the extent of
the work performed under the contract, in the same manner and extent that he is liable to employees directly employed
by him.

The Secretary of Labor may, by appropriate regulations, restrict or prohibit the contracting out of labor to protect the
rights of workers established under this Code. In so prohibiting or restricting, he may make appropriate distinctions
between labor-only contracting and job contracting as well as differentiations within these types of contracting and
determine who among the parties involved shall be considered the employer for purposes of this Code, to prevent any
violation or circumvention of any provision of this Code.

There is "labor-only" contracting where the person supplying workers to an employer does not have substantial capital
or investment in the form of tools, equipment, machineries, work premises, among others, and the workers recruited
and placed by such persons are performing activities which are directly related to the principal business of the employer.
In such cases, the person or intermediary shall be considered merely as an agent of the employer who shall be
responsible to the workers in the same manner and extent as if the latter were directly employed by him.

Article 107. Indirect employer. a The provisions of the immediately preceding Article shall likewise apply to any person,
partnership, association or corporation which, not being an employer, contracts with an independent contractor for the
performance of any work, task, job or project.

Article 109. Solidary liability. a The provisions of existing laws to the contrary notwithstanding, every employer or
indirect employer shall be held responsible with his contractor or subcontractor for any violation of any provision of this
Code. For purposes of determining the extent of their civil liability under this Chapter, they shall be considered as direct
employers.
This Court's ruling in Eagle Security Agency, Inc. v. NLRC[12] squarely applies to the present case. In Eagle, we ruled that:
This joint and several liability of the contractor and the principal is mandated by the Labor Code to assure compliance of
the provisions therein including the statutory minimum wage [Article 99, Labor Code]. The contractor is made liable by
virtue of his status as direct employer. The principal, on the other hand, is made the indirect employer of the
contractor's employees for purposes of paying the employees their wages should the contractor be unable to pay them.
This joint and several liability facilitates, if not guarantees, payment of the workers' performance of any work, task, job
or project, thus giving the workers ample protection as mandated by the 1987 Constitution [See Article II Sec. 18 and
Article XIII Sec. 3].

In the case at bar, it is beyond dispute that the security guards are the employees of EAGLE [See Article VII Sec. 2 of the
Contract for Security Services; G.R. No. 81447, Rollo, p. 34]. That they were assigned to guard the premises of PTSI
pursuant to the latter's contract with EAGLE and that neither of these two entities paid their wage and allowance
increases under the subject wage orders are also admitted [See Labor Arbiter's Decision, p. 2; G.R. No. 81447, Rollo, p.
75]. Thus, the application of the aforecited provisions of the Labor Code on joint and several liability of the principal and
contractor is appropriate [See Del Rosario & Sons Logging Enterprises, Inc. v. NLRC, G.R. No. 64204, May 31, 1985, 136
SCRA 669].

The solidary liability of PTSI and EAGLE, however, does not preclude the right of reimbursement from his co-debtor by
the one who paid [See Article 1217, Civil Code]. It is with respect to this right of reimbursement that petitioners can find
support in the aforecited contractual stipulation and Wage Order provision.

The Wage Orders are explicit that payment of the increases are "to be borne" by the principal or client. "To be borne",
however, does not mean that the principal, PTSI in this case, would directly pay the security guards the wage and
allowance increases because there is no privity of contract between them. The security guards' contractual relationship
is with their immediate employer, EAGLE. As an employer, EAGLE is tasked, among others, with the payment of their
wages [See Article VII Sec. 3 of the Contract for Security Services, supra and Bautista v. Inciong, G.R. No. 52824, March
16, 1988, 158 SCRA 665].

On the other hand, there existed a contractual agreement between PTSI and EAGLE wherein the former availed of the
security services provided by the latter. In return, the security agency collects from its client payment for its security
services. This payment covers the wages for the security guards and also expenses for their supervision and training, the
guards' bonds, firearms with ammunitions, uniforms and other equipments, accessories, tools, materials and supplies
 necessary for the maintenance of a security force.

Premises considered, the security guards' immediate recourse for the payment of the increases is with their direct
employer, EAGLE. However, in order for the security agency to comply with the new wage and allowance rates it has to
pay the security guards, the Wage Orders made specific provision to amend existing contracts for security services by
allowing the adjustment of the consideration paid by the principal to the security agency concerned. What the Wage
Orders require, therefore, is the amendment of the contract as to the consideration to cover the service contractor's
payment of the increases mandated. In the end, therefore, ultimate liability for the payment of the increases rests with
the principal.

In view of the foregoing, the security guards should claim the amount of the increases from EAGLE. Under the Labor
Code, in case the agency fails to pay them the amounts claimed, PTSI should be held solidarily liable with EAGLE [Articles
106,107 and 109]. Should EAGLE pay, it can claim an adjustment from PTSI for an increase in consideration to cover the
increases payable to the security guards.

However, in the instant case, the contract for security services had already expired without being amended consonant
with the Wage Orders. It is also apparent from a reading of a record that EAGLE does not now demand from PTSI any
adjustment in the contract price and its main concern is freeing itself from liability. Given these peculiar
circumstances, if PTSI pays the security guards, it cannot claim reimbursement from EAGLE. But in case it is EAGLE that
pays them, the latter can claim reimbursement from PTSI in lieu of an adjustment, considering that the
contract, [sic] had expired and had not been renewed.[13] (Emphasis added)
We repeatedly upheld our ruling in Eagle regarding reimbursement in the subsequent cases of Spartan Security &
Detective Agency, Inc. v. NLRC,[14] Development Bank of the Philippines v. NLRC,[15] Alpha Investigation and Security
Agency, Inc. v. NLRC,[16] Helpmate, Inc. v. NLRC, et al.,[17] and Lapanday Agricultural Development Corporation v. Court of
Appeals.[18]

For the security guards, the actual source of the payment of their wage differentials and premium for holiday and rest
day work does not matter as long as they are paid. This is the import of Eparwa and LDCU's solidary liability. Creditors,
such as the security guards, may collect from anyone of the solidary debtors. Solidary liability does not mean that, as
between themselves, two solidary debtors are liable for only half of the payment.

LDCU's ultimate liability comes into play because of the expiration of the Contract for Security Services. There is no
privity of contract between the security guards and LDCU, but LDCU's liability to the security guards remains because of
Articles 106, 107 and 109 of the Labor Code. Eparwa is already precluded from asking LDCU for an adjustment in the
contract price because of the expiration of the contract, but Eparwa's liability to the security guards remains because of
their employer-employee relationship. In lieu of an adjustment in the contract price, Eparwa may claim reimbursement
from LDCU for any payment it may make to the security guards. However, LDCU cannot claim any reimbursement from
Eparwa for any payment it may make to the security guards.

WHEREFORE, we GRANT the petition. We SET ASIDE the Decision dated 20 April 2001 and the Resolution dated 21
September 2001 of the Court of Appeals. We REINSTATE the Resolutions dated 19 January 2000 and 14 March 2000 of
the National Labor Relations Commission.

SO ORDERED.

Quisumbing, (Chairperson), Carpio Morales, Tinga, and Velasco, Jr., JJ., concur

Case Summary (G.R. No. 150402)

Background and Contract Agreement

● The case involves a dispute between Eparwa Security and Janitorial Services, Inc. and Liceo de
Cagayan University over underpayment of salary and benefits to security guards.

● The two parties entered into a contract for security services, where the university agreed to pay
Eparwa a certain amount per security guard per month.

● Eparwa allocated this amount to cover various expenses such as basic pay, night differential
pay, 13th month pay, and others.
 Complaint and Labor Arbiter's Decision

● Eleven security guards assigned by Eparwa to the university filed a complaint for underpayment
of salary and benefits.

● The Labor Arbiter found in favor of the security guards and held both Eparwa and the
university solidarily liable for the underpayment.

● The Labor Arbiter ordered them to pay the security guards the amount due, denied other claims
for lack of merit, and ordered Eparwa to reimburse the university for any amount it paid to the
security guards.

Appeal to the National Labor Relations Commission (NLRC)

● Both Eparwa and the university appealed the decision to the NLRC.

● The NLRC affirmed the decision but modified it by deleting the requirement for Eparwa to
reimburse the university.

● Eparwa and the university filed separate motions for reconsideration, and the NLRC modified
its decision again, ordering the university to reimburse Eparwa for any amount it paid to the
security guards.

Petition for Certiorari before the Court of Appeals

● The university filed a petition for certiorari before the Court of Appeals, challenging the NLRC's
order for reimbursement.

● The appellate court granted the university's petition and reinstated the Labor Arbiter's decision.

● It also allowed the university to claim reimbursement from Eparwa.

Motion for Reconsideration and Petition for Certiorari before the Supreme Court

● Eparwa filed a motion for reconsideration, which was denied by the appellate court.

● Eparwa then filed a petition for certiorari before the Supreme Court.

Supreme Court Ruling

● The Supreme Court ruled in favor of Eparwa, stating that the ultimate liability for the payment
of the wage differentials and premium for holiday and rest day pay rests with the university.

● The Court cited Articles 106, 107, and 109 of the Labor Code, which hold employers and
principals jointly and severally liable for any violation of labor laws.

● The Court emphasized that the actual source of payment does not matter as long as the security
guards are paid, and LDCU's ultimate liability comes into play due to the expiration of the
contract for security services.

Conclusion

● The Supreme Court held that Liceo de Cagayan University is solely responsible for the
underpayment of salary and benefits to the security guards, and Eparwa is not required to
reimburse the university.

● The Court reinstated the NLRC's decision and denied the university's claim for reimbursement.
 SECOND DIVISION
[ G.R. No. 167615, January 11, 2016 ]
SPOUSES ALEXANDER AND JULIE LAM, DOING BUSINESS UNDER THE NAME AND STYLE
"COLORKWIK LABORATORIES" AND "COLORKWIK PHOTO SUPPLY", PETITIONERS, VS.
KODAK PHILIPPINES, LTD., RESPONDENT.

DECISION
LEONEN, J.:
This is a Petition for Review on Certiorari filed on April 20, 2005 assailing the March 30, 2005 Decision [1] and September 9, 2005
Amended Decision[2] of the Court of Appeals, which modified the February 26, 1999 Decision[3] of the Regional Trial Court by reducing
the amount of damages awarded to petitioners Spouses Alexander and Julie Lam (Lam Spouses). [4]

The Lam Spouses argue that respondent Kodak Philippines, Ltd.'s breach of their contract of sale entitles them to damages more
than the amount awarded by the Court of Appeals.[5]

On January 8, 1992, the Lam Spouses and Kodak Philippines, Ltd. entered into an agreement (Letter Agreement) for the sale of three
(3) units of the Kodak Minilab System 22XL[6] (Minilab Equipment) in the amount of P1,796,000.00 per unit,[7] with the following terms:

This confirms our verbal agreement for Kodak Phils., Ltd. to provide Colorkwik Laboratories, Inc. with three (3) units Kodak Minilab
System 22XL . . . for your proposed outlets in Rizal Avenue (Manila), Tagum (Davao del Norte), and your existing Multicolor photo
counter in Cotabato City under the following terms and conditions:

1. Said Minilab Equipment packages will avail a total of 19% multiple order discount based on prevailing equipment price provided
said equipment packages will be purchased not later than June 30, 1992.

2. 19% Multiple Order Discount shall be applied in the form of merchandise and delivered in advance immediately after signing of the
contract.
* Also includes start-up packages worth P61,000.00.

3. NO DOWNPAYMENT.

4. Minilab Equipment Package shall be payable in 48 monthly installments at THIRTY FIVE THOUSAND PESOS (P35,000.00) inclusive
of 24% interest rate for the first 12 months; the balance shall be re-amortized for the remaining 36 months and the prevailing interest
shall be applied.

5. Prevailing price of Kodak Minilab System 22XL as of January 8, 1992 is at ONE MILLION SEVEN HUNDRED NINETY SIX
THOUSAND PESOS.

6. Price is subject to change without prior notice.

* Secured with PDCs; 1st monthly amortization due 45 days after installation[.] [8]

On January 15, 1992, Kodak Philippines, Ltd. delivered one (1) unit of the Minilab Equipment in Tagum, Davao Province. [9] The
delivered unit was installed by Noritsu representatives on March 9, 1992.[10] The Lam Spouses issued postdated checks amounting to
P35,000.00 each for 12 months as payment for the first delivered unit, with the first check due on March 31, 1992. [11]
The Lam Spouses requested that Kodak Philippines, Ltd. not negotiate the check dated March 31, 1992 allegedly due to insufficiency
of funds.[12] The same request was made for the check due on April 30, 1992. However, both checks were negotiated by Kodak
Philippines, Ltd. and were honored by the depository bank.[13] The 10 other checks were subsequently dishonored after the Lam
Spouses ordered the depository bank to stop payment.[14]

Kodak Philippines, Ltd. canceled the sale and demanded that the Lam Spouses return the unit it delivered together with its
accessories.[15] The Lam Spouses ignored the demand but also rescinded the contract through the letter dated November 18, 1992 on
account of Kodak Philippines, Ltd.'s failure to deliver the two (2) remaining Minilab Equipment units. [16]

On November 25, 1992, Kodak Philippines, Ltd. filed a Complaint for replevin and/or recovery of sum of money. The case was raffled
to Branch 61 of the Regional Trial Court, Makati City.[17] The Summons and a copy of Kodak Philippines, Ltd.'s Complaint was
personally served on the Lam Spouses.[18]

The Lam Spouses failed to appear during the pre-trial conference and submit their pre-trial brief despite being given extensions.
[19]
Thus, on July 30, 1993, they were declared in default.[20] Kodak Philippines, Ltd. presented evidence ex-parte.[21] The trial court
issued the Decision in favor of Kodak Philippines, Ltd. ordering the seizure of the Minilab Equipment, which included the lone
delivered unit, its standard accessories, and a separate generator set.[22] Based on this Decision, Kodak Philippines, Ltd. was able to
obtain a writ of seizure on December 16, 1992 for the Minilab Equipment installed at the Lam Spouses' outlet in Tagum, Davao
Province.[23] The writ was enforced on December 21, 1992, and Kodak Philippines, Ltd. gained possession of the Minilab Equipment
unit, accessories, and the generator set.[24]

The Lam Spouses then filed before the Court of Appeals a Petition to Set Aside the Orders issued by the trial court dated July 30,
1993 and August 13, 1993. These Orders were subsequently set aside by the Court of Appeals Ninth Division, and the case was
remanded to the trial court for pre-trial.[25]

On September 12, 1995, an Urgent Motion for Inhibition was filed against Judge Fernando V. Gorospe, Jr., [26] who had issued the writ
of seizure.[27] The ground for the motion for inhibition was not provided. Nevertheless, Judge Fernando V. Gorospe Jr. inhibited
himself, and the case was reassigned to Branch 65 of the Regional Trial Court, Makati City on October 3, 1995. [28]

In the Decision dated February 26, 1999, the Regional Trial Court found that Kodak Philippines, Ltd. defaulted in the performance of
its obligation under its Letter Agreement with the Lam Spouses.[29] It held that Kodak Philippines, Ltd.'s failure to deliver two (2) out of
the three (3) units of the Minilab Equipment caused the Lam Spouses to stop paying for the rest of the installments. [30] The trial court
noted that while the Letter Agreement did not specify a period within which the delivery of all units was to be made, the Civil Code
provides "reasonable time" as the standard period for compliance:

The second paragraph of Article 1521 of the Civil Code provides:

Where by a contract of sale the seller is bound to send the goods to the buyer, but no time for sending them is fixed, the seller is
bound to send them within a reasonable time.

What constitutes reasonable time is dependent on the circumstances availing both on the part of the seller and the buyer. In this case,
delivery of the first unit was made five (5) days after the date of the agreement. Delivery of the other two (2) units, however, was never
made despite the lapse of at least three (3) months.[31]

Kodak Philippines, Ltd. failed to give a sufficient explanation for its failure to deliver all three (3) purchased units within a reasonable
time.[32]

The trial court found:

Kodak would have the court believe that it did not deliver the other two (2) units due to the failure of defendants to make good the
installments subsequent to the second. The court is not convinced. First of all, there should have been simultaneous delivery on
account of the circumstances surrounding the transaction. . . . Even after the first delivery ... no delivery was made despite repeated
demands from the defendants and despite the fact no installments were due. Then in March and in April (three and four months
respectively from the date of the agreement and the first delivery) when the installments due were both honored, still no delivery was
made.

Second, although it might be said that Kodak was testing the waters with just one delivery - determining first defendants' capacity to
pay - it was not at liberty to do so. It is implicit in the letter agreement that delivery within a reasonable time was of the essence and
failure to so deliver within a reasonable time and despite demand would render the vendor in default.
....

Third, at least two (2) checks were honored. If indeed Kodak refused delivery on account of defendants' inability to pay, non-delivery
during the two (2) months that payments were honored is unjustified.[33]

Nevertheless, the trial court also ruled that when the Lam Spouses accepted delivery of the first unit, they became liable for the fair
value of the goods received:

On the other hand, defendants accepted delivery of one (1) unit. Under Article 1522 of the Civil Code, in the event the buyer accepts
incomplete delivery and uses the goods so delivered, not then knowing that there would not be any further delivery by the seller, the
buyer shall be liable only for the fair value to him of the goods received. In other words, the buyer is still liable for the value of the
property received
. Defendants were under obligation to pay the amount of the unit. Failure of delivery of the other units did not thereby give unto them
the right to suspend payment on the unit delivered. Indeed, in incomplete deliveries, the buyer has the remedy of refusing payment
unless delivery is first made. In this case though, payment for the two undelivered units have not even commenced; the installments
made were for only one (1) unit.

Hence, Kodak is right to retrieve the unit delivered.[34]

The Lam Spouses were under obligation to pay for the amount of one unit, and the failure to deliver the remaining units did not give
them the right to suspend payment for the unit already delivered.[35] However, the trial court held that since Kodak Philippines, Ltd. had
elected to cancel the sale and retrieve the delivered unit, it could no longer seek payment for any deterioration that the unit may have
suffered while under the custody of the Lam Spouses.[36]

As to the generator set, the trial court ruled that Kodak Philippines, Ltd. attempted to mislead the court by claiming that it had
delivered the generator set with its accessories to the Lam Spouses, when the evidence showed that the Lam Spouses had
purchased it from Davao Ken Trading, not from Kodak Philippines, Ltd.[37] Thus, the generator set that Kodak Philippines, Ltd.
wrongfully took from the Lam Spouses should be replaced.[38]

The dispositive portion of the Regional Trial Court Decision reads:

PREMISES CONSIDERED, the case is hereby dismissed. Plaintiff is ordered to pay the following:

1) PHP 130,000.00 representing the amount of the generator set, plus legal interest at 12% per annum from December 1992 until fully
paid; and

2) PHP 1,300,000.00 as actual expenses in the renovation of the Tagum, Davao and Rizal Ave., Manila outlets.

SO ORDERED.[39]

On March 31, 1999, the Lam Spouses filed their Notice of Partial Appeal, raising as an issue the Regional Trial Court's failure to order
Kodak Philippines, Ltd. to pay: (1) P2,040,000 in actual damages; (2) P50,000,000 in moral damages; (3) P20,000,000 in exemplary
damages; (4) P353,000 in attorney's fees; and (5) P3 00,000 as litigation expenses. [40] The Lam Spouses did not appeal the Regional
Trial Court's award for the generator set and the renovation expenses.[41]

Kodak Philippines, Ltd. also filed an appeal. However, the Court of Appeals [42] dismissed it on December 16, 2002 for Kodak
Philippines, Ltd.'s failure to file its appellant's brief, without prejudice to the continuation of the Lam Spouses' appeal. [43] The Court of
Appeals' December 16, 2002 Resolution denying Kodak Philippines, Ltd.'s appeal became final and executory on January 4, 2003. [44]

In the Decision[45] dated March 30, 2005, the Court of Appeals Special Fourteenth Division modified the February 26, 1999 Decision of
the Regional Trial Court:

WHEREFORE, PREMISES CONSIDERED, the Assailed Decision dated 26 February 1999 of the Regional Trial Court, Branch 65 in
Civil Case No. 92-3442 is hereby MODIFIED. Plaintiff-appellant is ordered to pay the following:
1. P130,000.00 representing the amount of the generator set, plus legal interest at 12% per annum from December 1992 until fully
paid; and

2. P440.000.00 as actual damages;

3. P25,000.00 as moral damages; and

4. P50,000.00 as exemplary damages.

SO ORDERED.[46] (Emphasis supplied)

The Court of Appeals agreed with the trial court's Decision, but extensively discussed the basis for the modification of the dispositive
portion.

The Court of Appeals ruled that the Letter Agreement executed by the parties showed that their obligations were susceptible of partial
performance. Under Article 1225 of the New Civil Code, their obligations are divisible:

In determining the divisibility of an obligation, the following factors may be considered, to wit:
(1) the will or intention of the parties, which may be expressed or presumed;
(2) the objective or purpose of the stipulated prestation;
(3) the nature of the thing; and
(4) provisions of law affecting the prestation.

Applying the foregoing factors to this case, We found that the intention of the parties is to be bound separately for each Minilab
Equipment to be delivered as shown by the separate purchase price for each of the item, by the acceptance ofSps. Lam of separate
deliveries for the first Minilab Equipment and for those of the remaining two and the separate payment arrangements for each of the
equipment. Under this premise, Sps. Lam shall be liable for the entire amount of the purchase price of the Minilab Equipment
delivered considering that Kodak had already completely fulfilled its obligation to deliver the same.. ..

Third, it is also evident that the contract is one that is severable in character as demonstrated by the separate purchase price for each
of the minilab equipment. "If the part to be performed by one party consists in several distinct and separate items and the price is
apportioned to each of them, the contract will generally be held to be severable.
In such case, each distinct stipulation relating to a separate subject matter will be treated as a separate contract." Considering this,
Kodak's breach of its obligation to deliver the other two (2) equipment cannot bar its recovery for the full payment of the equipment
already delivered. As far as Kodak is concerned, it had already fully complied with its separable obligation to deliver the first unit of
Minilab Equipment.[47] (Emphasis supplied)

The Court of Appeals held that the issuance of a writ of replevin is proper insofar as the delivered Minilab Equipment unit and its
standard accessories are concerned, since Kodak Philippines, Ltd. had the right to possess it: [48]

The purchase price of said equipment is P1,796,000.00 which, under the agreement is payable with forty eight (48) monthly
amortization. It is undisputed that Sps. Lam made payments which amounted to Two Hundred Seventy Thousand Pesos
(P270,000.00) through the following checks:
Metrobank Check Nos. 00892620 and 00892621 dated 31 March 1992 and 30 April 1992 respectively in the amount of Thirty Five
Thousand Pesos (P35,000.0O) each,
and BPI Family Check dated 31 July 1992 amounting to Two Hundred Thousand Pesos (P200,000.00). This being the case, Sps. Lam
are still liable to Kodak in the amount of One Million Five Hundred Twenty Six Thousand Pesos (P1,526,000.00), which is payable in
several monthly amortization, pursuant to the Letter Agreement.
However, Sps. Lam admitted that sometime in May 1992, they had already ordered their drawee bank to stop the payment on all the
other checks they had issued to Kodak as payment for the Minilab Equipment delivered to them. Clearly then, Kodak had the right to
repossess the said equipment, through this replevin suit. Sps. Lam cannot excuse themselves from paying in full the purchase price of
the equipment delivered to them on account of Kodak's breach of the contract to deliver the other two (2) Minilab Equipment, as
contemplated in the Letter Agreement.[49] (Emphasis supplied)

Echoing the ruling of the trial court, the Court of Appeals held that the liability of the Lam Spouses to pay the remaining balance for
the first delivered unit is based on the second sentence of Article 1592 of the New Civil Code. [50] The Lam Spouses' receipt and use of
the Minilab Equipment before they knew that Kodak Philippines, Ltd. would not deliver the two (2) remaining units has made them
liable for the unpaid portion of the purchase price.[51]

The Court of Appeals noted that Kodak Philippines, Ltd. sought the rescission of its contract with the Lam Spouses in the letter dated
October 14, 1992.[52] The rescission was based on Article 1191 of the New Civil Code, which provides: "The power to rescind
obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him." [53] In its
letter, Kodak Philippines, Ltd. demanded that the Lam Spouses surrender the lone delivered unit of Minilab Equipment along with its
standard accessories.[54]

The Court of Appeals likewise noted that the Lam Spouses rescinded the contract through its letter dated November 18, 1992 on
account of Kodak Philippines, Inc.'s breach of the parties' agreement to deliver the two (2) remaining units. [55]

As a result of this rescission under Article 1191, the Court of Appeals ruled that "both parties must be restored to their original
situation, as far as practicable, as if the contract was never entered into." [56] The Court of Appeals ratiocinated that Article 1191 had
the effect of extinguishing the obligatory relation as if one was never created:[57]

To rescind is to declare a contract void in its inception and to put an end to it as though it never were. It is not merely to terminate it
and to release parties from further obligations to each other but abrogate it from the beginning and restore parties to relative positions
which they would have occupied had no contract been made.[58]

The Lam Spouses were ordered to relinquish possession of the Minilab Equipment unit and its standard accessories, while Kodak
Philippines, Ltd. was ordered to return the amount of P270,000.00, tendered by the Lam Spouses as partial payment. [59]

As to the actual damages sought by the parties, the Court of Appeals found that the Lam Spouses were able to substantiate the
following:

Incentive fee paid to Mr. Ruales in the amount of P100,000.00; the rider to the contract of lease which made the Sps. Lam liable, by
way of advance payment, in the amount of P40,000.00, the same being intended for the repair of the flooring of the leased premises;
and lastly, the payment of P300,000.00, as compromise agreement for the pre-termination of the contract of lease with Ruales. [60]

The total amount is P440,000.00. The Court of Appeals found that all other claims made by the Lam Spouses were not supported by
evidence, either through official receipts or check payments.[61]

As regards the generator set improperly seized from Kodak Philippines, Ltd. on the basis of the writ of replevin, the Court of Appeals
found that there was no basis for the Lam Spouses' claim for reasonable rental of P5,000.00. It held that the trial court's award of
12% interest, in addition to the cost of the generator set in the amount of P130,000.00, is sufficient compensation for whatever
damage the Lam Spouses suffered on account of its improper seizure.[62]

The Court of Appeals also ruled on the Lam Spouses' entitlement to moral and exemplary damages, as well as attorney's fees and
litigation expenses:

In seeking recovery of the Minilab Equipment, Kodak cannot be considered to have manifested bad faith and malevolence because as
earlier ruled upon, it was well within its right to do the same. However, with respect to the seizure of the generator set, where Kodak
misrepresented to the court a quo its alleged right over the said item, Kodak's bad faith and abuse of judicial processes become self-
evident. Considering the off-setting circumstances attendant, the amount of P25,000.00 by way of moral damages is considered
sufficient.

In addition, so as to serve as an example to the public that an application for replevin should not be accompanied by any false claims
and misrepresentation, the amount of P50,000.00 by way of exemplary damages should be pegged against Kodak.
With respect to the attorney's fees and litigation expenses, We find that there is no basis to award Sps. Lam the amount sought for. [63]

Kodak Philippines, Ltd. moved for reconsideration of the Court of Appeals Decision, but it was denied for lack of merit. [64] However,
the Court of Appeals noted that the Lam Spouses' Opposition correctly pointed out that the additional award of P270,000.00 made by
the trial court was not mentioned in the decretal portion of the March 30, 2005 Decision:

Going over the Decision, specifically page 12 thereof, the Court noted that, in addition to the amount of Two Hundred Seventy
Thousand (P270,000.00) which plaintiff-appellant should return to the defendants-appellants, the Court also ruled that defendants-
appellants should, in turn, relinquish possession of the Minilab Equipment and the standard accessories to plaintiff-appellant.
Inadvertently, these material items were not mentioned in the decretal portion of the Decision. Hence, the proper correction should
herein be made.[65]

The Lam Spouses filed this Petition for Review on April 14, 2005. On the other hand, Kodak Philippines, Ltd. filed its Motion for
Reconsideration[66] before the Court of Appeals on April 22, 2005.

While the Petition for Review on Certiorari filed by the Lam Spouses was pending before this court, the Court of Appeals Special
Fourteenth Division, acting on Kodak Philippines, Ltd.'s Motion for Reconsideration, issued the Amended Decision [67] dated
September 9, 2005. The dispositive portion of the Decision reads:

WHEREFORE, premises considered, this Court resolved that:

A. Plaintiff-appellant's Motion for Reconsideration is hereby DENIED for lack of merit.

B. The decretal portion of the 30 March 2005 Decision should now read as follows:
"WHEREFORE, PREMISES CONSIDERED, the Assailed Decision dated 26 February 1999 of the Regional Trial Court, Branch 65 in
Civil Cases No. 92-3442 is hereby MODIFIED. Plaintiff-appellant is ordered to pay the following:

a. P270,000.00 representing the partial payment made on the Minilab equipment.

b. P130,000.00 representing the amount of the generator set, plus legal interest at 12% per annum from December 1992 until fully
paid;

c. P440,000.00 as actual damages;

d. P25,000.00 as moral damages; and

e. P50,000.00 as exemplary damages.

Upon the other hand, defendants-appellants are hereby ordered to return to plaintiff-appellant the Minilab equipment and the
standard accessories delivered by plaintiff-appellant.

SO ORDERED."

SO ORDERED.[68] (Emphasis in the original)

Upon receiving the Amended Decision of the Court of Appeals, Kodak Philippines, Ltd. filed a Motion for Extension of Time to File an
Appeal by Certiorari under Rule 45 of the 1997 Rules of Civil Procedure before this court. [69]

This was docketed as G.R. No. 169639. In the Motion for Consolidation dated November 2, 2005, the Lam Spouses moved that G.R.
No. 167615 and G.R. No. 169639 be consolidated since both involved the same parties, issues, transactions, and essential facts and
circumstances.[70]

In the Resolution dated November 16, 2005, this court noted the Lam Spouses' September 23 and September 30, 2005
Manifestations praying that the Court of Appeals' September 9, 2005 Amended Decision be considered in the resolution of the
Petition for Review on Certiorari.[71] It also granted the Lam Spouses' Motion for Consolidation.[72]

In the Resolution[73] dated September 20, 2006, this court deconsolidated G.R No. 167615 from G.R. No. 169639 and declared G.R.
No. 169639 closed and terminated since Kodak Philippines, Ltd. failed to file its Petition for Review.

II
We resolve the following issues:

—-First, whether the contract between petitioners Spouses Alexander and Julie Lam and respondent Kodak Philippines, Ltd.
pertained to obligations that are severable, divisible, and susceptible of partial performance under Article 1225 of the New Civil Code;
and

—Second, upon rescission of the contract, what the parties are entitled to under Article 1190 and Article 1522 of the New Civil Code.

—-Petitioners argue that the Letter Agreement it executed with respondent for three (3) Minilab Equipment units was not severable,
divisible, and susceptible of partial performance. Respondent's recovery of the delivered unit was unjustified. [74]

Petitioners assert that the obligations of the parties were not susceptible of partial performance since the Letter Agreement was for a
package deal consisting of three (3) units.[75]

For the delivery of these units, petitioners were obliged to pay 48 monthly payments, the total of which constituted one debt. [76] Having
relied on respondent's assurance that the three units would be delivered at the same time, petitioners simultaneously rented and
renovated three stores in anticipation of simultaneous operations.[77] Petitioners argue that the divisibility of the object does not
necessarily determine the divisibility of the obligation since the latter is tested against its susceptibility to a partial performance.
[78]
They argue that even if the object is susceptible of separate deliveries, the transaction is a indivisible if the parties intended the
realization of all parts of the agreed obligation.[79]

Petitioners support the claim that it was the parties' intention to have an indivisible agreement by asserting that the payments they
made to respondent were intended to be applied to the whole package of three units. [80] The postdated checks were also intended as
initial payment for the whole package.[81] The separate purchase price for each item was merely intended to particularize the unit
prices, not to negate the indivisible nature of their transaction.[82] As to the issue of delivery, petitioners claim that their acceptance of
separate deliveries of the units was solely due to the constraints faced by respondent, who had sole control over delivery matters. [83]

With the obligation being indivisible, petitioners argue that respondent's failure to comply with its obligation to deliver the two (2)
remaining Minilab Equipment units amounted to a breach. Petitioners claim that the breach entitled them to the remedy of rescission
and damages under Article 1191 of the New Civil Code.[84]

Petitioners also argue that they are entitled to moral damages more than the P50,000.00 awarded by the Court of Appeals since
respondent's wrongful act of accusing them of non-payment of their obligations caused them sleepless nights, mental anguish, and
wounded feelings.[85] They further claim that, to serve as an example for the public good, they are entitled to exemplary damages as
respondent, in making false allegations, acted in evident bad faith and in a wanton, oppressive, capricious, and malevolent manner. [86]

Petitioners also assert that they are entitled to attorney's fees and litigation expenses under Article 2208 of the New Civil Code since
respondent's act of bringing a suit against them was baseless and malicious. This prompted them to engage the services of a lawyer.
[87]

Respondent argues that the parties' Letter Agreement contained divisible obligations susceptible of partial performance as defined by
Article 1225 of the New Civil Code.[88] In respondent's view, it was the intention of the parties to be bound separately for each
individually priced Minilab Equipment unit to be delivered to different outlets: [89]

The three (3) Minilab Equipment are intended by petitioners LAM for install[a]tion at their Tagum, Davao del Norte, Sta. Cruz, Manila
and Cotabato City outlets. Each of these units [is] independent from one another, as many of them may perform its own job without
the other. Clearly the objective or purpose of the prestation, the obligation is divisible.

The nature of each unit of the three (3) Minilab Equipment is such that one can perform its own functions, without awaiting for the
other units to perform and complete its job. So much so, the nature of the object of the Letter Agreement is susceptible of partial
performance, thus the obligation is divisible.[90]

With the contract being severable in character, respondent argues that it performed its obligation when it delivered one unit of the
Minilab Equipment.[91] Since each unit could perform on its own, there was no need to await the delivery of the other units to complete
its job.[92] Respondent then is of the view that when petitioners ordered the depository bank to stop payment of the issued checks
covering the first delivered unit, they violated their obligations under the Letter Agreement since respondent was already entitled to full
payment.[93]

Respondent also argues that petitioners benefited from the use of the Minilab Equipment for 10 months—from March to December
1992— despite having paid only two (2) monthly installments.[94] Respondent avers that the two monthly installments amounting to
P70,000.00 should be the subject of an offset against the amount the Court of Appeals awarded to petitioners. [95]

Respondent further avers that petitioners have no basis for claiming damages since the seizure and recovery of the Minilab Equipment
was not in bad faith and respondent was well within its right.[96]

III

The Letter Agreement contained an indivisible obligation.

Both parties rely on the Letter Agreement[97] as basis of their respective obligations. Written by respondent's Jeffrey T. Go and Antonio
V. Mines and addressed to petitioner Alexander Lam, the Letter Agreement contemplated a "package deal" involving three (3) units of
the Kodak Minilab System 22XL, with the following terms and conditions:
This confirms our verbal agreement for Kodak Phils., Ltd. to provide Colorkwik Laboratories, Inc. with three (3) units Kodak Minilab
System 22XL . . . for your proposed outlets in Rizal Avenue (Manila), Tagum (Davao del Norte), and your existing Multicolor photo
counter in Cotabato City under the following terms and conditions:

1. Said Minilab Equipment packages will avail a total of 19% multiple order discount based on prevailing equipment price provided
said equipment packages will be purchased not later than June 30, 1992.

2. 19% Multiple Order Discount shall be applied in the form of merchandise and delivered in advance immediately after signing of the
contract.
* Also includes start-up packages worth P61,000.00.

3. NO DOWNPAYMENT.

4. Minilab Equipment Package shall be payable in 48 monthly installments at THIRTY FIVE THOUSAND PESOS (P35,000.00) inclusive
of 24% interest rate for the first 12 months; the balance shall be re-amortized for the remaining 36 months and the prevailing interest
shall be applied.

5. Prevailing price of Kodak Minilab System 22XL as of January 8, 1992 is at ONE MILLION SEVEN HUNDRED NINETY SIX
THOUSAND PESOS.

6. Price is subject to change without prior notice.

*Secured with PDCs; 1st monthly amortization due 45 days after installation[.] [98]

Based on the foregoing, the intention of the parties is for there to be a single transaction covering all three (3) units of the Minilab
Equipment. Respondent's obligation was to deliver all products purchased under a "package," and, in turn, petitioners' obligation was
to pay for the total purchase price, payable in installments.

The intention of the parties to bind themselves to an indivisible obligation can be further discerned through their direct acts in relation
to the package deal.

There was only one agreement covering all three (3) units of the Minilab Equipment and their accessories. The Letter Agreement
specified only one purpose for the buyer, which was to obtain these units for three different outlets. If the intention of the parties were
to have a divisible contract, then separate agreements could have been made for each Minilab Equipment unit instead of covering all
three in one package deal. Furthermore, the 19% multiple order discount as contained in the Letter Agreement was applied to all three
acquired units.[99] The "no downpayment" term contained in the Letter Agreement was also applicable to all the Minilab Equipment
units. Lastly, the fourth clause of the Letter Agreement clearly referred to the object of the contract as "Minilab Equipment Package."

In ruling that the contract between the parties intended to cover divisible obligations, the Court of Appeals highlighted: (a) the separate
purchase price of each item; (b) petitioners' acceptance of separate deliveries of the units; and (c) the separate payment arrangements
for each unit.[100]

However, through the specified terms and conditions, the tenor of the Letter Agreement indicated an intention for a single
transaction. This intent must prevail even though the articles involved are physically separable and capable of being paid for and
delivered individually, consistent with the New Civil Code:

Article 1225. For the purposes of the preceding articles, obligations to give definite things and those which are not susceptible of
partial performance shall be deemed to be indivisible.

When the obligation has for its object the execution of a certain number of days of work, the accomplishment of work by metrical
units, or analogous things which by their nature are susceptible of partial performance, it shall be divisible.

However, even though the object or service may be physically divisible, an obligation is indivisible if so provided by law or intended by
the parties. (Emphasis supplied)

In Nazareno v. Court of Appeals,[101] the indivisibility of an obligation is tested against whether it can be the subject of partial
performance:

An obligation is indivisible when it cannot be validly performed in parts, whatever may be the nature of the thing which is the object
thereof.
The indivisibility refers to the prestation and not to the object thereof. In the present case, the Deed of Sale of January 29, 1970
supposedly conveyed the six lots to Natividad. The obligation is clearly indivisible because the performance of the contract cannot be
done in parts, otherwise the value of what is transferred is diminished. Petitioners are therefore mistaken in basing the indivisibility of a
contract on the number of obligors.[102] (Emphasis supplied, citation omitted)

There is no indication in the Letter Agreement that the units petitioners ordered were covered by three (3) separate transactions. The
factors considered by the Court of Appeals are mere incidents of the execution of the obligation, which is to deliver three units of the
Minilab Equipment on the part of respondent and payment for all three on the part of petitioners. The intention to create an indivisible
contract is apparent from the benefits that the Letter Agreement afforded to both parties. Petitioners were given the 19% discount on
account of a multiple order, with the discount being equally applicable to all units that they sought to acquire. The provision on "no
downpayment" was also applicable to all units. Respondent, in turn, was entitled to payment of all three Minilab Equipment units,
payable by installments.

IV

With both parties opting for rescission of the contract under Article 1191, the Court of Appeals correctly ordered for restitution.

The contract between the parties is one of sale, where one party obligates himself or herself to transfer the ownership and deliver a
determinate thing, while the other pays a certain price in money or its equivalent. [103] A contract of sale is perfected upon the meeting
of minds as to the object and the price, and the parties may reciprocally demand the performance of their respective obligations from
that point on.[104]

The Court of Appeals correctly noted that respondent had rescinded the parties' Letter Agreement through the letter dated October
14, 1992.[105] It likewise noted petitioners' rescission through the letter dated November 18, 1992. [106] This rescission from both parties
is founded on Article 1191 of the New Civil Code:

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

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

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

Rescission under Article 1191 has the effect of mutual restitution.[107] In Velarde v. Court of Appeals:[108]

Rescission abrogates the contract from its inception and requires a mutual restitution of benefits received.
....

Rescission creates the obligation to return the object of the contract. It can be carried out only when the one who demands rescission
can return whatever he may be obliged to restore. To rescind is to declare a contract void at its inception and to put an end to it as
though it never was. It is not merely to terminate it and release the parties from further obligations to each other, but to abrogate it
from the beginning and restore the parties to their relative positions as if no contract has been made. (Emphasis supplied, citations
omitted)

The Court of Appeals correctly ruled that both parties must be restored to their original situation as far as practicable, as if the
contract was never entered into. Petitioners must relinquish possession of the delivered Minilab Equipment unit and accessories,
while respondent must return the amount tendered by petitioners as partial payment for the unit received. Further, respondent cannot
claim that the two (2) monthly installments should be offset against the amount awarded by the Court of Appeals to petitioners
because the effect of rescission under Article 1191 is to bring the parties back to their original positions before the contract was
entered into. Also in Velarde:

As discussed earlier, the breach committed by petitioners was the nonperformance of a reciprocal obligation, not a violation of the
terms and conditions of the mortgage contract. Therefore, the automatic rescission and forfeiture of payment clauses stipulated in the
contract does not apply. Instead, Civil Code provisions shall govern and regulate the resolution of this controversy.

Considering that the rescission of the contract is based on Article 1191 of the Civil Code, mutual restitution is required to bring back
the parties to their original situation prior to the inception of the contract. Accordingly, the initial payment of P800.000 and the
corresponding mortgage payments in the amounts of P27,225, P23.000 and P23.925 (totaling P874,150.00) advanced by petitioners
should be returned by private respondents, lest the latter unjustly enrich themselves at the expense of the former.[110] (Emphasis
supplied)

When rescission is sought under Article 1191 of the Civil Code, it need not be judicially invoked because the power to resolve is
implied in reciprocal obligations.[111] The right to resolve allows an injured party to minimize the damages he or she may suffer on
account of the other party's failure to perform what is incumbent upon him or her. [112] When a party fails to comply with his or her
obligation, the other party's right to resolve the contract is triggered.[113] The resolution immediately produces legal effects if the non-
performing party does not question the resolution.[114] Court intervention only becomes necessary when the party who allegedly failed
to comply with his or her obligation disputes the resolution of the contract. [115] Since both parties in this case have exercised their right
to resolve under Article 1191, there is no need for a judicial decree before the resolution produces effects.

The issue of damages is a factual one. A petition for review on certiorari under Rule 45 shall only pertain to questions of law. [116] It is
not the duty of this court to re-evaluate the evidence adduced before the lower courts. [117] Furthermore, unless the petition clearly
shows that there is grave abuse of discretion, the findings of fact of the trial court as affirmed by the Court of Appeals are conclusive
upon this court.[118] In Lorzano v. Tabayag, Jr.:[119]

For a question to be one of law, the same must not involve an examination of the probative value of the evidence presented by the
litigants or any of them. The resolution of the issue must rest solely on what the law provides on the given set of circumstances. Once
it is clear that the issue invites a review of the evidence presented, the question posed is one of fact.
....

For the same reason, we would ordinarily disregard the petitioner's allegation as to the propriety of the award of moral damages and
attorney's fees in favor of the respondent as it is a question of fact. Thus, questions on whether or not there was a preponderance of
evidence to justify the award of damages or whether or not there was a causal connection between the given set of facts and the
damage suffered by the private complainant or whether or not the act from which civil liability might arise exists are questions of fact.

Essentially, the petitioner is questioning the award of moral damages and attorney's fees in favor of the respondent as the same is
supposedly not fully supported by evidence. However, in the final analysis, the question of whether the said award is fully supported by
evidence is a factual question as it would necessitate whether the evidence adduced in support of the same has any probative value.
For a question to be one of law, it must involve no examination of the probative value of the evidence presented by the litigants or any
of them.[120] (Emphasis supplied, citations omitted)

The damages awarded by the Court of Appeals were supported by documentary evidence. [121] Petitioners failed to show any reason
why the factual determination of the Court of Appeals must be reviewed, especially in light of their failure to produce receipts or check
payments to support their other claim for actual damages.[122]

Furthermore, the actual damages amounting to P2,040,000.00 being sought by petitioners [123] must be tempered on account of their
own failure to pay the rest of the installments for the delivered unit. This failure on their part is a breach of their obligation, for which
the liability of respondent, for its failure to deliver the remaining units, shall be equitably tempered on account of Article 1192 of the
New Civil Code.[124] In Central Bank of the Philippines v. Court of Appeals:[125]

Since both parties were in default in the performance of their respective reciprocal obligations, that is, Island Savings Bank failed to
comply with its obligation to furnish the entire loan and Sulpicio M. Tolentino failed to comply with his obligation to pay his P17,000.00
debt within 3 years as stipulated, they are both liable for damages.

Article 1192 of the Civil Code provides that in case both parties have committed a breach of their reciprocal obligations, the liability of
the first infractor shall be equitably tempered by the courts. WE rule that the liability of Island Savings Bank for damages in not
furnishing the entire loan is offset by the liability of Sulpicio M. Tolentino for damages, in the form of penalties and surcharges, for not
paying his overdue P17,000.00 debt. The liability of Sulpicio M. Tolentino for interest on his P17,000.00 debt shall not be included in
offsetting the liabilities of both parties. Since Sulpicio M. Tolentino derived some benefit for his use of the P17,000.00, it is just that he
should account for the interest thereon.[126] (Emphasis supplied)

The award for moral and exemplary damages also appears to be sufficient. Moral damages are granted to alleviate the moral suffering
suffered by a party due to an act of another, but it is not intended to enrich the victim at the defendant's expense. [127] It is not meant to
punish the culpable party and, therefore, must always be reasonable vis-a-vis the injury caused. [128] Exemplary damages, on the other
hand, are awarded when the injurious act is attended by bad faith. [129] In this case, respondent was found to have misrepresented its
right over the generator set that was seized. As such, it is properly liable for exemplary damages as an example to the public. [130]

However, the dispositive portion of the Court of Appeals Amended Decision dated September 9, 2005 must be modified to include the
recovery of attorney's fees and costs of suit in favor of petitioners. In Sunbanun v. Go:[131]

Furthermore, we affirm the award of exemplary damages and attorney's fees. Exemplary damages may be awarded when a wrongful
act is accompanied by bad faith or when the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner
which would justify an award of exemplary damages under Article 2232 of the Civil Code. Since the award of exemplary damages is
proper in this case, attorney's fees and cost of the suit may also be recovered as provided under Article 2208 of the Civil Code.
[132]
(Emphasis supplied, citation omitted)

Based on the amount awarded for moral and exemplary damages, it is reasonable to award petitioners P20,000.00 as attorney's fees.

WHEREFORE, the Petition is DENIED. The Amended Decision dated September 9, 2005 is AFFIRMED with MODIFICATION.
Respondent Kodak Philippines, Ltd. is ordered to pay petitioners Alexander and Julie Lam:

(a) P270,000.00, representing the partial payment made on the Minilab Equipment;

(b) P130,000.00, representing the amount of the generator set, plus legal interest at 12% per annum from
December 1992 until fully paid;

(c) P440,000.00 as actual damages;

(d) P25,000.00 as moral damages;

(e) P50,000.00 as exemplary damages; and

(f) P20,000.00 as attorney's fees.

Petitioners are ordered to return the Kodak Minilab System 22XL unit and its standard accessories to respondent.

SO ORDERED.
G.R. No. 138842 October 18, 2000

NATIVIDAD P. NAZARENO, MAXIMINO P. NAZARENO, JR., petitioners,

vs.
COURT OF APPEALS, ESTATE OF MAXIMINO A. NAZARENO, SR., ROMEO P. NAZARENO and ELIZA
NAZARENO, respondents.

DECISION

MENDOZA, J.:

1
This is a petition for review on certiorari of the decision of the Court of Appeals in CA-GR CV No. 39441 dated May
29, 1998 affirming with modifications the decision of the Regional Trial Court, Branch 107, Quezon City, in an action
for annulment of sale and damages.

The facts are as follows:

Maximino Nazareno, Sr. and Aurea Poblete were husband and wife. Aurea died on April 15, 1970, while Maximino,
Sr. died on December 18, 1980. They had five children, namely, Natividad, Romeo, Jose, Pacifico, and Maximino,
Jr. Natividad and Maximino, Jr. are the petitioners in this case, while the estate of Maximino, Sr., Romeo, and his
wife Eliza Nazareno are the respondents.

During their marriage, Maximino Nazareno, Sr. and Aurea Poblete acquired properties in Quezon City and in the
Province of Cavite. It is the ownership of some of these properties that is in question in this case.

It appears that after the death of Maximino, Sr., Romeo filed an intestate case in the Court of First Instance of
Cavite, Branch XV, where the case was docketed as Sp. Proc. No. NC-28. Upon the reorganization of the courts in
1983, the case was transferred to the Regional Trial Court of Naic, Cavite. Romeo was appointed administrator of
his father’s estate.

In the course of the intestate proceedings, Romeo discovered that his parents had executed several deeds of sale
conveying a number of real properties in favor of his sister, Natividad. One of the deeds involved six lots in Quezon
City which were allegedly sold by Maximino, Sr., with the consent of Aurea, to Natividad on January 29, 1970 for the
total amount of ₱47,800.00. The Deed of Absolute Sale reads as follows:

DEED OF ABSOLUTE SALE

KNOW ALL MEN BY THESE PRESENTS:

I, MAXIMINO A. NAZARENO, Filipino, married to Aurea Poblete-Nazareno, of legal age and a resident
of the Mun. of Naic, Prov. of Cavite, Philippines,

-WITNESSETH-

That I am the absolute registered owner of six (6) parcels of land with the improvements thereon
situated in Quezon City, Philippines, which parcels of land are herewith described and bounded as
follows, to wit:

"TRANS. CERT. OF TITLE NO. 140946"

"A parcel of land (Lot 3-B of the subdivision plan Psd-47404, being a portion of Lot 3, Block D-3
described on plan Bsd-10642, G.L.R.O. Record No.) situated in the Quirino District, Quezon City.
Bounded on the N., along line 1-2 by Lot 15, Block D-3 of plan Bsd - 10642; along line 2-3 by Lot 4,
Block D-3 of plan Bsd-10642; along line 3-4 by Aurora Boulevard (Road Lot-1, Bsd-10642); and along
line 4-1 by Lot 3-D of the subdivision plan. Beginning at a point marked "1" on plan, being S.29 deg.
26’E., 1156.22 m. from B.L.L.M. 9, Quezon City,

thence N. 79 deg. 53’E., 12.50 m. to point 2;

thence S. 10 deg. 07’E., 40.00 m. to point 3;

thence S. 79 deg. 53’W., 12.50 m. to point 4;

thence N. 10 deg. 07’W., 40.00 m. to the point

of beginning; containing an area of FIVE HUNDRED (500) SQUARE METERS. All points referred to
are indicated on the plan and are marked on the ground as follows: points "1" and "4" by P.L.S. Cyl.
Conc. Mons. bearings true; date of the original survey, April 8-July 15, 1920 and that of the subdivision
survey, March 25, 1956."

"TRANS. CERT. OF TITLE NO. 132019"

"A parcel of land (Lot 3, Block 93 of the subdivision plan Psd-57970 being a portion of Lot 6, Pcs-4786,
G.L.R.O. Rec. No. 917) situated in Quirino District Quezon City. Bounded on the NW., along line 1-2,
by Lot 1, Block 93; on the NE., along line 2-3, by Road Lot 101; on the SE., along line 3-4, by Road Lot
100; on the SW., along line 4-1, by Lot 4, Block 93; all of the subdivision plan. Beginning at point
marked "1" on plan, being S. 65 deg. 40’ 3339.92 m. from B.L.L.M. No. 1, Marikina, Rizal;

thence N. 23 deg. 28 min. E., 11.70 m. to point "2";

thence S. 66 deg. 32 min. E., 18.00 m. to point "3";

thence S. 23 deg. 28 min. W., 11.70 m. to point "4";

thence N. 66 deg. 32. min. W., 18.00 m. to the point

of beginning; containing an area of TWO HUNDRED TEN SQUARE METERS AND SIXTY SQUARE
DECIMETERS (210.60). All points referred to are indicated on the plan and are marked on the ground
by B.L. Cyl. Conc. Mons. 15 x 60 cm.; bearings true; date of the original survey, Nov. 10, 1920 and
Jan. 31-March 31, 1924 and that of the subdivision survey, February 1 to September 30, 1954. Date
approved - March 9, 1962."
 "TRANS. CERT. OF TITLE NO. 118885"

"A parcel of land (Lot No. 10, of the consolidation and subdivision plan Pcs-988, being a portion of the
consolidated Lot No. 26, Block No. 6, Psd-127, and Lots Nos. 27-A and 27-B, Psd-14901, G.L.R.O.
Record No. 917), situated in the District of Cubao, Quezon City, Island of Luzon. Bounded on the NE.,
by Lot No. 4 of the consolidation and subdivision plan; on the SE., by Lot No. 11 of the consolidation
and subdivision plan; on the SW., by Lot No. 3 of the consolidation and subdivision plan; and on the
NW., by Lot No. 9 of the consolidation and subdivision plan. Beginning at a point marked "1" on the
plan, being S. 7 deg. 26’W., 4269.90 m. more or less from B.L.L.M. No. 1, Mp. of Mariquina;

thence S. 25 deg. 00’E., 12.00 m. to point "2";

thence S. 64 deg. 59’W., 29.99 m. to point "3";

thence N. 25 deg. 00’W., 12.00 m to point "4";

thence N. 64 deg. 59’E., 29.99 m. to the point of

beginning; containing an area of THREE HUNDRED SIXTY SQUARE METERS (360), more or less. All
points referred to are indicated on the plan and on the ground are marked by P.L.S. Conc. Mons. 15 x
60 cm.; bearings true; declination 0 deg. 50’E., date of the original survey, April 8 to July 15, 1920, and
that of the consolidation and subdivision survey, April 24 to 26, 1941."

"TRANS. CERT. OF TITLE NO. 118886"

"A parcel of land (Lot No. 11, of the consolidation and subdivision plan Pcs-988, being a portion of the
consolidated Lot No. 26, Block No. 6, Psd-127, and Lots Nos. 27-A and 27-B, Psd-14901, G.L.R.O.
Record No. 917), situated in the District of Cubao, Quezon City, Island of Luzon. Bounded on the NE.,
by Lot No. 4 of the consolidation and subdivision plan; on the SE., by Lot No. 12 of the consolidation
and subdivision plan; on the SW., by Lot No. 3 of the consolidation and subdivision plan; on the NW.,
by Lot No. 10 of the consolidation and subdivision plan. Beginning at a point marked "1" on plan, being
S. 79 deg. 07’W., 4264.00 m. more or less from B.L.L.M. No. 1, Mp. of Mariquina;

thence S. 64 deg. 59’W., 29.99 m. to point "2";

thence N. 25 deg. 00’W., 12.00 m. to point "3";

thence N. 64 deg. 59’E., 29.99 m. to point "4";

thence S. 26 deg. 00’E., 12.00 m. to the point of

beginning; containing an area of THREE HUNDRED SIXTY SQUARE METERS (360), more or less. All
points referred to are indicated on the plan and on the ground, are marked by P.L.S. Conc. Mons. 15 x
60 cm.; bearings true; declination 0 deg. 50’E.; date of the original survey, April 8 to July 15, 1920, and
that of the consolidation and subdivision survey, April 24 to 26, 1941."

"A parcel of land (Lot No. 13 of the consolidation and subdivision plan Pcs-988, being a portion of the
consolidated Lot No. 26, Block No. 6, Psd-127, and Lots Nos. 27-A and 27-B, Psd-14901, G.L.R.O.
Record No. 917), situated in the District of Cubao, Quezon City, Island of Luzon. Bounded on the NE.,
by Lot No. 4 of the consolidation and subdivision plan; on the SE., by Lot No. 14, of the consolidation;
and subdivision plan; on the SW., by Lot No. 3 of the consolidation and subdivision plan; and on the
NW., by Lot No. 12, of the consolidation and subdivision plan. Beginning at the point marked "1" on
plan, being S.78 deg. 48’W., 4258.20 m. more or less from B.L.L.M. No. 1, Mp. of Mariquina;

thence S. 64 deg. 58’W., 30.00 m. to point "2";

thence N. 25 deg. 00’W., 12.00 m. to point "3";

thence N. 64 deg. 59’E., 29.99 m. to point "4";

thence S.25 deg. 00’E., 12.00 m. to point of

beginning; containing an area of THREE HUNDRED SIXTY SQUARE METERS (360, more or less. All
points referred to are indicated on the plan and on the ground are marked by P.L.S. Conc. Mons. 15 x
60 cm.; bearings true; declination 0 deg. 50’E., date of the original survey, April 8 to July 15, 1920, and
that of the consolidation and subdivision survey, April 24 to 26, 1941."

"A parcel of land (Lot No. 14, of the consolidation and subdivision plan Pcs-988, being a portion of the
consolidated Lot No. 26, Block No. 6, Psd-127, and Lots Nos. 27-A and 27-B, Psd-14901, G.L.R.O.
Record No. 917), situated in the District of Cubao, Quezon City, Island of Luzon. Bounded on the NE.,
by Lot No. 4 of the consolidation and subdivision plan; on the SE., by Lot No. 15, of the consolidation
and subdivision plan; on the SW., by Lot No. 3 of the consolidation and subdivision plan; and on the
 NW., by Lot No. 13 of the consolidation and subdivision plan. Beginning at the point marked "1" on
plan, being S.78 deg. 48’W., 4258.20 m. more or less from B.L.L.M. No. 1, Mp. of Mariquina;

thence S. 25 deg. 00’E., 12.00 m. to point "2";

thence S. 65 deg. 00’W., 30.00 m. to point "3";

thence S. 65 deg. 00’W., 12.00 m. to point "4";

thence N.64 deg. 58’E., 30.00 m. to the point of

beginning; containing an area of THREE HUNDRED SIXTY SQUARE METERS (360), more or less. All
points referred to are indicated on the plan and on the ground are marked by P.L.S. Conc. Mons. 15 x
60 cm.; bearings true; declination 0 deg. 50’E., date of the original survey, April 8 to July 15, 1920, and
that of the consolidation and subdivision survey, April 24 to 26, 1941."

That for and in consideration of the sum of FORTY THREE THOUSAND PESOS (P43,000.00)
PHILIPPINE CURRENCY, to me in hand paid by NATIVIDAD P. NAZARENO, Filipino, single, of legal
age and a resident of the Mun. of Naic, Prov. of Cavite, Philippines, the receipt whereof is
acknowledged to my entire satisfaction, I do hereby CEDE, SELL, TRANSFER, CONVEY and ASSIGN
unto the said Natividad P. Nazareno, her heirs, administrators and assigns, all my title, rights, interests
and participations to the abovedescribed parcels of land with the improvements thereon, with the
exception of LOT NO. 11 COVERED BY T.C.T. NO. 118886, free of any and all liens and
encumbrances; and

That for and in consideration of the sum of FOUR THOUSAND EIGHT HUNDRED PESOS (P4,800.00)
PHILIPPINE CURRENCY, to me in hand paid by NATIVIDAD P. NAZARENO, Filipino, single, of legal
age and a resident of the Mun. of Naic, Prov. of Cavite, Philippines, the receipt whereof is
acknowledged to my entire satisfaction, I do hereby CEDE, SELL, TRANSFER, CONVEY and ASSIGN
unto the said Natividad P. Nazareno, her heirs, administrators and assigns, all my title, rights, interests
and participations in and to Lot No. 11 covered by T.C.T. No. 118886 above-described, free of any and
all liens and encumbrances, with the understanding that the title to be issued in relation hereto shall be
separate and distinct from the title to be issued in connection with Lots Nos. 13 and 14, although
covered by the same title.

IN WITNESS WHEREOF, I have hereunto signed this deed of absolute sale in the City of Manila,
2
Philippines, this 29th day of January, 1970.

By virtue of this deed, transfer certificates of title were issued to Natividad, to wit: TCT No. 162738 (Lot
3 4 5 6
3-B), TCT No. 162739 (Lot 3), TCT No. 162735 (Lot 10), TCT No. 162736 (Lot 11), and TCT No.
7
162737 (Lots 13 and 14), all of the Register of Deeds of Quezon City.

Among the lots covered by the above Deed of Sale is Lot 3-B which is registered under TCT No. 140946. This lot
had been occupied by Romeo, his wife Eliza, and by Maximino, Jr. since 1969. Unknown to Romeo, Natividad sold
8
Lot 3-B on July 31, 1982 to Maximino, Jr., for which reason the latter was issued TCT No. 293701 by the Register
9
of Deeds of Quezon City.

When Romeo found out about the sale to Maximino, Jr., he and his wife Eliza locked Maximino, Jr. out of the house.
On August 4, 1983, Maximino, Jr. brought an action for recovery of possession and damages with prayer for writs of
preliminary injunction and mandatory injunction with the Regional Trial Court of Quezon City. On December 12,
1986, the trial court ruled in favor of Maximino, Jr. In CA-G.R. CV No. 12932, the Court of Appeals affirmed the
10
decision of the trial court.

On June 15, 1988, Romeo in turn filed, on behalf of the estate of Maximino, Sr., the present case for annulment of
sale with damages against Natividad and Maximino, Jr. The case was filed in the Regional Trial Court of Quezon
11
City, where it was docketed as Civil Case No. 88-58. Romeo sought the declaration of nullity of the sale made on
January 29, 1970 to Natividad and that made on July 31, 1982 to Maximino, Jr. on the ground that both sales were
void for lack of consideration.

On March 1, 1990, Natividad and Maximino, Jr. filed a third-party complaint against the spouses Romeo and
12
Eliza. They alleged that Lot 3, which was included in the Deed of Absolute Sale of January 29, 1970 to Natividad,
had been surreptitiously appropriated by Romeo by securing for himself a new title (TCT No. 277968) in his
13
name. They alleged that Lot 3 is being leased by the spouses Romeo and Eliza to third persons. They therefore
sought the annulment of the transfer to Romeo and the cancellation of his title, the eviction of Romeo and his wife
Eliza and all persons claiming rights from Lot 3, and the payment of damages.

The issues having been joined, the case was set for trial. Romeo presented evidence to show that Maximino and
Aurea Nazareno never intended to sell the six lots to Natividad and that Natividad was only to hold the said lots in
trust for her siblings. He presented the Deed of Partition and Distribution dated June 28, 1962 executed by
Maximino Sr. and Aurea and duly signed by all of their children, except Jose, who was then abroad and was
represented by their mother, Aurea. By virtue of this deed, the nine lots subject of this Deed of Partition were
assigned by raffle as follows:

2
1. Romeo - Lot 25-L (642 m )

2 2
2. Natividad - Lots 23 (312 m ) and 24 (379 m )

2 2
3. Maximino, Jr. - Lots 6 (338 m ) and 7 (338 m )

2 2
4. Pacifico - Lots 13 (360 m ) and 14 (360 m )

2 2
5. Jose - Lots 10 (360 m ) and 11 (360 m )

14
Romeo received the title to Lot 25-L under his name, while Maximino, Jr. received Lots 6 and 7 through a Deed
15
of Sale dated August 16, 1966 for the amount of ₱9,500.00. Pacifico and Jose’s shares were allegedly given to
Natividad, who agreed to give Lots 10 and 11 to Jose, in the event the latter came back from abroad. Natividad’s
16
share, on the other hand, was sold to third persons because she allegedly did not like the location of the two lots.
But, Romeo said, the money realized from the sale was given to Natividad.

Romeo also testified that Lot 3-B was bought for him by his father, while Lot 3 was sold to him for ₱7,000.00 by his
parents on July 4, 1969

17
. However, he admitted that a document was executed by his parents transferring six properties in Quezon City,
i.e., Lots 3, 3-B, 10, 11, 13, and 14, to Natividad.

Romeo further testified that, although the deeds of sale executed by his parents in their favor stated that the sale
was for a consideration, they never really paid any amount for the supposed sale.

18
The transfer was made in this manner in order to avoid the payment of inheritance taxes. Romeo denied stealing
Lot 3 from his sister but instead claimed that the title to said lot was given to him by Natividad in 1981 after their
father died.

Natividad and Maximino, Jr. claimed that the Deed of Partition and Distribution executed in 1962 was not really
carried out.

Instead, in December of 1969, their parents offered to sell to them the six lots in Quezon City, i.e., Lots 3, 3-B, 10,
11, 13 and 14. However, it was only Natividad who bought the six properties because she was the only one
financially able to do so.

19
Natividad said she sold Lots 13 and 14 to Ros-Alva Marketing Corp. and Lot 3-B to Maximino, Jr. for
20
₱175,000.00. Natividad admitted that Romeo and the latter’s wife were occupying Lot 3-B at that time and that
she did not tell the latter about the sale she had made to Maximino, Jr.

Natividad said that she had the title to Lot 3 but it somehow got lost. She could not get an original copy of the said
title because the records of the Registrar of Deeds had been destroyed by fire. She claimed she was surprised to
learn that Romeo was able to obtain a title to Lot 3 in his name.

Natividad insisted that she paid the amount stated in the Deed of Absolute Sale dated January 29, 1970. She
alleged that their parents had sold these properties to their children instead of merely giving the same to them in
order to impose on them the value of hardwork.

Natividad accused Romeo of filing this case to harass her after Romeo lost in the action for recovery of possession
(Civil Case No. Q-39018) which had been brought against him by Maximino, Jr. It appears that before the case filed
by Romeo could be decided, the Court of Appeals rendered a decision in CA-GR CV No. 12932 affirming the trial
court’s decision in favor of Maximino, Jr.

On August 10, 1992, the trial court rendered a decision, the dispositive portion of which states:
WHEREFORE, judgment is hereby rendered declaring the nullity of the Deed of Sale dated January 29, 1970.
Except as to Lots 3, 3-B, 13 and 14 which had passed on to third persons, the defendant Natividad shall hold the
rest in trust for Jose Nazareno to whom the same had been adjudicated. The Register of Deeds of Quezon City is
directed to annotate this judgment on Transfer Certificate of Titles Nos. 162735 and 162736 as a lien in the titles of
Natividad P. Nazareno.

The defendants’ counterclaim is dismissed. Likewise, the third-party complaint is dismissed.

The defendants are hereby directed to pay to the plaintiff jointly and severally the sum of ₱30,000 as and for
attorney’s fees. Likewise, the third-party plaintiff is directed to pay the third-party defendant’s attorney’s fees of
₱20,000.

All other claims by one party against the other are dismissed.

21
SO ORDERED.

Natividad and Maximino, Jr. filed a motion for reconsideration. As a result, on October 14, 1992 the trial court
modified its decision as follows:

WHEREFORE, the plaintiff’s Partial Motion for Reconsideration is hereby granted. The judgment dated August 10,
1992 is hereby amended, such that the first paragraph of its dispositive portion is correspondingly modified to read
as follows:

"WHEREFORE, judgment is hereby rendered declaring the nullity of the Deeds of Sale dated January 29, 1970 and
July 31, 1982.

"Except as to Lots 3, 13 and 14 which had passed on to third person, the defendant Natividad shall hold the rest OF
THE PROPERTIES COVERED BY THE DEED OF SALE DATED JANUARY 29, 1970 (LOTS 10 and 11) in trust for
Jose Nazareno to whom the same had been adjudicated.

"The Register of Deeds of Quezon City is directed to annotate this judgment on Transfer Certificates of Title No.
162735 and 162736 as a lien on the titles of Natividad P. Nazareno.

"LIKEWISE, THE SAID REGISTER OF DEEDS IS DIRECTED TO CANCEL TCT NO. 293701 (formerly 162705)
OVER LOT 3-B AND RESTORE TCT NO. 140946 IN THE NAME OF MAXIMINO NAZARENO SR. AND AUREA
22
POBLETE."

On appeal to the Court of Appeals, the decision of the trial court was modified in the sense that titles to Lot 3 (in the
name of Romeo Nazareno) and Lot 3-B (in the name of Maximino Nazareno, Jr.), as well as to Lots 10 and 11 were
cancelled and ordered restored to the estate of Maximino Nazareno, Sr. The dispositive portion of the decision
dated May 29, 1998 reads:

WHEREFORE, the appeal is GRANTED. The decision and the order in question are modified as follows:

1. The Deed of Absolute Sale dated 29 January 1970 and the Deed of Absolute Sale dated 31 July 1982 are hereby
declared null and void;

2. Except as to Lots 13 and 14 ownership of which has passed on to third persons, it is hereby declared that Lots 3,
3-B, 10 and 11 shall form part of the estate of the deceased Maximino Nazareno, Sr.;

3. The Register of Deeds of Quezon City is hereby ordered to restore TCT No. 140946 (covering Lot 3-B), TCT No.
23
132019 (covering Lot 3), TCT No. 118885 (covering Lot 10), and TCT No. 118886 (covering Lot 11).

Petitioners filed a motion for reconsideration but it was denied in a resolution dated May 27, 1999. Hence this
petition.

Petitioners raise the following issues:

1. WHETHER OR NOT THE UNCORROBORATED TESTIMONY OF PRIVATE RESPONDENT ROMEO P.

NAZARENO CAN DESTROY THE FULL FAITH AND CREDIT ACCORDED TO NOTARIZED DOCUMENTS LIKE
THE DEED OF ABSOLUTE SALE DATED JANUARY 29, 1970 (EXH. 1) EXECUTED BY THE DECEASED
SPOUSES MAXIMINO A. NAZARENO, SR. AND AUREA POBLETE IN FAVOR OF PETITIONER NATIVIDAD P.
NAZARENO.

2. WHETHER OR NOT THE RESPONDENT COURT GROSSLY MISAPPRECIATED THE FACTS OF THE CASE
WITH RESPECT TO THE VALIDITY OF THE SAID DEED OF ABSOLUTE SALE DATED JANUARY 29, 1970
(EXH. 1) IN THE LIGHT OF THE FOLLOWING:

A) THE DOCUMENTARY EVIDENCE, ALL OF WHICH ARE NOTARIZED, EXECUTED BY THE DECEASED
SPOUSES DURING THEIR LIFETIME INVOLVING SOME OF THEIR CONJUGAL PROPERTIES.

B) THE EXECUTION OF AN EXTRA-JUDICIAL PARTITION WITH WAIVER OF RIGHTS AND CONFIRMATION

OF SALE DATED MAY 24, 1975 (EXH. 14A) OF THE ESTATE OF AUREA POBLETE BY THE DECEASED
MAXIMINO A. NAZARENO, SR. AND THEIR CHILDREN INVOLVING THE ONLY REMAINING ESTATE OF
AUREA POBLETE THUS IMPLIEDLY ADMITTING THE VALIDITY OF PREVIOUS DISPOSITIONS MADE BY
SAID DECEASED SPOUSES ON THEIR CONJUGAL PROPERTIES, HALF OF WHICH WOULD HAVE BECOME
A PART OF AUREA POBLETE’S ESTATE UPON HER DEMISE.

C) THE ADMISSION MADE BY MAXIMINO A. NAZARENO, SR. IN HIS TESTIMONY IN OPEN COURT ON
AUGUST 13, 1980 DURING HIS LIFETIME IN CIVIL CASE NO. NC-712 (EXH. 81, 81B) THAT HE HAD SOLD
CERTAIN PROPERTIES IN FAVOR OF NATIVIDAD P. NAZARENO THUS BELYING THE CLAIM OF ROMEO P.
NAZARENO THAT THE DEED OF ABSOLUTE SALE DATED JANUARY 29, 1970 IS ONE AMONG THE
DOCUMENTS EXECUTED BY THE DECEASED SPOUSES TO BE WITHOUT CONSIDERATION.

D) THE ADMISSIONS MADE BY ROMEO P. NAZARENO HIMSELF CONTAINED IN A FINAL DECISION OF THE
RESPONDENT COURT IN CA-GR CV NO. 12932 DATED AUGUST 31, 1992 AND AN ANNEX APPEARING IN
HIS ANSWER TO THE COMPLAINT IN CIVIL CASE NO. Q-39018 (EXH. 11-B) INVOLVING LOT 3B, ONE OF
THE PROPERTIES IN QUESTION THAT THE SAID PROPERTY IS OWNED BY PETITIONER NATIVIDAD P.
NAZARENO.

E) THE PARTIAL PROJECT OF PARTITION DATED MAY 24, 1995 WHICH WAS APPROVED BY THE
INTESTATE COURT IN SP. PROC. NO. NC-28 AND EXECUTED IN ACCORDANCE WITH THE LATTER
COURT’S FINAL ORDER DATED JULY 9, 1991 DETERMINING WHICH WERE THE REMAINING PROPERTIES
OF THE ESTATE.

3. WHETHER OR NOT THE DEED OF ABSOLUTE SALE DATED JANUARY 29, 1970 EXECUTED BY THE
DECEASED SPOUSES MAXIMINO A. NAZARENO, SR. AND AUREA POBLETE DURING THEIR LIFETIME
INVOLVING THEIR CONJUGAL PROPERTIES IS AN INDIVISIBLE CONTRACT? AND IF SO WHETHER OR NOT
UPON THEIR DEATH, THE ESTATE OF MAXIMINO A. NAZARENO, SR. ALONE CAN SEEK THE ANNULMENT
OF SAID SALE?

4. WHETHER OR NOT THE SALE OF LOT 3 UNDER THE DEED OF ABSOLUTE SALE DATED JANUARY 29,
1970 IN FAVOR OF PETITIONER NATIVIDAD P. NAZARENO, IS VALID CONSIDERING THAT AS PER THE
ORDER OF THE LOWER COURT DATED NOVEMBER 21, 1990. ROMEO NAZARENO ADMITTED THAT HE DID
NOT PAY THE CONSIDERATION STATED IN THE DEED OF ABSOLUTE SALE DATED JULY 4, 1969
EXECUTED BY THE DECEASED SPOUSES IN HIS FAVOR (EXH. M-2).

5. WHETHER OR NOT AS A CONSEQUENCE, THE TITLE ISSUED IN THE NAME OF ROMEO P. NAZARENO,
TCT NO. 277968 (EXH. M) SHOULD BE CANCELLED AND DECLARED NULL AND VOID AND A NEW ONE
ISSUED IN FAVOR OF NATIVIDAD P. NAZARENO PURSUANT TO THE DEED OF ABSOLUTE SALE
24
EXECUTED IN THE LATTER’S FAVOR ON JANUARY 29, 1970 BY THE DECEASED SPOUSES.

We find the petition to be without merit.

First. Petitioners argue that the lone testimony of Romeo is insufficient to overcome the presumption of validity
accorded to a notarized document.

To begin with, the findings of fact of the Court of Appeals are conclusive on the parties and carry even more weight
when these coincide with the factual findings of the trial court. This Court will not weigh the evidence all over again
unless there is a showing that the findings of the lower court are totally devoid of support or are clearly erroneous so
25
as to constitute serious abuse of discretion. The lone testimony of a witness, if credible, is sufficient. In this case,
the testimony of Romeo that no consideration was ever paid for the sale of the six lots to Natividad was found to be
credible both by the trial court and by the Court of Appeals and it has not been successfully rebutted by petitioners.
We, therefore, have no reason to overturn the findings by the two courts giving credence to his testimony.

The fact that the deed of sale was notarized is not a guarantee of the validity of its contents. As held in Suntay v.
26
Court of Appeals:
Though the notarization of the deed of sale in question vests in its favor the presumption of regularity, it is not the
intention nor the function of the notary public to validate and make binding an instrument never, in the first place,
intended to have any binding legal effect upon the parties thereto. The intention of the parties still and always is the
primary consideration in determining the true nature of a contract.

Second. Petitioners make capital of the fact that in C.A.-G.R. CV No. 12932, which was declared final by this Court
in G.R. No. 107684, the Court of Appeals upheld the right of Maximino, Jr. to recover possession of Lot 3-B. In that
case, the Court of Appeals held:

As shown in the preceding disquisition, Natividad P. Nazareno acquired the property in dispute by purchase in 1970.
She was issued Transfer Certificate of Title No. 162738 of the Registry of Deeds of Quezon City.

When her parents died, her mother Aurea Poblete-Nazareno in 1970 and her father Maximino A. Nazareno, Sr. in
1980, Natividad P. Nazareno had long been the exclusive owner of the property in question.

There was no way therefore that the aforesaid property could belong to the estate of the spouses Maximino
Nazareno, Sr. and Aurea Poblete.

The mere fact that Romeo P. Nazareno included the same property in an inventory of the properties of the
deceased Maximino A. Nazareno, Sr. will not adversely affect the ownership of the said realty.

Appellant Romeo P. Nazareno’s suspicion that his parents had entrusted all their assets under the care and in the
name of Natividad P.

Nazareno, their eldest living sister who was still single, to be divided upon their demise to all the compulsory heirs,
has not progressed beyond mere speculation.

His barefaced allegation on the point not only is without any corroboration but is even belied by documentary
evidence. The deed of absolute sale (Exhibit "B"), being a public document (Rule 132, Secs. 19 and 23, Revised
Rules on Evidence), is entitled to great weight; to contradict the same, there must be evidence that is clear,
convincing and more than merely preponderant (Yturralde vs. Aganon, 28 SCRA 407; Favor vs. Court of Appeals,
194 SCRA 308).

Defendants-appellants’ own conduct disproves their claim of co-ownership over the property in question. Being
themselves the owner of a ten-unit apartment building along Stanford St., Cubao Quezon City, defendants-
appellants, in a letter of demand to vacate addressed to their tenants (Exhibits "P", "P-1" and "P-2") in said
apartment, admitted that the house and lot located at No. 979 Aurora Blvd., Quezon City where they were residing
did not belong to them. Also, when they applied for a permit to repair the subject property in 1977, they stated that
the property belonged to and was registered in the name of Natividad P. Nazareno.

Among the documents submitted to support their application for a building permit was a copy of TCT No. 162738 of
the Registry of Deeds of Quezon City in the name of Natividad Nazareno (Exhibit "O" and submarkings; tsn March
27
15, 1985, pp. 4-5).

To be sure, that case was for recovery of possession based on ownership of Lot 3-B. The parties in that case were
Maximino, Jr., as plaintiff, and the spouses Romeo and Eliza, as defendants. On the other hand, the parties in the
present case for annulment of sale are the estate of Maximino, Sr., as plaintiff, and Natividad and Maximino, Jr., as
defendants. Romeo and Eliza were named third-party defendants after a third-party complaint was filed by Natividad
and Maximino, Jr. As already stated, however, this third-party complaint concerned Lot 3, and not Lot 3-B.

28
The estate of a deceased person is a juridical entity that has a personality of its own. Though Romeo represented
at one time the estate of Maximino, Sr., the latter has a separate and distinct personality from the former. Hence, the
judgment in CA-GR CV No. 12932 regarding the ownership of Maximino, Jr. over Lot 3-B binds Romeo and Eliza
only, and not the estate of Maximino, Sr., which also has a right to recover properties which were wrongfully
disposed.

Furthermore, Natividad’s title was clearly not an issue in the first case. In other words, the title to the other five lots
subject of the present deed of sale was not in issue in that case. If the first case resolved anything, it was the
ownership of Maximino, Jr. over Lot 3-B alone.

Third. Petitioners allege that, as shown by several deeds of sale executed by Maximino, Sr. and Aurea during their
lifetime, the intention to dispose of their real properties is clear. Consequently, they argue that the Deed of Sale of
January 29, 1970 should also be deemed valid.

This is a non-sequitur. The fact that other properties had allegedly been sold by the spouses Maximino, Sr. and
Aurea does not necessarily show that the Deed of Sale made on January 29, 1970 is valid.

Romeo does not dispute that their parents had executed deeds of sale. The question, however, is whether these
sales were made for a consideration. The trial court and the Court of Appeals found that the Nazareno spouses
transferred their properties to their children by fictitious sales in order to avoid the payment of inheritance taxes.
Indeed, it was found both by the trial court and by the Court of Appeals that Natividad had no means to pay for the
six lots subject of the Deed of Sale.All these convince the Court that Natividad had no means to pay for all the lots
she purportedly purchased from her parents.

What is more, Romeo’s admission that he did not pay for the transfer to him of lots 3 and 25-L despite the
considerations stated in the deed of sale is a declaration against interest and must ring with resounding truth.The
question is, why should Natividad be treated any differently, i.e., with consideration for the sale to her, when she is
admittedly the closest to her parents and the one staying with them and managing their affairs? It just seems without
reason.

Anyway, the Court is convinced that the questioned Deed of Sale dated January 29, 1970 (Exh. "A" or "1") is
29
simulated for lack of consideration, and therefore ineffective and void.

In affirming this ruling, the Court of Appeals said:

Facts and circumstances indicate badges of a simulated sale which make the Deed of Absolute Sale dated 29
January 1970 void and of no effect.

In the case of Suntay vs. Court of Appeals (251 SCRA 430 [1995]), the Supreme Court held that badges of
simulation make a deed of sale null and void since parties thereto enter into a transaction to which they did not
intend to be legally bound.

It appears that it was the practice in the Nazareno family to make simulated transfers of ownership of real properties
to their children in order to avoid the payment of inheritance taxes. Per the testimony of Romeo, he acquired Lot 25-
L from his parents through a fictitious or simulated sale wherein no consideration was paid by him. He even truthfully
admitted that the sale of Lot 3 to him on 04 July 1969 (Deed of Absolute Sale, Records, Vol. II, p. 453) likewise had
no consideration. This document was signed by the spouses Max, Sr. and Aurea as vendors while defendant-
30
appellant Natividad signed as witness.

Fourth. Petitioners argue further:

The Deed of Absolute Sale dated January 29, 1970 is an indivisible contract founded on an indivisible obligation. As
such, it being indivisible, it can not be annulled by only one of them. And since this suit was filed only by the estate
of Maximino A. Nazareno, Sr. without including the estate of Aurea Poblete, the present suit must fail. The estate of
Maximino A. Nazareno, Sr. can not cause its annulment while its validity is sustained by the estate of Aurea
31
Poblete.

An obligation is indivisible when it cannot be validly performed in parts, whatever may be the nature of the thing
32
which is the object thereof. The indivisibility refers to the prestation and not to the object thereof.

In the present case, the Deed of Sale of January 29, 1970 supposedly conveyed the six lots to Natividad. The
obligation is clearly indivisible because the performance of the contract cannot be done in parts, otherwise the value
of what is transferred is diminished. Petitioners are therefore mistaken in basing the indivisibility of a contract on the
number of obligors.

In any case, if petitioners’ only point is that the estate of Maximino, Sr. alone cannot contest the validity of the Deed
of Sale because the estate of Aurea has not yet been settled, the argument would nonetheless be without merit.

33
The validity of the contract can be questioned by anyone affected by it. A void contract is inexistent from the
beginning. Hence, even if the estate of Maximino, Sr. alone contests the validity of the sale, the outcome of the suit
will bind the estate of Aurea as if no sale took place at all.

Fifth. As to the third-party complaint concerning Lot 3, we find that this has been passed upon by the trial court and
the Court of Appeals. As Romeo admitted, no consideration was paid by him to his parents for the Deed of Sale.
Therefore, the sale was void for having been simulated. Natividad never acquired ownership over the property
because the Deed of Sale in her favor is also void for being without consideration and title to Lot 3 cannot be issued
in her name.

Nonetheless, it cannot be denied that Maximino, Sr. intended to give the six Quezon City lots to Natividad. As
Romeo testified, their parents executed the Deed of Sale in favor of Natividad because the latter was the only
34
"female and the only unmarried member of the family." She was thus entrusted with the real properties in behalf
of her siblings. As she herself admitted, she intended to convey Lots 10 and 11 to Jose in the event the latter
returned from abroad. There was thus an implied trust constituted in her favor. 1âwphi1.
Art. 1449 of the Civil Code states:

There is also an implied trust when a donation is made to a person but it appears that although the legal estate is
transmitted to the donee, he nevertheless is either to have no beneficial interest or only a part thereof.

There being an implied trust, the lots in question are therefore subject to collation in accordance with Art. 1061
which states:

Every compulsory heir, who succeeds with other compulsory heirs, must bring into the mass of the estate any
property or right which he may have received from the decedent, during the lifetime of the latter, by way of donation,
or any other gratuitous title, in order that it may be computed in the determination of the legitime of each heir, and in
the account of the partition.

35
As held by the trial court, the sale of Lots 13 and 14 to Ros-Alva Marketing, Corp. on April 20, 1979 will have to
be upheld for Ros-Alva Marketing is an innocent purchaser for value which relied on the title of Natividad. The rule is
settled that "every person dealing with registered land may safely rely on the correctness of the certificate of title
issued therefor and the law will in no way oblige him to go behind the certificate to determine the condition of the
36
property."

WHEREFORE, the decision of the Court of Appeals is AFFIRMED.

SO ORDERED.

Bellosillo, (Chairman), Quisumbing, and De Leon, Jr., JJ., concur.

Buena, J., no part.
G.R. No. 199650 June 26, 2013

J PLUS ASIA DEVELOPMENT CORPORATION, Petitioner,

vs.
UTILITY ASSURANCE CORPORATION, Respondent.

DECISION

VILLARAMA, JR., J.:

Before the Court is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as
1 2
amended, assailing the Decision dated January 27,2011 and Resolution dated December 8, 2011 of the Court of
Appeals (CA) in CA-G.R. SP No. 112808.

The Facts

On December 24, 2007, petitioner J Plus Asia Development Corporation represented by its Chairman, Joo Han Lee,
and Martin E. Mabunay, doing business under the name and style of Seven Shades of Blue Trading and Services,
3
entered into a Construction Agreement whereby the latter undertook to build the former's 72-room
condominium/hotel (Condotel Building 25) located at the Fairways & Bluewaters Golf & Resort in Boracay Island,
Malay, Aklan. The project, costing ₱42,000,000.00, was to be completed within one year or 365 days reckoned from
the first calendar day after signing of the Notice of Award and Notice to Proceed and receipt of down payment (20%
4
of contract price). The ₱8,400,000.00 down payment was fully paid on January 14, 2008. Payment of the balance
of the contract price will be based on actual work finished within 15 days from receipt of the monthly progress
5
billings. Per the agreed work schedule, the completion date of the project was December 2008. Mabuhay also
6
submitted the required Performance Bond issued by respondent Utility Assurance Corporation (UTASSCO) in the
amount equivalent to 20% down payment or ₱8.4 million.

Mabunay commenced work at the project site on January 7, 2008. Petitioner paid up to the 7th monthly progress
billing sent by Mabunay. As of September 16, 2008, petitioner had paid the total amount of ₱15,979,472.03
inclusive of the 20% down payment. However, as of said date, Mabunay had accomplished only 27.5% of the
7
project.

8
In the Joint Construction Evaluation Result and Status Report signed by Mabunay assisted by Arch. Elwin
Olavario, and Joo Han Lee assisted by Roy V. Movido, the following findings were accepted as true, accurate and
correct:

III STATUS OF PROJECT AS OF 14 NOVEMBER 2008

1) After conducting a joint inspection and evaluation of the project to determine the actual percentage of
accomplishment, the contracting parties, assisted by their respective technical groups, SSB assisted by Arch. Elwin
Olavario and JPLUS assisted by Engrs. Joey Rojas and Shiela Botardo, concluded and agreed that as of 14
November 2008, the project is only Thirty One point Thirty Nine Percent (31.39%) complete.

2) Furthermore, the value of construction materials allocated for the completion of the project and currently on site
has been determined and agreed to be ONE MILLION FORTY NINE THOUSAND THREE HUNDRED SIXTY FOUR
PESOS AND FORTY FIVE CENTAVOS (₱1,049,364.45)

3) The additional accomplishment of SSB, reflected in its reconciled and consolidated 8th and 9th billings, is Three
point Eighty Five Percent (3.85%) with a gross value of ₱1,563,553.34 amount creditable to SSB after deducting the
withholding tax is ₱1,538,424.84

4) The unrecouped amount of the down payment is ₱2,379,441.53 after deducting the cost of materials on site and
the net billable amount reflected in the reconciled and consolidated 8th and 9th billings. The uncompleted portion of
9
the project is 68.61% with an estimated value per construction agreement signed is ₱27,880,419.52. (Emphasis
supplied.)
On November 19, 2008, petitioner terminated the contract and sent demand letters to Mabunay and respondent
10
surety. As its demands went unheeded, petitioner filed a Request for Arbitration before the Construction Industry
Arbitration Commission (CIAC). Petitioner prayed that Mabunay and respondent be ordered to pay the sums of
₱8,980,575.89 as liquidated damages and ₱2,379,441.53 corresponding to the unrecouped down payment or
11
overpayment petitioner made to Mabunay.

12
In his Answer, Mabunay claimed that the delay was caused by retrofitting and other revision works ordered by Joo
Han Lee. He asserted that he actually had until April 30, 2009 to finish the project since the 365 days period of
completion started only on May 2, 2008 after clearing the retrofitted old structure. Hence, the termination of the
contract by petitioner was premature and the filing of the complaint against him was baseless, malicious and in bad
faith.

Respondent, on the other hand, filed a motion to dismiss on the ground that petitioner has no cause of action and
the complaint states no cause of action against it. The CIAC denied the motion to dismiss. Respondent’s motion for
13
reconsideration was likewise denied.

14
In its Answer Ex Abundante Ad Cautelam With Compulsory Counterclaims and Cross-claims, respondent argued
that the performance bond merely guaranteed the 20% down payment and not the entire obligation of Mabunay
under the Construction Agreement. Since the value of the project’s accomplishment already exceeded the said
amount, respondent’s obligation under the performance bond had been fully extinguished.

As to the claim for alleged overpayment to Mabunay, respondent contended that it should not be credited against
the 20% down payment which was already exhausted and such application by petitioner is tantamount to reviving
an obligation that had been legally extinguished by payment. Respondent also set up a cross-claim against
Mabunay who executed in its favor an Indemnity Agreement whereby Mabunay undertook to indemnify respondent
for whatever amounts it may be adjudged liable to pay petitioner under the surety bond.

Both petitioner and respondent submitted their respective documentary and testimonial evidence. Mabunay failed to
appear in the scheduled hearings and to present his evidence despite due notice to his counsel of record.

15
The CIAC thus declared that Mabunay is deemed to have waived his right to present evidence.

16
On February 2, 2010, the CIAC rendered its Decision and made the following award:

Accordingly, in view of our foregoing discussions and dispositions, the Tribunal hereby adjudges, orders and directs:

1. Respondents Mabunay and Utassco to jointly and severally pay claimant the following:

a) ₱4,469,969.90, as liquidated damages, plus legal interest thereon at the rate of 6% per annum computed from
the date of this decision up to the time this decision becomes final, and 12% per annum computed from the date this
decision becomes final until fully paid, and

b) ₱2,379,441.53 as unrecouped down payment plus interest thereon at the rate of 6% per annum computed from
the date of this decision up to the time this decision becomes final, and 12% per annum computed from the date this
decision becomes final until fully paid.

It being understood that respondent Utassco’s liability shall in no case exceed ₱8.4 million.

2. Respondent Mabunay to pay to claimant the amount of ₱98,435.89, which is respondent Mabunay’s share in the
arbitration cost claimant had advanced, with legal interest thereon from January 8, 2010 until fully paid.

3. Respondent Mabunay to indemnify respondent Utassco of the amounts respondent Utassco will have paid to
claimant under this decision, plus interest thereon at the rate of 12% per annum computed from the date he is
notified of such payment made by respondent Utassco to claimant until fully paid, and to pay Utassco ₱100,000.00
as attorney’s fees.

17
SO ORDERED.

Dissatisfied, respondent filed in the CA a petition for review under Rule 43 of the 1997 Rules of Civil Procedure, as
amended.

In the assailed decision, the CA agreed with the CIAC that the specific condition in the Performance Bond did not
clearly state the limitation of the surety’s liability.

18
Pursuant to Article 1377 of the Civil Code, the CA said that the provision should be construed in favor of petitioner
considering that the obscurely phrased provision was drawn up by respondent and Mabunay. Further, the appellate
court stated that respondent could not possibly guarantee the down payment because it is not Mabunay who owed
the down payment to petitioner but the other way around. Consequently, the completion by Mabunay of 31.39% of
the construction would not lead to the extinguishment of respondent’s liability. The ₱8.4 million was a limit on the
amount of respondent’s liability and not a limitation as to the obligation or undertaking it guaranteed.

However, the CA reversed the CIAC’s ruling that Mabunay had incurred delay which entitled petitioner to the
stipulated liquidated damages and unrecouped down payment. Citing Aerospace Chemical Industries, Inc. v. Court
19
of Appeals, the appellate court said that not all requisites in order to consider the obligor or debtor in default were
present in this case. It held that it is only from December 24, 2008 (completion date) that we should reckon default
because the Construction Agreement provided only for delay in the completion of the project and not delay on a
monthly basis using the work schedule approved by petitioner as the reference point. Hence, petitioner’s termination
of the contract was premature since the delay in this case was merely speculative; the obligation was not yet
demandable.

The dispositive portion of the CA Decision reads:

WHEREFORE, premises considered, the instant petition for review is GRANTED. The assailed Decision dated 13
January 2010 rendered by the CIAC Arbitral Tribunal in CIAC Case No. 03-2009 is hereby REVERSED and SET
ASIDE. Accordingly, the Writ of Execution dated 24 November 2010 issued by the same tribunal is hereby
ANNULLED and SET ASIDE.

20
SO ORDERED.

Petitioner moved for reconsideration of the CA decision while respondent filed a motion for partial reconsideration.
Both motions were denied.

The Issues

Before this Court petitioner seeks to reverse the CA insofar as it denied petitioner’s claims under the Performance
Bond and to reinstate in its entirety the February 2, 2010 CIAC Decision. Specifically, petitioner alleged that –

A. THE COURT OF APPEALS SERIOUSLY ERRED IN NOT HOLDING THAT THE ALTERNATIVE DISPUTE
RESOLUTION ACT AND THE SPECIAL RULES ON ALTERNATIVE DISPUTE RESOLUTION HAVE STRIPPED
THE COURT OF APPEALS OF JURISDICTION TO REVIEW ARBITRAL AWARDS.

B. THE COURT OF APPEALS SERIOUSLY ERRED IN REVERSING THE ARBITRAL AWARD ON AN ISSUE
THAT WAS NOT RAISED IN THE ANSWER. NOT IDENTIFIED IN THE TERMS OF REFERENCE, NOT
ASSIGNED AS AN ERROR, AND NOT ARGUED IN ANY OF THE PLEADINGS FILED BEFORE THE COURT.

C. THE COURT OF APPEALS SERIOUSLY ERRED IN RELYING ON THE CASE OF AEROSPACE CHEMICAL
INDUSTRIES, INC. v. COURT OF APPEALS, 315 SCRA 94, WHICH HAS NOTHING TO DO WITH
21
CONSTRUCTION AGREEMENTS.

Our Ruling

On the procedural issues raised, we find no merit in petitioner’s contention that with the institutionalization of
22
alternative dispute resolution under Republic Act (R.A.) No. 9285, otherwise known as the Alternative Dispute
Resolution Act of 2004, the CA was divested of jurisdiction to review the decisions or awards of the CIAC. Petitioner
erroneously relied on the provision in said law allowing any party to a domestic arbitration to file in the Regional Trial
Court (RTC) a petition either to confirm, correct or vacate a domestic arbitral award.

We hold that R.A. No. 9285 did not confer on regional trial courts jurisdiction to review awards or decisions of the
CIAC in construction disputes. On the contrary, Section 40 thereof expressly declares that confirmation by the RTC
is not required, thus:

SEC. 40. Confirmation of Award. – The confirmation of a domestic arbitral award shall be governed by Section 23 of
R.A. 876.

A domestic arbitral award when confirmed shall be enforced in the same manner as final and executory decisions of
the Regional Trial Court.

The confirmation of a domestic award shall be made by the regional trial court in accordance with the Rules of
Procedure to be promulgated by the Supreme Court.

A CIAC arbitral award need not be confirmed by the regional trial court to be executory as provided under E.O. No.
1008. (Emphasis supplied.)

Executive Order (EO) No. 1008 vests upon the CIAC original and exclusive jurisdiction over disputes arising from, or
connected with, contracts entered into by parties involved in construction in the Philippines, whether the dispute
arises before or after the completion of the contract, or after the abandonment or breach thereof. By express
provision of Section 19 thereof, the arbitral award of the CIAC is final and unappealable, except on questions of law,
which are appealable to the Supreme Court. With the amendments introduced by R.A. No. 7902 and promulgation
of the 1997 Rules of Civil Procedure, as amended, the CIAC was included in the enumeration of quasijudicial
agencies whose decisions or awards may be appealed to the CA in a petition for review under Rule 43. Such review
23
of the CIAC award may involve either questions of fact, of law, or of fact and law.

Petitioner misread the provisions of A.M. No. 07-11-08-SC (Special ADR Rules) promulgated by this Court and
which took effect on October 30, 2009. Since R.A. No. 9285 explicitly excluded CIAC awards from domestic
arbitration awards that need to be confirmed to be executory, said awards are therefore not covered by Rule 11 of
24
the Special ADR Rules, as they continue to be governed by EO No. 1008, as amended and the rules of procedure
25
of the CIAC. The CIAC Revised Rules of Procedure Governing Construction Arbitration provide for the manner
and mode of appeal from CIAC decisions or awards in Section 18 thereof, which reads:

SECTION 18.2 Petition for review. – A petition for review from a final award may be taken by any of the parties
within fifteen (15) days from receipt thereof in accordance with the provisions of Rule 43 of the Rules of Court.

As to the alleged error committed by the CA in deciding the case upon an issue not raised or litigated before the
CIAC, this assertion has no basis. Whether or not Mabunay had incurred delay in the performance of his obligations
26
under the Construction Agreement was the very first issue stipulated in the Terms of Reference (TOR), which is
distinct from the issue of the extent of respondent’s liability under the Performance Bond.

Indeed, resolution of the issue of delay was crucial upon which depends petitioner’s right to the liquidated damages
pursuant to the Construction Agreement. Contrary to the CIAC’s findings, the CA opined that delay should be
reckoned only after the lapse of the one-year contract period, and consequently Mabunay’s liability for liquidated
damages arises only upon the happening of such condition.

We reverse the CA.

Default or mora on the part of the debtor is the delay in the fulfillment of the prestation by reason of a cause
27
imputable to the former. It is the non-fulfillment of an obligation with respect to time.

Article 1169 of the Civil Code provides:

ART. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or
extrajudicially demands from them the fulfillment of their obligation.

xxxx

It is a general rule that one who contracts to complete certain work within a certain time is liable for the damage for
28
not completing it within such time, unless the delay is excused or waived.

The Construction Agreement provides in Article 10 thereof the following conditions as to completion time for the
project

1. The CONTRACTOR shall complete the works called for under this Agreement within ONE (1) YEAR or 365 Days
reckoned from the 1st calendar day after signing of the Notice of Award and Notice to Proceed and receipt of down
payment.

2. In this regard the CONTRACTOR shall submit a detailed work schedule for approval by OWNER within Seven (7)
days after signing of this Agreement and full payment of 20% of the agreed contract price. Said detailed work
schedule shall follow the general schedule of activities and shall serve as basis for the evaluation of the progress of
29
work by CONTRACTOR.

In this jurisdiction, the following requisites must be present in order that the debtor may be in default:

(1) that the obligation be demandable and already liquidated;

(2) that the debtor delays performance; and

30
(3) that the creditor requires the performance judicially or extrajudicially.

In holding that Mabunay has not at all incurred delay, the CA pointed out that the obligation to perform or complete
the project was not yet demandable as of November 19, 2008 when petitioner terminated the contract, because the
agreed completion date was still more than one month away (December 24, 2008). Since the parties contemplated
delay in the completion of the entire project, the CA concluded that the failure of the contractor to catch up with
schedule of work activities did not constitute delay giving rise to the contractor’s liability for damages.

We cannot sustain the appellate court’s interpretation as it is inconsistent with the terms of the Construction
Agreement.
Article 1374 of the Civil Code requires that the various stipulations of a contract shall be interpreted together,
attributing to the doubtful ones that sense which may result from all of them taken jointly. Here, the work schedule
approved by petitioner was intended, not only to serve as its basis for the payment of monthly progress billings, but
also for evaluation of the progress of work by the contractor.

Article 13.01 (g) (iii) of the Construction Agreement provides that the contractor shall be deemed in default if, among
others, it had delayed without justifiable cause the completion of the project "by more than thirty (30) calendar days
31
based on official work schedule duly approved by the OWNER."

Records showed that as early as April 2008, or within four months after Mabunay commenced work activities, the
project was already behind schedule for reasons not attributable to petitioner. In the succeeding months, Mabunay
was still unable to catch up with his accomplishment even as petitioner constantly advised him of the delays, as can
be gleaned from the following notices of delay sent by petitioner’s engineer and construction manager, Engr. Sheila
N. Botardo:

April 30, 2008

Seven Shades of Blue

Boracay Island
Malay, Aklan
1âwphi1

Attention : Mr. Martin Mabunay

General Manager

Thru : Engr. Reynaldo Gapasin

Project : Villa Beatriz

Subject : Notice of Delay

Dear Mr. Mabunay:

This is to formalize our discussion with your Engineers during our meeting last April 23, 2008 regarding
the delay in the implementation of major activities based on your submitted construction schedule.
Substantial delay was noted in concreting works that affects your roof framing that should have been
40% completed as of this date. This delay will create major impact on your over-all schedule as the
finishing works will all be dependent on the enclosure of the building.

In this regard, we recommend that you prepare a catch-up schedule and expedite the delivery of critical
materials on site. We would highly appreciate if you could attend our next regular meeting so we could
immediately address this matter. Thank you.

Very truly yours,

Engr. Sheila N. Botardo

32
Construction Manager – LMI/FEPI

October 15, 2008

xxxx

Dear Mr. Mabunay,

We have noticed continuous absence of all the Engineers that you have assigned on-site to administer
and supervise your contracted work. For the past two (2) weeks, your company does not have a
Technical Representative manning the jobsite considering the critical activities that are in progress and
the delays in schedule that you have already incurred. In this regard, we would highly recommend the
immediate replacement of your Project Engineer within the week.

We would highly appreciate your usual attention on this matter.

33
xxxx

November 5, 2008

xxxx
 Dear Mr. Mabunay,

This is in reference to your discussion during the meeting with Mr. Joohan Lee last October 30, 2008
regarding the construction of the Field Office and Stock Room for Materials intended for Villa Beatriz
use only. We understand that you have committed to complete it November 5, 2008 but as of this date
there is no improvement or any ongoing construction activity on the said field office and stockroom.

We are expecting deliveries of Owner Supplied Materials very soon, therefore, this stockroom is badly
needed. We will highly appreciate if this matter will be given your immediate attention.

Thank you.

34
xxxx

November 6, 2008

xxxx

Dear Mr. Mabunay,

We would like to call your attention regarding the decrease in your manpower assigned on site. We
have observed that for the past three (3) weeks instead of increasing your manpower to catch up with
the delay it was reduced to only 8 workers today from an average of 35 workers in the previous
months.

Please note that based on your submitted revised schedule you are already delayed by approximately
57% and this will worsen should you not address this matter properly.

We are looking forward for [sic] your cooperation and continuous commitment in delivering this project
as per contract agreement.

35
xxxx

Subsequently, a joint inspection and evaluation was conducted with the assistance of the architects and engineers
of petitioner and Mabunay and it was found that as of November 14, 2008, the project was only 31.39% complete
and that the uncompleted portion was 68.61% with an estimated value per Construction Agreement as
₱27,880,419.52.

Instead of doubling his efforts as the scheduled completion date approached, Mabunay did nothing to remedy the
delays and even reduced the deployment of workers at the project site. Neither did Mabunay, at anytime, ask for an
extension to complete the project. Thus, on November 19, 2008, petitioner advised Mabunay of its decision to
terminate the contract on account of the tremendous delay the latter incurred. This was followed by the claim
against the Performance Bond upon the respondent on December 18, 2008.

Petitioner’s claim against the Performance Bond included the liquidated damages provided in the Construction
Agreement, as follows:

ARTICLE 12 – LIQUIDATED DAMAGES:

12.01 Time is of the essence in this Agreement. Should the CONTRACTOR fail to complete the PROJECT within
the period stipulated herein or within the period of extension granted by the OWNER, plus One (1) Week grace
period, without any justifiable reason, the CONTRACTOR hereby agrees –

a. The CONTRACTOR shall pay the OWNER liquidated damages equivalent to One Tenth of One Percent (1/10 of
1%) of the Contract Amount for each day of delay after any and all extensions and the One (1) week Grace Period
until completed by the CONTRACTOR.

b. The CONTRACTOR, even after paying for the liquidated damages due to unexecuted works and/or delays shall
not relieve it of the obligation to complete and finish the construction.
Any sum which maybe payable to the OWNER for such loss may be deducted from the amounts retained under
Article 9 or retained by the OWNER when the works called for under this Agreement have been finished and
completed.

Liquidated Damage[s] payable to the OWNER shall be automatically deducted from the contractors collectibles
without prior consent and concurrence by the CONTRACTOR.

12.02 To give full force and effect to the foregoing, the CONTRACTOR hereby, without necessity of any further act
and deed, authorizes the OWNER to deduct any amount that may be due under Item (a) above, from any and all
money or amounts due or which will become due to the CONTRACTOR by virtue of this Agreement and/or to collect
36
such amounts from the Performance Bond filed by the CONTRACTOR in this Agreement. (Emphasis supplied.)

Liability for liquidated damages is governed by Articles 2226 to 2228 of the Civil Code, which provide:

ART. 2226. Liquidated damages are those agreed upon by the parties to a contract, to be paid in case of breach
thereof.

ART. 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they
are iniquitous or unconscionable.

ART. 2228. When the breach of the contract committed by the defendant is not the one contemplated by the parties
in agreeing upon the liquidated damages, the law shall determine the measure of damages, and not the stipulation.

A stipulation for liquidated damages is attached to an obligation in order to ensure performance and has a double
function: (1) to provide for liquidated damages, and

37
(2) to strengthen the coercive force of the obligation by the threat of greater responsibility in the event of breach.
The amount agreed upon answers for damages suffered by the owner due to delays in the completion of the
38
project. As a precondition to such award, however, there must be proof of the fact of delay in the performance of
39
the obligation.

Concededly, Article 12.01 of the Construction Agreement mentioned only the failure of the contractor to complete
the project within the stipulated period or the extension granted by the owner. However, this will not defeat
petitioner’s claim for damages nor respondent’s liability under the Performance Bond.

Mabunay was clearly in default considering the dismal percentage of his accomplishment (32.38%) of the work he
contracted on account of delays in executing the scheduled work activities and repeated failure to provide sufficient
manpower to expedite construction works.

The events of default and remedies of the Owner are set forth in Article 13, which reads:

ARTICLE 13 – DEFAULT OF CONTRACTOR:

13.01 Any of the following shall constitute an Event of Default on the part of the CONTRACTOR.

xxxx

g. In case the CONTRACTOR has done any of the following:

(i.) has abandoned the Project

(ii.) without reasonable cause, has failed to commence the construction or has suspended the progress of the
Project for twenty-eight days

(iii.) without justifiable cause, has delayed the completion of the Project by more than thirty (30) calendar days
based on official work schedule duly approved by the OWNER
(iv.) despite previous written warning by the OWNER, is not executing the construction works in accordance with the
Agreement or is persistently or flagrantly neglecting to carry out its obligations under the Agreement.

(v.) has, to the detriment of good workmanship or in defiance of the Owner’s instructions to the contrary, sublet any
part of the Agreement.

13.02 If the CONTRACTOR has committed any of the above reasons cited in Item 13.01, the OWNER may after
giving fourteen (14) calendar days notice in writing to the CONTRACTOR, enter upon the site and expel the
CONTRACTOR therefrom without voiding this Agreement, or releasing the CONTRACTOR from any of its
obligations, and liabilities under this Agreement. Also without diminishing or affecting the rights and powers
conferred on the OWNER by this Agreement and the OWNER may himself complete the work or may employ any
other contractor to complete the work. If the OWNER shall enter and expel the CONTRACTOR under this clause,
the OWNER shall be entitled to confiscate the performance bond of the CONTRACTOR to compensate for all kinds
of damages the OWNER may suffer. All expenses incurred to finish the Project shall be charged to the
CONTRACTOR and/or his bond. Further, the OWNER shall not be liable to pay the CONTRACTOR until the cost of
execution, damages for the delay in the completion, if any, and all; other expenses incurred by the OWNER have
been ascertained which amount shall be deducted from any money due to the CONTRACTOR on account of this
Agreement. The CONTRACTOR will not be compensated for any loss of profit, loss of goodwill, loss of use of any
equipment or property, loss of business opportunity, additional financing cost or overhead or opportunity losses
40
related to the unaccomplished portions of the work. (Emphasis supplied.)

As already demonstrated, the contractor’s default in this case pertains to his failure to substantially perform the work
on account of tremendous delays in executing the scheduled work activities.

Where a party to a building construction contract fails to comply with the duty imposed by the terms of the contract,
a breach results for which an action may be maintained to recover the damages sustained thereby, and of course, a
breach occurs where the contractor inexcusably fails to perform substantially in accordance with the terms of the
41
contract.

The plain and unambiguous terms of the Construction Agreement authorize petitioner to confiscate the Performance
Bond to answer for all kinds of damages it may suffer as a result of the contractor’s failure to complete the building.

Having elected to terminate the contract and expel the contractor from the project site under Article 13 of the said
Agreement, petitioner is clearly entitled to the proceeds of the bond as indemnification for damages it sustained due
to the breach committed by Mabunay.

Such stipulation allowing the confiscation of the contractor’s performance bond partakes of the nature of a penalty
clause.

A penalty clause, expressly recognized by law, is an accessory undertaking to assume greater liability on the part of
the obligor in case of breach of an obligation.

It functions to strengthen the coercive force of obligation and to provide, in effect, for what could be the liquidated
damages resulting from such a breach. The obligor would then be bound to pay the stipulated indemnity without the
necessity of proof on the existence and on the measure of damages caused by the breach. It is well-settled that so
42
long as such stipulation does not contravene law, morals, or public order, it is strictly binding upon the obligor.

Respondent, however, insists that it is not liable for the breach committed by Mabunay because by the terms of the
surety bond it issued, its liability is limited to the performance by said contractor to the extent equivalent to 20% of
the down payment. It stresses that with the 32.38% completion of the project by Mabunay, its liability was
extinguished because the value of such accomplishment already exceeded the sum equivalent to 20% down
payment (₱8.4 million).

The appellate court correctly rejected this theory of respondent when it ruled that the Performance Bond guaranteed
the full and faithful compliance of Mabunay’s obligations under the Construction Agreement, and that nowhere in
law or jurisprudence does it state that the obligation or undertaking by a surety may be apportioned.

The pertinent portions of the Performance Bond provide:

The conditions of this obligation are as follows:

Whereas the JPLUS ASIA, requires the principal SEVEN SHADES OF BLUE CONSTRUCTION AND
DEVELOPMENT, INC. to post a bond of the abovestated sum to guarantee 20% down payment for the construction
of Building 25 (Villa Beatriz) 72-Room Condotel, The Lodgings inside Fairways and Bluewater, Boracay Island,
Malay, Aklan.

Whereas, said contract required said Principal to give a good and sufficient bond in the above-stated sum to secure
the full and faithful performance on his part of said contract.
It is a special provision of this undertaking that the liability of the surety under this bond shall in no case exceed the
sum of ₱8,400,000.00 Philippine Currency.

Now, Therefore, if the Principal shall well and truly perform and fulfill all the undertakings, covenants, terms,
conditions and agreements stipulated in said contract, then this obligation shall be null and void; otherwise to remain
43
in full force and effect. (Emphasis supplied.)

While the above condition or specific guarantee is unclear, the rest of the recitals in the bond unequivocally declare
that it secures the full and faithful performance of Mabunay’s obligations under the Construction Agreement with
petitioner.

By its nature, a performance bond guarantees that the contractor will perform the contract, and usually provides that
if the contractor defaults and fails to complete the contract, the surety can itself complete the contract or pay
44
damages up to the limit of the bond.

Moreover, the rule is that if the language of the bond is ambiguous or uncertain, it will be construed most strongly
against a compensated surety and in favor of the obligees or beneficiaries under the bond, in this case petitioner as
45
the Project Owner, for whose benefit it was ostensibly executed.

The imposition of interest on the claims of petitioner is likewise in order. As we held in Commonwealth Insurance
46
Corporation v. Court of Appeals

Petitioner argues that it should not be made to pay interest because its issuance of the surety bonds was made on
the condition that its liability shall in no case exceed the amount of the said bonds.

We are not persuaded. Petitioner’s argument is misplaced.

Jurisprudence is clear on this matter. As early as Tagawa vs. Aldanese and Union Gurantee Co. and reiterated in
Plaridel Surety & Insurance Co., Inc. vs. P.L. Galang Machinery Co., Inc., and more recently, in Republic vs. Court
of Appeals and R & B Surety and Insurance Company, Inc.,

we have sustained the principle that if a surety upon demand fails to pay, he can be held liable for interest, even if
in thus paying, its liability becomes more than the principal obligation. The increased liability is not because of the
contract but because of the default and the necessity of judicial collection.

Petitioner’s liability under the suretyship contract is different from its liability under the law. 1âwphi

1There is no question that as a surety, petitioner should not be made to pay more than its assumed obligation under
the surety bonds. However, it is clear from the above-cited jurisprudence that petitioner’s liability for the payment of
interest is not by reason of the suretyship agreement itself but because of the delay in the payment of its obligation
47
under the said agreement. (Emphasis supplied; citations omitted.)

WHEREFORE, the petition for review on certiorari is GRANTED. The Decision dated January 27, 2011 and
Resolution dated December 8, 2011 of the Court of Appeals in CA-G.R. SP No. 112808 are hereby REVERSED
and SET ASIDE.

The Award made in the Decision dated February 2, 2010 of the Construction Industry Arbitration Commission Is
hereby REINSTATED with the following MODIFICATIONS:

"Accordingly, in view of our foregoing discussions and dispositions, the Tribunal hereby adjudges, orders and
directs:

1) Respondent Utassco to pay to petitioner J Plus Asia Development Corporation the full amount of the
Performance Bond, ₱8,400,000.00, pursuant to Art. 13 of the Construction Agreement dated December 24, 2007,
with interest at the rate of 6% per annum computed from the date of the filing of the complaint until the finality of this
decision, and 12% per annum computed from the date this decision becomes final until fully paid; and

2) Respondent Mabunay to indemnify respondent Utassco of the amounts respondent Utassco will have paid to
claimant under this decision, plus interest thereon at the rate of 12% per annum computed from the date he is
notified of such payment made by respondent Utassco to claimant until fully paid, and to pay Utassco ₱100,000.00
as attorney's fees.

SO ORDERED.

With the above modifications, the Writ of Execution dated November 24, 2010 issued by the CIAC Arbitral Tribunal
in CIAC Case No. 03-2009 is hereby REINSTATED and UPHELD.

No pronouncement as to costs.
SO ORDERED.

MARTIN S. VILLARAMA, JR.

Associate Justice

WE CONCUR:

G.R. No. 179334 July 1, 2013

SECRETARY OF THE DEPARTMENT OF PUBLIC WORKS AND HIGHWAYS and DISTRICT ENGINEER
CELESTINO R. CONTRERAS, Petitioners,
vs.
SPOUSES HERACLEO and RAMONA TECSON, Respondents.

DECISION

PERALTA, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court, assailing the Court of Appeals (CA)
1
Decision dated July 31, 2007 in CA-G.R. CV No. 77997. The assailed decision affirmed with modification the
2 3
Regional Trial Court (RTC) Decision dated March 22, 2002 in Civil Case No. 208-M-95.

The case stemmed from the following factual and procedural antecedents:

Respondent spouses Heracleo and Ramona Tecson (respondents) are co-owners of a parcel of land with an area of
7,268 square meters located in San Pablo, Malolos, Bulacan and covered by Transfer Certificate of Title (TCT) No.
4
T-43006 of the Register of Deeds of Bulacan. Said parcel of land was among the properties taken by the
government sometime in 1940 without the owners’ consent and without the necessary expropriation proceedings
5
and used for the construction of the MacArthur Highway.

6
In a letter dated December 15, 1994, respondents demanded the payment of the fair market value of the subject
parcel of land. Petitioner Celestino R. Contreras (petitioner Contreras), then District Engineer of the First Bulacan
Engineering District of petitioner Department of Public Works and Highways (DPWH), offered to pay the subject land
7
at the rate of ₱0.70 per square meter per Resolution of the Provincial Appraisal Committee (PAC) of Bulacan.
Unsatisfied with the offer, respondents demanded for the return of their property or the payment of compensation at
8
the current fair market value.

9
As their demand remained unheeded, respondents filed a Complaint for recovery of possession with damages
against petitioners, praying that they be restored to the possession of the subject parcel of land and that they be
10 11
paid attorney’s fees. Respondents claimed that the subject parcel of land was assessed at ₱2,543,800.00.

Instead of filing their Answer, petitioners moved for the dismissal of the complaint on the following grounds: (1) that
the suit is against the State which may not be sued without its consent;

(2) that the case has already prescribed;

(3) that respondents have no cause of action for failure to exhaust administrative remedies; and

(4) if respondents are entitled to compensation, they should be paid only the value of the property in 1940 or
12
1941.

13
On June 28, 1995, the RTC issued an Order granting respondents’ motion to dismiss based on the doctrine of
state immunity from suit. As respondents’ claim includes the recovery of damages, there is no doubt that the suit is
against the State for which prior waiver of immunity is required.

14
When elevated to the CA, the appellate court did not agree with the RTC and found instead that the doctrine of
state immunity from suit is not applicable, because the recovery of compensation is the only relief available to the
landowner.

To deny such relief would undeniably cause injustice to the landowner. Besides, petitioner Contreras, in fact, had
earlier offered the payment of compensation although at a lower rate.

Thus, the CA reversed and set aside the dismissal of the complaint and, consequently, remanded the case to the
trial court for the purpose of determining the just compensation to which respondents are entitled to recover from the
15
government. With the finality of the aforesaid decision, trial proceeded in the RTC.

The Branch Clerk of Court was initially appointed as the Commissioner and designated as the Chairman of the
16
Committee that would determine just compensation, but the case was later referred to the PAC for the submission
17 18
of a recommendation report on the value of the subject property. In PAC Resolution No. 99-007, the PAC
recommended the amount of ₱1,500.00 per square meter as the just compensation for the subject property.

19
On March 22, 2002, the RTC rendered a Decision, the dispositive portion of which reads:

WHEREFORE, premises considered, the Department of Public Works and Highways or its duly assigned agencies
are hereby directed to pay said Complainants/Appellants the amount of One Thousand Five Hundred Pesos
(₱1,500.00) per square meter for the lot subject matter of this case in accordance with the Resolution of the
Provincial Appraisal Committee dated December 19, 2001.

20
SO ORDERED.

On appeal, the CA affirmed the above decision with the modification that the just compensation stated above should
earn interest of six percent (6%) per annum computed from the filing of the action on March 17, 1995 until full
21
payment.

In its appeal before the CA, petitioners raised the issues of prescription and laches, which the CA brushed aside on
two grounds: first, that the issue had already been raised by petitioners when the case was elevated before the CA
in CA-G.R. CV No. 51454.

Although it was not squarely ruled upon by the appellate court as it did not find any reason to delve further on such
issues, petitioners did not assail said decision barring them now from raising exactly the same issues; and second,
the issues proper for resolution had been laid down in the pre-trial order which did not include the issues of
prescription and laches.

Thus, the same can no longer be further considered. As to the propriety of the property’s valuation as determined
by the PAC and adopted by the RTC, while recognizing the rule that the just compensation should be the
reasonable value at the time of taking which is 1940, the CA found it necessary to deviate from the general rule. It
opined that it would be obviously unjust and inequitable if respondents would be compensated based on the value
of the property in 1940 which is ₱0.70 per sq m, but the compensation would be paid only today. Thus, the appellate
court found it just to award compensation based on the value of the property at the time of payment. It, therefore,
adopted the RTC’s determination of just compensation of ₱1,500.00 per sq m as recommended by the PAC. The
CA further ordered the payment of interest at the rate of six percent (6%) per annum reckoned from the time of
taking, which is the filing of the complaint on March 17, 1995.

Aggrieved, petitioners come before the Court assailing the CA decision based on the following grounds:

I.

THE COURT OF APPEALS GRAVELY ERRED IN GRANTING JUST COMPENSATION TO

RESPONDENTS CONSIDERING THE HIGHLY DUBIOUS AND QUESTIONABLE CIRCUMSTANCES
OF THEIR ALLEGED OWNERSHIP OF THE SUBJECT PROPERTY.

II.

THE COURT OF APPEALS GRAVELY ERRED IN AWARDING JUST COMPENSATION TO

RESPONDENTS BECAUSE THEIR COMPLAINT FOR RECOVERY OF POSSESSION AND
DAMAGES IS ALREADY BARRED BY PRESCRIPTION AND LACHES.

III.

THE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE TRIAL COURT’S DECISION
ORDERING THE PAYMENT OF JUST COMPENSATION BASED ON THE CURRENT MARKET
22
VALUE OF THE ALLEGED PROPERTY OF RESPONDENTS.

Petitioners insist that the action is barred by prescription having been filed fifty-four (54) years after the accrual of
the action in 1940. They explain that the court can motu proprio dismiss the complaint if it shows on its face that the
action had already prescribed. Petitioners likewise aver that respondents slept on their rights for more than fifty
years; hence, they are guilty of laches. Lastly, petitioners claim that the just compensation should be based on the
23
value of the property at the time of taking in 1940 and not at the time of payment.

The petition is partly meritorious.

The instant case stemmed from an action for recovery of possession with damages filed by respondents against
petitioners. It, however, revolves around the taking of the subject lot by petitioners for the construction of the
MacArthur Highway. There is taking when the expropriator enters private property not only for a momentary period
but for a permanent duration, or for the purpose of devoting the property to public use in such a manner as to oust
24
the owner and deprive him of all beneficial enjoyment thereof.

It is undisputed that the subject property was taken by petitioners without the benefit of expropriation proceedings
for the construction of the MacArthur Highway. After the lapse of more than fifty years, the property owners sought
recovery of the possession of their property. Is the action barred by prescription or laches? If not, are the property
owners entitled to recover possession or just compensation?

As aptly noted by the CA, the issues of prescription and laches are not proper issues for resolution as they were not
included in the pre-trial order. We quote with approval the CA’s ratiocination in this wise:

Procedurally, too, prescription and laches are no longer proper issues in this appeal. In the pre-trial order issued on
May 17, 2001, the RTC summarized the issues raised by the defendants, to wit: (a) whether or not the plaintiffs
were entitled to just compensation; (b) whether or not the valuation would be based on the corresponding value at
the time of the taking or at the time of the filing of the action; and (c) whether or not the plaintiffs were entitled to
damages. Nowhere did the pre-trial order indicate that prescription and laches were to be considered in the
25
adjudication of the RTC.

To be sure, the pre-trial order explicitly defines and limits the issues to be tried and controls the subsequent course
26
of the action unless modified before trial to prevent manifest injustice.

Even if we squarely deal with the issues of laches and prescription, the same must still fail. Laches is principally a
doctrine of equity which is applied to avoid recognizing a right when to do so would result in a clearly inequitable
27
situation or in an injustice.

This doctrine finds no application in this case, since there is nothing inequitable in giving due course to
respondents’ claim. Both equity and the law direct that a property owner should be compensated if his property is
28
taken for public use. Neither shall prescription bar respondents’ claim following the long-standing rule "that where
private property is taken by the Government for public use without first acquiring title thereto either through
29
expropriation or negotiated sale, the owner’s action to recover the land or the value thereof does not prescribe."
When a property is taken by the government for public use, jurisprudence clearly provides for the remedies available
to a landowner. The owner may recover his property if its return is feasible or, if it is not, the aggrieved owner may
30
demand payment of just compensation for the land taken.

For failure of respondents to question the lack of expropriation proceedings for a long period of time, they are
deemed to have waived and are estopped from assailing the power of the government to expropriate or the public
use for which the power was exercised.

31
What is left to respondents is the right of compensation. The trial and appellate courts found that respondents are
entitled to compensation. The only issue left for determination is the propriety of the amount awarded to
respondents.

Just compensation is "the fair value of the property as between one who receives, and one who desires to sell, x x x
fixed at the time of the actual taking by the government." This rule holds true when the property is taken before the
32
filing of an expropriation suit, and even if it is the property owner who brings the action for compensation.

The issue in this case is not novel.

33
In Forfom Development Corporation [Forfom] v. Philippine National Railways [PNR], PNR entered the property of
Forfom in January 1973 for public use, that is, for railroad tracks, facilities and appurtenances for use of the
34
Carmona Commuter Service without initiating expropriation proceedings. In 1990, Forfom filed a complaint for
35
recovery of possession of real property and/or damages against PNR. In Eusebio v. Luis, respondent’s parcel of
land was taken in 1980 by the City of Pasig and used as a municipal road now known as A. Sandoval Avenue in
Pasig City without the appropriate expropriation proceedings. In 1994, respondent demanded payment of the value
of the property, but they could not agree on its valuation prompting respondent to file a complaint for reconveyance
36
and/or damages against the city government and the mayor. In Manila International Airport Authority v. Rodriguez,
in the early 1970s, petitioner implemented expansion programs for its runway necessitating the acquisition and
occupation of some of the properties surrounding its premises. As to respondent’s property, no expropriation
proceedings were initiated. In 1997, respondent demanded the payment of the value of the property, but the
1âwphi1

demand remained unheeded prompting him to institute a case for accion reivindicatoria with damages against
37
petitioner. In Republic v. Sarabia, sometime in 1956, the Air Transportation Office (ATO) took possession and
control of a portion of a lot situated in Aklan, registered in the name of respondent, without initiating expropriation
proceedings. Several structures were erected thereon including the control tower, the Kalibo crash fire rescue
station, the Kalibo airport terminal and the headquarters of the PNP Aviation Security Group. In 1995, several stores
and restaurants were constructed on the remaining portion of the lot. In 1997, respondent filed a complaint for
recovery of possession with damages against the storeowners where ATO intervened claiming that the storeowners
were its lessees.

The Court in the above-mentioned cases was confronted with common factual circumstances where the government
took control and possession of the subject properties for public use without initiating expropriation proceedings and
without payment of just compensation, while the landowners failed for a long period of time to question such
government act and later instituted actions for recovery of possession with damages.

The Court thus determined the landowners’ right to the payment of just compensation and, more importantly, the
amount of just compensation.

The Court has uniformly ruled that just compensation is the value of the property at the time of taking that is
controlling for purposes of compensation. In Forfom, the payment of just compensation was reckoned from the time
of taking in 1973; in Eusebio, the Court fixed the just compensation by determining the value of the property at the
time of taking in 1980; in MIAA, the value of the lot at the time of taking in 1972 served as basis for the award of
compensation to the owner; and in Republic, the Court was convinced that the taking occurred in 1956 and was
thus the basis in fixing just compensation. As in said cases, just compensation due respondents in this case should,
therefore, be fixed not as of the time of payment but at the time of taking, that is, in 1940.

38
The reason for the rule has been clearly explained in Republic v. Lara, et al., and repeatedly held by the Court in
recent cases, thus:

x x x "The value of the property should be fixed as of the date when it was taken and not the date of the filing of the
proceedings." For where property is taken ahead of the filing of the condemnation proceedings, the value thereof
may be enhanced by the public purpose for which it is taken; the entry by the plaintiff upon the property may have
depreciated its value thereby; or, there may have been a natural increase in the value of the property from the time
it is taken to the time the complaint is filed, due to general economic conditions.

The owner of private property should be compensated only for what he actually loses; it is not intended that his
compensation shall extend beyond his loss or injury. And what he loses is only the actual value of his property at the
39
time it is taken x x x.
 40
Both the RTC and the CA recognized that the fair market value of the subject property in 1940 was ₱0.70/sq m.
Hence, it should, therefore, be used in determining the amount due respondents instead of the higher value which is
₱1,500.00. While disparity in the above amounts is obvious and may appear inequitable to respondents as they
would be receiving such outdated valuation after a very long period, it is equally true that they too are remiss in
guarding against the cruel effects of belated claim.

The concept of just compensation does not imply fairness to the property owner alone. Compensation must be just
41
not only to the property owner, but also to the public which ultimately bears the cost of expropriation.

Clearly, petitioners had been occupying the subject property for more than fifty years without the benefit of
expropriation proceedings.

In taking respondents’ property without the benefit of expropriation proceedings and without payment of just
compensation, petitioners clearly acted in utter disregard of respondents’ proprietary rights which cannot be
42
countenanced by the Court.

For said illegal taking, respondents are entitled to adequate compensation in the form of actual or compensatory
damages which in this case should be the legal interest of six percent (6%) per annum on the value of the land at
43
the time of taking in 1940 until full payment. This is based on the principle that interest runs as a matter of law and
follows from the right of the landowner to be placed in as good position as money can accomplish, as of the date of
44
taking.

SO ORDERED.

THIRD DIVISION

[ G.R. No. 226734, May 10, 2021 ]

REPUBLIC OF THE PHILIPPINES, REPRESENTED BY THE DEPARTMENT OF PUBLIC WORKS

AND HIGHWAYS, PETITIONER, VS. HEIRS OF SPOUSES VALENTINA JUAN BONIFACIO AND
AURELIO BONIFACIO, RESPONDENTS.

DECISION
LEONEN, J.:

Legal interest accrues on the difference between the final amount of just compensation adjudged by the court and the government's
initial provisional deposit. It begins from the time of taking, when the private owner was deprived of the property.
This Court resolves a Petition for Review on Certiorari [1] assailing the Decision[2] and Resolution[3] of the Court of Appeals, which
affirmed the Regional Trial Court Decision ordering the Republic of the Philippines to pay the heirs of Spouses Valentina and Aurelio
Bonifacio (the Bonifacio Spouses) just compensation at P10,000.00 per square meter, with 12% interest on the total amount,
commissioner's fees, and attorney's fees.

In 2007, the Republic, through the Department of Public Works and Highways, filed before the Regional Trial Court a Complaint for
expropriation of a lot in Barangay Ugong, Valenzuela City that was registered in Bonifacio Spouses' names. [4]

Covered by Transfer Certificate of Title No. 100100, Bonifacio Spouses' lot spanned 913 square meters, with a zonal value of
P2,285,500.00 and improvement value of P175,932.18. [5] According to the Republic, it offered to purchase the lot for the C-5 Northern
Link Road Project, and was willing to pay the Bonifacio Spouses' heirs P2,282,500.00, equivalent to the total zonal value of the lot, and
P175,996.04 as replacement cost for the improvements.[6]

In their Answer to the Complaint, the Bonifacio Spouses' heirs conceded that the zonal valuation of the property was P2,500.00 per
square meter, but claimed that the prevailing market value of nearby properties ranged from P10,000.00 to P15,000.00, because the lot
was in an industrial site near Mindanao Avenue, Quezon City. They also argued that the improvement's replacement cost should not be
less than P350,000.00.[7]

In 2009, the Regional Trial Court issued a writ of possession and order of expropriation covering the lot and its improvement. [8]

Then, in 2010, the trial court formed a Board of Commissioners pursuant to Rule 67, Section 5 of the Rules of Court, to determine and
recommend the just compensation to be paid to the Bonifacio Spouses' heirs. [9]
On March 13, 2014, the Board of Commissioners recommended P10,000.00 per square meter as the reasonable, just, and fair market
value of the lot.[10]

On July 23, 2014, the Regional Trial Court issued its Decision, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered condemning the 913-square meter lot, owned by the defendants, covered by TCT No. T-
10001000 of the Registry of Deeds of Valenzuela City, free from all liens and encumbrances whatsoever, for the construction of C-5
Northern Link Road Project, Segment 8.1 from Mindanao Avenue in Quezon City to the North Luzon Expressway, Valenzuela City, a
public purpose, in favor of the plaintiff, Republic of the Philippines, upon payment of just compensation which is fixe at Php
10,000.00/square meter or in the total amount of Php 9,130,000.00 (NINE MILLION ONE HUNDRED THIRTY THOUSAND PESOS)
(913 X Php 10,000.00), deducting the provisional deposit of Php 2,282,500.00 (TWO MILLION TWO HUNDRED EIGHTY-TWO
THOUSAND FIVE HUNDRED PESOS) previously made and subject to the payment of all unpaid taxes and other relevant taxes by the
defendants, if there by any up to the filing of the complaint.

The plaintiff is ordered to pay interest at the rate of 12% per annum on the unpaid balance of just compensation of Php 6,847,500.00
(SIX MILLION EIGHT HUNDRED FORTY-SEVEN THOUSAND FIVE HUNDRED PESOS) (Php 9,130,000.00-Php 2,282,500.00[)]
computed from the time of the filing of the complaint on December 7, 2007 until plaintiff fully pays the balance.

The plaintiff is likewise ordered to pay interest at the rate of 12% per annum on the initial deposit of Php 2,282,500.00 from the time of
the filing of the complaint on December 7, 2007 up to the time that the said amount was deposited by the plaintiff on November 21,
2008.

The plaintiff is likewise ordered to pay the defendant the amount of Php 50,000.00 at attorney's fee, as well as Php 5,000.00 for each
commissioner as commissioner's fee.

Let a certified true copy of this decision be forwarded to the Office of the Register of Deeds of Valenzuela City for the latter to annotate
this decision in the Transfer Certificate of Title No. T-100100.

SO ORDERED.[11]

On appeal, the Court of Appeals affirmed the Regional Trial Court Decision. The dispositive portion of its January 11, 2016 Decision [12]
reads:

WHEREFORE, the appeal is DENIED. The Decision dated July 23, 2014 of the Regional Trial Court, Branch 172, Valenzuela City is
AFFIRMED.

SO ORDERED.[13]

The Court of Appeals ruled that the Regional Trial Court correctly followed the procedure in Rule 67 of the Rules of Court when it
formed the Board of Commissioners to determine the just compensation.

The Board of Commissioners used a market-data approach, valuing the lot based on sales and listings of comparable properties
registered within the vicinity. It based its comparison on the expropriated Hobart and Serrano properties, also located in Barangay
Ugong.[14] To the Court of Appeals, the trial court correctly adopted the Board's report, finding it accurate and supported by sufficient
evidence. It also noted that the market-data approach has already been upheld by this Court in Public Estates Authority v. Estate of
Yujuico.[15]

The Court of Appeals denied the Republic's Motion for Reconsideration in its August 25, 2016 Resolution. [16] Thus, the Republic filed its

Petition for Review on Certiorari.[17]

—---Petitioner argues that the just compensation awarded to the Bonifacio Spouses' heirs was arbitrary, as the lower court failed to
consider its evidence on the "actual use, classification, size, area, and actual condition" of the property. [18]

—-----Further, petitioner claims that the trial court erred in setting the legal interest at 12% per annum, as the just compensation award
was a forbearance, the legal interest rate of which depends on the Monetary Board of the Bangko Sentral ng Pilipinas. It points to
Bangko Sentral ng Pilipinas Circular No. 799, which took effect on July 1, 2013 and set the rate of legal interest at 6% per annum. [19]

—----Finally, petitioner argues that it is exempt from paying the commissioner's fees. It cites Republic v. Garcia,[20] where this Court
ruled that in expropriation cases, the Republic is not liable to pay costs, including commissioner's fees. [21]

On January 9, 2017, this Court ordered the Bonifacio Spouses' heirs to comment, which they did on March 21, 2017. [22]

In its Comment,[23] respondents argue that the Regional Trial Court correctly took into account the Board of Commissioners' report in
setting the just compensation.[24] As for the applicable interest rate, they argue that Sy v. Local Government of Quezon City[25] and
Republic v. Soriano[26] imposed a 12% per annum interest rate. [27] They likewise argue that Rule 141, Sections 12 and 13 consider
commissioner's fees as part of the costs of the proceedings.[28]
In its Reply,[29] petitioner reiterates that the just compensation awarded should be set aside for being arbitrary. [30] Then, it claims that the
cases respondents cited on legal interest have been superseded by Circular No. 799, which took effect on July 1, 2013. [31] As for the
commissioner's fees, it points to Rule 141, Section 16 of the Rules of Court, which exempts it from paying legal fees, including those
mentioned in Sections 12 and 13.[32]

The issues to be resolved in this case are:

First, whether or not the Regional Trial Court imposed the correct amount of just compensation;

Second, whether or not the Regional Trial Court correctly imposed a 6% per annum interest rate; and

Finally, whether or not the Regional Trial Court correctly ordered petitioner Republic of the Philippines to pay the commissioner's fees.

The determination of just compensation is inherently a judicial function, which cannot be curtailed by legislation. [33] Legislative
enactments and executive issuances that provide for a method of computing just compensation amount to "impermissible
encroachment on judicial prerogatives."[34]

Further, Section 5 of Republic Act No. 8974, on the standards for assessing the value of land in expropriation proceedings or
negotiated sale, uses the phrase, "the court may consider . . . the following relevant standards[.]" [35] This indicates that the list of factors
enumerated in the provision are merely permissive.

The ascertainment of the just compensation award is a question of fact. This Court in Republic v. Spouses Bautista[36] held:

This Court is not a trier of facts. Questions of fact may not be raised in a petition brought under Rule 45, as such petition may only raise
questions of law. This rule applies in expropriation cases. Moreover, factual findings of the trial court, when affirmed by the CA, are
generally binding on this Court. An evaluation of the case and the issues presented leads the Court to the conclusion that it is
unnecessary to deviate from the findings of fact of the trial and appellate courts.

Under Section 8 of Rule 67 of the Rules of Court, the trial court sitting as an expropriation court may, after hearing, accept the
commissioners' report and render judgment in accordance therewith. This is what the trial court did in this case. The CA affirmed the
trial court's pronouncement in toto. Given these facts, the trial court and the CA's identical findings of fact concerning the issue of just
compensation should be accorded the greatest respect, and are binding on the Court absent proof that they committed error in
establishing the facts and in drawing conclusions from them. There being no showing that the trial court and the CA committed any
error, we thus accord due respect to their findings.

The only legal question raised by the petitioner relates to the commissioners' and the trial court's alleged failure to take into
consideration, in arriving at the amount of just compensation, Section 5 of RA 8974 enumerating the standards for assessing the value
of expropriated land taken for national government infrastructure projects.

What escapes petitioner, however, is that the courts are not bound to consider these standards; the exact wording of the said provision
is that "in order to facilitate the determination of just compensation, the courts may consider" them. The use of the word "may" in the
provision is construed as permissive and operating to confer discretion. In the absence of a finding of abuse, the exercise of such
discretion may not be interfered with. For this case, the Court finds no such abuse of discretion.[37] (Citations omitted)

As the trial court's findings on just compensation were affirmed by the Court of Appeals, they are binding on this Court and are no
longer reviewable. Petitioner was unable to point out any reversible error in the lower courts' findings on the just compensation award.

However, this Court must review the imposition of interest rate and the order for petitioner to pay costs.

In Evergreen Manufacturing Corporation v. Republic,[38] this Court explained that interest accrues on the difference between the final
amount adjudged by the court and the government's initial payment, starting from the time of taking, when the private owner was
deprived of the property:

With respect to the amount of interest on the difference between the initial payment and final amount of just compensation as adjudged
by the court, we have upheld in Eastern Shipping Lines, Inc. v. Court of Appeals, and in subsequent cases thereafter, the imposition of
12% interest rate from the time of taking when the property owner was deprived of the property, until 1 July 2013, when the legal
interest on loans and forbearance of money was reduced from 12% to 6% per annum by BSP Circular No. 799. Accordingly, from 1 July
2013 onwards, the legal interest on the difference between the final amount and initial payment is 6% per annum.

In the present case, Republic-DPWH filed the expropriation complaint on 22 March 2004. As this preceded the actual taking of the
property, the just compensation shall be appraised as of this date. No interest shall accrue as the government did not take possession
of the Subject Premises. Republic-DPWH was able to take possession of the property on 21 April 2006 upon the agreement of the
parties. Thus, a legal interest of 12% per annum on the difference between the final amount adjudged by the Court and the initial
payment made shall accrue from 21 April 2006 until 30 June 2013. From 1 July 2013 until the finality of the Decision of the Court, the
difference between the initial payment and the final amount adjudged by the Court shall earn interest at the rate of 6% per annum.
Thereafter, the total amount of just compensation shall earn legal interest of 6% per annum from the finality of this Decision until full
payment thereof.[39] (Citations omitted)

As petitioner pointed out, this Court in Republic v. Soriano[40] held that the interest rate imposable on just compensation is now 6% per
annum, per Bangko Sentral ng Pilipinas Circular No. 799:

Effectively, therefore, the debt incurred by the government on account of the taking of the property subject of an expropriation
constitutes a forbearance which runs contrary to the trial court's opinion that the same is in the nature of indemnity for damages calling
for the application of Article 2209 of the Civil Code. Nevertheless, in line with the recent circular of the Monetary Board of the Bangko
Sentral ng Pilipinas (BSP-MB) No. 799, Series of 2013, effective July 1, 2013, the prevailing rate of interest for loans or forbearance of
money is six percent (6%) per annum, in the absence of an express contract as to such rate of interest. [41] (Citation omitted)

Nonetheless, as Evergreen Manufacturing Corporation teaches, the 12% interest rate still applies in the period prior to July 1, 2013,
when the circular became effective. The total amount of just compensation further earns interest from the finality of the decision until its
full payment.[42]

Here, sometime in 2008, petitioner deposited with the clerk of court of the Regional Trial Court P2,458,496.04, representing 100% of
the property's zonal value and the improvement's replacement cost. [43] After this, the trial court on February 24, 2009 issued the writ of
possession in petitioner's favor.[44] This appears to be the time when respondents were deprived of their property, and represents the
starting point of the delay in the payment of just compensation.

As such, the Regional Trial Court erred in imposing a 12% interest rate on the unpaid balance computed from the time of the filing of
the Complaint, when respondents were not yet deprived of their property. Both lower courts erred in not applying Bangko Sentral ng
Pilipinas Circular No. 799, which lowered the interest rate starting July 1, 2013.

Moreover, the Regional Trial Court incorrectly ordered petitioner to pay respondent P5,000.00 for each commissioner in commissioner's
fees. Rule 141, Section 16 of the Rules of Court exempts the government from paying the legal fees:

SECTION 16. Government exempt. — The Republic of the Philippines is exempt from paying the legal fees provided in this rule.

Commissioner's fees in expropriation cases are costs for which the government is not liable. In Republic v. Garcia:[45]

We hold that the Republic's appeal is meritorious because section 16 of Rule 141 unmistakably provides that the State is exempt from
paying legal fees. Section 1, Rule 142 of the Rules of Court complements Rule 141 by providing that "no costs shall be allowed against
the Republic of the Philippines unless otherwise provided by law." There is no law requiring the Republic to pay costs in eminent
domain proceedings. The commissioners' fees in expropriation cases are taxed as part of the costs and the government is not liable for
costs.[46]

As a final matter, the award of attorney's fees is misplaced. "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." [47] Entitlement to attorney's fees must be
justified by the facts of the case, and be reasonable, just, and equitable. [48] Here, there are insufficient factual and legal justifications for
attorney's fees in respondents' favoR

WHEREFORE, the Petition for Review on Certiorari is PARTIALLY GRANTED. The January 11, 2016 Decision and August 25, 2016
Resolution of the Court of Appeals in CA-G.R. CV No. 103492 are AFFIRMED with MODIFICATIONS. Petitioner Republic of the
Philippines is ORDERED to pay interest at the following rates:

(1) The difference between the total amount of just compensation of P9,130,000.00 and the provisional
deposit of P2,282,500.00 shall earn legal interest at 12% per annum from the date of taking, February 24,
2009, until June 30, 2013;

(2) The difference between the total amount of just compensation and the initial deposit shall earn legal
interest at 6% per annum from July 1, 2013 until the finality of the Decision; and

(3) The total amount of just compensation shall earn legal interest of 6% per annum from the finality of the
Decision until its full payment.
The awards of attorney's fees and commissioner's fees are DELETED.

SO ORDERED.
Hernando, Inting, Delos Santos, and J. Lopez, JJ., concur.

EN BANC

[ G.R. No. 212262, August 26, 2020 ]

GOTESCO PROPERTIES, INC., PETITIONER, -VERSUS- INTERNATIONAL EXCHANGE BANK (NOW UNION
BANK OF THE PHILIPPINES), RESPONDENT,

DECISION

LEONEN, J.:

Acceleration clauses in loans for a fixed term give creditors a choice to:

(1) defer collection of any unpaid amounts until the period ends; or

(2) invoke the clause and collect the entire demandable amount immediately.

This right to choose is rendered meaningless if the loan is made demandable only when the term expires.

1 2
This resolves a Petition for Review on Certiorari under Rule 45 of the Rules of Court, assailing the Decision and
3
Resolution of the Court of Appeals which found that the 14th Branch of the Regional Trial Court in Nasugbu,
Batangas, did not gravely abuse its discretion in Civil Case No. 554 when it granted the motion for reconsideration
4
filed by International Exchange Bank to its June 16, 2010 Order and ordered the execution of its December 14,
5
2001 Judgment on the Compromise Agreement.

In 1996, Gotesco Properties, Inc. (Gotesco), as borrower, and International Exchange Bank (IBank), as lender,
executed a Credit Agreement. As security, Gotesco executed a real estate mortgage over a 20,673-square-meter
property covered by Transfer Certificate of Title No. T-70389. When Gotesco was unable to pay, IBank foreclosed
6
the real estate mortgage and eventually bought the property.

Gotesco filed a complaint for annulment of foreclosure sale and damages with the Batangas Regional Trial Court,
alleging that IBank failed to comply with the posting and publication requirements of Act No. 3135. The case was
7
docketed as Civil Case No. 554.

Then, on September 27, 2001, Gotesco and IBank executed a Compromise Agreement where Gotesco's
8
P256,740,000.00 loan was restructured. On December 14, 2001, the Regional Trial Court issued a Judgment
9
approving the Compromise Agreement.

10
On October 27, 2009, IBank filed with the trial court a Motion for Execution. It claimed that Gotesco failed to
comply with the terms of the Compromise Agreement when it did not pay f>619,179,627.01 as of February 5,
11
2009.

12
In a June 16, 2010 Order, the Regional Trial Court, through Judge Wilfredo De Joya Mayor (Judge Mayor),
denied the Motion for Execution and found the action premature as the ten-year term loan in the Compromise
13
Agreement, which started on March 31, 2003, would end in 2013.
IBank filed a Motion for Reconsideration of the June 16, 2010 Order, which the Regional Trial Court granted in an
August 18, 2011 Resolution issued by Judge Ernesto L. Marajas (Judge Marajas). The dispositive portion of the
August 18,2011 Resolution read:

Wherefore the order issued by This Court dated June 16, 2010 is hereby set aside. Upon finality of this Resolution
let a writ of execution be issued in order to implement the provisions of the Judgment dated December 14,2001.

14
SO ORDERED.

The Regional Trial Court found that the Compromise Agreement provided for the entire loan to be demandable
should Gotesco default in the payment of its quarterly amortizations. Gotesco's Motion for Reconsideration of the
15
August 18, 2011 Resolution, was denied in the trial court's March 5, 2013 Resolution.

Hence, Gotesco filed a petition for certiorari with the Court of Appeals. On February 10, 2014, the Court of Appeals
16
issued a Decision denying the petition for certiorari. The dispositive portion of the February 10, 2014 Decision
read:

WHEREFORE, premises considered, the instant petition for certiorari is hereby DENIED and ordered
DISMISSED.

No costs.

17
SO ORDERED.

The Court of Appeals held that the Regional Trial Court did not commit any grave abuse of discretion, amounting to
lack or excess of jurisdiction, in granting IBank's Motion for Reconsideration and granting the Motion for
18
Execution. It found that the Compromise Agreement stated that Gotesco must pay back its loan to IBank in
19
quarterly amortizations of P8,812,214.29. Should Gotesco fail to pay any sum due to IBank within 60 days from
due date, IBank was entitled to declare Gotesco's entire obligation due and demandable and move for the
20
immediate execution of the judgment.

According to the Court of Appeals, Gotesco never disputed IBank's claim that it had not been paying its obligations
since 2006. Moreover, to interpret the Compromise Agreement such that Goteseo's obligation would only become
21
due and demandable after 10 years would render the agreement's provisions useless.

The Court of Appeals also pointed out that IBank's right to immediately move for execution upon Goteseo's
nonpayment was a valid acceleration clause, supported by the fact that Gotesco voluntarily entered into the
Compromise Agreement containing this provision. Thus, the Regional Trial Court did not err in granting IBank's
22
Motion for Execution.

Finally, the Court of Appeals rejected Goteseo's claim that IBank's Motion for Reconsideration and its subsequent
grant by Judge Marajas was duplicitous. To the Court of Appeals, a motion for reconsideration's purpose was to
convince a court that its ruling was erroneous and improper, and such a motion should not be considered pro forma
23
if it shows a good faith attempt to present additional arguments for the court's consideration.

24
The Court of Appeals denied Goteseo's Motion for Reconsideration in its April 22, 2014 Resolution.

25
On June 11, 2014, Gotesco filed with this Court a Petition for Review on Certiorari under Rule 45 of the Rules of
Court, assailing the February 10, 2014 Decision and April 22, 2014 Resolution of the Court of Appeals.
In its Petition for Review on Certiorari, petitioner argues that the Regional Trial Court should not have granted
26
respondent's Motion for Reconsideration due to stare decisis. It claims that Judge Marajas should not have
reversed Judge Mayor's ruling because respondent's case in its Motion for Reconsideration was identical with those
27
arguments it raised in the Motion for Execution. Since Judge Mayor's Order already ruled upon respondent's
arguments, Judge Marajas should not have set his order aside on the basis of respondent's motion for
28
reconsideration.

Further, petitioner claims that its loan obligation under the Compromise Agreement was demandable only in 2013,
29
upon the expiry of the ten-year term loan period.

30
In accordance with this Court's August 13, 2014 Resolution, respondent, now Union Bank of the Philippines
(Union Bank), filed its Comment to the Petition for Review.

In its Comment, respondent claims that the Compromise Agreement clearly stated that should petitioner fail to pay
its quarterly amortizations, respondent could move for the immediate execution of the entire loan. Since respondent
31
had not received any payment from petitioner since 2006, it filed a motion for a writ of execution in 2009.

Respondent also argues that its Motion for Reconsideration of the June 16, 2010 Order was not a mere rehash of its
Motion for Execution. In its Motion for Reconsideration, it had argued that Judge Mayor, by finding petitioner's loan
32
only payable after 10 years, had unlawfully altered the terms of the Compromise Agreement. Moreover, the June
16, 2010 Order did not constitute stare decisis which bound Judge Marajas and prevented him from issuing a
33
contrary resolution.

34
On March 25, 2015, this Court ordered petitioner to file its reply to respondent's Comment, which it did on June
23, 2015. In its Reply, petitioner reiterates its claim that under the Compromise Agreement, the loan was
demandable only after 10 years. Petitioner avers that the immediate execution of the Compromise Agreement would
35
be unjust and inequitable. It also claims that Judge Marajas acted with grave abuse of discretion and disrespect
36
by setting aside Judge Mayor's Order.

On September 20, 2017, this Court gave due course to the Petition for Review and ordered the parties to submit
37 38
their memoranda. Petitioner filed its Memorandum on December 14, 2017, while respondent filed its
39
Memorandum on January 1, 2018.

In its Memorandum, petitioner argues that the Motion for Reconsideration of the June 16, 2010 Order
40
should not have been granted for being a mere rehash of the earlier Motion for Execution. Moreover, a plain
reading of the Compromise Agreement would show that it would be premature to cause its immediate execution as
41
it was for a ten-year period.

In its Memorandum, respondent argues that the Regional Trial Court did not commit grave abuse of discretion in
granting its Motion for Execution. First, it claims that despite the ten-year term of the loan, the Compromise
Agreement required petitioner to pay respondent in quarterly amortizations. Because petitioner last made payment
42
in 2006, respondent was entitled to move for the execution of the judgment on the Compromise Agreement.
Second, it posits that the reversal of the June 16, 2010 Order was within Judge Marajas' duty to review a prior
43
ruling, especially in this case where the ruling was allegedly contrary to the terms of the Compromise Agreement.
Third, it claims that stare decisis was inapplicable in this case because the June 16, 2010 Order is not an issuance
44
of the Supreme Court. Finally, it argues that the petition for certiorari filed by petitioner before the Court of
45
Appeals was erroneous since the issuance of a writ of execution did not involve any exercise of discretion.
 The issues to be resolved in this case are:

—---First, whether or not Judge Ernesto L. Marajas committed grave abuse of discretion amounting to lack or
excess of jurisdiction when he issued his August 18, 2011 Resolution granting the motion for reconsideration of
respondent International Exchange Bank, now Union Bank of the Philippines, and setting aside the June 16, 2010
Order of Judge Wilfredo De Joya Mayor; and

—--Second, whether or not respondent Union Bank of the Philippines has the right to cause the immediate
execution of the December 14, 2001 Judgment on the Compromise Agreement upon petitioner Gotesco Properties,
Inc.'s failure to pay its quarterly amortizations.

A motion for reconsideration is among the remedies an aggrieved party may avail of against an adverse judgment or
final order as provided for in Rule 37, Section 1 of the Rules of Court:

SECTION 1. Grounds of and Period for Filing Motion for New Trial or Reconsideration. — Within the period for
taking an appeal, the aggrieved party may move the trial court to set aside the judgment or final order and grant a
new trial for one or more of the following causes materially affecting the substantial rights of said party:

(a) Fraud, accident, mistake or excusable negligence which ordinary prudence could not have guarded against and
by reason of which such aggrieved party has probably been impaired in his rights; or

(b) Newly discovered evidence, which he could not, with reasonable diligence, have discovered, and produced at
the trial, and which if presented would probably alter the result.

Within the same period, the aggrieved party may also move for reconsideration upon the grounds that the damages
awarded are excessive, that the evidence is insufficient to justify the decision or final order, or that the decision or
final order is contrary to law.

The purpose of a motion for reconsideration is for the moving party to point to purported errors in the assailed
46
judgment or final order which that party views as unsupported by law or evidence. It "grant[s] an opportunity for
the court to correct any actual or perceived error attributed to it by re-examination of the legal and factual
47
circumstances of the case."

Petitioner's position that the principle of stare decisis precluded the issuance of the August 18, 2011 Resolution
contradicts the very reason why motions for reconsideration are allowed by the Rules of Court.

An aggrieved party is permitted to question alleged errors in a judgment or final order, and should the court find
merit in the moving party's arguments, then it is duty-bound to correct those errors. Rule 37, Section 3 of the Rules
of Court states:

SECTION 3. Action Upon Motion for New Trial or Reconsideration. —The trial court may set aside the judgment or
final order and grant a new trial, upon such terms as may be just, or may deny the motion. If the court finds that
excessive damages have been awarded or that the judgment or final order is contrary to the evidence or law, it may
amend such judgment or final order accordingly.

When a motion for reconsideration is granted, the decision of the court embodying such grant supersedes the
48
original judgment or fmal order.

Moreover, the principle of stare decisis applies only to final decisions of this Court, because only this Court may
49
create judicial precedents that other courts should follow. In De Mesa v. Pepsi Cola Products Phils., Inc. :

The principle of stare decisis el non quieta movere is entrenched in Article 8 of the Civil Code, to wit:

ART. 8. Judicial decisions applying or interpreting the laws or the Constitution shall form a part of the legal system
of the Philippines.

It enjoins adherence to judicial precedents. It requires our courts to follow a rule already established in a final
decision of the Supreme Court. That decision becomes a judicial precedent to be followed in subsequent cases by
all courts in the land. The doctrine of stare decisis is based on the principle that once a question of law has been
50
examined and decided, it should be deemed settled and closed to further argument. (Emphasis in the original,
citation omitted
 51
"Decisions of lower courts or other divisions of the same court are not binding on others." No grave abuse of
52
discretion is committed when a judge sets aside an earlier ruling rendered by the previous judge in the same trial
court branch for the same case, especially when, as in this case, a reversible error had been committed.

The issuance of a writ of execution of a final and executory judgment is generally a court's ministerial duty.
53
However, this is subject to certain exceptions. In Chiquita Brands, Inc. v. Omelio:

Ordinarily, courts have the ministerial duty to grant the execution of a final judgment. The prevailing party may
immediately move for execution of the judgment, and the issuance of the writ follows as a matter of course.
Execution, being "the final stage of litigation . . . [cannot] be frustrated."

Nevertheless, the execution of a final judgment may be stayed or set aside in certain cases. "Courts have
jurisdiction to entertain motions to quash previously issued writs of execution[.]" They "have the inherent power, for
the advancement of justice, to correct the errors of their ministerial officers and to control, their own processes."

A writ of execution may be stayed or quashed when "facts and circumstances transpire" after judgment has been
rendered that would make "execution impossible or unjust."

In Lee v. De Guzman, the trial court issued a writ of execution directing a car manufacturer to deliver a 1983 Toyota
Corolla Liftback to a buyer. The manufacturer moved to quash the writ. Instead of ordering the manufacturer to
deliver the car, this Court ordered the manufacturer to pay damages. The cessation of the manufacturer's business
operations rendered compliance with the writ of execution impossible.

Another exception is when the writ of execution alters or varies the judgment. A writ of execution derives its validity
from the judgment it seeks to enforce. Hence, it should not "vary terms of the judgment . . . [or] go beyond its terms."
Otherwise, the writ of execution is void. Courts can neither modify nor "impose terms different from the terms of a
compromise agreement" that parties have entered in good faith. To do so would amount to grave abuse of
discretion.

Payment or satisfaction of the judgment debt also constitutes as a ground for the quashal of a writ of execution. In
Sandico, Sr. v. Piguing, although the sum given by the debtors was less than the amount of the judgment debt, the
creditors accepted the reduced amount as "full satisfaction of the money judgment." This justified the issuance of an
order recalling the writ of execution.

A writ of execution may also be set aside or quashed when it appears from the circumstances of the case that the
writ "is defective in substance," "has been improvidently issued," issued without authority, or was "issued against the
54
wrong party." (Citations omitted)

Respondent's Motion for Execution was initially denied on the basis of prematurity. According to Judge Mayor in his
June 16, 2010 Order, the ten-year term loan in the Compromise Agreement started on March 31, 2003, and would
only end in 2013:

. . . Considering that the subject nature of the compromise agreement especially the amount loaned was
restructured into a 10-year term loan. With the duration of the 10-year period as provided in the Compromise
Agreement from March 31, 2003 and would end in the year 2013 which renders the motion to issue writ of execution
premature. As clearly, the 10-year term loan ends in 2013 when the obligations shall have been fully settled and
paid by the plaintiff. Hence, prior thereto, the motion for execution prayed for by the defendant is therefore
55
considered premature.

Concededly, the final whereas clause of the Compromise Agreement did state:

WHEREAS, the parties have decided to enter into a compromise agreement which would entail the re-structuring of
the outstanding loan of Gotesco Properties, Inc. with iBank into a ten (10) year term loan with the mortgage of real
estate properties mentioned in Articles 2.1.3 and 2.1.4 hereof and the Real Estate Mortgage and the Surety
56
Agreement mentioned in the First Whereas Clause as its security/collateral.

However, this clause must not be read in isolation, but should be reconciled with the rest of the Compromise
Agreement. Among the relevant portions are:

1.1. The parties hereby agree and stipulate that the outstanding balance of the loan that Gotesco availed under its
Omnibus Line with iBank mentioned in the First Whereas Clause inclusive of interest at the compromise rate
of 12% per annum from December 29, 1997 up to June 30, 2001 amounts to Two Hundred Fifty Six Million Seven
Hundred Forty Thousand (Php256,740,000.00).

1.2. Simultaneously with the execution of this Agreement, Gotesco Properties Inc. shall make a partial payment
to iBank in the amount of Ten Million Pesos.
1.3. The balance of the principal of its loan in the amount of Two Hundred Forty Six Million Seven
Hundred Forty Thousand (Php246,740,000.00) shall be paid by Gotesco Properties Inc. to iBank in
twenty-eight (28) equal quarterly amortization(s) of Eight Million Eight Hundred Twelve Thousand Two Hundred
Fourteen (Php8,812,214.29) Pesos and 29/100 commencing on March 31, 2003 until full payment. Gotesco
Properties Inc. shall execute and deliver a promissory note covering the aforesaid principal amount in form and
substance acceptable to iBank dated July 1, 2001.

1.4. The loan (Php246,740,000.00) shall earn interest at the rate of twelve (12%) percent per annum, payable
quarterly, the first quarterly payment to commence on October 1, 2001 and the next payment every quarter
thereafter until full payment.

....

1.6. A penalty at the rate of twelve (12%) per annum shall be imposed on any unpaid interest and/or principal
amortization, from due date thereof, as the case may be, until full payment.

1.7. Should Gotesco Properties Inc. fail to pay any sum due under this Agreement and should it fail to settle or
pay the same to iBank within sixty (60) days from the due date thereof, iBank may declare the entire obligation of
Gotesco Properties Inc. under this Agreement as due and demandable and avail itself of 4he remedy provided
57
hereunder and/or the law.

4.1. The parties shall submit this Compromise Agreement to the Regional Trial Court of Makati, Branch 150, and
move that a judgment in Civil Case No. 99-168 be issued approving the said compromise and ordering:

4.02. The dismissal of the respective claims and counterclaims on the parties; and

4.03. That upon default by Gotesco Properties Inc. and its sureties in the payment of the sum due under the
Compromise Agreement or in the performance of any of their obligation thereunder, iBank shall have the right to
move for the immediate execution of the total sum due under the said Agreement after deducting the proceeds of
the foreclosure sale of the mortgaged properties mentioned in Article 2.1.1 and 2.1.3 hereof in the event iBank opts
58
to institute a separate action for their foreclosure. . .

Under the terms of the Compromise Agreement, petitioner owed respondent an initial amount of P256,740,000.00,
P10,000,000.00 of which was payable upon execution of the Compromise Agreement. The remaining balance of
P246,740,000.00 was divided into 28 quarterly amortizations, payable starting March 31, 2003 until the balance was
fully paid. The balance was likewise subject to a 12% per annum interest rate, also payable quarterly. Any unpaid
interest or principal amortization was further subject to a 12% per annum penalty interest.

Should petitioner fail to pay any amount when due, Section 1.7 of the Compromise Agreement allowed respondent
to declare the entire obligation due and demandable. Furthermore, pursuant to Section 4.03 of the Compromise
Agreement, respondent was given the right to move for the immediate execution of the total amount due.

An examination of Sections 1.7 and 4.03 of the Compromise Agreement shows that they are in the nature of
acceleration clauses. An acceleration clause is a provision in a contract wherein, should the debtor default, the
59
entire obligation shall become due and demandable. This Court has held that acceleration clauses are valid and
60
produce legal effect.

Petitioner's claim that the loan only becomes due and demandable after 10 years is wrong. Even when there is a
fixed term for the loan, the creditor may invoke the contract's acceleration clause should the debtor fail to comply
61
with their obligation to pay the stipulated installments. In Spouses Ruiz v. Sheriff of Manila:

With respect to the first assigned error, the appellants lay stress [on] the following last two sentences of the
provision of the mortgage contract quoted above, to wit:

". . . Failure to pay two successive monthly amortizations will cause this loan to be automatically due and payable in
its entirety. Notwithstanding the foregoing, this loan shall not run for more than 5 years."
Ꮮαwρhi ৷

Interpreting the above stipulation, the appellants claim that despite the acceleration clause they had five years from
January 18, 1961 within which to pay their mortgage debt because of the phrase "notwithstanding the foregoing" in
the last sentence. Since the five-year period had not yet expired when the mortgage was foreclosed, said
foreclosure, they point out, was premature.

The appellants' interpretation is totally without merit. To ascertain the meaning of the provision of the mortgage
contract relied upon by the appellants, its entirety must be taken into account and not merely its last two sentences.

A reading of the entire provision will readily show that while the appellants were allowed to amortize their loan at the
rate of not less than P300.00 a month they were under obligation to liquidate the same within a period of not more
than five (5) years from the date of the execution of the contract; but if they should fail to pay two successive
monthly amortizations, then the entire loan would be due and payable. It is obvious that the phrase "notwithstanding
the foregoing" does not refer to the acceleration clause but to the stipulation that the loan had to be "amortized at
the rate of not less than P300.00, including interest on unpaid balance, at the rate of 8% per annum,, said interest
and capital amortization to be effected at the end of each month." There is nothing inconsistent between the
acceleration clause and the last sentence.

All that the parties meant is that while monthly amortizations could be as little as P300.00 the loan should anyway
be paid within 5 years; and that failure to pay two successive amortizations would render the entire loan due and
payable.

Consequently, default having been committed for twelve months, the foreclosure of the mortgage was not
62
premature.

Acceleration clauses in loans for a fixed term give creditors a choice to: (1) defer collection of any unpaid amounts
63
until the period ends; or (2) invoke the clause and collect the entire demandable amount immediately. This right
to choose is meaningless if the obligation is made demandable only when the term expires.

In this case, it is undisputed that petitioner had defaulted payment on its quarterly amortizations, with its last
payment being made on June 2, 2006.M Petitioner has neither pleaded nor produced any evidence to the contrary.

Because of petitioner's nonpayment, respondent invoked the acceleration clauses in the Compromise Agreement to
declare petitioner's entire loan due and demandable, then exercised its right pursuant to Section 4.03 to move for
the immediate execution of the Compromise Agreement. Thus, the Regional Trial Court correctly reversed its earlier
ruling and granted respondent's Motion for Execution.

WHEREFORE, the Petition for Review on Certiorari is DENIED. The February 10, 2014 Decision and April 22, 2014
Resolution of the Court of Appeals in CA-G.R. SP No. No. 129936 are AFFIRMED.

SO ORDERED.

Leonen, J., (Chairperson), Gesmundo, Hernando,* Carandang, andZalameda, JJ. concur.

FIRST DIVISION

[ G.R. No. 192934, June 27, 2018 ]

SECURITY BANK CORPORATION, PETITIONER, V. SPOUSES RODRIGO AND ERLINDA

MERCADO, RESPONDENTS.

[G.R. No. 197010, June 27, 2018]

SPOUSES RODRIGO AND ERLINDA MERCADO, PETITIONERS, SECURITY BANK AND TRUST
COMPANY, RESPONDENT.

DECISION
JARDELEZA, J.:

These are consolidated petitions[1] seeking to nullify the Court of Appeals' (CA) July 19, 2010 Decision [2] and May 2, 2011 Resolution [3]
in CA-G.R. CV No. 90031. The CA modified the February 26, 2007 Decision, [4] as amended by the June 19, 2007 Amendatory Order [5]
(Amended Decision), of Branch 84, Regional Trial Court (RTC), Batangas City in the consolidated cases of Civil Case No. 5808 and
LRC Case No. N-1685. The RTC nullified the extrajudicial foreclosure sales over petitioners-spouses Rodrigo and Erlinda Mercado's
(spouses Mercado) properties, and the interest rates imposed by petitioner Security Bank Corporation (Security Bank).
On September 13, 1996, Security Bank granted spouses Mercado a revolving credit line in the amount of P1,000,000.00. [6] The terms
and conditions of the revolving credit line agreement included the following stipulations:

7. Interest on Availments – I hereby agree to pay Security Bank interest on outstanding Availments at a per annum rate determined
from time to time, by Security Bank and advised through my Statement of Account every month. I hereby agree that the basis for the
determination of the interest rate by Security Bank on my outstanding Availments will be Security Bank's prevailing lending rate at the
date of availment. I understand that the interest on each availment will be computed daily from date of availment until paid.

xxxx

17. Late Payment Charges – If my account is delinquent, I agree to pay Security Bank the payment penalty of 2% per month computed
on the amount due and unpaid or in excess of my Credit Limit. [7]

On the other hand, the addendum to the revolving credit line agreement further provided that:

I hereby agree to pay Security Bank Corporation (SBC) interest on outstanding availments based on annual rate computed and billed
monthly by SBC on the basis of its prevailing monthly rate. It is understood that the annual rate shall in no case exceed the total
monthly prevailing rate as computed by SBC. I hereby give my continuing consent without need of additional confirmation to the
interests stipulated as computed by SBC. The interests shall be due on the first day of every month after date of availment. x x x [8]

To secure the credit line, the spouses Mercado executed a Real Estate Mortgage [9] in favor of Security Bank on July 3, 1996 over their
properties covered by Transfer Certificate of Title (TCT) No. T-103519 (located in Lipa City, Batangas), and TCT No. T-89822 (located
in San Jose, Batangas).[10] On September 13, 1996, the spouses Mercado executed another Real Estate Mortgage [11] in favor of
Security Bank this time over their properties located in Batangas City, Batangas covered by TCT Nos. T-33150, T-34288, and T-34289
to secure an additional amount of P7,000,000.00 under the same revolving credit agreement.

Subsequently, the spouses Mercado defaulted in their payment under the revolving credit line agreement. Security Bank requested the
spouses Mercado to update their account, and sent a final demand letter on March 31, 1999. [12] Thereafter, it filed a petition for
extrajudicial foreclosure pursuant to Act No. 3135, [13] as amended, with the Office of the Clerk of Court and Ex-Officio Sheriff of the RTC
of Lipa City with respect to the parcel of land situated in Lipa City. Security Bank likewise filed a similar petition with the Office of the
Clerk of Court and Ex-Officio Sheriff of the RTC of Batangas City with respect to the parcels of land located in San Jose, Batangas and
Batangas City.[14]

The respective notices of the foreclosure sales of the properties were published in newspapers of general circulation once a week for
three consecutive weeks as required by Act No. 3135, as amended. However, the publication of the notices of the foreclosure of the
properties in Batangas City and San Jose, Batangas contained errors with respect to their technical description. Security Bank caused
the publication of an erratum in a newspaper to correct these errors. The corrections consist of the following: (1) TCT No. 33150 – "Lot
952-C-1" to "Lot 952-C-1-B;" and (2) TCT No. 89822 – "Lot 1931 Cadm- 164-D" to "Lot 1931 Cadm 464-D." The erratum was published
only once, and did not correct the lack of indication of location in both cases. [15]

On October 19, 1999, the foreclosure sale of the parcel of land in Lipa City, Batangas was held wherein Security Bank was adjudged as
the winning bidder. The Certificate of Sale [16] over it was issued on November 3, 1999. A similar foreclosure sale was conducted over
the parcels of land in Batangas City and San Jose, Batangas where Security Bank was likewise adjudged as the winning bidder. The
Certificate of Sale[17] over these properties was issued on October 29, 1999. Both Certificates of Sale were registered, respectively, with
the Registry of Deeds of Lipa City on November 11, 1999 and the Registry of Deeds of Batangas City on November 17, 1999. [18]

On September 18, 2000, the spouses Mercado offered to redeem the foreclosed properties for P10,000,000.00. However, Security
Bank allegedly refused the offer and made a counter-offer in the amount of P15,000,000.00. [19]

On November 8, 2000, the spouses Mercado filed a complaint for annulment of foreclosure sale, damages, injunction, specific
performance, and accounting with application for temporary restraining order and/or preliminary injunction [20] with the RTC of Batangas
City, docketed as Civil Case No. 5808 and eventually assigned to Branch 84. [21] In the complaint, the spouses Mercado averred that:

(1) the parcel of land in San Jose, Batangas should not have been foreclosed together with the properties in Batangas City because
they are covered by separate real estate mortgages;

(2) the requirements of posting and publication of the notice under Act No. 3135, as amended, were not complied with;

(3) Security Bank acted arbitrarily in disallowing the redemption of the foreclosed properties for P10,000,000.00;

(4) the total price for all of the parcels of land only amounted to P4723,620.00; and

(5) the interests and the penalties imposed by Security Bank on their obligations were iniquitous and unconscionable. [22]

Meanwhile, Security Bank, after having consolidated its titles to the foreclosed parcels of land, filed an ex-parte petition for issuance of
a writ of possession[23] over the parcels of land located in Batangas City and San Jose, Batangas with the RTC of Batangas City on
June 9, 2005. The case was docketed as LRC Case No. N-1685 and subsequently raffled to Branch 84 where Civil Case No. 5808 was
pending.[24]

Thereafter, the two cases were consolidated before Branch 84 of the RTC of Batangas City.

In its February 26, 2007 Decision,[25] the RTC declared that:

(1) the foreclosure sales of the five parcels of land void;

(2) the interest rates contained in the revolving credit line agreement void for being potestative or solely based on the will of Security
Bank; and

(3) thesum of P8,000,000.00 as the true and correct obligation of the spouses Mercado to Security Bank. [26]

The RTC declared the foreclosure sales void because "[t]he act of making only one corrective publication x x x is a fatal omission
committed by the mortgagee bank."[27]

It also found merit in the spouses Mercado's contention that the parcel of land in San Jose, Batangas and the three parcels of land in
Batangas City should not be lumped together in a single foreclosure sale.

Not only does it make the redemption onerous, it further violates Sections 1 and 5 of Act No. 3135 which do not envision and permit a
single sale of more than one real estate mortgage separately constituted. The notice of sale itself is also defective because the act of
making only one corrective publication is fatal.[28]

The RTC also ruled that the stipulation as to the interest rate on the availments under the revolving credit line agreement "where the
fixing of the interest rate is the sole prerogative of the creditor/mortgagee, belongs to the class of potestatiye condition which is null and
void under [Article] 1308 of the New Civil [C]ode."[29]

It also violates Central Bank Circular No. 1191 which requires the interest rate for each re-pricing period to be subject to a mutual
agreement between the borrower and bank. As such, no interest has been expressly stipulated in writing as required under Article 1956
of the New Civil Code.[30] The RTC ruled that since the spouses Mercado offered to pay the higher amount of P10,000,000.00 and the
bank unjustifiably refused to accept it, no interest shall be due and demandable after the offer. [31]

Security Bank moved for reconsideration of the RTCs Decision, claiming that the trial court:

( 1) does not have jurisdiction over the parcels of land in Lipa City, Batangas; and

(2) erred in limiting the obligation to only P8,000,000.00. [32]

The RTC modified its Decision in an Amendatory Order[33] dated June 19, 2007 where it declared that:

(1) only the foreclosure sales of the parcels of land in Batangas City and San Jose, Batangas are void as it has no jurisdiction over the
properties in Lipa City, Batangas;

(2) the obligation of the spouses Mercado is P7,500,000.00, after deducting P500,000.00 from the principal loan of P1,000,000.00; and
(3) as "cost of money," the obligation shall bear the interest at the rate of 6% from the time of date of the Amendatory Order until fully
paid.[34]

The CA, on appeal, affirmed with modifications the RTC Amended Decision. It agreed that the error in the technical description of the
property rendered the notice of foreclosure sale defective.

Security Bank's subsequent single publication of an erratum will not cure the defective notice; it is as if no valid publication of the notice
of the foreclosure sale was made

.[35] The CA also concluded that the provisos giving Security Bank the sole discretion to determine the annual interest rate is violative of
the principle of mutuality of contracts because there is no reference rate from which to peg the annual interest rate to be imposed. [36]

The CA, however, disagreed with the trial court's findings as to the amount of the outstanding obligation, the imposition of interest, and
the penalty. As to the principal amount of the obligation and the legal interest, it noted that the liability of the spouses Mercado from
Security Bank is P7,516,880.00 or the principal obligation of P8,000,000.00 less the amount of P483,120.00 for which the Lipa City
property has been sold.[37] It also modified the legal interest rate imposed from 6% to 12% from the date of extrajudicial demand, i.e.,
March 31, 1999.[38] Lastly, it imposed the stipulated 2% monthly penalty under the revolving credit line agreement. [39] Thus:

WHEREFORE, in view of the foregoing premises, the instant appeal is hereby PARTIALLY GRANTED. Accordingly, the assailed
Decision dated February 26, 2007 and the Amendatory Order dated June 19, 2007 are hereby MODIFIED. [Spouses Mercado] are
hereby ordered to pay [Security Bank] the sum of Seven Million Five Hundred Sixteen Thousand Eight Hundred Eighty Pesos
(P7,516,880.00) with interest at the rate of twelve percent (12%) per annum from March 30, 1999, the date of extrajudicial demand,
until fully paid. [Spouses Mercado] are further ordered to pay the stipulated penalty of two percent (2%) per month on the amount due
in favor of Security Bank. The award of attorney's fees in favor of [spouses Mercado] is hereby deleted for lack of merit. All other
dispositions of the trial court are hereby AFFIRMED.[40]

Hence, these consolidated petitions.

Security Bank argues that the CA erred in declaring:

(1) the foreclosure sale invalid; and

(2) the provisions on interest rate violative of the principle of mutuality of contracts.
First, the foreclosure sale is valid because Security Bank complied with the publication requirements of Act No. 3135, as amended. The
mistake in the original notice is inconsequential or minor since it only pertains to a letter and number in the technical description without
actually affecting the actual size, location, and/or description or title number of the property. [41]

It invokes Office of the Court Administrator (OCA) Circular No. 14 [42] issued on May 29, 1984 governing the format of sale which
allegedly does not require that the complete technical description of the property be published. [43]

Second, Security Bank insists that the provision on the interest rate observed the principle of mutuality of contracts. Absolute discretion
on its part is wanting because a ceiling on the maximum applicable rate is found in the addendum. It is the market forces that dictate
and establish the rate of interest to be applied and takes into account various factors such as but not limited to, Singapore Rate,
London Rate, Inter-Bank Rate which serve as reference rates. This is acceptable, as held in Polotan, Sr. v. Court of Appeals (Eleventh
Division).[44] Further, the spouses Mercado are bound by the rate because they were aware of, and had freely and voluntarily assented
to it.[45]

The spouses Mercado on the other hand, claim that the CA erred in imposing interest and penalty from the date of extrajudicial demand
until finality of the Decision. Under the doctrine of operative facts laid down in Spouses Caraig v. Alday[46] and Andal v. Philippine
National Bank,[47] the interest and penalty were considered paid by the auction sale. [48] As such, interest should only run from the finality
of this Decision. They also assert that they should be excused from paying the penalty because of economic crises, and their lack of
bad faith in this case.[49]

Initially, we denied the spouses Mercado’s petition (G.R. No. 197010) in our Resolution [50] dated July 27, 2011. Upon the spouses
Mercado's motion for reconsideration,[51] were reinstated the petition on April 18, 2012.[52]

The following issues are presented for this Court's resolution:

1. Whether the foreclosure sales of the parcels of land in Batangas City and San Jose, Batangas are valid.

2. Whether the provisions on interest rate in the revolving credit line agreement and its addendum are void for being violative
of the principle of mutuality of contracts.

3. Whether interest and penalty are due and demandable from date of auction sale until finality of the judgment declaring the
foreclosure void under the doctrine of operative facts.

We deny the petitions.

The foreclosure sales of the properties in Batangas City and San Jose, Batangas are void for non-compliance with the publication
requirement of the notice of sale.

Act No. 3135, as amended, provides for the statutory requirements for a valid extrajudicial foreclosure sale. Among the requisites is a
valid notice of sale. Section 3, as amended, requires that when the value of the property reaches a threshold, the notice of sale must be
published once a week for at least three consecutive weeks in a newspaper of general circulation:

Sec. 3. Notice shall be given by posting notices of the sale for not less than twenty days in at least three public places of the
municipality or city where the property is situated, and if such property is worth more than four hundred pesos, such notice shall
also be published once a week for at least three consecutive weeks in a newspaper of general circulation in the municipality
or city. (Emphasis supplied.)

We have time and again underscored the importance of the notice of sale and its publication. Publication of the notice is required "to
give the x x x foreclosure sale a reasonably wide publicity such that those interested might attend the public sale."[53] It gives as much
advertising to the sale as possible in order to secure bidders and prevent a sacrifice of the property. We reiterated this in Caubang v.
Crisologo[54] where we said:

The principal object of a notice of sale in a foreclosure of mortgage is not so much to notify the mortgagor as to inform the public
generally of the nature and condition of the property to be sold, and of the time, place, and terms of the sale.

Notices are given to secure bidders and prevent a sacrifice of the property. Therefore, statutory provisions governing publication of
notice of mortgage foreclosure sales must be strictly complied with and slight deviations therefrom will invalidate the notice and render
the sale, at the very least, voidable.

Certainly, the statutory requirements of posting and publication are mandated and imbued with public policy considerations. Failure to
advertise a mortgage foreclosure sale in compliance with the statutory requirements constitutes a jurisdictional defect, and any
substantial error in a notice of sale will render the notice insufficient and will consequently vitiate the sale. [55] (Citation omitted.)

Failure to advertise a mortgage foreclosure sale in compliance with statutory requirements constitutes a jurisdictional defect which
invalidates the sale.[56] This jurisdictional requirement may not be waived by the parties; to allow them to do so would convert the
required public sale into a private sale. [57] Thus, the statutory provisions governing publication of notice of mortgage foreclosure sale
must be strictly complied with and that even slight deviations therefrom will invalidate the notice and render the sale at least voidable. [58]
To demonstrate the strictness of the rule, we have invalidated foreclosure sales for lighter reasons. In one case, [59] we declared a
foreclosure sale void for failing to comply with the requirement that the notice shall be published once a week for at least three
consecutive weeks. There, although the notice was published three times, the second publication of the notice was done on the first
day of the third week, and not within the period for the second week. [60]

Nevertheless, the validity of a notice of sale is not affected by immaterial errors. [61] Only a substantial error or omission in a notice of
sale will render the notice insufficient and vitiate the sale. [62] An error is substantial if it will deter or mislead bidders, depreciate the value
of the property or prevent it from bringing a fair price. [63]

In this case, the errors in the notice consist of: (1) TCT No. T-33150- "Lot 952-C-1" which should be "Lot 952-C-1- B;" (2) TCT No. T-
89822 "Lot 1931, Cadm- 164-D" which should be "Lot 1931 Cadm 464-D;''[64] and (3) the omission of the location. [65] While the errors
seem inconsequential, they in fact constitute data important to prospective bidders when they decide whether to acquire any of the lots
announced to be auctioned. First, the published notice misidentified the identity of the properties. Since the lot numbers are misstated,
the notice effectively identified lots other than the ones sought to be sold. Second, the published notice omitted the exact locations of
the properties. As a result, prospective buyers are left completely unaware of the type of neighborhood and conforming areas they may
consider buying into. With the properties misidentified and their locations omitted, the properties' sizes and ultimately, the determination
of their probable market prices, are consequently compromised. The errors are of such nature that they will significantly affect the
public's decision on whether to participate in the public auction. We find that the errors can deter or mislead bidders, depreciate the
value of the properties or prevent the process from fetching a fair price.

Our ruling finds support in San Jose v. Court of Appeals[66] where we nullified a foreclosure sale on the ground that the notice did not
contain the correct number of the TCT of the property to be sold. We rejected the contention of the mortgagee-creditor that prospective
bidders may still rely on the technical description because it was accurate. We held that the notice must contain the correct title number
and technical description of the property to be sold:

The Notice of Sheriff[']s Sale in this case, did not state the correct number of the transfer certificate of title of the property to be sold.
This is a substantial and fatal error which resulted in invalidating the entire Notice. That the correct technical description appeared on
the Notice does not constitute substantial compliance with the statutory requirements. The purpose of the publication of the Notice of
Sheriff[']s Sale is to inform all interested parties of the date, time and place of the foreclosure sale of the real property subject thereof.
Logically, this not only requires that the correct date, time and place of the foreclosure sale appear in the notice but also that any and all
interested parties be able to determine that what is about to be sold at the foreclosure sale is the real property in which they have an
interest.

The Court is not unaware of the fact that the majority of the population do not have the necessary knowledge to be able to understand
the technical descriptions in certificates of title. It is to be noted and stressed that the Notice is not meant only for individuals with the
training to understand technical descriptions of property but also for the layman with an interest in the property to be sold, who normally
relies on the number of the certificate of title. To hold that the publication of the correct technical description, with an incorrect title
number, of the property to be sold constitutes substantial compliance would certainly defeat the purpose of the Notice. This is not to say
that a correct statement of the title number but with an incorrect technical description in the notice of sale constitutes a valid notice of
sale. The Notice of Sheriff[']s Sale, to be valid, must contain the correct title number and the correct technical description of
the property to be sold.[67] (Emphasis supplied.)

We do not agree with Security Bank's reliance on OCA Circular No. 14 (s. 1984). While it is true that the circular does not require the
full technical description of the properties, it still requires the inclusion of the salient portions such as the lot number of the property and
its boundaries.[68] In any case, what is apparent is that Security Bank published incorrect data in the notice that could bring about
confusion to prospective bidders. In fact, their subsequent publication of an erratum is recognition that the error is significant enough to
bring about confusion as to the identity, location, and size of the properties.

The publication of a single erratum, however, does not cure the defect. As correctly pointed out by the RTC, "[t]he act of making only
one corrective publication in the publication requirement, instead of three (3) corrections is a fatal omission committed by the
mortgagee bank."[69] To reiterate, the published notices that contain fatal errors are nullities. Thus, the erratum is considered as a new
notice that is subject to the publication requirement for once a week for at least three consecutive weeks in a newspaper of general
circulation in the municipality or city where the property is located. Here, however, it was published only once.

While there are cases where we upheld foreclosure sales on the ground that the mortgagor-debtor's act of redeeming the property
amounts to estoppel, we cannot apply this equitable principle here. For one, Security Bank never raised the issue in its pleadings.
Defenses and objections that are not pleaded in the answer or motion to dismiss are deemed waived. [70] Second, estoppel is a mere
principle in equity. We cannot grant estoppel for the reason that Security Bank itself denies that the spouses Mercado offered to
redeem the Batangas properties.[71] Thus, the element of reliance is absent.

II

The interest rate provisions in the parties' agreement violate the principle of mutuality of contracts.

a.

The principle of mutuality of contracts is found in Article 1308 of the New Civil Code, which states that contracts must bind both
contracting parties, and its validity or compliance cannot be left to the will of one of them.

The binding effect of any agreement between parties to a contract is premised on two settled principles:

(I) that any obligation arising from contract has the force of law between the parties; and

(2) that there must be mutuality between the parties based on their essential equality. [72]
As such, any contract which appears to be heavily weighed in favor of one of the parties so as to lead to an unconscionable result is
void. Likewise, any stipulation regarding the validity or compliance of the contract that is potestative or is left solely to the will of one of
the parties is invalid.[73] This holds true not only as to the original terms of the contract but also to its modifications. Consequently, any
change in a contract must be made with the consent of the contracting parties, and must be mutually agreed upon. Otherwise, it has no
binding effect.[74]

Stipulations as to the payment of interest are subject to the principle of mutuality of contracts. As a principal condition and an important
component in contracts of loan,[75] interest rates are only allowed if agreed upon by express stipulation of the parties, and only when
reduced into writing.[76] Any change to it must be mutually agreed upon, or it produces no binding effect:

Basic is the rule that there can be no contract in its true sense without the mutual assent of the parties. If this consent is absent on the
part of one who contracts, the act has no more efficacy than if it had been done under duress or by a person of unsound mind.
Similarly, contract changes must be made with the consent of the contracting parties. The minds of all the parties must meet as to the
proposed modification, especially when it affects an important aspect of the agreement In the case of loan contracts, the interest rate is
undeniably always a vital component, for it can make or break a capital venture. Thus, any change must be mutually agreed upon,
otherwise, it produces no binding effect.[77] (Citation omitted.)

Thus, in several cases, we declared void stipulations that allowed for the unilateral modification of interest rates. In Philippine National
Bank v. Court of Appeals,[78] we disallowed the creditor-bank from increasing the stipulated interest rate at will for being violative of the
principle of mutuality of contracts. We said:

Besides violating P.D. 116, the unilateral action of the PNB in increasing the interest rate on the private respondent's loan, violated the
mutuality of contracts ordained in Article 1308 of the Civil Code:

"ART. 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them."

In order that obligations arising from contracts may have the force of law between the parties, there must be mutuality between the
parties based on their essential equality.

A contract containing a condition which makes its fulfillment dependent exclusively upon the uncontrolled will of one of the contracting
parties, is void (Garcia vs. Rita Legarda, Inc., 21 SCRA 555). Hence, even assuming that the P1.8 million loan agreement between the
PNB and the private respondent gave the PNB a license (although in fact there was none) to increase the interest rate at will during the
term of the loan, that license would have been null and void for being violative of the principle of mutuality essential in contracts. It
would have invested the loan agreement with the character of a contract of adhesion, where the parties do not bargain on equal footing,
the weaker party's (the debtor) participation being reduced to the alternative "to take it or leave it" (Qua vs. Law Union & Rock
Insurance Co., 95 Phil. 85). Such a contract is a veritable trap for the weaker party whom the courts of justice must protect against
abuse and imposition.[79] (Italics in the original.)

The same treatment is given to stipulations that give one party the unbridled discretion, without the conformity of the other, to increase
the rate of interest notwithstanding the inclusion of a similar discretion to decrease it. In Philippine Savings Bank v. Castillo [80] we
declared void a stipulation[81] that allows for both an increase or decrease of the interest rate, without subjecting the modification to the
mutual agreement of the parties:

Escalation clauses are generally valid and do not contravene public policy. They are common in credit agreements as means of
maintaining fiscal stability and retaining the value of money on long-term contracts.

To prevent any one-sidedness that these clauses may cause, we have held in Banco Filipino Savings and Mortgage Bank v. Judge
Navarro that there should be a corresponding de-escalation clause that would authorize a reduction in the interest rates corresponding
to downward changes made by law or by the Monetary Board. As can be gleaned from the parties' loan agreement, a de-escalation
clause is provided, by virtue of which, petitioner had lowered its interest rates.

Nevertheless, the validity of the escalation clause did not give petitioner the unbridled right to unilaterally adjust interest rates. The
adjustment should have still been subjected to the mutual agreement of the contracting parties. In light of the absence of consent on
the part of respondents to the modifications in the interest rates, the adjusted rates cannot bind them notwithstanding the inclusion of a
de escalation clause in the loan agreement.[82] (Underscoring supplied; citation omitted.)

We reiterated this in Juico v. China Banking Corporation,[83] where we held that the lack of written notice and written consent of the
borrowers made the interest proviso a one-sided imposition that does not have the force of law between the parties:

This notwithstanding, we hold that the escalation clause is still void because it grants respondent the power to impose an increased rate
of interest without a written notice to petitioners and their written consent.

Respondent's monthly telephone calls to petitioners advising them of the prevailing interest rates would not suffice.

A detailed billing statement based on the new imposed interest with corresponding computation of the total debt should have been
provided by the respondent to enable petitioners to make an informed decision.

An appropriate form must also be signed by the petitioners to indicate their conformity to the new rates. Compliance with these
requisites is essential to preserve the mutuality of contracts. For indeed, one-sided impositions do not have the force of law between
the parties, because such impositions are not based on the parties' essential equality. [84] (Citation omitted.)
In the case of Silos v. Philippine National Bank,[85] we invalidated the following provisions:

1.03. Interest. (a) The Loan shall be subject to interest at the rate of 19.5% per annum. Interest shall be payable in advance every one
hundred twenty days at the rate prevailing at the time of the renewal.

(b) The Borrower agrees that the Bank may modify the interest rate in the Loan depending on whatever policy the Bank may adopt in
the future, including without limitation, the shifting from the floating interest rate system to the fixed interest rate system, or vice versa.
Where the Bank has imposed on the Loan interest at a rate per annum, which is equal to the Bank's spread over the current floating
interest rate, the Borrower hereby agrees that the Bank may, without need of notice to the Borrower, increase or decrease its spread
over the floating interest rate at any time depending on whatever policy it may adopt in the future. [86] (Emphasis and citation omitted,
italics supplied.)

In Silos, an amendment to the above credit agreement was made:

1.03. Interest on Line Availments. (a) The Borrowers agree to pay interest on each Availment from date of each Availment up to but not
including the date of full payment thereof at the rate per annum which is determined by the Bank to be prime rate plus applicable
spread in effect as of the date of each Availment.[87] (Emphasis and citation omitted.)

In that case, we found that the method of fixing interest rates is based solely on the will of the bank. The method is "one-sided,
indeterminate, and [based on] subjective criteria such as profitability, cost of money, bank costs, etc. x x x." [88] It is "arbitrary for there is
no fixed standard or margin above or below these considerations." [89] More, it is worded in such a way that the borrower shall agree to
whatever interest rate the bank fixes. Hence, the element of consent from or agreement by the borrower is completely lacking.

Here, the spouses Mercado supposedly: (1) agreed to pay an annual interest based on a "floating rate of interest;" (2) to be determined
solely by Security Bank; (3) on the basis of Security Bank's own prevailing lending rate; (4) which shall not exceed the total monthly
prevailing rate as computed by Security Bank; and (5) without need of additional confirmation to the interests stipulated as computed by
Security Bank.

Notably, stipulations on floating rate of interest differ from escalation clauses. Escalation clauses are stipulations which allow for the
increase (as well as the mandatory decrease) of the original fixed interest rate. [90] Meanwhile, floating rates of interest refer to the
variable interest rate stated on a market-based reference rate agreed upon by the parties. [91] The former refers to the method by which
fixed rates may be increased, while the latter pertains to the interest rate itself that is not fixed. Nevertheless, both are contractual
provisions that entail adjustment of interest rates subject to the principle of mutuality of contracts. Thus, while the cited cases involve
escalation clauses, the principles they lay down on mutuality equally apply to floating interest rate clauses.

The Banko Sentral ng Pilipinas (BSP) Manual of Regulations for Banks (MORB) allows banks and borrowers to agree on a floating rate
of interest, provided that it must be based on market-based reference rates:

§ X305.3 Floating rates of interest. The rate of interest on a floating rate loan during each interest period shall be stated on the
basis of Manila Reference Rates (MRRs), T-Bill Rates or other market based reference rates plus a margin as may be agreed
upon by the parties.

The MRRs for various interest periods shall be determined and announced by the Bangko Sentral every week and shall be based on
the weighted average of the interest rates paid during the immediately preceding week by the ten (10) KBs with the highest combined
levels of outstanding deposit substitutes and time deposits, on promissory notes issued and time deposits received by such banks, of
P100,000 and over per transaction account, with maturities corresponding to the interest periods tor which such MRRs are being
determined. Such rates and the composition of the sample KBs shall be reviewed and determined at the beginning of every calendar
semester on the basis of the banks' combined levels of outstanding deposit substitutes and time deposits as of 31 May or 30
November, as the case may be.

The rate of interest on floating rate loans existing and outstanding as of 23 December 1995 shall continue to be determined on the
basis of the MRRs obtained in accordance with the provisions of the rules existing as of 01 January 1989: Provided, however, That the
parties to such existing floating rate loan agreements are not precluded from amending or modifying their loan agreements by adopting
a floating rate of interest determined on the basis of the TBR or other market based reference rates.

Where the loan agreement provides for a floating interest rate, the interest period, which shall be such period of time for which the rate
of interest is fixed, shall be such period as may be agreed upon by the parties.

For the purpose of computing the MRRs, banks shall accomplish the report forms, RS Form 2D and Form 2E (BSP 5-17-34A). [92]
(Emphasis and underscoring supplied.)

This BSP requirement is consistent with the principle that the determination of interest rates cannot be left solely to the will of one party.
It further emphasizes that the reference rate must be stated in writing, and must be agreed upon by the parties.

b.

Security Bank argues that the subject provisions on the interest rate observed the principle of mutuality of contracts. It claims that there
is a ceiling on the maximum applicable rate, and it is the market forces that dictate and establish the rate of interest.

We disagree.

The RTC and CA were correct in holding that the interest provisions in the revolving credit line agreement and its addendum violate the
principle of mutuality of contracts.
First, the authority to change the interest rate was given to Security Bank alone as the lender, without need of the written assent of the
spouses Mercado. This unbridled discretion given to Security Bank is evidenced by the clause "I hereby give my continuing consent
without need of additional confirmation to the interests stipulated as computed by [Security Bank]." [93] The lopsidedness of the
imposition of interest rates is further highlighted by the lack of a breakdown of the interest rates imposed by Security Bank in its
statement of account[94] accompanying its demand letter.

Second, the interest rate to be imposed is determined solely by Security Bank for lack of a stated, valid reference rate. The reference
rate of "Security Bank's prevailing lending rate" is not pegged on a market-based reference rate as required by the BSP. In this regard,
we do not agree with the CA that this case is similar with Polotan, Sr. v. Court of Appeals (Eleventh Division).[95] There, we declared that
escalation clauses are not basically wrong or legally objectionable as long as they are not solely potestative but based on reasonable
and valid grounds. We held that the interest rate based on the "prevailing market rate" is valid because it cannot be said to be
dependent solely on the will of the bank as it is also dependent on the prevailing market rates. The fluctuation in the market rates is
beyond the control of the bank.[96] Here, however, the stipulated interest rate based on "Security Bank's prevailing lending rate" is not
synonymous with "prevailing market rate." For one, Security Bank is still the one who determines its own prevailing lending rate. More,
the argument that Security Bank is guided by other facts (or external factors such as Singapore Rate, London Rate, Inter-Bank Rate) in
determining its prevailing monthly rate fails because these reference rates are not contained in writing as required by law and the BSP.
Thus, we find that the interest stipulations here are akin to the ones invalidated in Silos and in Philippine Savings Bank for being
potestative.

In striking out these provisions, both in the original and the addendum, we note that there are no other stipulations in writing from which
we can base an imposition of interest. Unlike in cases involving escalation clauses that allowed us to impose the original rate of
interest, we cannot do the same here as there is none. Nevertheless, while we find that no stipulated interest rate may be imposed on
the obligation, legal interest may still be imposed on the outstanding loan. Eastern Shipping Lines, Inc. v. Court of Appeals [97] and Nacar
v. Gallery Frames[98] provide that in the absence of a stipulated interest. a loan obligation shall earn legal interest from the time of
default, i.e., from judicial or extrajudicial demand.[99]

III

In Andal v. Philippine National Bank,[100] the case cited by the spouses Mercado, we declared the mortgagor-debtors therein liable to
pay interest at the rate equal to the legal interest rate from the time they defaulted in payment until their loan is fully paid. We also said
that default, for purposes of determining when interest shall run, is to be counted from the time of the finality of decision determining the
rate of interest Spouses Mercado claim that following Andal, they, too, could not be deemed to have been in default from the time of the
extrajudicial demand on March 31, 1991. They claim anew that since the validity of the interest rates is still being determined in this
petition, interest should be imposed only after finality of this Decision.

They err. Andal is not squarely applicable to this case. In that case, there was a finding by both the trial court and the CA that no default
can be declared because of the arbitrary, illegal, and unconscionable interest rates and penalty charges unilaterally imposed by the
bank. There, the debtors questioned the period of default in relation to the interest imposed as it was an issue necessary for the
determination of the validity of the foreclosure sales therein. In contrast, here, the spouses Mercado never denied that they defaulted in
the payment of the principal obligation. They did not assert, from their complaint or up to their petition before this Court, that they would
not have been in default were it not for the bank's imposition of the interest rates. Theories raised for the first time cannot be
entertained in appeal.

Moreover, for purposes of computing when legal interest shall run, it is enough that the debtor be in default on the principal obligation.
To be considered in default under the revolving credit line agreement, the borrower need not be in default for the whole amount, but for
any amount due.[101]

The spouses Mercado never challenged Security Bank's claim that they defaulted as to the payment of the principal obligation of
P8,000,000.00. Thus, we find they have defaulted to this amount at the time Security Bank made an extrajudicial demand on March 31,
1999.

We also find no merit in their argument that penalty charges should not be imposed. While we see no legal basis to strike down the
penalty stipulation, however, we reduce the penalty of 2% per month or 24% per annum for being iniquitous and unconscionable as
allowed under Article 1229[102] of the Civil Code.

In MCMP Construction Corp. v. Monark Equipment Corp.,[103] we declared the rate of 36% per annum unconscionable and reduced it to
6% per annum. We thus similarly reduce the penalty here from 24% per annum to 6% per annum from the time of default, i.e.,
extrajudicial demand.

We also modify the amount of the outstanding obligation of the spouses Mercado to Security Bank. To recall, the foreclosure sale over
the parcel of land in Lipa City is not affected by the annulment proceedings.

We thus find that the proceeds of the foreclosure sale over the parcel of land in Lipa City in the amount of P483,120.00 should be
applied to the principal obligation of P8,000,000.00 plus interest and penalty from extrajudicial demand (March 31, 1999) until date of
foreclosure sale (October 19, 1999).[104] The resulting deficiency shall earn legal interest at the rate of 12% from the filing of Security
Bank's answer with counterclaim[105] on January 5, 2001 until June 30, 2013, and shall earn legal interest at the present rate of 6% from
July 1, 2013 until finality of judgment.[106] Thus, the outstanding obligation of the spouses Mercado should be computed as follows:

Principal P8,000,000.00

Interest at 12% per annum 533.917.81

P8,000,000.00 x 0.12 x (203 days/365

days)[107]

Penalty at 6% per annum 266,958.90

P8,000,000.00 x 0.06 x (203 days/365 ____________
days)
P8,800,876.71

Less: Bid price for Lipa City property 483,120.00

TOTAL DEFICIENCY P8,317,756.71

WHEREFORE, the petitions are DENIED. Accordingly, the Court of Appeals' Decision dated July 19, 2010 and the Amendatory Order
dated June 19, 2007 are hereby MODIFIED. Spouses Rodrigo and Erlinda Mercado are hereby ordered to pay Security Bank
Corporation the sum of P8,317,756.71 representing the amount of deficiency, inclusive of interest and penalty. Said amount shall earn
legal interest of 12% per annum from January 5, 2001 until June 30, 2013, and shall earn the legal interest of 6% per annum from July
1, 2013 until finality of this Decision. The total amount shall thereafter earn interest at the rate of 6% per annum from the finality of
judgment until its full satisfaction.

No costs.

SO ORDERED.