Republic of the Philippines

SUPREME COURT
Manila
EN BANC

G.R. No. L-21507 June 7, 1971

PEOPLE OF THE PHILIPPINES, plaintiff-appellee,
vs.
NATIVIDAD FRANKLIN, accused, ASIAN SURETY & INSURANCE COMPANY, INC., bondsman-appellant.
Office of the Solicitor General Arturo A. Alafriz, Acting Solicitor General Isidro C. Borromeo and Solicitor Antonio M. Consing for plaintiffappellee.
Advincula, Astraquillo, Villa & Ramos for bondsman-appellant.

DIZON, J.:
Appeal taken by the Asian Surety & Insurance Company, Inc. from the decision of the Court of First Instance of Pampanga dated April 17, 1963,
forfeiting the bail bond posted by it for the provisional release of Natividad Franklin, the accused in Criminal Case No. 4300 of said court, as well as
from the latter's orders denying the surety company's motion for a reductions of bail, and its motion for reconsideration thereof.
It appears that an information filed with the Justice of the Peace Court of Angeles, Pampanga, docketed as Criminal Case No. 5536, Natividad
Franklin was charged with estafa. Upon a bail bond posted by the Asian Surety & Insurance Company, Inc. in the amount of P2,000.00, she was
released from custody.
After the preliminary investigation of the case, the Justice of the Peace Court elevated it to the Court of First Instance of Pampanga where the
Provincial Fiscal filed the corresponding information against the accused. The Court of First Instance then set her arraignment on July 14, 1962, on
which date she failed to appear, but the court postponed the arraignment to July 28 of the same year upon motion of counsel for the surety company.
The accused failed to appear again, for which reason the court ordered her arrest and required the surety company to show cause why the bail bond
posted by it should not be forfeited.
On September 25, 1962, the court granted the surety company a period of thirty days within which to produce and surrender the accused, with the
warning that upon its failure to do so the bail bond posted by it would be forfeited. On October 25, 1962 the surety company filed a motion praying
for an extension of thirty days within which to produce the body of the accused and to show cause why its bail bond should not be forfeited. As not
withstanding the extension granted the surety company failed to produce the accused again, the court had no other alternative but to render the
judgment of forfeiture.
Subsequently, the surety company filed a motion for a reduction of bail alleging that the reason for its inability to produce and surrender the accused
to the court was the fact that the Philippine Government had allowed her to leave the country and proceed to the United States on February 27, 1962.
The reason thus given not being to the satisfaction of the court, the motion for reduction of bail was denied. The surety company's motion for
reconsideration was also denied by the lower court on May 27, 1963, although it stated in its order that it would consider the matter of reducing the
bail bond "upon production of the accused." The surety company never complied with this condition.
Appellant now contends that the lower court should have released it from all liability under the bail bond posted by it because its failure to produce
and surrender the accused was due to the negligence of the Philippine Government itself in issuing a passport to said accused, thereby enabling her to
leave the country. In support of this contention the provisions of Article 1266 of the New Civil Code are invoked.
Appellant's contention is untenable. The abovementioned legal provision does not apply to its case, because the same speaks of the relation between
a debtor and a creditor, which does not exist in the case of a surety upon a bail bond, on the one hand, and the State, on the other.
In U.S. vs. Bonoan, et al., 22 Phil., p. 1, We held that:
The rights and liabilities of sureties on a recognizance or bail bond are, in many respects, different from those of sureties on
ordinary bonds or commercial contracts. The former can discharge themselves from liability by surrendering their principal; the
latter, as a general rule, can only be released by payment of the debt or performance of the act stipulated.
In the more recent case of Uy Tuising, 61 Phil. 404, We also held that:

By the mere fact that a person binds himself as surety for the accused, he takes charge of, and absolutely becomes responsible for
the latter's custody, and under such circumstances it is incumbent upon him, or rather, it is his inevitable obligation not merely a
right, to keep the accused at all times under his surveillance, inasmuch as the authority emanating from his character as surety is
no more nor less than the Government's authority to hold the said accused under preventive imprisonment. In allowing the
accused Eugenio Uy Tuising to leave the jurisdiction of the Philippines, the appellee necessarily ran the risk of violating and in
fact it clearly violated the terms of its bail bonds because it failed to produce the said accused when on January 15, 1932, it was
required to do so. Undoubtedly, the result of the obligation assumed by the appellee to hold the accused at all times to the orders
and processes of the lower court was to prohibit said accused from leaving the jurisdiction of the Philippines because, otherwise,
said orders and processes would be nugatory and inasmuch as the jurisdiction of the court from which they issued does not
extend beyond that of the Philippines, they would have no binding force outside of said jurisdiction.
It is clear, therefore, that in the eyes of the law a surety becomes the legal custodian and jailer of the accused, thereby assuming the obligation to keep
the latter at all times under his surveillance, and to produce and surrender him to the court upon the latter's demand.
That the accused in this case was able to secure a Philippine passport which enabled her to go to the United States was, in fact, due to the surety
company's fault because it was its duty to do everything and take all steps necessary to prevent that departure. This could have been accomplished by
seasonably informing the Department of Foreign Affairs and other agencies of the government of the fact that the accused for whose provisional
liberty it had posted a bail bond was facing a criminal charge in a particular court of the country. Had the surety company done this, there can be no
doubt that no Philippine passport would have been issued to Natividad Franklin.
UPON ALL THE FOREGOING, the decision appealed from is affirmed in all its parts, with costs.
Concepcion C.J., Reyes, J.B.L., Makalintal, Zaldivar, Fernando, Teehankee, Barredo, Villamor and Makasiar, JJ., concur.
Castro, J., took no part.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-23546 August 29, 1974
LAGUNA TAYABAS BUS COMPANY and BATANGAS TRANSPORTATION COMPANY, petitioners,
vs.
FRANCISCO C. MANABAT, as assignee of Bian Transportation Company, Insolvent, respondent.
Domingo E. de Lara for petitioners.
M. A. Concordia & V.A. Guevarra for respondent.

MAKASIAR, J.:p
This is an appeal by certiorari from a judgment of the Court of Appeals dated August 31, 1964, which WE AFFIRM.
The undisputed facts are recounted by the Court of Appeals through then Associate Justice Salvador Esguerra thus:
On January 20, 1956, a contract was executed whereby the Bian Transportation Company leased to the Laguna-Tayabas Bus
Company at a monthly rental of P2,500.00 its certificates of public convenience over the lines known as Manila-Bian, ManilaCanlubang and Sta. Rosa-Manila, and to the Batangas Transportation Company its certificate of public convenience over the line
known as Manila-Batangas Wharf, together with one "International" truck, for a period of five years, renewable for another
similar period, to commence from the approval of the lease contract by the Public Service Commission. On the same date the
Public Service Commission provisionally approved the lease contract on condition that the lessees should operate on the leased
lines in accordance with the prescribed time schedule and that such approval was subject to modification or cancellation and to
whatever decision that in due time might be rendered in the case.
Sometime after the execution of the lease contract, the plaintiff Bian Transportation Company was declared insolvent in Special
Proceedings No. B-30 of the Court of First Instance of Laguna, and Francisco C. Manabat was appointed as its assignee. From
time to time, the defendants paid the lease rentals up to December, 1957, with the exception of the rental for August 1957, from
which there was deducted the sum of P1,836.92 without the consent of the plaintiff. This deduction was based on the ground that
the employees of the defendants on the leased lines went on strike for 6 days in June and another 6 days in July, 1957, and caused
a loss of P500 for each strike, or a total of P1,000.00; and that in Civil Case No. 696 of the Court of First Instance of Batangas,
Branch II, judgment was rendered in favor of defendant Batangas Transportation Company against the Bian Transportation
Company for the sum of P836.92. The assignee of the plaintiff objected to such deduction, claiming that the contract of lease
would be suspended only if the defendants could not operate the leased lines due to the action of the officers, employees or
laborers of the lessor but not of the lessees, and that the deduction of P836.92 amounted to a fraudulent preference in the
insolvency proceedings as whatever judgment might have been rendered in favor of any of the lessees should have been filed as a
claim in said proceedings. The defendants neither refunded the deductions nor paid the rentals beginning January, 1958,
notwithstanding demands therefor made from time to time. At first, the defendants assured the plaintiff that the lease rentals
would be paid, although it might be delayed, but in the end they failed to comply with their promise.
On February 18, 1958, the Batangas Transportation Company and Laguna-Tayabas Bus Company separately filed with the Public
Service Commission a petition for authority to suspend the operation on the lines covered by the certificates of public
convenience leased to each of them by the Bian Transportation Company. The defendants alleged as reasons the reduction in the
amount of dollars allowed by the Monetary Board of the Central Bank of the Philippines for the purchase of spare parts needed in
the operation of their trucks, the alleged difficulty encountered in securing said parts, and their procurement at exorbitant costs,
thus rendering the operation of the leased lines prohibitive. The defendants further alleged that the high cost of operation, coupled
with the lack of passenger traffic on the leased lines resulted in financial losses. For these reasons they asked permission to
suspend the operation of the leased lines until such time as the operating expenses were restored to normal levels so as to allow
the lessees to realize a reasonable margin of profit from their operation.
Plaintiff's assignee opposed the petition on the ground that the Public Service Commission had no jurisdiction to grant the relief
prayed for as it should involve the interpretation of the lease contract, which act falls exclusively within the jurisdiction of the
ordinary courts; that the petitioners had not asked for the suspension of the operation of the lines covered by their own certificates
of public convenience; that to grant the petition would amount to an impairment of the obligation of contract; and that the
defendants have no legal personality to ask for suspension of the operation of the leased lines since they belonged exclusively to

the plaintiffwho is the grantee of the corresponding certificate of public convenience. Aside from the assignee, the Commissioner
of the Internal Revenue and other creditors of the Bian Transportation Company, like the Standard Vacuum Oil Co. and Parsons
Hardware Company, filed oppositions to the petitions for suspension of operation.
On October 15, 1958, the Public Service Commission overruled all oppositions filed by the assignee and other creditors of the
insolvent, holding that upon its approval of the lease contract, the lessees acquired the operating rights of the lessor and assumed
full responsibility for compliance with all the terms and conditions of the certificate of public convenience. The Public Service
Commission further stated that the petition to suspend operation did not pertain to any act of dominion or ownership but only to
the use of the certificate of public convenience which had been transferred by the plaintiff to the defendants, and that the
suspension prayed for was but an incident of the operation of the lines leased to the defendants. The Public Service Commission
further ruled that being a quasi-judicial body of limited jurisdiction, it had no authority to interpret contracts, which function
belongs to the exclusive domain of the ordinary courts, but the petition did not call for interpretation of any provision of the lease
contract as the authority of the Public Service Commission to grant or deny the prayer therein was derived from its regulatory
power over the leased certificates of public convenience.
While proceedings before the Public Service Commission were thus going on, as a consequence of the continuing failure of the lessees to fulfill their
earlier promise to pay the accruing rentals on the leased certificates,
On May 19, 1959, plaintiff Bian Transportation Company represented by Francisco C. Manabat, assignee, filed this action
against defendants Laguna Tayabas Bus Company and Batangas Transportation Company for the recovery of the sum of P42,500
representing the accrued rentals for the lease of the certificates of public convenience of the former to the latter, corresponding to
the period from January 1958, to May 1959, inclusive, plus the sum of P1,836.92 which was deducted by the defendants from the
rentals due for August, 1957, together with all subsequent rentals from June, 1959, that became due and payable; P5,000.00 for
attorney's fees and such corrective and exemplary damages as the court may find reasonable.
The defendants moved to dismiss the complaint for lack of jurisdiction over the subject matter of the action, there being another
case pending in the Public Service Commission between the same parties for the same cause. ... (pp. 20-21, rec.; pp. 54-55,
ROA).
The motion to dismiss was, however, denied. Meanwhile
The Public Service Commission delegated its Chief Attorney to receive evidence of the parties on the petition of the herein
defendants for authority to suspend operation on the lines leased to them by the plaintiff. The defendants, the assignee of the
plaintiff and other creditors of the insolvent presented evidence before the Chief Attorney and the hearing was concluded on June
29, 1959. On October 20, 1959, the Public Service Commission issued an order the dispositive part of which reads as follows:
In view of the foregoing, the petitioners herein are authorized to suspend their operation of the trips of the
Bian Transportation Company between Batangas Piers-Manila, Bian-Manila, Sta. Rosa-Manila and
Canlubang-Manila authorized in the aforementioned cases from the date of the filing of their petition on
February 18, 1958, until December 31, 1959. (p. 25, rec.; pp. 60-61, ROA).
Going back to the Court of First Instance of Laguna
... The motion (to dismiss) having been denied, the defendants answered the complaint, alleging among others, that the Public
Service Commission authorized the suspension of operation over the leased lines from February 18, 1950, up to December 31,
1959, and hence the lease contract should be deemed suspended during that period; that plaintiff failed to place defendants in
peaceful and adequate enjoyment and possession of the things leased; that as a result of the plaintiff being declared insolvent the
lease contract lost further force and effect and payment of rentals thereafter was made under a mistake and should be refunded to
the defendants. (p. 21; rec.; p. 55, ROA).
The Court of Appeals proceeded to state that
After hearing in the court a quo and presentation by the parties herein of their respective memoranda, the trial court on March 18,
1960, rendered judgment in favor of plaintiff, ordering the defendants jointly and severally to pay to the former the sum of
P65,000.00 for the rentals of the certificates of public convenience corresponding to the period from January, 1958, to February,
1960, inclusive, including the withheld amount of P836.92 from the rentals for August, 1957, plus the rentals that might become
due and payable beginning March, 1960, at the rate of P2,500.00 a month, with interest on the sums of P42,500 and P836.92 at
the rate of 6% per annum from the date of the filing of the complaint, with interest on the subsequent rentals at the same rate
beginning the first of the following month, plus the sum of P3,000.00 as attorney's fees, and the cost of the suit. (pp. 25-26, rec.)
From the decision of the Court of First Instance, defendants appealed to the Court of Appeals, which affirmed the same in toto in its decision dated
August 31, 1964. Said decision was received by the appellants on September 7, 1964.
On September 21, 1964, appellants filed the present appeal, raising the following questions of law:

1. Considering that the Court of Appeals found that the Public Service Commission provisionally approved the lease contract of
January 20, 1956 between petitioners and Bian Transportation Company upon the condition, amongothers, that such approval
was subject to modification and cancellation and towhatever decision that in due time might be rendered in the case, the Court
ofAppeals erred in giving no legal effect and significance whatever to the suspension of operations later granted by the Public
Service Commission after due hearing covering the lines leased to petitioners thereby nullifying, contrary to law and decisions of
this Honorable Court, the authority and powersconferred on the Public Service Commission.
2. The Court of Appeals misapplied the statutory rules on interpreting contracts and erred in its construction of the clauses in the
lease agreement authorizing petitioners to suspend operation without the corresponding liability for rentals during the period of
suspension.
3. Contrary to various decisions of this Honorable Court relieving the lessee from the obligation to pay rent where there is failure
to use or enjoy the thing leased, the Court of Appeals erroneously required petitioners to pay rentals, with interest, during the
period of suspension of the lease from January, 1958 up to the expiration of the agreement on January 20, 1961. (p. 7, rec.)
On October 12, 1964, the Supreme Court issued a resolution dismissing said petition "for lack of merit." (p. 43, rec.). Said resolution was received by
petitioners on October 16, 1964.
On October 31, 1964, the day the Court's resolution was to become final, petitioners filed a "Motion to Admit Amended Petition and to Give Due
Course Thereto." In said motion, petitioners explained
... The amendment includes an alternative ground relating to petitioners' prayer for the reduction of the rentals payable by them.
This alternative petition was not included in the original one as petitioners where genuinely convinced that they should have been
absolved from all liabilities whatever. However, in view of the apparent position taken by this Honorable Court, as implied in its
resolution on October 12, 1964, notice of which was received on October 16, 1964, petitioners now squarely submit their
alternative position for consideration. There is decisional authority for the reduction of rentals payable (see Reyes v. Caltex, 47
O.G. 1193, 1203-1204) (p. 44, rec).
The new question raised is presented thus:
xxx xxx xxx
IV
This Honorable Court is authorized to equitably reduce the rentals payableby the petitioners, should this Honorable Court adopt
the position of the Courtof Appeals and the lower court that petitioners have not been releived from thepayment of rentals on the
leased lines. (p. 7 Amended Petition for Certiorari,pp. 46, 52, rec.).
On November 5, 1964, the Supreme Court required respondents herein to file an answer to the amended petition. On the same
date, respondents filed, quite belatedly, an opposition to the motion of the petitioners. Said opposition was later "noted" by the
Court in its resolution dated December 1, 1964.
I
First, it must be pointed out that the first three questions of law raised by petitioners were already disposed of in Our resolution dated October 12,
1964 dismissing the original petition for lack of merit, which in effect affirmed the appealed decision of the Court of of Appeals. Although, in their
motion to admit amended petition dated October 31, 1964, petitioners sought a reconsideration of the said resolution not only in the light of the fourth
legal issue raised but also on the said first three legal questions, the petitioners advanced no additional arguments nor cited new authorities in support
of their stand on the first three questions of law. They merely reproduced verbatim from their original petition their discussion on said questions.
To the extent therefore that the motion filed by the petitioner seeks a reconsideration of our order of dismissal by submitting anew, through the
amended petition, the very same arguments already dismissed by this Court, the motion shall be considered pro forma, (See Estrada v. Sto. Domingo,
28 SCRA 890, 905-906, 911) and hence is without merit.
Consequently, we limit the resolution of this case solely on the discussions on the last (fourth) question of law raised, taking into consideration the
discussion on the first three questions only insofar as they place the petitioners' discussion on the fourth question in its proper context and
perspective.
II
The undisguised object of petitioners' discussion on the fourth question of law raised is to justify their plea for a reduction of the rentals on the
ground that the subject matter of the lease was allegedly not used by them as a result of the suspension of operations on the lines authorized by the
Public Service Commission.

In support of said plea, petitioners invoke article 1680 of the Civil Code which grants lessees of rural lands a right to a reduction of rentals whenever
the harvest on the land leased is considerably damaged by an extraordinary fortuitous event. Reliance was also placed by the petitioners on Our
decision in Reyes v. Caltex (Phil.) Inc., 84 Phil. 654, which supposedly applied said article by analogy to a lease other than that covered by said legal
provision.
The authorities from which the petitioners draw support, however, are not applicable to the case at bar.
Article 1680 of the Civil Code reads thus:
Art. 1680. The lessee shall have no right to a reduction of the rent on accountof the sterility of the land leased, or by reason of the
loss of fruits due toordinary fortuitous events; but he shall have such right in case of the loss ofmore than one-half of the fruits
through extraordinary and unforeseen fortuitous events, save always when there is a specific stipulation to the contrary.
Extraordinary fortuitous events are understood to be: fire, war, pestilence, unusual flood, locusts, earthquake, or others which are
uncommon, and which thecontracting parties could not have reasonably foreseen.
Article 1680, it will be observed is a special provision for leases of rural lands. No other legal provision makes it applicable to ordinary leases. Had
theintention of the lawmakers been so, they would have placed the article among the general provisions on lease. Nor can the article be applied
analogously to ordinary leases, for precisely because of its special character, it was meant to apply only to a special specie of lease. It is a provision of
social justice designed to relieve poor farmers from the harsh consequences of their contracts with rich landowners. And taken in that light, the article
provides no refuge to lessees whose financial standing or social position is equal to, or even better than, the lessor as in the case at bar.
Even if the cited article were a general rule on lease, its provisions nevertheless do not extend to petitioners. One of its requisites is that the cause of
loss of the fruits of the leased property must be an "extraordinary and unforeseen fortuitous event." The circumstances of the instant case fail tosatisfy
such requisite. As correctly ruled by the Court of Appeals, the alleged causes for the suspension of operations on the lines leased, namely, the high
prices of spare parts and gasoline and the reduction of the dollar allocations, "already existed when the contract of lease was executed" (p. 11,
Decision; p. 30, rec.; Cuyugan v. Dizon, 89 Phil. 80). The cause of petitioners' inability to operate on the lines cannot, therefore, be ascribed to
fortuitous events or circumstances beyond their control, but to their own voluntary desistance (p. 13, Decision; p. 32, rec.).
If the petitioners would predicate their plea on the basis solely of their inability to use the certificates of public convenience, absent the requisite of
fortuitous event, the cited article would speak strongly against their plea.Article 1680 opens with the statement: "The lessee shall have no right to
reduction of the rent on account of the sterility of the land leased ... ." Obviously, no reduction can be sustained on the ground that the operation of
the leased lines was suspended upon the mere speculation that it would yield no substantial profit for the lessee bus company. Petitioners' profits may
be reduced due to increase operating costs; but the volume of passenger traffic along the leased lines not only remains same but may even increase as
the tempo of the movement of population is intensified by the industrial development of the areas covered or connected by the leased routes.
Moreover, upon proper showing, the Public Service Commission might have granted petitioners an increase in rates, as it has done so in several
instances, so that public interest will always be promoted by a continuous flow of transportation facilities to service the population and the economy.
The citizenry and the economy will suffer by reason of any disruption in the transportation facilities.
Furthermore, we are not at all convinced that the lease contract brought no material advantage to the lessor for the period of suspension. It must be
recalled that the lease contract not only stipulated for the transfer of the lessor's right to operate the lines covered by the contract, but also for a
forbearance on the part of the lessor to operate transportation business along the same lines and to hold a certificate for that purpose. Thus, even if
the lessee would not actually make use of the lessor's certificates over the leased lines, the contractual commitment of the lessor not to operate on the
lines would sufficiently insure added profit to the lessees on account of the lease contract. In other words, the commitment alone of the lessor under
the contract would enable the lessees to reap full benefits therefrom since the commuting public would, after all, be forced at their inconvenience
and prejudice to patronize petitioner's remaining buses.
Contrary to what petitioners want to suggest, WE refused in the Reyes case, supra, to apply by analogy Article 1680 and consequently, WE denied the
plea oflessee therein for an equitable reduction of the stipulated rentals, holding that:
The general rule on performance of contracts is graphically set forth in American treatises which is also the rule, in our opinion,
obtaining under the Civil Code.
Where a person by his contract charges himself with an obligation possible to be performed, he must perform it, unless the
performance is rendered impossible by the act of God, by the law, or by the other party, it being the rule that in case the party
desires to be excused from the performance in the event of contingencies arising, it is his duty to provide therefor in his contract.
Hence, performance is not excused by subsequent inability to perform, by unforeseen difficulties, by unusual or unexpected
expenses, by danger, by inevitable accident, by breaking of machinery, by strikes, by sickness, by failure of a party to avail
himself of the benefits tobe had under the contract, by weather conditions, by financial stringency or bystagnation of business.
Neither is performance excused by the fact that the contract turns out to be hard and improvident, unprofitable, or impracticable,
ill-advised, or even foolish, or less profitable, unexpectedly burdensome. (17 CJS 946-948) (Reyes vs. Caltex, supra, 664.
Emphasis supplied).

Also expressed in said case is a ruling in American jurisprudence, which found relevance again in the case at bar, to wit: "(S)ince, by the lease, the
lessee was to have the advantage of casual profits of the leased premises, he should run the hazard of casual losses during the term and not lay the
whole burden upon the lessor." (Reyes vs. Caltex, supra, 664).
Militating further against a grant of reduction of the rentals to the petitioners is the petitioners' conduct which is not in accord with the rules of fair
play and justice. Petitioners, it must be recalled, promised to pay the accrued rentals in due time. Later, however, when they believed they found a
convenient excuse for escaping their obligation, they reneged on their earlier promise. Moreover, petitioners' option to suspend operation on the
leased lines appears malicious. Thus, Justice Esguerra, speaking for the Court of Appeals, propounded the following questions: "If it were true that
thecause of the suspension was the high prices of spare parts, gasoline and needed materials and the reduction of the dollar allocation, why was it that
only plaintiff-appellee's certificate of public convenience was sought to be suspended? Why did not the defendants-appellants ask for a corresponding
reduction or suspension under their own certificate along the same route? Suppose the prices of the spare parts and needed materials were cheap,
would the defendants-appellants have paid more than what is stipulated in the lease contract? We believe not. Hence, the suspension of operation on
the leased lines was conceived as a scheme to lessen operation costs with the expectation of greater profit." (p. 14, Decision).
Indeed, petitioners came to court with unclean hands, which fact militates against their plea for equity.
WHEREFORE, THE ORIGINAL AND AMENDED PETITIONS ARE HEREBY DISMISSED, AND THE DECISION OF THE COURT OF
APPEALS DATED AUGUST 31, 1964 IS HEREBY AFFIRMED, WITH COSTS AGAINST PETITIONERS.
Makalintal, C.J., Castro, Teehankee and Muoz Palma, JJ., concur.
Esguerra, J., took no part.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-44349 October 29, 1976
JESUS V. OCCENA and EFIGENIA C. OCCENA, petitioners,
vs.
HON. RAMON V. JABSON, Presiding Judge of the Court Of First Instance of Rizal, Branch XXVI; COURT OF APPEALS and
TROPICAL HOMES, INC., respondents.
Occena Law Office for petitioners.
Serrano, Diokno & Serrano for respondents.

TEEHANKEE, J.:
The Court reverses the Court of Appeals appealed resolution. The Civil Code authorizes the release of an obligor when the service has become so
difficult as to be manifestly beyond the contemplation of the parties but does not authorize the courts to modify or revise the subdivision contract
between the parties or fix a different sharing ratio from that contractually stipulated with the force of law between the parties. Private respondent's
complaint for modification of the contract manifestly has no basis in law and must therefore be dismissed for failure to state a cause of action. On
February 25, 1975 private respondent Tropical Homes, Inc. filed a complaint for modification of the terms and conditions of its subdivision contract
with petitioners (landowners of a 55,330 square meter parcel of land in Davao City), making the following allegations:
"That due to the increase in price of oil and its derivatives and the concomitant worldwide spiralling of prices, which are not within the control of
plaintiff, of all commodities including basis raw materials required for such development work, the cost of development has risen to levels which are
unanticipated, unimagined and not within the remotest contemplation of the parties at the time said agreement was entered into and to such a degree
that the conditions and factors which formed the original basis of said contract, Annex 'A', have been totally changed; 'That further performance by
the plaintiff under the contract.
That further performance by the plaintiff under the contract,Annex 'S', will result in situation where defendants would be unustly
enriched at the expense of the plaintiff; will cause an inequitous distribution of proceeds from the sales of subdivided lots in
manifest actually result in the unjust and intolerable exposure of plaintiff to implacable losses, all such situations resulting in an
unconscionable, unjust and immoral situation contrary to and in violation of the primordial concepts of good faith, fairness and
equity which should pervade all human relations.
Under the subdivision contract, respondent "guaranteed (petitioners as landowners) as the latter's fixed and sole share and participation an amount
equivalent to forty (40%) percent of all cash receifpts fromthe sale of the subdivision lots"
Respondent pray of the Rizal court of first instance that "after due trial, this Honorable Court render judgment modifying the terms and conditions of
the contract ... by fixing the proer shares that shouls pertain to the herein parties out of the gross proceeds from the sales of subdivided lots of subjects
subdivision".
Petitioners moved to dismiss the complaint principally for lack of cause of action, and upon denial thereof and of reconsideration by the lower court
elevated the matter on certiorari to respondent Court of Appeals.
Respondent court in its questioned resolution of June 28, 1976 set aside the preliminary injunction previously issued by it and dimissed petition on
the ground that under Article 1267 of the Civil Code which provides that
ART. 1267. When the service has become so difficult as to be manifestly beyond the contemplation of the parties, the obligor
may also be released therefrom, in whole or in part. 1
... a positive right is created in favor of the obligor to be released from the performance of an obligation in full or in part when its
performance 'has become so difficult as to be manifestly beyond the contemplation of the parties.
Hence, the petition at abar wherein petitioners insist that the worldwide increase inprices cited by respondent does not constitute a sufficient casue of
action for modification of the subdivision contrct. After receipt of respondent's comment, the Court in its Resolution of September 13, 1976 resolved
to treat the petition as special civil actionand declared the case submitted for decision.

The petition must be granted.

While respondent court correctly cited in its decision the Code Commission's report giving the rationale for Article 1267 of the Civil Code, to wit;
The general rule is that impossibility of performance releases the obligor. However, it is submitted that when the service has
become so difficult as to be manifestly beyond the contemplation of the parties, the court should be authorized to release the
obligor in whole or in part. The intention of the parties should govern and if it appears that the service turns out to be so difficult
as have been beyond their contemplation, it would be doing violence to that intention to hold the obligor still responsible. ... 2
It misapplied the same to respondent's complaint.
If respondent's complaint were to be released from having to comply with the subdivision contract, assuming it could show at the trial that the service
undertaken contractually by it had "become so difficult as to be manifestly beyond the contemplation of the parties", then respondent court's
upholding of respondet's complaint and dismissal of the petition would be justifiable under the cited codal article. Without said article, respondent
would remain bound by its contract under the theretofore prevailing doctrine that performance therewith is ot excused "by the fact that the contract
turns out to be hard and improvident, unprofitable, or unespectedly burdensome", 3 since in case a party desires to be excuse from performance in the
event of such contingencies arising, it is his duty to provide threfor in the contract.
But respondent's complaint seeks not release from the subdivision contract but that the court "render judgment I modifying the terms and Conditions
of the Contract by fixing the proper shares that should pertain to the herein parties out of the gross proceed., from the sales of subdivided lots of
subject subdivision". The cited article does not grant the courts this authority to remake, modify or revise the contract or to fix the division of shares
between the parties as contractually stipulated with the force of law between the parties, so as to substitute its own terms for those covenanted by the
partiesthemselves. Respondent's complaint for modification of contract manifestly has no basis in law and therefore states no cause of action. Under
the particular allegations of respondent's complaint and the circumstances therein averred, the courts cannot even in equity grant the relief sought.
A final procedural note. Respondent cites the general rule that an erroneous order denying a motion to dismiss is interlocutory and should not be
corrected by certiorari but by appeal in due course. This case however manifestly falls within the recognized exception that certiorari will lie when
appeal would not prove to be a speedy and adequate remedy.' Where the remedy of appeal would not, as in this case, promptly relieve petitioners
from the injurious effects of the patently erroneous order maintaining respondent's baseless action and compelling petitioners needlessly to go
through a protracted trial and clogging the court dockets by one more futile case, certiorari will issue as the plain, speedy and adequate remedy of an
aggrieved party.
ACCORDINGLY, the resolution of respondent appellate court is reversed and the petition for certiorari is granted and private respondent's complaint
in the lower court is ordered dismissed for failure to state a sufficient cause of action. With costs in all instances against private respondent.
Makasiar, Muoz Palma, Concepcion, Jr., and Martin JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-22490

May 21, 1969

GAN TION, petitioner,

vs.
HON. COURT OF APPEALS, HON. JUDGE AGUSTIN P. MONTESA, as Judge of the Court of First Instance of Manila, ONG WAN
SIENG and THE SHERIFF OF MANILA, respondents.
Burgos and Sarte for petitioner.
Roxas, Roxas, Roxas and Associates for respondents.
MAKALINTAL, J.:
The sole issue here is whether or not there has been legal compensation between petitioner Gan Tion and respondent Ong Wan Sieng.
Ong Wan Sieng was a tenant in certain premises owned by Gan Tion. In 1961 the latter filed an ejectment case against the former, alleging nonpayment of rents for August and September of that year, at P180 a month, or P360 altogether. The defendant denied the allegation and said that the
agreed monthly rental was only P160, which he had offered to but was refused by the plaintiff. The plaintiff obtained a favorable judgment in the
municipal court (of Manila), but upon appeal the Court of First Instance, on July 2, 1962, reversed the judgment and dismissed the complaint, and
ordered the plaintiff to pay the defendant the sum of P500 as attorney's fees. That judgment became final.
On October 10, 1963 Gan Tion served notice on Ong Wan Sieng that he was increasing the rent to P180 a month, effective November 1st, and at the
same time demanded the rents in arrears at the old rate in the aggregate amount of P4,320.00, corresponding to a period from August 1961 to October
1963.lwphi1.et
In the meantime, over Gan Tion's opposition, Ong Wan Sieng was able to obtain a writ of execution of the judgment for attorney's fees in his favor.
Gan Tion went on certiorari to the Court of Appeals, where he pleaded legal compensation, claiming that Ong Wan Sieng was indebted to him in the
sum of P4,320 for unpaid rents. The appellate court accepted the petition but eventually decided for the respondent, holding that although
"respondent Ong is indebted to the petitioner for unpaid rentals in an amount of more than P4,000.00," the sum of P500 could not be the subject of
legal compensation, it being a "trust fund for the benefit of the lawyer, which would have to be turned over by the client to his counsel." In the
opinion of said court, the requisites of legal compensation, namely, that the parties must be creditors and debtors of each other in their own right (Art.
1278, Civil Code) and that each one of them must be bound principally and at the same time be a principal creditor of the other (Art. 1279), are not
present in the instant case, since the real creditor with respect to the sum of P500 was the defendant's counsel.
This is not an accurate statement of the nature of an award for attorney's fee's. The award is made in favor of the litigant, not of his counsel, and is
justified by way of indemnity for damages recoverable by the former in the cases enumerated in Article 2208 of the Civil Code. 1 It is the litigant, not
his counsel, who is the judgment creditor and who may enforce the judgment by execution. Such credit, therefore, may properly be the subject of
legal compensation. Quite obviously it would be unjust to compel petitioner to pay his debt for P500 when admittedly his creditor is indebted to him
for more than P4,000.
WHEREFORE, the judgment of the Court of Appeals is reversed, and the writ of execution issued by the Court of First Instance of Manila in its Civil
Case No. 49535 is set aside. Costs against respondent.
Reyes, J.B.L., Dizon, Zaldivar, Sanchez, Fernando and Capistrano, JJ., concur.
Teehankee and Barredo JJ., took no part.
Concepcion, C.J., and Castro, J., are on leave.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-69255 February 27, 1987
PHILIPPINE NATIONAL BANK, petitioner,
vs.
GLORIA G. VDA. DE ONG ACERO, ARNOLFO ONG ACERO & SOLEDAD ONG ACERO CHUA, respondents.
Leopoldo E. Petilla for respondents.

NARVASA, J.:
Savings Account No. 010-5878868-D of Isabela Wood Construction & Development Corporation, opened with the Philippine National Bank on
March 9, 1979 in the amount of P2 million is the subject of two (2) conflicting claims, sought to be definitively resolved in the proceedings at
bar. 1 One claim is asserted by the ACEROS Gloria G. Vda. de Ong Acero, Arnolfo Ong Acero and Soledad Ong Acero-Chua, judgment creditors
of the depositor (hereafter simply referred to as ISABELA) who seek to enforce against said savings account the final and executory judgment
rendered in their favor by the Court of First Instance of Rizal QC Br. XVI). The other claim has been put forth by the Philippine National Bank
(hereafter, simply PNB) which claims that since ISABELA was at some point in time both its debtor and creditor-ISABELA's deposit being deemed a
loan to it (PNB)-there had occurred a mutual set-off between them, which effectively precluded the ACEROS' recourse to that deposit.
The controversy was decided by the Intermediate Appellate Court adversely to the PNB. It is this decision that the PNB would have this Court
reverse.
The ACEROS' claim to the bank deposit is more specifically founded upon the garnishment thereof by the sheriff, effected in execution of the partial
judgment rendered by the CFI at Quezon City in their favor on November 18, 1979. The partial judgment ordered payment by ISABELA to the
ACEROS of the amount of P1,532,000.07. 2 Notice of garnisment was served on the PNB on January 9, 1980, pursuant to the writ of execution dated
December 23, 1979. 3This was followed by an Order issued on February 15, 1980 directing PNB to hand over this amount of P1,532,000.07 to the
sheriff for delivery, in turn, to the ACEROS. Not quite two months later, or on April 8, 1980, a second (and the final and complete judgment) was
promulgated by the CFI in favor of the ACEROS and against ISABELA, the dispositive part of which is as follows:
WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiffs and against the defendant:
1. Reiterating the dispositive portion of the partial judgment issued by this Court, dated November 16, 1979, ordering the
defendant to pay to the plaintiff the amount of P1,532,000.07 as principal, with interest at 12% per annum from December 11,
1975 until the whole amount is fully paid;
2. Ordering defendant to pay the plaintiffs the amount of P207,148.00 as compensatory damages, with legal interest thereon from
the filing of the complaint until the whole amount is fully paid;
3. Ordering defendant to pay plaintiffs the amount of P383,000.00 as and by way of attorneys fees.

On the other hand, PNB's claim to the two-million-peso deposit in question is made to rest on an agreement between it and ISABELA in virtue of
which, according to PNB: (1) the deposit was made by ISABELA as "collateral" in connection with its indebtedness to PNB as to which it
(ISABELA) had assumed certain contractual undertakings; and (2) in the event of ISABELA's failure to fulfill those undertakings, PNB was
empowered to apply the deposit to the payment of that indebtedness. The facts upon which PNB's theory stands are summarized in the Order of CFI
Judge Solano dated October 1, 1982, 5 relevant portions of which are here reproduced:
On October 13, 1977, Isabela Wood Construction and Development Corporation ** entered into a Credit Agreement with PNB.
Under the agreement PNB, having approved the application of defendant (Isabela & c.) for the establishment for its account of a
deferred letter of credit in the amount of DM 4,695,947.00 in favor of the Machinenfabric Augsburg Nunberg (MAN) of
Germany from whom defendant purchased thirty-five (35) units of MAN trucks, defendant corporation agreed to put up, as
collaterals, among others, the following:
4. The CLIENT shall assign to the BANK the proceeds of its contract with the Department of Public Works
for the construction of Nagapit Suspension Bridge (Substructure) in Cagayan.

This particular proviso in the aforesaid agreement was to be subsequently confirmed by Faustino Dy, Jr., as president of
defendant corporation, in a letter to the PNB, dated February 21, 1970, quoted in full as follows:
Gentlemen:
This is to confirm our arrangement that the treasury warrant in the amount of P2,704 millon in favor of
Isabela Wood Construction and Development Corporation to be delivered either by the Commission on Audit
or the Ministry of Public Highways, shall be placed in a savings account with your bank to the extent of P 2
million.
The said amount shall remain in the savings account until we are able to comply with the delivery and
registration of the mortgage in favor of the Philippine National Bank of our Paranaque property, and the
securing from Metropolitan Bank and Home Owners Savings and Loan Association to snow PNB a second
mortgage on the properties of Isabela Wood Construction Group, Inc., presently under first mortgage with
them.
Thus, on March 9, 1970, pursuant to paragraph 4 of the Credit Agreement, quoted above, PNB thru its International Department
opened the savings account in question, under Account No. 010-58768-D, with an initial deposit of P2,000,000.00, proceeds of a
treasury warrant delivered to PNB (EXHIBIT 3-A).
xxx xxx xxx
Since defendant corporation failed to deliver to PNB by way of mortgage its Paranaque property, neither was defendant
corporation able to secure from Metropolitan Bank and Home Owners Savings and Loan Association its consent to allow PNB a
second mortgage, and considering that the obligation of defendant corporation to PNB have been due and unsettled, PNB applied
the amount of P 2,102804.11 in defendant's savings account of PNB.
It was upon this version of the facts, and its theory thereon based on a mutual set-off, or compensation, between it and ISABELA in accordance
with Articles 1278 et al. of the Civil Code that PNB intervened in the action between the ACEROS and ISABELA on or about February 28, 1980
and moved for reconsideration of the Order of February 15, 1980 (requiring it to turn over to the sheriff the sum of P1,532,000.07, supra: fn. 2). But
its motion met with no success. It was denied by the Lower Court (Hon. Judge Apostol, presiding) by Order dated May 14, 1980. 6And a motion for
the reconsideration of that Order of May 14, 1980 was also denied, by Order dated August 11, 1980.
PNB again moved for reconsideration, this time of the Order of August 11, 1980; it also pleaded for suspension in the meantime of the enforcement
of the Orders of February 15, and May 14, 1980. Its persistence seemingly paid off. For the Trial Court (now presided over by Hon. Judge Solano),
directed on October 9, 1980 the setting aside of the said Orders of May 14, and August 11, 1980, and set for hearing PNB's first motion for the
reconsideration of the Order of February 15, 1980. 7 Several months afterwards, or more precisely on October 1, 1982, the Order of February 15,
1980 was itself also struck down, 8 the Lower Court opining that under the circumstances, there had been a valid assignment by ISABELA to PNB of
the amount deposited, which effectively placed that amount beyond the reach of the ACE ROS, viz:
When the two million or so treasury warrant, proceeds of defendant's contract with the government was delivered to PNB, said
amount, per agreement aforequoted, had already been assigned by defendant corporation to PNB, as collateral.
The said amount is not a pledge.
The assignment is valid. The defendant need not be the owner thereof at the time of assignment.
An assignment of credit and other incorporeal rights shall be perfected in accordance with the provisions of
Article 1475.
The contract of sale is perfected at the moment there is a meeting of the minds upon the thing which is the
object of the interest and upon its price.
It is not necessary for the perfection of the contract of sale that the thing be delivered and that the price be paid. Neither is it
necessary that the thing should belong to the vendor at the time of the perfection of the contract, it being sufficient that the vendor
has the right to transfer ownership thereof at the time it is delivered.
The shoe was now on the other foot. It was the ACEROS' turn to move for reconsideration, which they did as regards this Order of October 1, 1982;
but by Order promulgated on December 14, 1982, the Court declined to modify its resolution.
The ACEROS then appealed to the Intermediate Appellate Court which, after due proceedings, sustained them. On September 14, 1984, it rendered
judgment the dispositive part whereof reads as follows:

WHEREFORE, the Orders of October 1 and December 14, 1982 of the Court a quo are hereby REVERSED and SET ASIDE,
and in their stead, it is hereby adjudged:
1. That the Order of February 15, 1980 of the Court a quo is hereby ordered reinstated;
2. That intervenor PNB must deliver the amount stated in the Order of February 15, 1980 with interest thereon at 12% from
February 15, 1980 until delivered to appellants, the amount of interest to be paid by PNB and not to be deducted from the deposit
of Isabela Wood;
3. That intervenor PNB must pay attorney's fees and expenses of litigation to appellants in the amount of P10,000.00 plus the
costs of suit. 9
This dispositive part was subsequently modified at the ACEROS' instance, by Resolution dated November 8, 1984 which inter alia "additionally **
(ordered) PNB to likewise deliver to appellants the balance of the deposit of Isabela Wood Construction and Development Corporation after first
deducting the amount applied to the partial judgment of P1,532,000.00 in satisfaction of appeallants' final judgment." 10
PNB's main thesis is that when it opened a savings account for ISABELA on March 9, 1979 in the amount of P 2M, it (PNB) became indebted to
ISABELA in that amount. 11 So that when ISABELA itself subsequently came to be indebted to it on account of ISABELA's breach of the terms of
the Credit Agreement of October 13, 1977, and therefore ISABELA and PNB became at the same time creditors and debtors of each other,
compensation automatically took place between them, in accordance with Article 1278 of the Civil Code. The amounts due from each other were, in
its view, applied by operation of law to satisfy and extinguish their respective credits. More specifically, the P2M owed by PNB to ISABELA was
automatically applied in payment and extinguishment of PNB's own credit against ISABELA. This having taken place, that amount of P2M could no
longer be levied on by any other creditor of ISABELA, as the ACEROS attempted to do in the case at bar, in order to satisfy their judgment against
ISABELA.
Article 1278 of the Civil Code does indeed provide that "Compensation shall take when two persons, in their own right, are creditors and debtors of
each other. " Also true is that compensation may transpire by operation of law, as when all the requisites therefor, set out in Article 1279, are present.
Nonetheless, these legal provisions can not apply to PNB's advantage under the circumstances of the case at bar.
The insuperable obstacle to the success of PNB's cause is the factual finding of the IAC, by which upon firmly established rules even this Court is
bound, 12 that it has not proven by competent evidence that it is a creditor of ISABELA. The only evidence present by PNB towards this end consists
of two (2) documents marked in its behalf as Exhibits 1 and 2, But as the IAC has cogently observed, these documents do not prove any indebtedness
of ISABELA to PNB. All they do prove is that a letter of credit might have been opened for ISABELA by PNB, but not that the credit was ever
availed of (by ISABELA's foreign correspondent MAN, or that the goods thereby covered were in fact shipped, and received by ISABELA.
Quite obviously, as the IAC has further observed, the most persuasive evidence of these facts i.e., ISABELA's availment of the credit, as well as
the actual delivery of the goods covered by and shipped pursuant to the letter of credit-assuming these facts to have occurred, would naturally and
logically have been in PNB's possession and could have been readily submitted to the Court, to wit:
1. The document of availment by the foreign creditor of the letter of credit.
2. The document of release of the amounts mentioned in the agreement.
3. The documents showing that the trucks (transported to the Philippines by the foreign creditor [MAN] were shipped to ** and
received by Isabela.
4. The trust receipts by which possession was given to Isabela of the 35 (Imported) trucks.
5. The chattel mortgages over the trucks required under No. 3 of II Collaterals of the Credit Agreement (Exhibit 1).
6. The receipt by Isabela of the standing accounts sent by PNB.
7. There receipt of the letter of demand by Isabela Wood. 13
It bears stressing that PNB did not at all lack want for opportunity to produce these documents, if it does indeed have them. Judge Solano, it should
be recalled, specifically allowed PNB to introduce evidence in relation to its Motion for Reconsideration filed on August 26, 1980, 14 and thus
furnished the occasion for PNB to prove, among others, ISABELA's debt to it. PNB unaccountably failed to do so. Moreover, PNB never even
attempted to offer or exhibit such evidence, in the course of the appellate proceedings before the IAC, which is a certain indication, in that Court's
view, that PNB does not really have these proofs at ala
For this singular omission PNB offers no explanation except that it saw no necessity to submit the Documents in evidence, because sometime on
March 14, 1980, the ACEROS's attorney had been shown those precise documents setting forth ISABELA's loan obligations, such as the import
bills and the sight draft covering drawings on the L/C for ISABELA's account and after all, the ACEROS had not really put this indebtedness in

issue. 15The explanation cannot be taken seriously. In the picturesque but forceful language of the Appellate Court, the explanation "is silly as you do
not prove a fact in issue by showing evidence in support thereof to the opposing counsel; you prove it by submitting evidence to the proper court."
The fact is that the record does not disclose that the ACEROS have ever admitted the asserted theory of ISABELA's indebtedness to PNB. At any
rate, not being privies to whatever transactions might have generated that indebtedness, they were clearly not in a position to make any declaration on
the matter. The fact is, too, that the avowed indebtedness of ISABELA was an essential element of PNB's claim to the former's P2 million deposit and
hence, it was incumbent on the latter to demonstrate it by competent evidence if it wished its claim to be judicially recognized and enforced. This, it
has failed to do. The failure is fatal to its claim.
PNB has however deposited an alternative theory, which is that the P2M deposit had been assigned to it by ISABELA as "collateral," although not by
way of pledge; that ISABELA had explicitly authorized it to apply the P2M deposit in payment of its indebtedness; and that PNB had in fact applied
the deposit to the payment of ISABELA's debt on February 26, 1980, in concept of voluntary compensation. 16 This second, alternative theory, is as
untenable as the first.
In the first place, there being no indebtedness to PNB on ISABELA's part, there is in consequence no occasion to speak of any mutual set-off, or
compensation, whether it be legal, i.e., which automatically occurs by operation of law, or voluntary, i.e., which can only take place by agreement of
the parties. 17
In the second place, the documents indicated by PNB as constitutive of the claimed assignment do not in truth make out any such transaction. While
the Credit Agreement of October 13, 1977 (Exh. 1) declares it to be ISABELA's intention to "assign to the BANK the proceeds of its contract with
the Department of Public Works for the construction of Nagapit Suspension Bridge (Substructure) in Cagayan," 18 it does not appear that that
intention was adhered to, much less carried out. The letter of ISABELA's president dated February 21, 1979 (Exh. 2) would on the contrary seem to
indicate the abandonment of that intention, in the light of the statements therein that the amount of P2M (representing the bulk of the proceeds of its
contract referred to) "shall be placed in a savings account" and that "said amount shall remain in the savings account until ** (ISABELA is) able to
comply with" specified commitments these being: the constitution and registration of a mortgage in PNB's favor over its "Paranaque property,"
and the obtention from the first mortgage thereof of consent for the creation of a second lien on the property. 19 These statements are to be sure
inconsistent with the notion of an assignment of the money. In addition, there is yet another circumstance militating against the actuality of such an
assignment-the "most telling argument" against it, in fact, in the line of the Appellate Court-and that is, that PNB itself, through its International
Department, deposited the whole amount of ?2 million, not in its name, but in the name of ISABELA, 20 without any accompanying statement even
remotely intimating that it (PNB) was the owner of the deposit, or that an assignment thereof was intended, or that some condition or lien was meant
to burden it.
Even if it be assumed that such an assignment had indeed been made, and PNB had been really authorized to apply the P2M deposit to the
satisfaction of ISABELA's indebtedness to it, nevertheless, since the record reveals that the application was attempted to be made by PNB only on
February 26, 1980, that essayed application was ineffectual and futile because at that time, the deposit was already in custodia legis, notice of
garnishment thereof having been served on PNB on January 9, 1980 (pursuant to the writ of execution issued by the Court of First Instance on
December 23, 1979 for the enforcement of the partial judgment in the ACEROS' favor rendered on November 18,1979).
One final factor precludes according validity to PNB's arguments. On the assumption that the P 2M deposit was in truth assigned as some sort of
"collateral" to PNB although as PNB insists, it was not in the form of a pledge the agreement postulated by PNB that it had been authorized to
assume ownership of the fund upon the coming into being of ISABELA s indebtedness is void ab initio, it being in the nature of a pactum
commisoruim proscribed as contrary to public policy. 21
WHEREFORE, the judgment of the Intermediate Appellate Court subject of the instant appeal, being fully in accord with the facts and the law, is
hereby affirmed in toto. Costs against petitioner.
SO ORDERED.
Yap (Chairman), Melencio-Herrera, Cruz, Feliciano, Gancayco and Sarmiento, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. L-67649 June 28, 1988
ENGRACIO FRANCIA, petitioner,
vs.
INTERMEDIATE APPELLATE COURT and HO FERNANDEZ, respondents.

GUTIERREZ, JR., J.:

The petitioner invokes legal and equitable grounds to reverse the questioned decision of the Intermediate Appellate Court, to set aside the auction sale
of his property which took place on December 5, 1977, and to allow him to recover a 203 square meter lot which was, sold at public auction to Ho
Fernandez and ordered titled in the latter's name.
The antecedent facts are as follows:
Engracio Francia is the registered owner of a residential lot and a two-story house built upon it situated at Barrio San Isidro, now District of Sta.
Clara, Pasay City, Metro Manila. The lot, with an area of about 328 square meters, is described and covered by Transfer Certificate of Title No. 4739
(37795) of the Registry of Deeds of Pasay City.
On October 15, 1977, a 125 square meter portion of Francia's property was expropriated by the Republic of the Philippines for the sum of P4,116.00
representing the estimated amount equivalent to the assessed value of the aforesaid portion.
Since 1963 up to 1977 inclusive, Francia failed to pay his real estate taxes. Thus, on December 5, 1977, his property was sold at public auction by the
City Treasurer of Pasay City pursuant to Section 73 of Presidential Decree No. 464 known as the Real Property Tax Code in order to satisfy a tax
delinquency of P2,400.00. Ho Fernandez was the highest bidder for the property.
Francia was not present during the auction sale since he was in Iligan City at that time helping his uncle ship bananas.
On March 3, 1979, Francia received a notice of hearing of LRC Case No. 1593-P "In re: Petition for Entry of New Certificate of Title" filed by Ho
Fernandez, seeking the cancellation of TCT No. 4739 (37795) and the issuance in his name of a new certificate of title. Upon verification through his
lawyer, Francia discovered that a Final Bill of Sale had been issued in favor of Ho Fernandez by the City Treasurer on December 11, 1978. The
auction sale and the final bill of sale were both annotated at the back of TCT No. 4739 (37795) by the Register of Deeds.
On March 20, 1979, Francia filed a complaint to annul the auction sale. He later amended his complaint on January 24, 1980.
On April 23, 1981, the lower court rendered a decision, the dispositive portion of which reads:
WHEREFORE, in view of the foregoing, judgment is hereby rendered dismissing the amended complaint and ordering:
(a) The Register of Deeds of Pasay City to issue a new Transfer Certificate of Title in favor of the defendant
Ho Fernandez over the parcel of land including the improvements thereon, subject to whatever encumbrances
appearing at the back of TCT No. 4739 (37795) and ordering the same TCT No. 4739 (37795) cancelled.
(b) The plaintiff to pay defendant Ho Fernandez the sum of P1,000.00 as attorney's fees. (p. 30, Record on
Appeal)
The Intermediate Appellate Court affirmed the decision of the lower court in toto.
Hence, this petition for review.
Francia prefaced his arguments with the following assignments of grave errors of law:
I

RESPONDENT INTERMEDIATE APPELLATE COURT COMMITTED A GRAVE ERROR OF LAW IN NOT HOLDING PETITIONER'S
OBLIGATION TO PAY P2,400.00 FOR SUPPOSED TAX DELINQUENCY WAS SET-OFF BY THE AMOUNT OF P4,116.00 WHICH THE
GOVERNMENT IS INDEBTED TO THE FORMER.
II
RESPONDENT INTERMEDIATE APPELLATE COURT COMMITTED A GRAVE AND SERIOUS ERROR IN NOT HOLDING THAT
PETITIONER WAS NOT PROPERLY AND DULY NOTIFIED THAT AN AUCTION SALE OF HIS PROPERTY WAS TO TAKE PLACE ON
DECEMBER 5, 1977 TO SATISFY AN ALLEGED TAX DELINQUENCY OF P2,400.00.
III
RESPONDENT INTERMEDIATE APPELLATE COURT FURTHER COMMITTED A SERIOUS ERROR AND GRAVE ABUSE OF
DISCRETION IN NOT HOLDING THAT THE PRICE OF P2,400.00 PAID BY RESPONTDENT HO FERNANDEZ WAS GROSSLY
INADEQUATE AS TO SHOCK ONE'S CONSCIENCE AMOUNTING TO FRAUD AND A DEPRIVATION OF PROPERTY WITHOUT DUE
PROCESS OF LAW, AND CONSEQUENTLY, THE AUCTION SALE MADE THEREOF IS VOID. (pp. 10, 17, 20-21, Rollo)
We gave due course to the petition for a more thorough inquiry into the petitioner's allegations that his property was sold at public auction without
notice to him and that the price paid for the property was shockingly inadequate, amounting to fraud and deprivation without due process of law.
A careful review of the case, however, discloses that Mr. Francia brought the problems raised in his petition upon himself. While we commiserate
with him at the loss of his property, the law and the facts militate against the grant of his petition. We are constrained to dismiss it.
Francia contends that his tax delinquency of P2,400.00 has been extinguished by legal compensation. He claims that the government owed him
P4,116.00 when a portion of his land was expropriated on October 15, 1977. Hence, his tax obligation had been set-off by operation of law as of
October 15, 1977.
There is no legal basis for the contention. By legal compensation, obligations of persons, who in their own right are reciprocally debtors and creditors
of each other, are extinguished (Art. 1278, Civil Code). The circumstances of the case do not satisfy the requirements provided by Article 1279, to
wit:
(1) that each one of the obligors be bound principally and that he be at the same time a principal creditor of the other;
xxx xxx xxx
(3) that the two debts be due.
xxx xxx xxx
This principal contention of the petitioner has no merit. We have consistently ruled that there can be no off-setting of taxes against the claims that the
taxpayer may have against the government. A person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or
greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit against the government.
In the case of Republic v. Mambulao Lumber Co. (4 SCRA 622), this Court ruled that Internal Revenue Taxes can not be the subject of set-off or
compensation. We stated that:
A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off under the statutes of set-off, which
are construed uniformly, in the light of public policy, to exclude the remedy in an action or any indebtedness of the state or
municipality to one who is liable to the state or municipality for taxes. Neither are they a proper subject of recoupment since they
do not arise out of the contract or transaction sued on. ... (80 C.J.S., 7374). "The general rule based on grounds of public policy is
well-settled that no set-off admissible against demands for taxes levied for general or local governmental purposes. The reason on
which the general rule is based, is that taxes are not in the nature of contracts between the party and party but grow out of duty to,
and are the positive acts of the government to the making and enforcing of which, the personal consent of individual taxpayers is
not required. ..."
We stated that a taxpayer cannot refuse to pay his tax when called upon by the collector because he has a claim against the governmental body not
included in the tax levy.
This rule was reiterated in the case of Corders v. Gonda (18 SCRA 331) where we stated that: "... internal revenue taxes can not be the subject of
compensation: Reason: government and taxpayer are not mutually creditors and debtors of each other' under Article 1278 of the Civil Code and a
"claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off."

There are other factors which compel us to rule against the petitioner. The tax was due to the city government while the expropriation was effected by
the national government. Moreover, the amount of P4,116.00 paid by the national government for the 125 square meter portion of his lot was
deposited with the Philippine National Bank long before the sale at public auction of his remaining property. Notice of the deposit dated September
28, 1977 was received by the petitioner on September 30, 1977. The petitioner admitted in his testimony that he knew about the P4,116.00 deposited
with the bank but he did not withdraw it. It would have been an easy matter to withdraw P2,400.00 from the deposit so that he could pay the tax
obligation thus aborting the sale at public auction.
Petitioner had one year within which to redeem his property although, as well be shown later, he claimed that he pocketed the notice of the auction
sale without reading it.
Petitioner contends that "the auction sale in question was made without complying with the mandatory provisions of the statute governing tax sale.
No evidence, oral or otherwise, was presented that the procedure outlined by law on sales of property for tax delinquency was followed. ... Since
defendant Ho Fernandez has the affirmative of this issue, the burden of proof therefore rests upon him to show that plaintiff was duly and properly
notified ... .(Petition for Review, Rollo p. 18; emphasis supplied)
We agree with the petitioner's claim that Ho Fernandez, the purchaser at the auction sale, has the burden of proof to show that there was compliance
with all the prescribed requisites for a tax sale.
The case of Valencia v. Jimenez (11 Phil. 492) laid down the doctrine that:
xxx xxx xxx
... [D]ue process of law to be followed in tax proceedings must be established by proof and the general rule is that the purchaser
of a tax title is bound to take upon himself the burden of showing the regularity of all proceedings leading up to the
sale. (emphasis supplied)
There is no presumption of the regularity of any administrative action which results in depriving a taxpayer of his property through a tax sale. (Camo
v. Riosa Boyco, 29 Phil. 437); Denoga v. Insular Government, 19 Phil. 261). This is actually an exception to the rule that administrative proceedings
are presumed to be regular.
But even if the burden of proof lies with the purchaser to show that all legal prerequisites have been complied with, the petitioner can not, however,
deny that he did receive the notice for the auction sale. The records sustain the lower court's finding that:
[T]he plaintiff claimed that it was illegal and irregular. He insisted that he was not properly notified of the auction sale.
Surprisingly, however, he admitted in his testimony that he received the letter dated November 21, 1977 (Exhibit "I") as shown
by his signature (Exhibit "I-A") thereof. He claimed further that he was not present on December 5, 1977 the date of the auction
sale because he went to Iligan City. As long as there was substantial compliance with the requirements of the notice, the validity
of the auction sale can not be assailed ... .
We quote the following testimony of the petitioner on cross-examination, to wit:
Q. My question to you is this letter marked as Exhibit I for Ho Fernandez notified you that the property in
question shall be sold at public auction to the highest bidder on December 5, 1977 pursuant to Sec. 74 of PD
464. Will you tell the Court whether you received the original of this letter?
A. I just signed it because I was not able to read the same. It was just sent by mail carrier.
Q. So you admit that you received the original of Exhibit I and you signed upon receipt thereof but you did
not read the contents of it?
A. Yes, sir, as I was in a hurry.
Q. After you received that original where did you place it?
A. I placed it in the usual place where I place my mails.
Petitioner, therefore, was notified about the auction sale. It was negligence on his part when he ignored such notice. By his very own admission that
he received the notice, his now coming to court assailing the validity of the auction sale loses its force.
Petitioner's third assignment of grave error likewise lacks merit. As a general rule, gross inadequacy of price is not material (De Leon v. Salvador, 36
SCRA 567; Ponce de Leon v. Rehabilitation Finance Corporation, 36 SCRA 289; Tolentino v. Agcaoili, 91 Phil. 917 Unrep.). See also Barrozo Vda.
de Gordon v. Court of Appeals (109 SCRA 388) we held that "alleged gross inadequacy of price is not material when the law gives the owner the

right to redeem as when a sale is made at public auction, upon the theory that the lesser the price, the easier it is for the owner to effect redemption."
In Velasquez v. Coronel (5 SCRA 985), this Court held:
... [R]espondent treasurer now claims that the prices for which the lands were sold are unconscionable considering the wide
divergence between their assessed values and the amounts for which they had been actually sold. However, while in ordinary
sales for reasons of equity a transaction may be invalidated on the ground of inadequacy of price, or when such inadequacy
shocks one's conscience as to justify the courts to interfere, such does not follow when the law gives to the owner the right to
redeem, as when a sale is made at public auction, upon the theory that the lesser the price the easier it is for the owner to effect
the redemption. And so it was aptly said: "When there is the right to redeem, inadequacy of price should not be material, because
the judgment debtor may reacquire the property or also sell his right to redeem and thus recover the loss he claims to have
suffered by reason of the price obtained at the auction sale."
The reason behind the above rulings is well enunciated in the case of Hilton et. ux. v. De Long, et al. (188 Wash. 162, 61 P. 2d, 1290):
If mere inadequacy of price is held to be a valid objection to a sale for taxes, the collection of taxes in this manner would be
greatly embarrassed, if not rendered altogether impracticable. In Black on Tax Titles (2nd Ed.) 238, the correct rule is stated as
follows: "where land is sold for taxes, the inadequacy of the price given is not a valid objection to the sale." This rule arises from
necessity, for, if a fair price for the land were essential to the sale, it would be useless to offer the property. Indeed, it is notorious
that the prices habitually paid by purchasers at tax sales are grossly out of proportion to the value of the land. (Rothchild Bros. v.
Rollinger, 32 Wash. 307, 73 P. 367, 369).
In this case now before us, we can aptly use the language of McGuire, et al. v. Bean, et al. (267 P. 555):
Like most cases of this character there is here a certain element of hardship from which we would be glad to relieve, but do so
would unsettle long-established rules and lead to uncertainty and difficulty in the collection of taxes which are the life blood of
the state. We are convinced that the present rules are just, and that they bring hardship only to those who have invited it by their
own neglect.
We are inclined to believe the petitioner's claim that the value of the lot has greatly appreciated in value. Precisely because of the widening of
Buendia Avenue in Pasay City, which necessitated the expropriation of adjoining areas, real estate values have gone up in the area. However, the
price quoted by the petitioner for a 203 square meter lot appears quite exaggerated. At any rate, the foregoing reasons which answer the petitioner's
claims lead us to deny the petition.
And finally, even if we are inclined to give relief to the petitioner on equitable grounds, there are no strong considerations of substantial justice in his
favor. Mr. Francia failed to pay his taxes for 14 years from 1963 up to the date of the auction sale. He claims to have pocketed the notice of sale
without reading it which, if true, is still an act of inexplicable negligence. He did not withdraw from the expropriation payment deposited with the
Philippine National Bank an amount sufficient to pay for the back taxes. The petitioner did not pay attention to another notice sent by the City
Treasurer on November 3, 1978, during the period of redemption, regarding his tax delinquency. There is furthermore no showing of bad faith or
collusion in the purchase of the property by Mr. Fernandez. The petitioner has no standing to invoke equity in his attempt to regain the property by
belatedly asking for the annulment of the sale.
WHEREFORE, IN VIEW OF THE FOREGOING, the petition for review is DISMISSED. The decision of the respondent court is affirmed.
SO ORDERED.
Fernan (Chairman), Feliciano, Bidin and Cortes, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-30240 March 25, 1988
REPUBLIC OF THE PHILIPPINES as Lessor, ZOILA DE CHAVEZ, assisted by her husband Col. Isaac Chavez, DEOGRACIAS
MERCADO, ROSENDO IBANEZ and GUILLERMO MERCADO, as permittees and/or Lessees of public fishponds, petitioners,
vs.
HON. JUDGE JAIME DE LOS ANGELES of the court of First Instance of Batangas, (BR. III, Balayan) [later replaced by JUDGE JESUS
ARLEGUI] SHERIFF OF BATANGAS, ENRIQUE ZOBEL and THE REGISTER OF DEEDS AT BALAYAN, BATANGAS, respondents.

TEEHANKEE, C.J.:
The moment of truth is finally at hand. It is about time to cause the execution in favor of the Republic of the Philippines of the 1965 final and
executory judgment of this Court (Republic vs. Ayala y Cia ) 1affirming that of the CFI of Batangas in Civil Case No. 373 thereof and to recover for
the Republic what "Ayala y Cia Hacienda de Calatagan and/or Alfonso Zobel had illegally expanded [in] the original area of their TCT No. 722
(derived from OCT No. 20) from 9,652.583 hectares to about 12,000 hectares thereby usurping about 2,000 hectares consisting of portions of the
territorial sea, the foreshore, the beach and navigable waters properly belong(ing) to the public domain." 2
The Court's decision in said case found that
We have gone over the evidence presented in this case and found no reason to disturb the factual findings of the trial court. It has
been established that certain areas originally portions of the navigable water or of the foreshores of the bay were converted into
fishponds or sold by defendant company to third persons. There is also no controversy as to the fact that the said defendant was
able to effect these sales after it has obtained a certificate of title (TCT No. 722) and prepared a "composite plan" wherein the
aforesaid foreshore areas appeared to be parts of Hacienda Calatagan. Defendants- appellants do not deny that there is an excess
in area between those delimited as boundaries of the hacienda in TCT No. 722 and the plan prepared by its surveyor. This,
however, was justified by claiming that it could have been caused by the system (magnetic survey) used in the preparation of the
original titles, and, anyway, the excess in area (536 hectares, according to defendants) is within the allowable margin given to a
magnetic survey.
But even assuming for the sake of argument that this contention is correct, the fact remains that the areas in dispute (those
covered by permits issued by the Bureau of Fisheries), were found to be portions of the foreshore, beach, or of the navigable
water itself And, it is an elementary principle of law that said areas not being capable of registration, their inclusion in a
certificate of title does not convert the same into properties of private ownership or confer title on the registrant. 3
The Solicitor General's Memorandum 4 further points out
... that the modus operandi in said usurpation, i.e. grabbing lands of the public domain, was expressly made of record in the case
of Dizon v. Rodriguez, 13 SCRA 704 (April 30, 1965), where it was recounted that Hacienda de Calatagan, owned by Alfonso
and Jacobo Zobel, was originally covered by TCT No. 722, and that in 1948, upon the cessation of their sugar mill operations, the
hacienda owners converted the pier (used by vessels loading sugar) which stretched to about 600 meters off the shore into the
navigable waters of the Pagaspas Bay" into a fishpond dike by enclosing 30 and 37 hectares of the bay on both sides of the pier in
the process.
Subsequently, in 1949, the owners of the hacienda ordered its subdivision which enabled them to acquire titles to the subdivided
lots which were outside the hacienda's perimeter. Thus, these subdivided lots, which were converted into fishponds were illegally
absorbed as part of the hacienda and titled in the name of Jacobo Zobel which were subsequently sold and transferred to the
Dizons, Gocos and others. In said Dizon case, "this Honorable Court affirmed the court a quo's findings that the subdivision plan
was prepared not in accordance with the technical description in TCT No. 722 but in disregard of it." And that the appropriated
fishpond lots "are actually part of the territorial waters and belong to the State.
But all through the years, as stressed in the Republic's memorandum, "the technical maneuvers employed by Ayala and Zobel [of which the instant
petition is an off-shoot] .... undercut the Republic's efforts to execute the aforesaid 1965 final judgment" 5 to recover the estimated 2,000 hectares of
territorial sea, foreshore, beach and navigable waters and marshy land of the public domain.
It may seem incredible that execution of such 1965 final judgment in favor of the Republic no less could have been thwarted for twenty-three years
now. But the Republic's odyssey and travails since 1965 through the martial law regime to now are recorded in the annals of our jurisprudence.

Suffice it to point out that upon petition of the Republic and its co- petitioners (as permittees and/or lessees of the Republic), mandamus was issued
on June 30, 1967 by unanimous decision with one abstention in Republic vs. De los Angeles, 6 overruling the therein respondent-judge's refusal to
issue a writ of execution of the aforesaid 1965 final judgment and ordering him to issue such writ. The Court denied reconsideration on September
19, 1967, but on a second and supplemental motion for reconsideration, it set aside the original decision of Jane 30, 1967 and dismissed the petition
for mandamus and denied execution, per its Resolution of October 4, 1971 by a split 6-3-2 vote. 7 The court denied the Republic, et al motions for
reconsideration by the same split 6-3-2 vote per its Resolution of April 11, 1972. 8 An undermanned Court subsequently denied the Republic's copetitioner Tolentino's second motion for reconsideration for lack of necessary votes per its Resolution of April 27, 1973. 9
Parenthetically, the complexity magnitude and persistence of respondents' maneuvers are set forth in the series of decisions and extended resolutions
and majority and dissenting opinions reported in the Supreme Court Reports Annotated as per the citations hereinabove given. A reading of said
reports together with the Memorandum for Granting of the Petition at bar (and giving the case's backgrounder) which I had circulated in the Court as
against the proposed contrary draft of Justice Estanislao A. Fernandez (which did not gain the concurrence of the majority of the Court during his
seventeen-month incumbency from October 20, 1973 to March 28, 1975) shows the full extent background and scope of these maneuvers,
particularly those in the present case. For the sake of brevity and conciseness, I attach the said Memorandum as Annex A hereof and make the same
an integral part of this decision, instead of reproducing the same in the body of this opinion.
Pending respondents' maneuvers in this Court for thwarting the issuance of a writ for execution of the aforesaid 1965 final judgment for the
Republic's recovery of land and waters of the public domain in the 1967 mandamus case brought by the Republic, supra, they intensified their
maneuvers to defeat the Republic's judgment for recovery of the public lands and waters when they got the trial judge, notwithstanding this Court's
final 1965 judgment for reversion of the public lands, to uphold their refusal to recognize the rights of the Republic's public fishponds permittees
and/or lessees to the lands leased by the Republic to them. Thus, the Republic as lessor and said permittees/lessees as co-petitioners filed through
then Solicitor General Antonio P. Barredo their Amended Complaint of August 2, 1967 in Civil Case No. 653 against herein respondent Enrique
Zobel as defendant and the Register of Deeds of Batangas. As summarized by the Solicitor General in his Memorandum of June 1, 1984:
Respondent Zobel had ousted Zoila de Chavez, a government's fishpond permittee from a portion of the subject fishpond lot described as Lot 33 of
Plan Swo-30999 (also known as Lots 55 and 66 of subdivision TCT No. 3699) by bulldozing the same, and threatened to eject fishpond permittees
Zoila de Chavez, Guillermo Mercado, Deogracias Mercado and Rosendo Ibaez from their respective fishpond lots described as Lots 4, 5, 6 and 7
and Lots 55 and 56, of Plan Swo-30999, embraced in the void subdivision titles TCT No. 3699 and TCT No. 9262 claimed by said respondent. Thus,
on August 2, 1967, the Republic filed an Amended Complaint captioned Accion Reinvidicatoria with Preliminary Injunction" against respondent
Zobel and the Register of Deeds of Batangas, docketed as Civil Case No. 653, for cancellation of Zobel's void subdivision titles TCT No. 3699 and
TCT No. 9262, and the reconveyance of the same to the government; to place aforenamed fishpond permittees in peaceful and adequate possession
thereof; to require respondent Zobel to pay back rentals to the Republic; and to enjoin said respondent from usurping and exercising further acts of
dominion and ownership over the subject land of public domain;
Respondent Zobel, however, filed a Motion to Dismiss Amended Complaint, dated August 16, 1967, contendinginter alia that said Amended
Complaint (Civil Case No. 653) is barred by prior judgment in Civil Case No. 373 (G.R. No. 20950, the 1965 final judgment in favor of the
Republic), and arguing that "if TCT Nos. T-3699 and T-9262 had been declared null and void in Civil Case No. 373, the proper procedure would be to
secure the proper execution of the decision in the same proceedings and not thru the filing of a new case." He further contended "that there is another
action pending between the same parties for the same cause," and points to the abovementioned mandamus case, G.R. No. 26112 anent execution of
Civil Case No. 373 as the said pending case. His aforesaid motion, however, was denied by the trial court in its order of December 13, 1967, and
accordingly he was required to file his answer.
But in his answer with counterclaim, respondent Zobel averred, among others, that the subject TCT Nos. 3699 and 9262 registered in his name are
valid and subsisting since in the decision under G. R. No. L-20950 "only TCT No. T-9550 was specifically declared as null and void and no other;"
and that when Civil Case No. 373 was docketed, respondent Enrique Zobel "was and still is at present one of the members and managing .ng
partners of Ayala y Cia one of the defendants in the 91 said civil case, and, therefore, privy thereto." He then prayed for a writ of preliminary
mandatory injunction restoring to him possession of the subject land, and further prayed for judgment ordering Zoila de Chavez and Guillermo
Mercado to vacate the premises in question and to surrender possession thereof to defendant Zobel. This was unfortunately granted by respondent
Judge De los Angeles per the impugned order at bar of October 1, 1968. (Annex D, petition). Hence, the filing of the instant petition.
On March 7, 1969, the Court issued a restraining order in the case at bar, enjoining respondent judge from enforcing the writ of preliminary
mandatory injunction until further orders.
While G.R. No. L-26112 re: execution) and G.R. No. L-30240 (the case at bar) were pending, the Republic filed its motion of July 8, 1970 in Civil
Case No. 373, for authority to conduct the necessary resurvey of the lands affected so as to properly segregate from Ayala and Zobel's private land
originally covered by TCT No. 722 the areas outside thereof comprising about 2,000 hectares of public land, beach, foreshore and territorial sea.
Ayala and Zobel vigorously opposed the same, contending again that the proper step for the government was to ask for a writ of execution; that no
other subdivision titles, besides TCT No. T- 9550 were really declared null and void in the 1965 judgment; and that the lower court could not make a
ruling on the motion for resurvey "without requiring the presentation of additional evidence, and that, in effect, would be tantamount to reopening a
case where the judgment is already final and executory and that the Government's failure to seek a "clarification of the decision to find out what other
titles should have been declared null and void" precludes it from doing so now, I since the decision is now final and executory." The respondent
judge, having earlier denied execution of the 1965 final judgment, issued his order of October 27, 1970 denying the Government's motion for
authority to conduct such prerequisite re-survey;
Ayala and Zobel's technical maneuvers to impede execution of the 1965 final judgment again bore fruit, as above indicated, when their second
motion for reconsideration in G.R. No. L26112 was granted by a split Court in a Resolution dated October 4, 1971 (41 SCRA 422). As a result, the

earlier decision of June 30, 1967 directing the issuance of the writ of execution was set aside and the Republic's petition for certiorari and mandamus
impugning the lower court's quashal and denial of the writ of execution was dismissed.
While the Court's new majority denied the Republic's motion for reconsideration of aforesaid resolution, per its resolution of April 11, 1972, it,
however, made the important modification that said denial "does not constitute a denial of the right of the Republic to the cancellation of the titles
nullified by the decision of Judge Tengco (in Civil Case No. 373) affirmed by this Court (in G.R. No. L-20950)." It also stated that: "(E)ven the (trial
court's) order of October 27, 1970 about the resurvey merely held the remedy to be premature until the decision in this case has become final. Of
course, it is understood that in such eventuality, the resurvey requested by the Provincial Fiscalwould be in order and as soon as the same is
completed, the proper writ of execution for the delivery of possession of the portions found to be public land should issue." (G.R. No. I, 26112, 44
SCRA 255, 262 [19721) Thus, the majority's denial of the motions for reconsideration was made expressly "with the clarification aforemade of the
rights of the Republic."
[Note: My attached Memorandum, Annex A hereof (at pages 2 to 6 thereof), quotes more extensively the same pronouncements of
the ponente, Justice Villamor, speaking for the majority, that the Resolution simply cancelled out the final damage award in favor of intervenor
Tolentino, as government permittee/lessee it covers as well similar pronouncements from Justice Makalintal in his separate concurrence that "The
resolution in no way affects the rights of the Government as declared in the decision," and Justice Barredo's separate concurrence that "I am sure that
the five justices whom I am joining in denying Petitioners motion for reconsideration are as firm as the three distinguished dissenters in the
resolution not to allow this Court to be an instrument of land-grabbing as they are against the reversal or even modification in any substantial degree
of any final and executory judgment whether of this Court or any other court in this country, and, that if there were such possibilities in consequence
of the resolution of October 4, 1971 and the present resolution of denial, they would not give their assent to said resolutions. We are certain that in
deciding against Petitioner Tolentino, We are not condoning nor permitting that the lands in question remain with the Dizons or with "the Ayalas."
In my dissenting opinion, I expressed gratification that the dissents (submitted by then Chief Justice Roberto Concepcion and myself, both concurred
in by Justice J.B.L. Reyes) had contributed to the overriding clarification "that the majority's position although it denies reconsideration and
maintains reversal of the June 30, 1967 decision at bar-is that the Government may now finally effect reversion and recover possession of all usurped
areas of the public domain "outside (Ayala's) private land covered by TCT No. 722, which including the lots in T-9550 (Lots 360, 362, 363 and 182)
are hereby reverted to public dominion." (Paragraph [al of 1965 judgment). 10
After said G.R. No. L-26112 was finally disposed of, herein petitioner filed in Civil Case No. 373, a "Motion to Re-survey." This was granted in an
Order dated August 21, 1973, as well as in the Orders of December 27, 1973 and February 26, 1974, respectively. About three (3) years later, a
Report on the Re-survey dated August 5, 1977 (Annex "A" to Republic's Comment dated March 30, 1981), as well as the "Final Report" thereon
dated September 2, 1977 and the "Resurvey Plan" (Annexes "B" and "C", Ibid.) were approved by the Director of Lands and the Secretary of
Agriculture and Natural Resources. The Re-survey further confirmed the uncontroverted fact that the disputed areas in the case at bar form part of
the expanded area already reverted to public dominion.
Upon approval of said Re-survey Plan and Report, petitioner submitted the same to the trial court in Civil Case No. 373. However, notwithstanding
its approval by the Director of Lands, and the Secretary of Agriculture and Natural Resources, Judge Jesus P. Arlegui [who had been assigned to
respondent Judge De los Angeles" court in Batangas upon the latter's retirement] arrogating unto himself the function which properly belongs to the
Director of Lands,disapproved the said Report and Re-survey Plan, thereby preventing execution of the subdivision (a) of the decision in Civil Case
No. 373. In effect, such disapproval by Judge Arlegui was intended to negate the earlier resolution in G.R. No. L-26112 (44 SCRA 255, 263) that as
soon as resurvey "is completed the proper writ of execution for the delivery of possession of the portions found to be public land should issue;"
Earlier, in Civil Case No. 653, respondent Zobel filed on July 10, 1969 a Motion to Suspend Further Hearing, etc., praying that the hearings in said
Civil Case be indefinitely suspended until the case at bar is resolved by this Honorable Court. He contended that the issues raised in the case at bar
are the very issues pending in the case below, Civil Case No. 653, and that the decision that the Court renders here "would greatly affect the
respective claims of said parties in (said) case." (G.R. No. 1, 46396, Record, pp. 128-130)
The aforesaid motion was followed by respondent Zobel's Motion for Immediate Resolution of Defendant-Movant's Motion to Suspend, etc., dated
August 20, 1969. An opposition thereto was filed by plaintiff therein and a reply was filed in turn by respondent Zobel on July 30, 1 969. Acting on
the said motions, the trial court issued an order on September 2, 1969 giving the parties certain periods to file their pleadings and cancelling a
scheduled hearing until it shall have resolved the motion to suspend.
Since that time, however, the trial court chose not, or failed, to act formally on the aforesaid motion to suspend hearings. Then after five (5) years,
with the trial court now presided by Judge Arlegui, respondent Zobel flip-flopped and filed a Motion to Dismiss the case below dated January 14,
1976, claiming alleged failure to prosecute and res judicata, which was vigorously opposed by herein petitioner. Judge Arlegui, robot-like,
nonetheless dismissed the Republic's complaint for Zobel's alleged grounds of failure to prosecute for an unreasonable length of time and res
judicata per his order of January 12, 1977.
A 35-page motion for reconsideration thereof was filed by Petitioner within the extended period sought for in an earlier motion. The then Presiding
Judge Arlegui summarily denied the motion for extension of time earlier filed, per its order of March 3, 1977.
The "Motion for Reconsideration of Order" dated March 3, 1977, and "Supplement to Motion for Reconsideration of Order" dated March 3,1977,
were similarly denied by Judge Arlegui in his order dated June 14, 1977. Petitioner Republic thus elevated the matter to this Court by certiorari and
mandamus which was docketed as G.R. No. L-46396 11 and asked that it be consolidated with the case at bar which from the beginning was assigned

to the Court en banc. However, G.R. No. L-46396 was somehow assigned to the Second Division of the Court which peremptorily dismissed the
petition per its minute resolution dated December 1 7, 1977, which reads:
Acting on the petition for certiorari and mandamus in this case as well as the comment thereon of the private respondent and the
reply of petitioner and rejoinder thereto of said respondent, the Court resolved to DISMISS the petition, considering that although
the motion for extension of time to file a motion for reconsideration of petitioner dated February 19, 1977 may be deemed as
filed within the reglementary period for appeal, the same did not suspend said period which expired on February 21, 1977 (Gibbs
v. Court of First Instance of Manila, 80 Phil. 160, where the appeal albeit late by one day, was nevertheless allowed on the ground
that under the peculiar circumstances of the case showing utmost effort on the part of appellant to make the same on time, there
was excusable neglect, which does not obtain here) because "the petition for extension of time should not .interrupt the period
fixed by law for the taking of the appeal" on the ground that "the only purpose of said petition is to ask the court to grant an
additional period to that fixed by law to that end." (Alejandro v. Endencia 64 Phil, 321)
Soon after the dismissal of the petition in G.R. No. 46396, respondent Zobel filed in this case a "Motion to Dismiss Petition" and "Manifestation and
Motion to Lift Temporary Restraining Order" issued on March 7, 1969, and another supplemental motion, on the ground that the instant case has
become moot and academic by the dismissal of the complaint in Civil Case No. 653 in the court below. This was refuted by the herein petitioner in its
Comment dated March 30, 1981.
On December 15, 1981, Judge Arlegui precipitately rendered in Civil Case No. 653 a decision on the Counterclaim of herein respondent Zobel,
declaring him the true, absolute and registered owner of the lands covered by Transfer Certificate of Title Nos. 3699, T-7702 and 9262 (now No.
10031) and directing the Government's licensees and permittees occupying the same to vacate the lands held by them.
Subsequently, on March 9, 1982, Judge Arlegui issued a writ of execution in Civil Case No. 653, prompting the heirs of Guillermo Mercado to file in
this case an Urgent Motion dated March 22,1982 to stay the same. Acting on the Urgent Motion, the "Court issued another restraining order dated
June 17, 1982, emphasizing the necessity therefor in this wise:
... the issuance of the restraining order now prayed for by movants-heirs of Guillermo Mercado is necessary to retain the status
quo since whatever rights they have are only in representation of the petitioner Republic who claims the said lands by virtue of
their reversion to the public dominion as specifically adjudged by this court in G.R. No. L- 26112.,
Respondent Zobel then moved for a reconsideration and lifting of aforesaid restraining order. The heirs of intervenor Zoila de Chavez on the other
hand, moved for a preliminary mandatory injunction to restore them in possession of a Portion of the land in dispute from where they had been
ousted by virtue of the writ of execution issued in Civil Case No. 653.
In a Consolidated Comment dated September 30, 1982, petitioner Republic opposed the said motion of respondent Zobel, and at the same time
concurred with the motion filed by the heirs of Zoila de Chavez for the issuance of a writ of preliminary mandatory injunction.
On or about November 8, 1983, the heirs of intervenor Guillermo Mercado filed an "Urgent Motion for Contempt and Issuance of a Temporary
Restraining Order, etc.," as respondent Zobel's representative, in spite of the restraining order enjoining them from enforcing the writ of execution,
had begun to acquire possession of the land in question by cutting off trees in the undeveloped fishpond being leased by Mercado from the 7
government.
On November 10, 1983, the Court issued the corresponding restraining order prayed for "enjoining respondent Enrique Zobel or his duly authorized
representative from further cutting off the trees in the undeveloped fishpond of Guillermo Mercado having an area of two (2) hectares, more or less,
and from hauling the big trees already cut off costing P10,000.00 "Resolution dated November 13, 1983).
On or about November 23, 1983, the heirs of Guillermo Mercado filed a "Second Urgent Motion for Contempt and a Second Restraining Order, etc."
since, in spite of the foregoing restraining order issued by this Court, respondent Zobel and his agent were still cutting off the trees in the disputed
areas.
On December 6, 1983, after the hearing en banc of this case on the merits, a resolution was rendered by this Court "to ISSUE a second temporary
restraining order enjoining respondent Enrique Zobel and his agents, representatives and/or any other person or persons acting on his behalf to desist
from cutting off or removing any tree in the questioned areas which were declared reverted to the public domain and which are claimed by the
Republic, effective immediately and until further orders by the Court.
Against this background, respondent Zobel now contends that his TCT No. 3699 and TCT No. 9262 (now T-10031) are valid and subsisting as said
titles "cannot be considered automatically annulled" by the decision in G.R. No. L-20950; that the decision in G.R. No. L-20950 annulled only TCT
No. 9550 and no other; that he cannot be bound by the decision in said G.R. No. L-20950 since he was not a party thereto; that the dismissal of Civil
Case No. 653 and of the appeal therefrom by the Republic has quieted his questioned titles and has rendered the instant petition moot and academic;
that the decision on his counterclaim in Civil Case No. 653 declaring him to be the true and registered owner of the subject land had long become
final and executory, and that under the principle of res judicata the present petition ought to be dismissed; and that intervenors Mercado and Chavez
have no right of possession over the land in question.
The Republic's petition is patently meritorious.

1. On the original issue at bar brought against respondent Judge Angeles" issuance of preliminary mandatory injunction per the questioned Order of
October 1, 1968, petitioner Republic and its co-petitioner licensees are manifestly entitled to the restraining orders issued by the Court on March 7,
1969 enjoining respondent judge from enforcing the preliminary mandatory injunction that he had issued that would oust the Republic and its
licensees from the public lands in question and transfer possession thereof to respondent Zobel; that issued on June 17, 1982 enjoining enforcement
of respondent Judge Arlegui's writ of execution issued on March 9, 1982 declaring without trial respondent Zobel (on his counterclaim to the
dismissed complaint) as the true and registered owner of the lands covered by TCT Nos. 3699, 7702 and 9262 (now 10031) and directing the
Republic's licensees to vacate the same; and that issued on December 6, 1983 after the hearing on the merits, "enjoining respondent Enrique Zobel
and his agents, representatives and/ or any other person or persons acting on his behalf to desist from cutting off or removing any tree in the
questioned areas which were declared reverted to the public domain and which are claimed by the Republic."
Respondent Judge Arlegui, after he succeeded Judge Angeles as presiding judge, committed the gravest abuse of discretion, when, instead of granting
the preliminary injunction sought by the Republic and its co-petitioners to enjoin respondent Zobel from usurping lands of the public domain covered
by his voided expanded subdivision titles, he dismissed the complaint on January 12, 1977 and almost four years later on December 15, 1981,
without any trial, granted said respondent's counter prayer in his Answer to the complaint in Civil Case No. 653 for the issuance of a mandatory
injunction upon a P10,000.00 bond to oust petitioner Republic and its permittees and/or lessees from the property and to deliver possession thereof to
respondent Zobel. It is settled doctrine that as a preliminary mandatory injunction usually tends to do more than to maintain the status quo, it is
generally improper to issue such an injunction prior to the final hearing and that it may issue only in cases of extreme urgency, where the right is very
clear. 12
Contrary to respondent Zobel's assertion, the 1965 final judgment in favor of the Republic declared as null and void, not only TCT No. 9550, but
also "other subdivision titles" issued over the expanded areas outside the private land of Hacienda Calatagan covered by TCT No. 722. As shown at
the outset, 13 after respondents ordered subdivision of the Hacienda Calatagan which enabled them to acquire titles to and "illegally absorb" the
subdivided lots which were outside the hacienda's perimeter, they converted the same into fishponds and sold them to third parties, But as the Court
stressed in the 1965 judgment and time and again in other cases, 'it is an elementary principle of law that said areas not being capable of registration,
their inclusion in a certificate of title does not convert the same into properties of private ownership or confer title on the registrant." 14 This is crystal
clear from the dispositive portion or judgment which reads:
WHEREFORE, judgment is hereby rendered as follows:
(a) Declaring as null and void Transfer Certificate of Title No. T 550 (or Exhibit "24") of the Register of Deeds of the Province of
Batangas and other subdivision titles issued in favor of Ayala y Cia and/or Hacienda de Calatagan over the areas outside its
private land covered by TCT No. 722, which including the lots in T-9550 (lots 360, 362, 363 and 182) are hereby reverted to
public dominion."
This final 1965 judgment reverting to public dominion all public lands unlawfully titled by respondent Zobel and Ayala and/or Hacienda Calatagan is
now beyond question, review or reversal by any court, although as sadly shown hereinabove, respondents' tactics and technical maneuvers have all
these 23 long years thwarted its execution petition and the Republic's recovery of the lands and waters of the public domain.
Respondent Zobel is bound by his admission in his Answer to the Complaint below that when Civil Case No. 373 was docketed, he "was and still is
at present one of the members and managing partners of Ayala y Cia one of the defendants in the said civil case, and, therefore. privy thereto."
Clearly, the burden of proof lies on respondent Zobel and other transferees to show that his subdivision titles are not among the unlawful expanded
subdivision titles declared null and void by the said 1965 judgment. Respondent Zobel not only -did not controvert the Republic's assertion that his
titles are embraced within the phrase "other subdivision titles" ordered cancelled but failed to show that the sub division titles in his name cover
lands within the original area covered by Ayala's TCT No. 722 (derived from OCT No. 20) and not part of the beach, foreshore and territorial sea
belonging and ordered reverted to public dominion in the aforesaid 1965 judgment.
2. The issues at bar have been expanded by the parties, as shown by the voluminous records of the case (which have expanded to 2,690 pages in three
volumes), to cover the questioned actions of respondent Judge Arlegui (a) in dismissing the Republic's complaint in Civil Case No. 653 of his court
per his Order of January 12, 1977 (subject of the Court's Second Division's Resolution of December 17, 1979 dismissing the Republic's petition for
review in Case G.R. No. L,46396); and (b) his decision of December 15, 1981, after almost four years, on respondent Zobel's counterclaim in the
same case, declaring him the true and registered owner of the lands covered by some three subdivision titles in his name, 15 as well as (c) the resurvey
of the lands affected so as to properly segregate from Ayala's expanded TCT No. 722 the estimated 2,000 hectares of territorial sea, foreshore, and
navigable waters, etc., of the public domain and enforcement and execution of the 1965 final judgment reverting these usurped public areas to public
dominion.16
3. On the first question of the precipitate dismissal of the Republic's complaint in the case below, Civil Case No. 653, the . records show respondent
judge's action to have been capricious , arbitrary and whimsical. His first ground of non-prosecution of the action by the Republic is belied by his
very Order which shows that the proceedings had been suspended all the while since its filing in 1967 upon insistent motions of respondent Zobel.
against petitioner's vigorous opposition, that it was necessary as a cuestion previa to await the Court's resolution of the case at bar.
His second ground of res judicata is likewise devoid of logic and reason. The first case (the 1965 judgment in Case L-20950) decreeing the reversion
to public dominion of the public lands and waters usurped by respondent's unlawfully expanded titles -and ordering the cancellation of all such titles
and their transfers could not possibly be invoked as res judicata in the case at bar on respondent Zobel's untenable submission that his unlawfully
expanded titles were not specifically mentioned in the 1965 judgment. The Court in said 1965 judgment had stressed the elementary rule that the

generally incontestable and indefeasible character of a Torrens Certificate of Title does not operate when the land covered thereby is not capable of
registration, as in this case, being part of the sea, beach, foreshore or navigable water or other public lands incapable of registration. 17 It should be
noted further that the doctrine of estoppel or laches does not apply when the Government sues as a Sovereign or asserts governmental rights, nor does
estoppel or laches validate an act that contravenes law or public policy 18 and that res judicata is to be disregarded if its application would involve the
sacrifice of justice to technicality. 19
Respondent Judge Arlegui's refusal to grant the Republic a simple 15-day extension of time to file a Motion for Reconsideration on the ground that
such motion was filed on the last day (following a Sunday) and he could no longer act thereon within the original period per his Orders of March 3,
1977 and June 14, 1977 20 depict an incomprehensible disregard of the cardinal principle that procedural rules are supposed to help and not hinder the
administration of justice and crass indifference, if not outright hostility against the public interest.
At any rate, such dismissal of the complaint and dismissal on December 17, 1979 of the petition for certiorari thereof by the Court's Second Division,
based on purely procedural and technical grounds, does not and cannot in any way have any legal significance or prejudice the Republic's case. Such
dismissal by the Second Division cannot in any way affect, much less render nugatory, the final and executory 1965 judgment in G.R. No. L-20950
reverting the public lands and waters to public dominion. Much more so when we take into account the mandatory provisions of Article VIII, Section
4(3) of the 1987 Constitution (and its counterpart Article X, Section 2(3) of the 1973 Constitution) to the effect that only the Supreme Court en
banc may modify or reverse a doctrine or principle of law or ruling laid down by the Court in a decision rendered en banc or in division.
3. Respondent judge's "decision" on respondent Zobel's counterclaim and declaring him, four years after dismissal of the Republic's complaint, as the
true owner of the lands unlawfully titled in Zobel's name is properly before the Court in the case at bar. We declare the same null and void for want of
jurisdiction over the subject properties which were reverted to public dominion in the final 1965 judgment which annulled all expanded titles
unlawfully secured by respondents and their transferees to public waters and lands.
4. As to the third and most important question of finally executing and enforcing the 1965 judgment in favor of the Republic and reverting all usurped
areas to public dominion, the Solicitor General has complained rightfully in his Memorandum that "mass usurpation of public domain remains
unabated . ... for almost (23) years now execution of the 1965 final judgment in G.R. No. L-20950, ordering the cancellation of the subdivision titles
covering the expanded areas outside the private lands of Hacienda Calatagan, is being frustrated by respondent Zobel, the Ayala and/or Hacienda
Calatagan. As a consequence, the mass usurpation of lands of public domain consisting of portions of the territorial sea, the foreshore, beach and
navigable water bordering Balayan Bay, Pagaspas Bay and the China Sea, still remain unabated . ... (T)he efforts of Ayala and Zobel to prevent
execution of said final judgment are evident from the heretofore-mentioned technical maneuvers they have resorted to. In brief, they moved to quash
and secured the quashal of the writ of execution, succeeded in opposing the issuance of another writ of execution, opposed the motion to conduct resurvey, opposed the approval and secured a disapproval of resurvey plan, moved to dismiss and got a dismissal of Civil Case No. 653, ousted
government fishpond permittees from the subject lands and threatened to eject the other permittees therefrom, and secured from the lower court a
declaration of validity of their void titles. Also, in this case, respondent Zobel is trying to prevent the cancellation of his void titles by resorting to
frivolous technicalities thus flouting this Honorable Court's decision in G.R. No. L-20950 . " 21
We heed the Republic's pleas that
"It bears stressing that the Re-survey Plan (Annex "C", together with Annexes "A" and "B" of Republic's Comment dated March 30,1981, being a
Report on the Re-survey dated August 5,1977 and the "Final Report" dated September 2, 1977, respectively) delineating the expanded areas covered
by subdivision titles derived from TCT No. 722 has been prepared by a Committee created by the Secretary of Agriculture and Natural Resources
wherein Ayala and/or Hacienda Calatagan was represented by Engineer Tomas Sanchez, Jr. and approved by the Director of Lands. Well to recall that
under G.R. No. 26112 (44 SCRA 255, 263), this Honorable Court, in a Resolution dated April 11, 1972, declared that as soon as said resurvey Is
completed the proper writ of execution for the delivery of possession of the portion found to be public land should issue." Thus: [See pages 3-5 of
Annex "A" hereof for text of Resolution.]
"By virtue of the aforesaid resolution, therefore, there should no longer be any legal impediment against the execution of the final judgment in Civil
Case No. 373 (G.R. No. L-20950), the issuance of which is purely ministerial the dubious decision in Civil Case No. 653 notwithstanding.
Accordingly, to give legal significance to the earlier decision and resolution of this Honorable Court in G.R. No. L-20950 and 26112, respectively,
and to foreclose any further legal obstacle on the matter, we pray this Honorable Court to declare the proceedings conducted by respondent judge in
Civil Case No. 653 null and void ab initio, and to consider the resurvey plan as sufficient basis for the immediate issuance of the corresponding writ
of execution in Civil Case No. 373. For it is only upon said execution that the oft revived issues of ownership and possession over the land in
question, as well as over all other lots covered by the subdivision titles outside the private land covered by TCT No. 722, may be finally laid to rest.
Indeed, under the facts and circumstances obtaining in the case at bar, execution of the final judgment in Civil Case No. 373 is long overdue ." 22
To allow repetition after repetition of the maneuvers hereinabove set forth in detail, notwithstanding the final 1965 judgment in favor of the Republic,
and to protract further the return to the Republic of the usurped lands pertaining to the public domain would be to sanction a legal abomination As
stated by the late Chief Justice Roberto Concepcion, to frustrate delivery and return of the usurped lands to the Republic would:
(1) Establish a precedent-fraught with possibilities tending to impair the stability of judicial decisions and affording a means to
prolong court proceedings or justify the institution of new ones, despite the finality of the judgment or decree rendered in the
main case, by sanctioning a departure from the clear, plain and natural meaning of said judgment or decree;

(2) Contribute to the further increase of the steadily mounting number of cases pending before our courts of justice, and thus
generate greater delay in the determination of said cases, as well as offset the effect of legislative and administrative measures
taken-some upon the suggestion or initiative of the Supreme Court to promote the early disposal of such cases;
(3) Impair a normal and legitimate means to implement the constitutional mandate for the protection and conservation of our
natural resources and the patrimony of the nation; and
(4) Promote usurpations of the public domain, as well as the simulation of sales thereof by the original usurper, by exempting him
from responsibility for damage which would not have been sustained were it not for the irregularities committed by him so long
as he has conveyed the subject matter thereof to a purchaser for value, in good faith. 23
As in Air Manila, Inc. v. CIR 24 and several other cases in order to avoid further intolerable delay and finally bring to reality the execution of the 1965
judgment that would enable the State to recover at last the estimated 2,000 hectares of lands and waters of the public domain, the Court will order its
Clerk of Court to issue directly the corresponding writ of execution of judgment addressed to the sheriffs of the locality. We declare respondent
judge's gratuitous "disapproval" of the Re-survey Plan and Report duly approved by the Director of Lands and the then Secretary of Agriculture and
Natural Resources as null and void for being ultra vires and lack of jurisdiction over the same. It is well-recognized principle that purely
administrative and discretionary functions may not be interfered with by the courts. In general, courts have no supervising " power over the
proceedings and actions of the administrative departments of government. This is generally true with respect to acts involving the exercise of
judgment or discretion, and findings of fact. 25 There should be no thought of disregarding the traditional line separating judicial and administrative
competence, the former being entrusted with the determination of legal questions and the latter being limited as a result of its expertise to the
ascertainment of the decisive facts. 26
WHEREFORE, judgment is hereby rendered
1. Annulling the questioned mandatory injunction of October 1, 1968 issued by respondent-judge and making permanent the restraining orders issued
by the Court;
2. Declaring as null and void the questioned decision of December 15, 1981, as well as the corresponding writ of execution therefore having been
issued by respondent judge with grave abuse of discretion and without jurisdiction, and for being in contravention of the final 1965 decision in Civil
Case No. 373 as affirmed in G.R. No. L-20950;
3. Declaring the Re-survey Plan duly approved by the Director of Lands as sufficient basis for the execution of the final judgment in the aforesaid
Civil Case No. 373 as affirmed in G.R. No. L- 20950; and
4. Directing the Clerk of this Court to forthwith issue the corresponding writ of execution in the case at bar for Civil Case No. 373 of the Regional
Trial Court (formerly Court of First Instance) of Batangas (Balayan Branch) reverting to public dominion and delivering to the duly authorized
representatives of the Republic all public lands and lots, fishponds, territorial bay waters, rivers, manglares foreshores and beaches, etc. as delineated
in the aforesaid duly approved Re-survey Plan (Annex "C") and any supplemental Re-survey Plan as may be found necessary * and duly approved by
the Secretary of Agriculture. This decision is IMMEDIATELY EXECUTORY and no motion for extension of time to file a motion for reconsideration
will be granted.
Yap, Fernan, Narvasa, Melencio-Herrera, Gutierrez, Jr., Cruz, Paras, Feliciano, Gancayco, Bidin, Sarmiento and Cortes, JJ., concur.
Padilla, J., and Grio-Aquino, J., took no part.
MEMORANDUM FOR GRANTING OF PETITION
Backgrounder
The case directly stems from Civil Case No. 653 of the Batangas court of first instance filed on August 2, 1967 by then Solicitor General now Justice
Antonio P. Barredo on behalf of the Republic of the Philippines and its co- petitioners as co-plaintiffs (as permittees and/or lessees
of public fishponds) for the cancellation of TCT Nos. 3699 and 9262 issued in the name of respondent (defendant) Enrique Zobel (covering the
fishponds granted in lease by the Republic) and for the reconveyance of the properties covered in part thereby and of other properties of the public
domain to the Republic, to enable it to maintain its co-plaintiffs in peaceful possession of their respective fishponds. Besides, damages and back
rentals, the complaint further prayed for the issuance of a preliminary injunction restraining Zobel and his agents "from usurping and exercising
further acts of dominion and ownership over the land subject matter of this litigation.
The Republic's position is simple: By virtue of this Court's judgment in Republic vs. Ayala (14 SCRA 259, May 31, 1965) affirming (with
modification affecting the Dizons only as transferees of Ayala) the trial court's judgment in Civil Case 373, an expanded subdivision titles of Ayala
(derived from its TCT No. 722) covering an estimated excess of from 1,091 hectares to 2,500 hectares of the public domain, including over 400
hectares of the beach, foreshore and territorial sea which are manifestly not capable of private appropriation or registration, were declared null and
void, as follows:
WHEREFORE, judgment is hereby rendered as follows:

(a) Declaring as null and void Transfer Certificate of "title No. T-9550 (or Exhibit 24) of the Register of Deeds of the Province of
Batangas and other subdivision titles issued in favor of Ayala y Cia. and/or Hacienda Calatagan over the areas outside its private
land covered by CT No 722 which, including the lots in T-9550 (Lots 360, 362, 363 and 182) are hereby reverted to public
dominion.
xxx xxx xxx
(CFI judgment as affirmed by Supreme Court)
The Republic's position is supported by all the series of decisions and extended resolutions rendered subsequently (to its May 31, 1965 judgment in
the basic case of Republic vs. Ayala) by this Court: Decision in Republic vs. Angeles (20 SCRA 608, June 30,1967) issuing a writ of mandamus
ordering the court a quo to enforce the judgment; Resolution of October 4, 1971 reversing on respondents" second and supplemental motion for
reconsideration the decision of June 30, 1967 and dismissing the petition for mandamus (41 SCRA 422); Resolution of April 11, 1972, denying
petitioners" first motion for reconsideration (44 SCRA 255) and Resolution of April 27, 1973 denying petitioners' second motion for reconsideration
"for lack of necessary votes" 1 unreported in SCRA). 1-a
Although the writ of mandamus for execution of judgment with a preliminary resurvey to determine specifically by metes and bounds the huge
excess area encroached and usurped by Ayala's expanded subdivision titles) was denied by this Court when the majority of six reversed the original
unanimous decision of June 30, 1967, still even the majority made it clear that its disposition "does not affect at all the interests of the Republic but
only those of intervenor Tolentino ... "
Thus, the ponente, Justice Villamor, stressed this for the majority in the Resolution of April 11, 1972 (in response to the point raised in the dissenting
opinion that there was "no justification for denying writ of execution for cancellation of void titles [of Ayala and reversion of public lands covered
thereby to public dominion. The writ of mandamus should issue at least for this purpose as ordered in the original decision of June 30, 1967 now set
aside," as follows:
At this juncture, it seems necessary to clarify a point, which surprisingly is not raised in the motion for reconsideration of the
Solicitor General, limited as it is to invoking or reiterating the arguments advanced in the dissenting opinions of the Chief Justice
and Justice Teehankee justifying the award, not to the government but to petitioner Tolentino, namely, the effect of the
resolution of October 4, 1971, upon the refusal of the court a quo to issue, per its order of February 8, 1966, the writ of execution
prayed for by the Republic for the implementation of paragraph (a) of the dispositive part of Judge Tengco decision of June 2,
1962 in Civil Case No. 373, the said resolution having denied the petition for certiorari and mandamus unqualifiedly. It is
suggested in the motions for reconsideration of petitioner Tolentino that such denial leaves the government practically with an
empty victory, since it looks as if respondent judge is determined not to give full effect to the annulment of the titles referred to in
the aforementioned paragraph (a) of Judge Tengco's judgment. In fact, the same apprehensive suggestion may be gleaned from
the "Reply to Opposition" dated January 31, 1972 of petitioner Tolentino wherein the attention of this Court is invited to a
subsequent order of respondent Judge of October 27, 1970 denying the motion filed by the Provincial Fiscal of Batangas praying
for authority to conduct a re-survey of the lands herein in question preparatory to implementing the same paragraph of Judge
Tengco's judgment already referred to.
We do not believe there is real ground such fear, no matter how apparent it does appear that private respondents are very cautious
in seeing to it that the implementation of Judge Tengco's judgment does not go beyond what they feel it warrants or contemplates
Examined objectively and overlooking their infelicitous phraseology, We cannot discern from the orders in question any
repudiation by Judge de los Angeles of the declaration of nullity not only of TCT No. 9550, covering lots 360, 362, 363 and 182,
but also of other subdivision titles issued in favor of Ayala v Cia. and/"or Hacienda Calatagan over the areas outside its private
land covered TCT No 722 . . . which are hereby reverted to public dominion" per Judge Tengco's decision. Surely, no one can
deduce such a repudiation from the positive holding in the order of February 8, 1966 that "there is no need of issuing a writ of
execution because the declaration of nullity in itself is already, executory. "One might perhaps question the legal correctness of
such proposition, but it is clear to Us that there is here a reaffirmation rather than a denial of the rights of the Government in the
premises, albeit His Honor could be mistaken in his view that it would be only after private respondents and Dizon have refused
or failed to surrender their titles for cancellation that "resort" to the court would be proper. And with respect to the holding in said
order that "it is clear that the Dizons being purchasers in good faith have the right to retain possession of all the lots covered by
TCT 9550 is obvious that such was the judgment of this Court in G.R. No. L-20950, and it would have been a manifest error of
His Honor had he ruled otherwise. It is thus clear that even after the issuance of the order of February 8, 1966, nothing adverse to
the government or the Republic was being done by anyone that was not expressly authorized by the final and executory decision
of this Court.
Coming now to the order of October 27, 1970, which, incidentally, was never brought to the attention of this Court before
October 4, 1971, We cannot see how the same can be cause for apprehension on the part of the Republic because as We read the
same, it does not actually deny the right of the government to a re-survey; rather, it simply held basically that it is only wise,
prudent and proper not to give due course to the instant motion (to re-survey) which .... is tantamount to giving due course to a
motion for execution even before the Supreme Court had ruled on the matter of whether or not to grant the mandamus ordering
the court to execute the final decision in Civil Case 373." And having declared itself without authority to act in the meanwhile, it
stands to reason that anything else it might have said in the order which could be interpreted as adversely affecting the
government's position in any respect would be of no consequence, the same being pure obiter dictum.

Upon these premises, We hold that even if the prayer for certiorari and mandamus in the basic petition herein is denied, still it is
clear that what this Court is disposing of in the present case does not affect at all the interests of the Republic but only those of
Intervenor Tolentino in relation to the lower court's orders of January 18, 1966, February 2, 1966 and April 13, 1966. As already
explained, the order of February 8, 1966 does not constitute a denial of the right of the Republic to the cancellation of the titles
nullified by the decision of Judge Tengco affirmed by this Court. Indeed, the respondent Judge expressly made the reservation for
the Republic to "resort" to the court should private respondents refuse or fail to have their titles cancelled. Incidentally, even the
order of October 27, 1970 about the resurvey merely held the remedy to be premature until the decision in this case has become
final. Of course it is understood that in such eventuality, the resurvey requested by the Provincial Fiscal would be in order and as
soon as the same is completed the proper writ of execution for the delivery of possession of the portions found to be public land
should issue.
WHEREFORE, and with the clarification aforemade of the rights of the Republic, the motion and supplemental motion for
reconsideration of petitioner Tolentino are denied for lack of merit. The motion for reconsideration of the Solicitor General,
which is no more than a duplication of Petitioner Tolentinos motions in support of his private claim for damages, is likewise
denied . 2
Then Justice Makalintal in his separate concurrence stressed that "The resolution in no way affects the rights of the Government as declared in the
decision. 3
Justice Barredo in his separate concurrence even more vigorously stressed also that
... .If in any manner the dispositive portion of the resolution of October 4, 1971 denying the mandamus did give rise to
apprehensions, the present resolution should serve to make it definitely clear that such denial cannot affect the Government
adversely. I am sure that the five justices whom I am joining in denying Petitioner's motion for reconsideration are as firm as the
three distinguished dissenters in the resolution not to alow this Court to be an instrument of land-grabbing as they are against the
reversal or even modification in any substantial degree of any final and executory judgment whether of this Court or any other
court in this country, and, that if there were such possibilities in consequence of the resolution of October 4, 1971 and the present
resolution of denial, they would not give their assent to said resolutions. We are certain that in deciding against Petitioner
Tolentino, We are not condoning nor permitting that the lands in question remain with the Dizons or with the Ayalas. What We
see very clearly is that the respondent Judge has not denied any right of the Government, and if he has refused to take definite
action so far, it is only because he disagrees with the procedure of execution pursued by the representatives of the
Government or is otherwise awaiting the final judgment of this Court in deference to its superiority. 4
Respondent court, however, instead of granting the preliminary injunction sought by the Republic, et al. to enjoin Ayala from usurping the lands of
the public domain covered by Ayala's voided expanded subdivision titles, granted Zobel's (as Ayala's transferee of said void title) counter-prayer in
his answer to the complaint for the issuance of a mandatory injunction upon a P10,000 bond per its orders of October 1 and 21, 1968 and of
February 21, 1969 (denying reconsideration) to oust petitioner Republic and its permittees and/or lessees (particularly Chavez and Mercado) from the
fishponds in question and to restore Zobel to the possession thereof, notwithstanding that the case of accion reivindicatoria filed below is still
pending trial on the merits.
Hence, the present petition for certiorari as filed on March 3, 1969 filed by then Solicitor General now Justice Felix V. Makasiar on behalf of the
Republic and its co-petitioners for the setting aside of such mandatory injunction. As prayed for, the Court issued on March 7, 1969 a restraining
order enjoining the enforcement of respondent court's mandatory injunction.
The issue
The issue as posed by Justice Fernandez" draft is "whether it is the private petitioners (particularly Chavez and Mercado) or the private respondent
Enrique Zobel, who at this stage of Civil Case No. 653 of the court a quo which is still pending trial on the merits has a better right to
the possession of certain areas constituting portions of properties covered by Transfer Certificates of Title in the name of the latter [Zobel] but
allegedly covered by fishpond permits and/or applications therefor in favor of the former" (at pages 2-3) is incomplete as it goes and omits three
essential factors:
1. The main protagonists are really the Republic of the Philippines on one side (with Chavez and Mercado as its permittees and/or lessees) and Zobel
on the other;
2. The lands in question are alleged to be lands of the public domain covered by void expanded subdivision titles wrongfully secured by Ayala
(Zobel's predecessor) and which were declared null and void and the lands ordered reverted to the public domain by this Court's May 31, 1965
decision in Republic vs. Ayala, supra; and
3. The question at issue in the case below is not one merely of possession but of ownership as found and held byrespondent court itself in its order of
December 13, 1967 (Annex B, petition) denying Zobel's motion to dismiss, in this wise: "the issue in the instant case is ownership, "that is, whether
defendant Enrique Zobel's Transfer Certificate of Title Nos. 3699 and 9262 can be considered valid as it is alleged by plaintiffs that they actually
cover portions of the territorial waters of the Philippines." 5
Reasons for Granting of Petition

Basic and fundamental reasons abound for maintaining the status quo and maintaining the possession by the Republic of the lands in litigation (which
it has placed with the lessees or permittees rather than respondent court's arbitrarily transferring possession to Zobel by mandatory injunction while
awaiting trial on the merits of the case below, among them the following:
1. As was stressed by the Solicitor-General in his comment of November 23, 1972 on Zobel's motion for modification and/or dissolution of
temporary restraining order filed on November 2, 1972 (Reno, p. 180), the property herein involved is "part of the public domain;"this Court had in
its May 31, 1965 decision affirmed the Batangas court of first instance decision dated June 2,1962 in Civil Case No. 373 "which orders
the cancellation as null and void of all expanded subdivision titles secured by Ayala y Cia. over the original area of Hacienda Calatagan as stated in
TCT No. 722 and the reversion to public dominion of the public lands usurped thereby . . . .;" "(I)t cannot be overemphasized that portions of
the public domain are not subject to private appropriation and, therefore, not registerable under the Torrens System" (cases cited); and that "it would
certainly be condoning an illegal act if the private respondent-movant is allowed to perpetuate what he has committed-an affront and an offense
against the State. What is asked for in the instant motion is a prayer which, if granted, would be to the prejudice of the Government. " 6
The Court per its resolution of January 23, 1973 after considering the pleadings of the parties consequently "Resolved to deny the motion for lack of
merit." 7
2. When Zobel renewed on December 18, 1973 under the guise of a "supplemental memorandum" his motion to dissolve the same restraining order,
the Solicitor General after invoking this Court's previous resolution of January 23, 1973 which denied "for lack of merit" the same relief now sought
again, underscored the following in his Opposition of January 4, 1974;
a) The alleged copy of a plan and aerial photograph submitted by Zobel as showing that the lots possessed by co-petitioners
Chavez and Mercado under permit from the Republic "are very well within the boundaries of the parcel of land embraced in and
covered by (Ayala's) Transfer Certificate of Title No. 722" cannot serve to overturn the final and executory judgment of the court
of first instance in Civil Case No. 373 as affirmed by this Court's May 31, 1965 judgment in Republic vs. Ayala and its
subsequent resolutions of October 4, 1971 and April 11, 1972 in Republic vs. Angeles, supra;
b) Respondent court's very order of October 1, 1968 (Annex D, petition) for the issuance of a mandatory injunction justified the
same on the premise that the judgment declaring Ayala's expanded titles null and void "cannot as yet be executed because the
matter of execution is still the subject of a motion for reconsideration which is still pending in the Supreme Court." This premise
is no longer true-for both the majority and dissenting opinions in resolving the motion for reconsideration left no doubt that all
such expanded titles of Ayala were and are null and void and cannot be honored;
c) Thus, Solicitor General stressed that "There is, to us, no question as it is obvious from the record that the lots or fishponds
herein involved were adjudged as included in those "other subdivision titles" outside of Transfer Certificate of Title No. 722, and
that, as described, the transfer certificates of title, in the name of the private respondent concerning said lots encroach
upon and cover res publicae;" 8
d) The plan submitted by Zobel "merely illustrates what had been previously surveyed under TCT No. 722 . . I . and the different
surveys under fishpond permit applications" and cannot overcome this Court's findings in Republic vs. Ayala affirming those of
the court of first instance decision in Civil Case 373 that even assuming to be true Ayala's contention that the fishpond permit
applications were for areas covered by its T.C.T. 722, nevertheless the areas in dispute (covered by permits issued to Chavez,
Mercado, et al. who were also parties in said Case 373) "were found to be portions of the foreshore, beach or of the navigable
water itself. And it is an elementary principle of law that said areas not being capable of registration, their inclusion in a
certificate of title does not convert the same into properties of private ownership or confer title on the registrant."
3. At any rate, it appears that such map and plan raise questions of fact as to the actual location of the fishponds and properties which according to the
Republic are part of the public domain and were reverted to the public dominion under the May 31, 1965 decision in Republic vs. Ayala wherein
Ayala's (and Zobel's as successor-transferee) expanded subdivision titles were declared null and void while Zobel as defendant claims the contrary in
his answer. As far as the record shows, said map and plan have not yet been presented to respondent court-which has yet to hold trial on the merits of
petitioners' complaint below, but were submitted to this Court only on December 18,1973 with Zobel's supplemental memo and second motion to
dissolve restraining order long (over 4 years) after this case was submitted for decision on June 25, 1969.
It is elementary that this Court is not a trier nor even a reviewer of facts and certainly cannot at this stage consider such map and plan which have not
yet even been presented to the court below.
4. Respondent court issued the mandatory injunction on the basis of the counterclaim in Zobel's answer that co-petitioners Chavez and Mercado
allegedly dispossessed him of the fishponds and properties in question by having illegally and forcibly taken possession thereof in the first week of
June, 1966. 9 Such a bare allegation is contrary to the admitted facts of record, as witness respondent court's own order of December 13, 1967,
wherein in denying Zobel's motion to dismiss, it made of record that the Republic's co-petitioners and private plaintiffs "were entitled to be placed
in possession" of the fishponds as "lessees of the Republic of the Philippines," as follows:
The third ground is also untenable because the private plaintiffs in this case being lessees of theRepublic of the Philippines with
regards to the areas covered by "Transfer Certificates of Title Nos. 3699 and 9692, they are therefore entitled to be placed
in possession thereof as their applications had been duly approved. in fact it has been alleged that plaintiffs-lessees have
introduced substantial improvements and incurred expenses on their leased properties. 10

5. The previous successful action for ejectment of Zobel against Chavez, et al. on May 25, 1960 under color of his torrens subdivision title (which
had not yet been voided then by this Court's May 31, 1965 judgment in Republic vs. Ayala) and which per his own averments was executed with the
ouster of Chavez, et al. in 1961 patently has no relevance here. The situation has completely changed since this Court's May 31, 1965 judgment
voiding of all the expanded subdivision titles of Ayala and the Zobels (Alfonso and Jacob, father of respondent Enrique here), whereby the Republic
placed back the Chavezes, et al. in possession of the fishponds as its permittees and lessees. Such leases as official acts of the Government have
the presumption of regularity and cannot besummarily, prematurely and capriciously set aside without trial as respondent court has done.
Furthermore, if it be true that the Chavezes et al. forcibly took possession of the fishponds in June 1966 as per Zobel's bare allegation in his
counterclaim, why did he not file an action for forcible entry within one year instead of just making such an allegation in his answer with
counterclaim dated January 12, 1968?
Since no forcible entry case was filed by Zobel, it is obvious no writ of preliminary mandatory injunction to restore him in his alleged prior
possession can issue, since the requirements of Article 539 11 for such issuance are not present.
The inference that by virtue of the ouster in 1961 by execution, of the judgment of forcible entry effected by Zobel against the Chavezes, respondent
court's mandatory injunction issued seven years later in a completely separate case for reinvindicacion filed by the Republic as the judicially
recognized owner of the lands of the public dominion encroached upon and usurped by Zobel's expanded subdivision titles would serve 'to reestablish and maintain a pre-existing continuing relation between f the parties, recently and arbitrarily interrupted by the defendant, than to establish a
new relation 12 is manifestly untenable and baseless.
A third party, the Republic, has stepped into the picture as the judicially recognized owner of the public domain usurped by Zobel's expanded titles.
The Chavezes are duly in possession of the fishponds as permittees/lessees of the Republic (as respondent court itself recognizes in its order of
December 13, 1967, supra at page 10). There isno "continuing relation" between the Chavezes et al as the Government's lessees and Zobel that is "reestablished and maintained" by respondent court's arbitrary writ of mandatory injunction.
6. The whole prop of respondent court's mandatory writ, to wit that the titles of Zobel are presumed to be valid and must be honored until judicially
voided has thus been shown to be bereft of basis, in fact and in law.
It has no basis in fact because as indisputably shown above, all expanded subdivision titles of Ayala and the Zobels (cover- ing an estimated 1,091
hectares to 2,500 hectares of public lands) in excess of the original area of Hacienda Calatagan as stated in TCT 722 were declared null and void (not
merely T- 9550 which covered only the Dizons" fishponds in Civil Case 373 as Zobel would contend now in his answer below, 13 contrary to the
express and undisputed holding of both majority and minority in the supplemental case of Republic vs. Angeles, supra, at pages 3-6) and the lands
ordered reverted to the public dominion under this Court's final judgment of May 31, 1965 in Republic vs. Ayala.
It has no basis in law-because the burden has thus been ,4 shifted to Ayala and the Zobels to show that their subdivision titles are not among the
expanded titles declared null and void. Zobel's titles therefore do not enjoy the presumption of validity as erroneously presumed by respondent court
in view of the congenital infirmity of usurpation of inalienable lands of the public domain which accompanied their wrongful issuance. Zobel's titles
have to undergo the test of scrutiny and survey as to whether they fall under the usurped public domain or within the original area of Hacienda
Calatagan and this can only be determined after due trial on the merits which has yet to be held.
7. Respondent court, in issuing the disputed mandatory injunction while awaiting trial on the merits utterly disregarding the Republic's rights as
judicially recognized owner of lands of the public domain usurped by Zobel's expanded titles and ordering in effect that the Republic and its
permittees/lessees be ousted from their lawful possession of the fishponds and that possession be restored to Zobel despite its express and correct
finding in its December 13, 1967 order Annex B) that the issue in the case below is ownership (between the Republic of the Philippines and Zobel)
and that the private petitioners are entitled to possession as lessees of the government acted with grave abuse of discretion and in gross violation of
elementary and fundamental principles of injunctions (many of which principles respondent court correctly cited in its disputed basic order of
October 1, 1968, Annex D, but unfortunately failed to apply correctly and instead misapplied) as to call for the corrective process of certiorari, as
follows:
aA mandatory injunction will not issue in favor of a party whose rights are not clear and free from doubt or are as yet undetermined;
bNo advantage may be unduly given to one litigant to the prejudice of the other, hence a court should not by preliminary injunction transfer the
property in litigation from the possession of one party to another where the legal title is in dispute and the party having possession (the Republic)
asserts ownership thereto by right of a final decision of the Supreme Court and claims the lands involved as lands of the public domain.
cThe primary purpose of a preliminary injunction is the preservation of the status quo. The court must leave the parties where they are until it is
able to hold trial and determine the conflicting claims of ownership between the Republic and Zobel:
dRespondent court's mandatory injunction prematurely prejudged the Republic's complaint without trial or evidence by arbitrarily ordering the
restoration of possession of the fishponds in favor of Zobel (when Zobel had failed to even file a forcible entry case against petitioners) and in gross
disregard of this Court's final decisions and resolutions in Republic vs. Ayala (1965) and Republic vs. Angeles (1967) et seq., supra) all declaring the
nullity of Ayala's and the Zobel's expanded subdivision titles which usurped the public domain;

eContrary to the mistaken assumption in Justice Fernandez" draft 14 that the judgment in Civil Case 373, as affirmed by this Court, was limited to
declaring void only TCT T-9550 of Ayala, the judgment proper, as affirmed by this Court, clearly and indisputably declared null and void all "other
subdivision titles (of Ayala and/or Hda Calatagan) over the areas outside its private land covered by TCT No. 722 which ... are hereby reverted to
public dominion." (Supra, at page 2).
Respondent court thus violated the fundamental rule that a party should not be deprived of possession until the court is prepared to adjudicate the
controverted light in favor of the adverse party (Zobel) and until the controverted question (of ownership) is adjudicated, the status quo should be
preserved and the party in possession (the Republic through its lessees, the private plaintiffs) should not be ousted.
The question raised by Zobel that if all his expanded titles were declared null and void in the 1962 judgment of the lower court as affirmed by this
Court's May 31, 1965 judgment, then all that petitioners have to do is to have that decision executed without need of the separate action below would
be well taken, were it not for two factors: (1) The Republic did seek execution of the judgment but the lower court hedged and refused on the ground
that there was no need for execution "because the declaration of nullity in itself is already executory" (supra, at page 4) and (2) The Republic filed
mandamus for a writ of execution in Republic vs. Angeles which was at first unanimously granted by this Court in its decision of June 30, 1967 but
which underwent a series of modificatory resolutions until April 27, 1973 (supra, at page 2,) but finally ended up with the pronouncement that such
execution would issue upon the finality of said April 27, 1973 resolution should further obstacles towards keeping Ayala and the Zobel' s in
possession of the usurped public lands come up supra at page 5)"
8. In the writer's dissenting opinion against the April 11, 1972 resolution, he expressed gratification "that the majority's position-although it denies
reconsideration and maintains reversal of the June 30, 1967 decision at bar-is that the Government may now finally effect reversion and recover
possession of all usurped areas of the public domain outside (Ayala's) private land covered by TCT No. 722, which including the lots in T9550 (Lots
360, 362, 363 and 182) are hereby reverted to public dominion (Paragraph (a) of 1965 judgment) 15 hereinabove. 16
It would be, a terrible retrogression if these ringing pronouncements against further frustration of reversion of the public lands and waters decreed in
the May 31, 1965 judgment and further retention by Ayala and the Zobels and their purchasers and transferees of usurped public lands were to be now
negated by systaining the arbitrary, capricious and untenable disputed orders of respondent court.
(In his same dissenting opinion, the writer did recount how up to then and up to now, Ayala and Zobel as its successor have succesfully blocked at
every turn the Government's efforts to enforce the 1965 judgment, contending that the proper step is for the Government to ask for execution of the
judgment and yet opposing the Government's motion to re-survey the lands affected to determine the precise extent of their usurpation by expansion
of their titles of lands and waters of the public domain and taking below actions that are "diametrically the opposite of Ayala's posture before this
Court of avowed adherence and submission to the judgment reverting all its usurped lands to public dominion and declaring null and void its
subdivision on titles thereto .") 17
It would be incomprehensible if the claim to the lands and fishponds in question as lands of the public domain of the Republic of the Philippines
itself, fully supported by final j judgments of this Supreme Court were not to be givenfaith and credit and were to be arbitrarily disregarded (without
trial and evidence and on the basis of mere assumptions and conjectures of fact made by this Court on the very lis mota, viz whether Zobel's
expanded titles are for lands of the public domain duly voided by this Court's 1965 judgment) and instead the Republic would be arbitrarily ousted of
the possession that it enjoys through its lessees and that possession transferred pending trial on the merits to private respondent whose predecessor
,Ayala) has been found by final judgment of this Supreme Court to be a usurper by unlawfal expanded subdivision titles immense areas of inalienable
lands and waters of the public domain.
The petition for certiorari should therefore be granted and the temporary restraining order issued by the Court against lie enforcement of respondent
court's disputed orders should be made permanent, With costs against private respondent.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-50638 July 25, 1983
LORETO J. SOLINAP, petitioner,
vs.
HON. AMELIA K. DEL ROSARIO, as Presiding Judge of Branch IV, Court of First Instance of Iloilo, SPOUSES JUANITO and HARDEVI
R. LUTERO, and THE PROVINCIAL SHERIFF OF ILOILO, respondents.
Espeleta & Orleans Law Office for petitioner.
Simplicia Magahum, Offemaria & Sixto Demaisip Law Office for private respondents.

ESCOLIN; J.:
Posed for resolution in this petition is the issue of whether or not the obligation of petitioners to private respondents may be compensated or set- off
against the amount sought to be recovered in an action for a sum of money filed by the former against the latter.
The facts are not disputed. On June 2, 1970, the spouses Tiburcio Lutero and Asuncion Magalona, owners of the Hacienda Tambal, leased the said
hacienda to petitioner Loreto Solinap for a period of ten [10] years for the stipulated rental of P50,000.00 a year. It was further agreed in the lease
contract that out of the aforesaid annual rental, the sum of P25,000.00 should be paid by Solinap to the Philippine National Bank to amortize the
indebtedness of the spouses Lutero with the said bank.
Tiburcio Lutero died on January 21, 1971. Soon after, his heirs instituted the testate estate proceedings of the deceased, docketed as Sp. Proc. No.
1870 of the Court of First Instance of Iloilo, presided by respondent Judge Amelia K. del Rosario. In the course of the proceedings, the respondent
judge, upon being apprized of the mounting interest on the unpaid account of the estate, issued an order, stating, among others, "that in order to
protect the estate, the administrator, Judge Nicolas Lutero, is hereby authorized to scout among the testamentary heirs who is financially in a position
to pay all the unpaid obligations of the estate, including interest, with the right of subrogation in accordance with existing laws."
On the basis of this order, respondents Juanito Lutero [grandson and heir of the late Tiburcio] and his wife Hardivi R. Lutero paid the Philippine
National Bank the sum of P25,000.00 as partial settlement of the deceased's obligations. Whereupon the respondents Lutero filed a motion in the
testate court for reimbursement from the petitioner of the amount thus paid. They argued that the said amount should have been paid by petitioner to
the PNB, as stipulated in the lease contract he had entered into with the deceased Tiburcio Lutero; and that such reimbursement to them was proper,
they being subrogees of the PNB.
Before the motion could be resolved by the court, petitioner on April 28, 1978 filed in the Court of First Instance of Iloilo a separate action against
the spouses Juanito Lutero and Hardivi R. Lutero for collection of the total amount of P71,000.00, docketed as Civil Case No. 12397. Petitioner
alleged in the complaint that on April 25, 1974 the defendants Lutero borrowed from him the sum of P45,000.00 for which they executed a deed of
real estate mortgage; that on July 2, 1974, defendants obtained an additional loan of P3,000.00, evidenced by a receipt issued by them; that
defendants are further liable to him for the sum of P23,000.00, representing the value of certain dishonored checks issued by them to the plaintiff; and
that defendants refused and failed to settle said accounts despite demands.
In their answer, the respondents Lutero traversed the material averments of the complaint and set up legal and factual defenses. They further pleaded
a counterclaim against petitioners for the total sum of P 125,000.00 representing unpaid rentals on Hacienda Tambal. Basis of the counterclaim is the
allegation that they had purchased one-half [1/2] of Hacienda Tambal, which their predecessors, the spouses Tiburcio Lutero and Asuncion Magalona,
leased to the plaintiff for a rental of P50,000.00 a year; and that plaintiffs had failed to pay said rentals despite demands.
At the pre-trial, the parties defined the issues in that case as follows:
(1) Whether or not the defendants [Luteros] are indebted to the plaintiff and, if so, the amount thereof;
(2) Whether or not the defendants are the owners of one-half [1/2] of that parcel of land known as 'Hacienda Tambal' presently
leased to the plaintiff and, therefore, entitled to collect from the latter one-half [1/2] of its lease rentals; and in the affirmative, the
amount representing the unpaid rental by plaintiff in favor of the defendant. 1

On June 14, 1978, the respondent judge issued an order in Sp. Proc. No. 1870, granting the respondent Lutero's motion for reimbursement from
petitioner of the sum of P25,000.00 plus interest, as follows:
WHEREFORE, Mr. Loreto Solinap is hereby directed to pay spouses Juanito Lutero and Hardivi R. Lutero the sum of
P25,000.00 with interest at 12% per annum from June 17, 1975 until the same shall have been duly paid.
Petitioner filed a petition for certiorari before this Court, docketed as G.R. No. L-48776, assailing the above order. This Court, however, in a
resolution dated January 4, 1979 dismissed the petition thus:
L-48776 [Loreto Solinap vs. CFI etc., et al.]- Acting on the petition in this case as well as the comment thereon of respondents
and the reply of petitioner to said comment, the Court Resolved to DISMISS the petition for lack of merit, anyway, the
P25,000.00 to be paid by the petitioner to the private respondent Luteros may well be taken up in the final liquidation of the
account between petitioner as and the subject estate as lessor.
Thereafter the respondent Luteros filed with the respondent court a "Motion to Reiterate Motion for Execution of the Order dated June 14, 1978."
Petitioner filed a rejoinder to said motion, raising for the first time the thesis that the amount payable to private respondents should be compensated
against the latter's indebtedness to him amounting to P71,000.00. Petitioner attached to his rejoinder copies of the pleadings filed in Civil Case No.
12397, then pending before Branch V of the Court of First Instance of Iloilo. This motion was denied by respondent judge on the ground that "the
claim of Loreto Solinap against Juanito Lutero in Civil Case No. 12397 is yet to be liquidated and determined in the said case, such that the
requirement in Article 1279 of the New Civil Code that both debts are liquidated for compensation to take place has not been established by the
oppositor Loreto Solinap."
Petition filed a motion for reconsideration of this order, but the same was denied.
Hence, this petition.
The petition is devoid of merit. Petitioner contends that respondent judge gravely abused her discretion in not declaring the mutual obligations of the
parties extinguished to the extent of their respective amounts. He relies on Article 1278 of the Civil Code to the effect that compensation shall take
place when two persons, in their own right, are creditors and debtors of each other. The argument fails to consider Article 1279 of the Civil Code
which provides that compensation can take place only if both obligations are liquidated. In the case at bar, the petitioner's claim against the
respondent Luteros in Civil Case No. 12379 is still pending determination by the court. While it is not for Us to pass upon the merits of the plaintiffs'
cause of action in that case, it appears that the claim asserted therein is disputed by the Luteros on both factual and legal grounds. More, the
counterclaim interposed by them, if ultimately found to be meritorious, can defeat petitioner's demand. Upon this premise, his claim in that case
cannot be categorized as liquidated credit which may properly be set-off against his obligation. As this Court ruled in Mialhe vs. Halili, 2 "
compensation cannot take place where one's claim against the other is still the subject of court litigation. It is a requirement, for compensation to take
place, that the amount involved be certain and liquidated."
WHEREFORE, the petition is dismissed, with costs against petitioner.
SO ORDERED.
Makasiar (Chairman), Aquino and Concepcion, Jr., JJ., concur.
De Castro, Guerrero, J., are on leave.
Separate Opinions
ABAD SANTOS, J., concurring:
The petition is not only devoid of merit but it is also frivolous and petitioner should be assessed treble costs.
Separate Opinions
ABAD SANTOS, J., concurring:
The petition is not only devoid of merit but it is also frivolous and petitioner should be assessed treble costs.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 125059

March 17, 2000

FRANCISCO T. SYCIP, JR., petitioner,

vs.
COURT OF APPEALS and PEOPLE OF THE PHILIPPINES, respondents.
QUISUMBING, J.:
For review on certiorari is the decision of the Court of Appeals, dated February 29, 1996, in CA-G.R. CR No. 15993, which affirmed the judgment
of the Regional Trial Court of Quezon City, Branch 95, in Criminal Cases Nos. Q-91-25910 to 15, finding petitioner guilty beyond reasonable doubt
of violating B.P. Blg. 22, the Bouncing Checks Law.
The facts in this case, as culled from the records, are as follows:
On August 24, 1989, Francisco T. Sycip agreed to buy, on installment, from Francel Realty Corporation (FRC), a townhouse unit in the latter's project
at Bacoor, Cavite.
Upon execution of the contract to sell, Sycip, as required, issued to FRC, forty-eight (48) postdated checks, each in the amount of P9,304.00,
covering 48 monthly installments.
After moving in his unit, Sycip complained to FRC regarding defects in the unit and incomplete features of the townhouse project. FRC ignored the
complaint. Dissatisfied, Sycip served on FRC two (2) notarial notices to the effect that he was suspending his installment payments on the unit
pending compliance with the project plans and specifications, as approved by the Housing and Land Use Regulatory Board (HLURB). Sycip and 12
out of 14 unit buyers then filed a complaint with the HLURB. The complaint was dismissed as to the defects, but FRC was ordered by the HLURB to
finish all incomplete features of its townhouse project. Sycip appealed the dismissal of the complaint as to the alleged defects.
Notwithstanding the notarial notices, FRC continued to present for encashment Sycip's postdated checks in its possession. Sycip sent "stop payment
orders" to the bank. When FRC continued to present the other postdated checks to the bank as the due date fell, the bank advised Sycip to close his
checking account to avoid paying bank charges every time he made a "stop payment" order on the forthcoming checks. Due to the closure of
petitioner's checking account, the drawee bank dishonored six postdated checks. FRC filed a complaint against petitioner for violations of B.P. Blg.
22 involving said dishonored checks.
On November 8, 1991, the Quezon City Prosecutor's Office filed with the RTC of Quezon City six Informations docketed as Criminal Cases No. Q91-25910 to Q-91-25915, charging petitioner for violation of B.P. Blg. 22.
The accusative portion of the Information in Criminal Case No. Q-91-25910 reads:
That on or about the 30th day of October 1990 in Quezon City, Philippines and within the jurisdiction of this Honorable Court, the said
accused, did then and there, willfully, unlawfully and feloniously make, draw and issue in favor of Francel Realty Corporation a check
813514 drawn against Citibank, a duly established domestic banking institution in the amount of P9,304.00 Philippine Currency
dated/postdated October 30, 1990 in payment of an obligation, knowing fully well at the time of issue that she/he did not have any funds in
the drawee bank of (sic) the payment of such check; that upon presentation of said check to said bank for payment, the same was
dishonored for the reason that the drawer thereof, accused Francisco T. Sycip, Jr. did not have any funds therein, and despite notice of
dishonor thereof, accused failed and refused and still fails and refused (sic) to redeem or make good said check, to the damage and
prejudice of the said Francel Realty Corporation in the amount aforementioned and in such other amount as may be awarded under the
provisions of the Civil Code.
CONTRARY TO LAW.1
Criminal Cases No. Q-91-25911 to Q-91-25915, with Informations similarly worded as in Criminal Case No. Q-91-25910, except for the dates, and
check numbers2 were consolidated and jointly tried.
When arraigned, petitioner pleaded "Not Guilty" to each of the charges. Trial then proceeded.
The prosecution's case, as summarized by the trial court and adopted by the appellate court, is as follows:

The prosecution evidence established that on or about August 24, 1989, at the office of the private complainant Francel Realty Corporation
(a private domestic corporation engaged in the real estate business) at 822 Quezon Avenue, QC, accused Francisco Sycip, Jr. drew, issued,
and delivered to private complainant Francel Realty Corporation (FRC hereinafter) six checks (among a number of other checks), each for
P9,304.00 and drawn pay to the order of FRC and against Francisco's account no. 845515 with Citibank, to wit: Check No. 813514 dated
October 30, 1990 (Exh. C), Check No. 813515 dated November 30, 1990 (Exh. D), Check No. 813518 dated February 28, 1991 (Exh. E),
Check No. 813516 dated December 30, 1990 (Exh. F), Check No. 813517 dated January 30, 1991 (Exh. G) and Check No. 813519 dated
March 30, 1991 (Exh. H), as and in partial payment of the unpaid balance of the purchase price of the house and lot subject of the written
contract executed and entered into by and between FRC as seller and Francisco as buyer on said date of August 24, 1989 (Exh. B, also Exh.
1). The total stipulated purchase price for the house and lot was P451,700.00, of which Francisco paid FRC in the sum of P135,000.00 as
down payment, with Francisco agreeing and committing himself to pay the balance of P316,000.00 in 48 equal monthly installments of
P9,304.00 (which sum already includes interest on successive monthly balance) effective September 30, 1989 and on the 30th day of each
month thereafter until the stipulated purchase price is paid in full. The said six Citibank checks, Exhs. C thru H, as earlier indicated were
drawn, issued, and delivered by Francisco in favor of FRC as and in partial payment of the said 48 equal monthly installments under their
said contract (Exh. B, also Exh. 1). Sometime in September 1989, the Building Official's certificate of occupancy for the subject house a
residential townhouse was issued (Exh. N) and Francisco took possession and started in the use and occupancy of the subject house and
lot.1wphi1.nt
When the subject six checks, Exhs. C thru H, were presented to the Citibank for payment on their respective due dates, they were all
returned to FRC dishonored and unpaid for the reason: account closed as indicated in the drawee bank's stamped notations on the face and
back of each check; in fact, as indicated in the corresponding record of Francisco's account no. 815515 with Citibank, said account already
had a zero balance as early as September 14, 1990 (Exh. 1-5). Notwithstanding the fact that FRC, first thru its executive vice president and
project manager and thereafter thru its counsel, had notified Francisco, orally and in writing, of the checks' dishonor and demanded from
him the payment of the amount thereof, still Francisco did not pay or make good any of the checks (Exhs. I thru K). . . 3
The case for the defense, as summarized also by the trial court and adopted by the Court of Appeals, is as follows:
The defense evidence in sum is to the effect that after taking possession and starting in the use and occupancy of the subject townhouse
unit, Francisco became aware of its various construction defects; that he called the attention of FRC, thru its project manager, requesting
that appropriate measures be forthwith instituted, but despite his several requests, FRC did not acknowledge, much less attend to them; that
Francisco thus mailed to FRC a verified letter dated June 6, 1990 (Exh. 2) in sum giving notice that effective June 1990, he will cease and
desist "from paying my monthly amortization of NINE THOUSAND THREE HUNDRED FOUR (P9,304.00) PESOS towards the
settlement of my obligation concerning my purchase of Unit No. 14 of FRC Townhomes referred to above, unless and until your Office
satisfactorily complete(s) the construction, renovation and/or repair of my townhouses (sic) unit referred to above" and that should FRC
"persist in ignoring my aforesaid requests, I shall, after five (5) days from your receipt of this Verified Notice, forthwith petition the
[HLURB] for Declaratory Relief and Consignation to grant me provisional relief from my obligation to pay my monthly amortization to
your good Office and allow me to deposit said amortizations with [HLURB] pending your completion of FRC Townhomes Unit in
question"; that Francisco thru counsel wrote FRC, its president, and its counsel notices/letters in sum to the effect that Francisco and all
other complainants in the [HLURB] case against FRC shall cease and desist from paying their monthly amortizations unless and until FRC
satisfactorily completes the construction of their units in accordance with the plans and specifications thereof as approved by the [HLURB]
and as warranted by the FRC in their contracts and that the dishonor of the subject checks was a natural consequence of such suspension of
payments, and also advising FRC not to encash or deposit all other postdated checks issued by Francisco and the other complainants and
still in FRC's possession (Exhs. 3 thru 5); that Francisco and the other complainants filed the [HLURB] case against FRC and later on a
decision was handed down therein and the same is pending appeal with the Board (Exhs. 6, 7, & 12 thru 17, also Exh. 8); that as of the time
of presentation of the subject checks for payment by the drawee bank, Francisco had at least P150,000.00 cash or credit with Citibank
(Exhs. 10 & 11) and, that Francisco closed his account no. 845515 with Citibank conformably with the bank's customer service officer's
advice to close his said account instead of making a stop-payment order for each of his more than 30 post-dated checks still in FRC's
possession at the time, so as to avoid the P600.00-penalty imposed by the bank for every check subject of a stop-payment order. 4
On March 11, 1994, the trial court found petitioner guilty of violating Section 1 of B.P. Blg. 22 in each of the six cases, disposing as follows:
WHEREFORE, in each of Crim. Cases Nos. Q-91-25910, Q-91-25911, Q-91-25912, Q-91-25913, Q-91-25914 and Q-91-25915, the Court
finds accused Francisco T. Sycip, Jr. guilty beyond reasonable doubt of a violation of Sec. 1 of Batas Pambansa Blg. 22 and, accordingly,
he is hereby sentenced in and for each case to suffer imprisonment of thirty (30) days and pay the costs. Further, the accused is hereby
ordered to pay the offended party, Francel Realty Corporation, as and for actual damages, the total sum of fifty-five thousand eight hundred
twenty four pesos (P55,824.00) with interest thereon at the legal rate from date of commencement of these actions, that is, November 8,
1991, until full payment thereof.
SO ORDERED.
Dissatisfied, Sycip appealed the decision to the Court of Appeals. His appeal was docketed as CA-G.R. CR No. 15993. But on February 29, 1996, the
appellate court ruled:
On the basis of the submission of the People, We find and so hold that appellant has no basis to rely on the provision of PD 957 to justify
the non-payment of his obligation, the closure of his checking account and the notices sent by him to private complainant that he will stop
paying his monthly amortizations.6

Petitioner filed a motion for reconsideration on March 18, 1996, but it was denied per Resolution dated April 22, 1996.
Hence, the instant petition anchored on the following assignment of errors:
I
THE APPELLATE COURT ERRED IN AFFIRMING THE DECISION OF THE LOWER COURT FINDING THAT THE ACCUSEDAPPELLANT DID NOT HAVE ANY JUSTIFIABLE CAUSE TO STOP OR OTHERWISE PREVENT THE PAYMENT OF THE
SUBJECT CHECKS BY THE DRAWEE BANK.
II
THE LOWER COURT ERRED IN FINDING THAT THE ACCUSED-APPELLANT MUST BE DEEMED TO HAVE WAIVED HIS
RIGHT TO COMPLAIN AGAINST THE DEVELOPMENT OF THE TOWNHOUSE UNIT AND THE TOWNHOUSE PROJECT.
III
THE APPELLATE COURT ERRED IN AFFIRMING THE DECISION OF THE LOWER COURT THAT THE ACCUSED-APPELLANT
DID NOT HAVE SUFFICIENT FUNDS WITH THE DRAWEE BANK TO COVER THE SUBJECT CHECKS UPON PRESENTMENT
FOR PAYMENT THEREOF.
IV
THE APPELLATE COURT ERRED IN AFFIRMING THE DECISION OF THE LOWER COURT CONVICTING THE ACCUSEDAPPELLANT AND AWARDING DAMAGES IN FAVOR OF PRIVATE COMPLAINANT.7
The principal issue before us is whether or not the Court of Appeals erred in affirming the conviction of petitioner for violation of the Bouncing
Checks Law.
Petitioner argues that the court a quo erred when it affirmed his conviction for violation of B.P. Blg. 22, considering that he had cause to stop
payment of the checks issued to respondent. Petitioner insists that under P.D. No. 957, the buyer of a townhouse unit has the right to suspend his
amortization payments, should the subdivision or condominium developer fail to develop or complete the project in accordance with duly-approved
plans and specifications. Given the findings of the HLURB that certain aspects of private complainant's townhouse project were incomplete and
undeveloped, the exercise of his right to suspend payments should not render him liable under B.P. Blg. 22.
The Solicitor General argues that since what petitioner was charged with were violations of B.P. Blg. 22, the intent and circumstances surrounding the
issuance of a worthless check are immaterial. 8 The gravamen of the offense charged is the act itself of making and issuing a worthless check or one
that is dishonored upon its presentment for payment. Mere issuing of a bad check is malum prohibitum, pernicious and inimical to public welfare. In
his view, P.D. No. 957 does not provide petitioner a sufficient defense against the charges against him.
Under the provisions of the Bouncing Checks Law (B.P. No. 22),9 an offense is committed when the following elements are present:
(1) the making, drawing and issuance of any check to apply for account or for value;
(2) the knowledge of the maker, drawer, or issuer that at the time of issue he does not have sufficient funds in or credit with the drawee
bank for the payment of such check in full upon its presentment; and
(3) the subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit or dishonor for the same reason had not the
drawer, without any valid cause, ordered the bank to stop payment. 10
In this case, we find that although the first element of the offense exists, the other elements have not been established beyond reasonable doubt.
To begin with, the second element involves knowledge on the part of the issuer at the time of the check's issuance that he did not have enough funds
or credit in the bank for payment thereof upon its presentment. B.P. No. 22 creates a presumption juris tantum that the second element prima
facie exists when the first and third elements of the offense are present. 11 But such evidence may be rebutted. If not rebutted or contradicted, it will
suffice to sustain a judgment in favor of the issue, which it supports. 12 As pointed out by the Solicitor General, such knowledge of the insufficiency
of petitioner's funds "is legally presumed from the dishonor of his checks for insufficiency of funds." 13 But such presumption cannot hold if there is
evidence to the contrary. In this case, we find that the other party has presented evidence to contradict said presumption. Hence, the prosecution is
duty bound to prove every element of the offense charged, and not merely rely on a rebuttable presumption.
Admittedly, what are involved here are postdated checks. Postdating simply means that on the date indicated on its face, the check would be properly
funded, not that the checks should be deemed as issued only then. 14 The checks in this case were issued at the time of the signing of the Contract to

Sell in August 1989. But we find from the records no showing that the time said checks were issued, petitioner had knowledge that his deposit or
credit in the bank would be insufficient to cover them when presented for encashment. 15 On the contrary, there is testimony by petitioner that at the
time of presentation of the checks, he had P150,000,00 cash or credit with Citibank.
As the evidence for the defense showed, the closure of petitioner's Account No. 845515 with Citibank was not for insufficiency of funds. It was made
upon the advice of the drawee bank, to avoid payment of hefty bank charges each time petitioner issued a "stop payment" order to prevent
encashment of postdated checks in private respondent's possession. 16 Said evidence contradicts the prima facie presumption of knowledge of
insufficiency of funds. But it establishes petitioner's state of mind at the time said checks were issued on August 24, 1989. Petitioner definitely had no
knowledge that his funds or credit would be insufficient when the checks would be presented for encashment. He could not have foreseen that he
would be advised by his own bank in the future, to close his account to avoid paying the hefty banks charges that came with each "stop payment"
order issued to prevent private respondent from encashing the 30 or so checks in its possession. What the prosecution has established is the closure of
petitioner's checking account. But this does not suffice to prove the second element of the offense under B.P. Blg. 22, which explicitly requires
"evidence of knowledge of insufficient funds" by the accused at the time the check or checks are presented for encashment.
To rely on the presumption created by B.P. No. 22 as the prosecution did in this case, would be to misconstrue the import of requirements for
conviction under the law. It must be stressed that every element of the offense must be proved beyond reasonable doubt, never presumed.
Furthermore, penal statutes are strictly construed against the State and liberally in favor of the accused. Under the Bouncing Checks Law, the
punishable act must come clearly within both the spirit and letter of the statute. 17
While B.P. Blg. 22 was enacted to safeguard the interest of the banking system, 18 it is difficult to see how conviction of the accused in this case will
protect the sanctity of the financial system. Moreover, protection must also be afforded the interest of townhouse buyers under P.D. No. 957. 19 A
statute must be construed in relation to other laws so as to carry out the legitimate ends and purposes intended by the legislature. 20 Courts will not
strictly follow the letter of one statute when it leads away from the true intent of legislature and when ends are inconsistent with the general purpose
of the act. 21 More so, when it will mean the contravention of another valid statute. Both laws have to be reconciled and given due effect.
Note that we have upheld a buyer's reliance on Section 23 of P.D. 957 to suspend payments until such time as the owner or developer had fulfilled its
obligations to the buyer. 22 This exercise of a statutory right to suspend installment payments, is to our mind, a valid defense against the purported
violations of B.P. Blg. 22 that petitioner is charged with.
Given the findings of the HLURB as to incomplete features in the construction of petitioner's and other units of the subject condominium bought on
installment from FRC, we are of the view that petitioner had a valid cause to order his bank to stop payment. To say the least, the third element of
"subsequent dishonor of the check. . . without valid cause" appears to us not established by the prosecution. As already stated, the prosecution tried to
establish the crime on a prima facie presumption in B.P. Blg. 22. Here that presumption is unavailing, in the presence of a valid cause to stop
payment, thereby negating the third element of the crime.1wphi1
Offenses punished by a special law, like the Bouncing Checks Law, are not subject to the Revised Penal Code, but the Code is supplementary to such
a law. 23 We find nothing in the text of B.P. Blg. 22, which would prevent the Revised Penal Code from supplementing it. Following Article 11
(5) 24 of the Revised Penal Code, petitioner's exercise of a right of the buyer under Article 23 of P.D. No. 957 is a valid defense to the charges against
him.
WHEREFORE, the instant petition is GRANTED. Petitioner Francisco T. Sycip, Jr., is ACQUITTED of the charges against him under Batas
Pambansa Blg. 22, for lack of sufficient evidence to prove the offenses charged beyond reasonable doubt. No pronouncement as to costs.
SO ORDERED.
Bellosillo, Mendoza, Buena and De Leon, Jr., JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 128452 November 16, 1999

COMPANIA MARITIMA, INC., EL VARADERO DE MANILA, MINDANAO TERMINAL AND BROKERAGE SERVICES, CARLOS P.
FERNANDEZ, VICENTE T. FERNANDEZ, LUIS T. FERNANDEZ, and RAMON B. FERNANDEZ, petitioners,
vs.
COURT OF APPEALS and EXEQUIEL S. CONSULTA, respondents.

MENDOZA, J.:
This is a petition for review on certiorari of the decision 1 of the Court of Appeals, dated February 27, 1996, affirming the decision of the Regional
Trial Court, Branch 94, Quezon City, dated March 16, 1993, which ordered petitioners to pay private respondent, Atty. Exequiel S. Consulta, the total
amount of P2,590,000.00, as attorney's fees, and P21,856.40, as filing fees, in connection with three cases which the latter, as attorney, handled for
the former.
The facts are as follows:
Maritime Company of the Philippines was sued by Genstar Container Corporation before the Regional Trial Court, Branch 31, Manila. On November
29, 1985, it was ordered to pay Genstar Container Corporation the following amounts:
a. $469,860.35, or its equivalent in pesos at the current exchange rate.
b. 25% of the total obligation, P2,000.00 as Acceptance Fee, and P250.00 per appearance as Attorney's
Fees.
c. Costs of suit.
As a result, properties of petitioners Compania Maritima, Inc., El Varadero de Manila, and Mindanao Terminal and Brokerage Services at Sangley
Point, Cavite, were levied upon in execution. The properties, consisting of the tugboats Dadiangas, Marinero, and Timonel, the floating
crane Northwest Murphy Diesel Engine, and the motorized launch Sea Otter, were worth P51,000,000.00 in sum. However, the same were sold at
public auction for only P1,235,000.00 to the highest bidder, a certain Rolando Patriarca. 2
Petitioners Compania Maritima, Inc., El Varadero de Manila, and Mindanao Terminal and Brokerage Services engaged the services of private
respondent, Atty. Exequiel S. Consulta, who represented them in the following cases: (1) Civil Case No. 85-30134, entitled "Genstar Container
Corporation v. Maritime Company of the Philippines," wherein petitioners' properties were levied upon although petitioners had not been impleaded
as defendants therein; (2) TBP Case No. 86-03662, entitled "Compania Maritima, Inc., v. Ramon C. Enriquez," which was a criminal case for
falsification and for violation of R.A. No. 3019, otherwise known as the Anti-Graft and Corrupt Practices Act, against Deputy Sheriff Enriquez before
the Tanodbayan; and (3) Civil Case No. 86-37196 entitled "Compania Maritima v. Genstar Container Corporation," an action for Injunction,
Annulment of Execution Proceedings, and Damages. 3
The cases were eventually resolved in this wise: (1) in Civil Case No. 85-30134, the trial court dismissed the third-party claim and motion for the
issuance of a writ of preliminary injunction filed by Atty. Consulta; (2) after Atty. Consulta filed the complaint with the Tanodbayan in TBP Case No.
86-03662, petitioners transferred the handling of the case to another lawyer; and (3) Civil Case No. 86-37196 was eventually dismissed on motion of
both parties, but only after the trial court's denial of the motion to dismiss filed by Genstar Container Corporation was upheld on appeal by both the
Court of Appeals and the Supreme Court. 4
For his services in the three cases, Atty. Consulta billed petitioners as follows: (1) P100,000.00 for Civil Case No. 85-30134; (2) P50,000.00 for TBP
Case No. 86-03662; and (3) P5,000,000.00 for Civil Case No. 86-37196, including the subsequent appeals to the Court of Appeals and the Supreme
Court. Petitioners did not pay the amount demanded but only P30,000.00 for Civil Case No. 85-30134 and P10,000.00 for TBP Case No. 86-03662. 5
Because of the failure of corporate petitioners to pay the balance of his attorney's fees, Atty. Consulta brought suit against petitioners in the Regional
Trial Court, Branch 94, Quezon City. He sought the recovery of the following: (1) P70,000.00, as the balance of the P100,000.00 attorney's fees
billed for Civil Case No. 85-30134; (2) P40,000.00, as the balance of the P50,000.00 attorney's fees for TBP Case No. 86-03662, and (3)

P5,000,000.00 as attorney's fees for Civil Case No. 86-37196, including the subsequent appeals therefrom to the Court of Appeals and the Supreme
Court. He likewise asked for moral and exemplary damages, attorney's fees, and the costs of suit. 6
On March 16, 1993, the trial court rendered a decision which in part stated:
Considering all the circumstances as above set forth, this Court believes that the amount equivalent to five percent (5%) of the
amount involved, or the amount of Two Million Five Hundred Fifty Thousand Pesos (P2,550,000.00) would be reasonable
attorney's fees for the services rendered by the plaintiff in Civil Case No. 37196 and the two related proceedings in the Court of
Appeals and the Supreme Court.
As for the services rendered by the plaintiff in Civil Case No. 30134, for which he appears to have already been paid P30,000.00,
the Court believes that an additional amount of P20,000.00 would be reasonable.
On plaintiff's demand of P40,000.00, in addition to the P10,000.00 he had initially received for services rendered in the
Tanodbayan case No. 86-03662, the Court grants him an additional P20,000.00.
WHEREFORE, judgment is hereby rendered for the plaintiff and orders the defendant to pay the plaintiff, jointly and severally,
damages as follows:
a. For services rendered by plaintiff in Civil Case No. 37196 and the related proceedings in the Court of Appeals and the Supreme
Court Two Million Five Hundred Fifty Thousand Pesos (P2,550,000.00).
b. For services rendered by plaintiff in Civil Case No. 30134 Twenty Thousand Pesos (P20,000.00).
c. For services rendered in the TBP Case No. 86-03662 Twenty Thousand Pesos (P20,000.00).
d. Filing fees in the amount of P21,856.40.
The defendants' counterclaim and plaintiff's counterclaim to defendants counterclaim are both dismissed.
SO ORDERED.
On appeal, the Court of Appeals affirmed the decision of the trial court. Said the appellate court:
In Civil Case No. 37196, where appellee rendered his legal services, appellants' property worth Fifty One Million Pesos
(P51,000,000.00) was involved. Likewise, the aforementioned case was not a simple action for collection of money, considering
that complex legal issues were raised therein which reached until the Supreme Court. In the course of such protracted legal battle
to save the appellants' properties, the appellee prepared numerous pleadings and motions, which were diligently and effectively
executed, as a result of which, the appellants' properties were saved from execution and their oppositors were forced to settle by
way of a compromise agreement.
xxx xxx xxx
It is a well-settled rule that in the recovery of attorney's fees, whether as a main action or as an incident of another action, the
determination of the reasonableness is within the prerogative of the courts (Roldan vs. Court of Appeals, 218 SCRA 713;
Radiowealth Finance Co., Inc. vs. International Corporate Bank, 182 SCRA 862; Panay Electric vs. Court of Appeals, 119 SCRA
456).
Based on the aforequoted ruling, We find that the court a quo did not commit any reversible error in awarding attorney's fees
equivalent to five percent (5%) of the total value of properties involved in Civil Case No. 37196.
Hence, this appeal. Petitioners raise the following issues:
a) Whether or not the amount of attorney's fees awarded to the private respondent by the court a quo and
affirmed by the Honorable Court is reasonable.
b) Whether or not the doctrine of piercing the veil of corporate fiction may be applied in the case at bar.
With respect to the first question, it is pertinent to note two concepts of attorney's fees in this jurisdiction. In the ordinary sense, attorney's fees
represent the reasonable compensation paid to a lawyer by his client for the legal services he has rendered to the latter. On the other hand, in its
extraordinary concept, attorney's fees may be awarded by the court as indemnity for damages to be paid by the losing party to the prevailing party.

The issue in this case concerns attorney's fees in the ordinary concept. Generally, the amount of attorney's fees due is that stipulated in the retainer
agreement which is conclusive as to the amount of the lawyer's compensation. In the absence thereof, the amount of attorney's fees is fixed on the
basis of quantum meruit, i.e., the reasonable worth of his services. 8 In determining the amount of attorney's fees, the following factors are
considered: (1) the time spent and extent of services rendered; (2) the novelty and difficulty of the questions involved; (3) the importance of the
subject matter; (4) the skill demanded; (5) the probability of losing other employment as a result of the acceptance of the proffered case; (6) the
amount involved in the controversy and the benefits resulting to the client; (7) the certainty of compensation; (8) the character of employment; and
(9) the professional standing of the lawyer. 9
Both the Court of Appeals and the trial court approved attorney's fees in the total amounts of P50,000.00 and P30,000.00 for the services of Atty.
Consulta in Civil Case No. 85-30134 and TBP Case No. 86-03662, respectively. Based on the above criteria, we think said amounts are reasonable,
although the third-party claim and motion for the issuance of a writ of preliminary injunction filed by Atty. Consulta in Civil Case No. 85-30134 was
dismissed by the trial court, while TBP Case No. 86-03662 was given by petitioners to another lawyer after Atty. Consulta had filed the complaint.
On the other hand, although the order of the trial court in Civil Case No. 86-37196 granting the motion to dismiss filed by both parties did not state
the grounds therefor, it is reasonable to infer that petitioners agreed thereto in consideration of some advantage. Hence, the rulings of the Court of
Appeals and the trial court that, because of the complexity of the issues involved and the work done by counsel, the amount of P2,550,000.00 was
reasonable for Atty. Consulta's services.
In addition, the value of the properties involved was considerable. As already stated, to satisfy the judgment in favor of Genstar Container
Corporation in Civil Case No. 85-30134, properties of petitioners worth P51,000,000.00 were sold at public auction. Only P1,235,000.00 was
realized from the sale and petitioners were in danger of losing their properties. As the appellate court pointed out, Atty. Consulta rendered
professional services not only in the trial court but in the Court of Appeals and in this Court. There is no question that through his efforts, properties
owned by petitioners were saved from execution.
It is settled that great weight, and even finality, is given to the factual conclusions of the Court of Appeals which affirm those of the trial
courts. 10 Only where it is shown that such findings are whimsical, capricious, and arbitrary can they be overturned. In the present case, the Court of
Appeals affirmed the factual conclusions of the trial court that: (1) the issues in Civil Case No. 86-03662, including the appeals taken therefrom to
the Court of Appeals and the Supreme Court, were quite complex; (2) the pleadings filed by Atty. Consulta were well-researched; and (3) as a result
of Atty. Consulta's efforts, the adverse parties were induced to agree to the dismissal of the case.
Petitioners contend, however, that: (1) the said cases merely involved simple issues; (2) the pleadings filed by Atty. Consulta did not exhibit an
extraordinary level of competence, effort, and skill; and (3) they did not benefit from the efforts of Atty. Consulta. These allegations have not been
proven. Petitioners have not shown that the factual findings of both the Court of Appeals and the trial court are contrary to the evidence. Nor have
they shown that they did not benefit from their representation by Atty. Consulta.
With respect to the liability of individual petitioners Carlos P. Fernandez, Vicente T. Fernandez, Luis T. Fernandez, and Ramon B. Fernandez, we
hold that the mere fact that they were stockholders and directors of corporate petitioners does not justify a finding that they are liable for the
obligations of the corporations.
It is well-settled that as a legal entity, a corporation has a personality separate and distinct from its individual stockholders or members. The fiction of
corporate entity will be set aside and the individual stockholders will be held liable for its obligation only if it is shown that it is being used for
fraudulent, unfair, or illegal purposes. 11 In this case, the Court of Appeals held that individual petitioners were guilty of fraud, based on its finding
that they refused to pay the attorney's fees demanded by Atty. Consulta. It should be noted, however, that although petitioners Compania Maritima,
Inc., El Varadero de Manila, and Mindanao Terminal and Brokerage Services have an obligation to pay Atty. Consulta for his attorney's fees, the
amount thereof was still in dispute. It was therefore improper for the Court of Appeals to conclude that individual petitioners were guilty of fraud
simply because corporate petitioners had refused to make the payments demanded. The fact remains that at the time of demand, the amount due to
Atty. Consulta had not been finally determined.
WHEREFORE, in view of the foregoing, the decision of the Court of Appeals, dated February 27, 1996, is AFFIRMED with the modification that
individual petitioners Carlos P. Fernandez, Vicente T. Fernandez, Luis T. Fernandez, and Ramon B. Fernandez are absolved from personal liability for
attorney's fees to Atty. Exequiel S. Consulta.
SO ORDERED.
Bellosillo, Quisumbing, Buena and De Leon, Jr., JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-69560 June 30, 1988
THE INTERNATIONAL CORPORATE BANK INC., petitioner,
vs.
THE IMMEDIATE APPELLATE COURT, HON. ZOILO AGUINALDO, as presiding Judge of the Regional Trial Court of Makati, Branch
143, NATIVIDAD M. FAJARDO, and SILVINO R. PASTRANA, as Deputy and Special Sheriff, respondents.

PARAS, J.:
This is a petition for review on certiorari of the Decision of the Court of Appeals dated October 31, 1984 in AC-G.R. SP No. 02912 entitled "THE
INTERNATIONAL CORPORATE BANK, INC. v. Hon. ZOILO AGUINALDO, et al.," dismissing petitioner's petition for certiorari against the
Regional Trial Court of Makati (Branch 143) for lack of merit, and of its Resolution dated January 7, 1985, denying petitioner's motion for
reconsideration of the aforementioned Decision.
Petitioner also prays that upon filing of the petition, a restraining order be issued ex-parte, enjoining respondents or any person acting in their behalf,
from enforcing or in any manner implementing the Order of the respondent trial court dated February 13 and March 9, 1984, and January 10 and
January 11, 1985.
The facts of this case, as found by the trial court and subsequently adopted by the Court of Appeals, are as follows:
In the early part of 1980, private respondent secured from petitioner's predecessors-in-interest, the then Investment and Underwriting Corp. of the
Philippines and Atrium Capital Corp., a loan in the amount of P50,000,000.00. To secure this loan, private respondent mortgaged her real properties
in Quiapo, Manila and in San Rafael, Bulacan, which she claimed have a total market value of P110,000,000.00. Of this loan, only the amount of
P20,000,000.00 was approved for release. The same amount was applied to pay her other obligations to petitioner, bank charges and fees. Thus,
private respondent's claim that she did not receive anything from the approved loan.
On September 11, 1980, private respondent made a money market placement with ATRIUM in the amount of P1,046,253.77 at 17% interest per
annum for a period of 32 days or until October 13, 1980, its maturity date. Meanwhile, private respondent allegedly failed to pay her mortgaged
indebtedness to the bank so that the latter refused to pay the proceeds of the money market placement on maturity but applied the amount instead to
the deficiency in the proceeds of the auction sale of the mortgaged properties. With Atrium being the only bidder, said properties were sold in its
favor for only P20,000,000.00. Petitioner claims that after deducting this amount, private respondent is still indebted in the amount of P6.81 million.
On November 17, 1982, private respondent filed a complaint with the trial court against petitioner for annulment of the sheriff's sale of the mortgaged
properties, for the release to her of the balance of her loan from petitioner in the amount of P30,000,000,00, and for recovery of P1,062,063.83
representing the proceeds of her money market investment and for damages. She alleges in her complaint, which was subsequently amended, that the
mortgage is not yet due and demandable and accordingly the foreclosure was illegal; that per her loan agreement with petitioner she is entitled to the
release to her of the balance of the loan in the amount of P30,000,000.00; that petitioner refused to pay her the proceeds of her money market
placement notwithstanding the fact that it has long become due and payable; and that she suffered damages as a consequence of petitioner's illegal
acts.
In its answer, petitioner denies private respondent's allegations and asserts among others, that it has the right to apply or set off private respondent's
money market claim of P1,062,063.83. Petitioner thus interposes counterclaims for the recovery of P5,763,741.23, representing the balance of its
deficiency claim after deducting the proceeds of the money market placement, and for damages.
The trial court subsequently dismissed private respondent's cause of action concerning the annulment of the foreclosure sale, for lack of jurisdiction,
but left the other causes of action to be resolved after trial. Private respondent then filed separate complaints in Manila and in Bulacan for annulment
of the foreclosure sale of the properties in Manila and in Bulacan, respectively.
On December 15, 1983, private respondent filed a motion to order petitioner to release in her favor the sum of P1,062,063.83, representing the
proceeds of the money market placement, at the time when she had already given her direct testimony on the merits of the case and was being crossexamined by counsel. On December 24, 1983, petitioner filed an opposition thereto, claiming that the proceeds of the money market investment had
already been applied to partly satisfy its deficiency claim, and that to grant the motion would be to render judgment in her favor without trial and
make the proceedings moot and academic. However, at the hearing on February 9, 1984, counsel for petitioner and private respondent jointly
manifested that they were submitting for resolution said motion as well as the opposition thereto on the basis of the pleadings and of the evidence
which private respondent had already presented.

On February 13, 1984, respondent judge issued an order granting the motion, as follows:
IN VIEW OF THE FOREGOING, the defendant International Corporate Bank is hereby ordered to deliver to the plaintiff
Natividad M. Pajardo the amount of P1,062,063.83 covered by the repurchase agreement with Serial No. AOY-14822 (Exhibit
"A'), this amount represented the principal of P1,046,253.77 which the plaintiff held including its interest as of October 13, 1980,
conditioned upon the plaintiff filing a bond amount to P1,062,063.83 to answer for all damages which the said defendant bank
may suffer in the event that the Court should finally decide that the plaintiff was not entitled to the said amount.
Petitioner filed a motion for reconsideration to the aforesaid order, asserting among other things that said motion is not verified, and therefore a mere
scrap of paper. Private respondent however manifested that since she testified in open court and was cross-examined by counsel for petitioner on the
motion for release of the proceeds of the money market placement, the defect had already been cured. On March 9, 1984, the respondent judge issued
an order denying petitioner's motion for reconsideration. (CA Decision, Rollo, pp. 109-111).
On March 13, 1984, petitioner filed a special civil action for certiorari and prohibition with preliminary injunction with the Court of Appeals, (a) for
the setting aside and annulment of the Orders dated February 13, 1984 and March 9,1984, issued by the respondent trial court, and (b) for an order
commanding or directing the respondent trial judge to desist from enforcing and/or implementing and/or executing the aforesaid Orders. The
temporary restraining order prayed for was issued by respondent Court of Appeals on March 22, 1984. (Please see CA Decision, Rollo, p. 114, last
paragraph).
In a decision rendered on October 31, 1984 (Rollo, pp. 109-14), the Court of Appeals dismissed said petition finding(a) that while the Motion for
the release of the proceeds of the money market investment in favor of private respondent was not verified by her, that defect was cured when she
testified under oath to substantiate her allegations therein: (b) that, petitioner cannot validly claim it was denied due process for the reason that it was
given ample time to be heard, as it was in fact heard when it filed an Opposition to the motion and a motion for reconsideration; (c) that the
circumstances of this case prevent legal compensation from taking place because the question of whether private respondent is indebted to petitioner
in the amount of 6.81 million representing the deficiency balance after the foreclosure of the mortgage executed to secure the loan extended to her, is
vigorously disputed; (d) that the release of the proceeds of the money market investment for private respondent will not make the causes of action of
the case pending before the trial court moot and academic nor will it cause irreparable damage to petitioner, private respondent having filed her bond
in the amount of P1,062,063.83 to answer for all damages which the former may suffer in the event that the court should finally decide that private
respondent is not entitled to the return of said amount (CA Decision, Rello, pp. 112-114).
The dispositive portion of the aforementioned Decision reads:
... We hold that the respondent court cannot be successfully charged with grave abuse of discretion amounting to lack of
jurisdiction when it issued its Orders of February 13, 1984 and March 9, 1984, based as they are on a correct appreciation of the
import of the parties' evidence and the applicable law.
IN VIEW WHEREOF, the petition is dismissed for lack of merit and the temporary restraining order issued by this Court on
March 22, 1984 is lifted. (Ibid., p. 114).
Petitioner moved for the reconsideration of the above decision (Annex "S", Rollo, pp. 116-124), but for the reason that the same failed to raise any
issue that had not been considered and passed upon by the respondent Court of Appeals, it was denied in a Resolution dated January 7, 1985 (CA
Resolution, Rollo, p. 126).
Having been affirmed by the Court of Appeals, the trial court issued a Writ of Execution to implement its Order of February 13, 1984 (Annex "BB",
Rollo, p. 188) and by virtue thereof, a levy was made on petitioner's personal property consisting of 20 motor vehicles (Annex "U", Rollo, p. 127).
On January 9, 1985, herein private respondent (then plaintiff) filed in the trial court an ex-parte motion praying that the four branches of the
petitioner such as: Baclaran Branch, Paranaque, Metro Manila; Ylaya Branch, Divisoria, Metro Manila; Cubao Branch, Quezon City and Binondo
Branch, Sta. Cruz, Manila, be ordered to pay the amount of P250,000.00 each, and the main office of the petitioner bank at Paseo de Roxas, Makati,
Metro Manila, be ordered to pay the amount of P62,063.83 in order to answer for the claim of private respondent amounting to P1,062,063.83.
Thereupon, on January 10, 1985, the trial court issued an Order (Annex "V", Rollo, p. 129) granting the above-mentioned prayers.
Acting on the ex-parte motion by the plaintiff (now private respondent), the trial court, on January 11, 1984, ordered the President of defendant
International Corporate Bank (now petitioner) and all its employees and officials concemed to deliver to the sheriff the 20 motor vehicles levied by
virtue of the Writ of Execution dated December 12, 1984 (Annex "W", Rollo, p. 131).
The petitioner having failed to comply with the above-cited Order, the respondent trial court issued two (2) more Orders: the January 16, 1985
(Annex "CC," Rollo, p. 190) and January 21, 1985 Orders (Annex "DD", Rollo, p. 191), directing several employees mentioned therein to show
cause wily they should not be cited in contempt.
Hence, this petition for review on certiorari with prayer for a restraining order and for a writ of preliminary injunction.

Three days after this petition was filed, or specifically on January 18, 1985, petitioner filed an urgent motion reiterating its prayer for the issuance of
an ex-parte restraining order (Rollo, p. 132).
Simultaneous with the filing of the present petition, petitioner, as defendant, filed with the trial court an ex-partemotion to suspend the
implementation of any and all orders and writs issued pursuant to Civil Case No. 884 (Annex "A", Rollo, p. 135).
This Court's resolution dated January 21, 1985, without giving due course to the petition, resolved (a) to require the respondents to comment: (b) to
issue, effective immediately and until further orders from this Court, a Temporary Restraining Order enjoining the respondents from enforcing or in
any manner implementing the questioned Orders dated February 13, 1984, March 9, 1984, January 10, 1985 and January 11 and 16, 1985, issued in
Civil Case No. 884.
The corresponding writ was issued on the same day (Rollo, pp. 139-140).
As required, the Comment of private respondent was filed on January 28, 1985 (Rollo, pp. 141- 150).
Thereafter, petitioner moved for leave to file a supplemental petition on the ground that after it had filed this present petition, petitioner discovered
that the bond filed with, and approved by, the respondent lower court showed numerous material erasures, alterations and/or additions (Rollo, p. 151),
which the issuing insurance company certified as having been done without its authority or consent (Annex "Z", Rollo, p. 178).
The Supplemental Petition was actually filed on February 1, 1985 (Rollo, pp. 154-171). It pointed out the erasures, alterations and/or additions in the
bond as follows:
a. below "Civil Case No. 884" after the words, "Plaintiff's Bond," the phrase "For Levying of Attachment" was erased or deleted;
b. in lines 2 and 3 after the word "order," the phrase "approving plaintiff's motion dated Dec. 15, 1983, was inserted or added;
c. in line 3, the phrases "Of attachment" and "ordered that a writ of attachment issue' were erased or deleted;
d also in line 3 after the words "the court has" the phrase "approved the Motion was likewise inserted or added;
e. in line 9, the phrase "and of the levying of said attachment" was also erased or deleted;
f. in line 13, the word "attachment" was likewise erased or deleted;
g. also in line 13 after the deletion of word "attachment" the phrase "release of the P1,062,063.83 to the plaintiff was similarly
inserted or added."
Petitioner contended therein that in view of the foregoing facts, the genuineness, due execution and authenticity as well as the validity and
enforceability of the bond (Rello, p. 174) is now placed in issue and consequently, the bond may successfully be repudiated as falsified and,
therefore, without any force and effect and the bonding company may thereby insist that it has been released from any hability thereunder.
Also, petitioner pointed as error the respondent trial court's motu proprio transferring Civil Case No. 884 to the Manila Branch of the same Court
arguing that improper venue, as a ground for, and unless raised in, a Motion to Dismiss, may be waived by the parties and the court may not pre-empt
the right of the parties to agree between or among themselves as to the venue of their choice in litigating their justiciable controversy (Supplemental
Petition, Rollo, p. 160).
On being required to comment thereon, (Rollo, p. 192) private respondent countered (Rollo, pp. 193-198) that bond forms are ready-prepared forms
and the bonding company used the form for "Levying of Attachment" because the company has no ready-prepared form for the kind of bond called
for or required in Civil Case 884. Whatever deletions or additions appear on the bond were made by the Afisco Insurance Corporation itself for the
purpose of accomplishing what was required or intended.
Nonetheless, on May 7, 1985, private respondent filed "Plaintiffs Bond" in the respondent trial court in the amount of P1,062,063.83 a xerox copy of
which was furnished this Court (Rollo, p. 219), and noted in the Court's Resolution dated May 29,1985 (Rollo, p. 225).
On March 11, 1985, petitioner was required to file a Consolidated Reply (Rollo, p. 199) which was filed on April 10, 1985 (Rollo, p. 201).
Thereafter, a Rejoinder (Rollo, p. 238) was filed by private respondent on September 18, 1985 after Atty. Advincula, counsel for private respondents
was required by this Court to show cause why he should not be disciplinarily dealt with or held in contempt for his failure to comply on time (Rollo,
p. 226) and on August 19, 1985 said lawyer was finally admonished (Rollo, p. 229) for his failure to promptly apprise the Court of his alleged nonreceipt of copy of petitioner's reply, which alleged non-receipt was vehemently denied by petitioner in its Counter Manifestation (Rollo, p. 230) filed
on August 5, 1985.

Finally, on October 7, 1985, this petition was given due course and both parties were required to submit simultaneous memoranda (Rollo, p. 249) but
before the same were filed, petitioner moved for leave to file sur-rejoinder (Rollo, p. 250), the sur-rejoinder was filed on October 14,1985 (Rollo, pp.
252-254).
Petitioner's memorandum was filed on December 28, 1985 (Rollo, pp. 264-292) while that of private respondent was submitted on January 10, 1986
(Rollo, pp. 295-304).
Petitioner again moved for leave to file a Reply Memorandum (Rollo, p. 307) which, despite permission from this Court, was not filed and on August
22, 1986, private respondent prayed for early resolution of the petition (Rollo, p. 311).
In a resolution dated October 13, 1986 (Rollo, p. 314) this case was transferred to the Second Division of this Court, the same being assigned to a
member of that Division.
The crucial issue to be resolved in this case is whether or not there can be legal compensation in the case at bar.
Petitioner contends that after foreclosing the mortgage, there is still due from private respondent as deficiency the amount of P6.81 million against
which it has the right to apply or set off private respondent's money market claim of P1,062,063.83.
The argument is without merit.
As correctly pointed out by the respondent Court of Appeals
Compensation shall take place when two persons, in their own right, are creditors and debtors of each other. (Art. 1278, Civil
Code). "When all the requisites mentioned in Art. 1279 of the Civil Code are present, compensation takes effect by operation of
law, even without the consent or knowledge of the debtors." (Art. 1290, Civil Code). Article 1279 of the Civil Code requires
among others, that in order that legal compensation shall take place, "the two debts be due" and "they be liquidated and
demandable." Compensation is not proper where the claim of the person asserting the set-off against the other is not clear nor
liquidated; compensation cannot extend to unliquidated, disputed claim arising from breach of contract. (Compaia General de
Tabacos vs. French and Unson, 39 Phil. 34; Lorenzo & Martinez vs. Herrero, 17 Phil. 29).
There can be no doubt that petitioner is indebted to private respondent in the amount of P1,062,063.83 representing the proceeds
of her money market investment. This is admitted. But whether private respondent is indebted to petitioner in the amount of
P6.81 million representing the deficiency balance after the foreclosure of the mortgage executed to secure the loan extended to
her, is vigorously disputed. This circumstance prevents legal compensation from taking place. (CA Decision, Rollo, pp. 112-113).
It must be noted that Civil Case No. 83-19717 is still pending consideration at the RTC Manila, for annulment of Sheriffs sale on extra-judicial
foreclosure of private respondent's property from which the alleged deficiency arose. (Annex "AA", Rollo, pp. 181-189). Therefore, the validity of
the extrajudicial foreclosure sale and petitioner's claim for deficiency are still in question, so much so that it is evident, that the requirement of Article
1279 that the debts must be liquidated and demandable has not yet been met. For this reason, legal compensation cannot take place under Article
1290 of the Civil Code.
Petitioner now assails the motion of the plaintiff (now private respondent) filed in the trial court for the release of the proceeds of the money market
investment, arguing that it is deficient in form, the same being unverified (petitioner's Memorandum, Rollo, p. 266). On this score, it has been held
that "as enjoined by the Rules of Court and the controlling jurisprudence, a liberal construction of the rules and the pleadings is the controlling
principle to effect substantial justice." (Maturan v. Araula, 111 SCRA 615 [1982]).
Finally, the filing of insufficient or defective bond does not dissolve absolutely and unconditionally the injunction issued. Whatever defect the bond
possessed was cured when private respondent filed another bond in the trial court.
PREMISES CONSIDERED, the questioned Decision and Resolution of the respondent Court of Appeals are hereby AFFIRMED.
SO ORDERED.
Yap, C.J., Melencio-Herrera and Padilla, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-62169 February 28, 1983
MINDANAO PORTLAND CEMENT CORPORATION, petitioner,
vs.
COURT OF APPEALS, PACWELD STEEL CORPORATION and ATTY. CASIANO P. LAQUIHON respondents.
Tolentino, Garcia, Cruz Reyes Law Office for petitioner.
Casiano P. Laquihon for respondents.

TEEHANKEE, J.:
The Court of Appeals (now Intermediate Appellate Court) certified petitioner's appeal therein as defendant-appellant, docketed as C.A.-G.R. No.
65102 thereof, to this Court as involving only questions of law in its Resolution of August 31, 1982, reading as follows:
The 'Statement of the Case and the Statement of Facts' contained in appellant's brief follow:
STATEMENT OF FACTS
On January 3, 1978, one Atty. Casiano P. Laquihon, in behalf of third-party defendant Pacweld Steel Corporation (Pacweld for
short) as the latter's attorney, filed a pleading addressed to the defendant & Third-Party Plaintiff Mindanao Portland Cement
Corporation (MPCC) for short), herein appellant, entitled 'motion to direct payment of attorney's fee to counsel' (himself ),
invoking in his motion the fact that in the decision of the court of Sept. 14, 1976, MPCC was adjudged to pay Pacweld the sum of
P10,000.00 as attorney's fees (Record on Appeal, pp. 1, 6-9).
On March 14, 1978, MPCC filed an opposition to Atty. Laquihon's motion, stating, as grounds therefor, that said amount is set-off
by a like sum of P10,000.00 which it MPCC has collectible in its favor from Pacweld also by way of attorney's fees which MPCC
recovered from the same Court of First Instance of Manila (Branch XX) in Civil Case No. 68346, entitled Pacweld Steel
Corporation, et al. writ of execution to this effect having been issued by said court (Record on Appeal, pp, 2,10- 14).
On June 26, 1978 the court issued the order appealed from (Record on Appeal, pp. 24-25) and despite MPCCs motion for
reconsideration of said order, citing the law applicable and Supreme Court decisions (Record on Appeal, pp. 26-33), denied the
same in its order of August 28, 1978 (Record on Appeal, p. 37), also subject matter of this appeal.
The writ of execution referred to above which MPCC has invoked to set- off the amount sought to be collected by Pacweld
through the latter's lawyer, Atty. Casiano P. Laquihon, is hereunder quoted in full.
In his brief, appellee comments that the statements in appellant's brief are 'substantially correct,' as follows:
STATEMENT OF THE CASE
This is an appeal from the Order of the Court of First Instance of Manila (Branch X dated June 26, 1978 ordering the appellant
(MINDANAO PORTLAND CEMENT CORPORATION) to pay the amount of P10,000.00 attorney's fees directly to Atty.
Casiano B. Laquihon (Record on Appeal, pp. 24-25) and from the Order dated August 28, 1978 denying appellant's motion for
reconsideration (Record on Appeal, p. 37).
There was no trial or submission of documentary evidence. Against the orders of June 26. 1978, and August 28, 1978, appellant
has brought this appeal to this Court, contending that:

The lower court erred in not holding that the two obligations are extinguished reciprocally by operation of law.' (p. 6, Appellant's
Brief)
This appeal calls for the application of Arts. 1278, 1279 and 1290 of the Civil Code, as urged by the appellant. Another question
is: The judgment in Civil Case No. 75179 being already final at the time the motion under consideration was filed, does not the
order of June 26, 1976 constitute a change or alteration of the said judgment, though issued by the very same court that rendered
the judgment?
WHEREFORE, since only questions of law are involved and there is no factual issue left for us to determine, let the records of
the appeal in this case be certified to the Honorable Supreme Court for determination.
After considering the briefs of the parties in the appellate court and the additional pleadings required of them by this Court, the Court finds merit in
the appeal and sets aside the appealed orders of June 26 and August 28, 1978 of the Court of First Instance (now Regional Trial Court) of Manila,
Branch XX.
It is clear from the record that both corporations, petitioner Mindanao Portland Cement Corporation (appellant) and respondent Pacweld Steel
Corporation (appellee), were creditors and debtors of each other, their debts to each other consisting in final and executory judgments of the Court of
First Instance in two (2) separate cases, ordering the payment to each other of the sum of P10,000.00 by way of attorney's fees. The two (2)
obligations, therefore, respectively offset each other, compensation having taken effect by operation of law and extinguished both debts to the
concurrent amount of P10,000.00, pursuant to the provisions of Arts. 1278, 1279 and 1290 of the Civil Code, since all the requisites provided in Art.
1279 of the said Code for automatic compensation "even though the creditors and debtors are not aware of the compensation" were duly present.**
Necessarily, the appealed order of June 26, 1978 granting Atty. Laquihon's motion for amendment of the judgment of September 14, 1976 against
Mindanao Portland Cement Corporation so as to make the award therein of P10,000.00 as attorney's fees payable directly to himself as counsel of
Pacweld Steel Corporation instead of payable directly to said corporation as provided in the judgment, which had become final and executory long
before the issuance of said "amendatory" order was a void alteration of judgment. It was a substantial change or amendment beyond the trial court's
jurisdiction and authority and it could not defeat the compensation or set-off of the two (2) obligations of the corporations to each other which had
already extinguished both debts by operation of law.
ACCORDINGLY. the appealed orders are hereby annulled and set aside. No costs.
Melencio-Herrera, Plana, Vasquez, Relova and Gutierrez, Jr., JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 136202

January 25, 2007

BANK OF THE PHILIPPINE ISLANDS, Petitioner,

vs.
COURT OF APPEALS, ANNABELLE A. SALAZAR, and JULIO R. TEMPLONUEVO, Respondents
DECISION
AZCUNA, J.:
This is a petition for review under Rule 45 of the Rules of Court seeking the reversal of the Decision 1 dated April 3, 1998, and the Resolution2 dated
November 9, 1998, of the Court of Appeals in CA-G.R. CV No. 42241.
The facts3 are as follows:
A.A. Salazar Construction and Engineering Services filed an action for a sum of money with damages against herein petitioner Bank of the
Philippine Islands (BPI) on December 5, 1991 before Branch 156 of the Regional Trial Court (RTC) of Pasig City. The complaint was later amended
by substituting the name of Annabelle A. Salazar as the real party in interest in place of A.A. Salazar Construction and Engineering Services. Private
respondent Salazar prayed for the recovery of the amount of Two Hundred Sixty-Seven Thousand, Seven Hundred Seven Pesos and Seventy
Centavos (P267,707.70) debited by petitioner BPI from her account. She likewise prayed for damages and attorneys fees.
Petitioner BPI, in its answer, alleged that on August 31, 1991, Julio R. Templonuevo, third-party defendant and herein also a private
respondent, demanded from the former payment of the amount of Two Hundred Sixty-Seven Thousand, Six Hundred Ninety-Two Pesos and Fifty
Centavos (P267,692.50) representing the aggregate value of three (3) checks, which were allegedly payable to him, but which were deposited with
the petitioner bank to private respondent Salazars account (Account No. 0203-1187-67) without his knowledge and corresponding endorsement.
Accepting that Templonuevos claim was a valid one, petitioner BPI froze Account No. 0201-0588-48 of A.A. Salazar and Construction and
Engineering Services, instead of Account No. 0203-1187-67 where the checks were deposited, since this account was already closed by private
respondent Salazar or had an insufficient balance.
Private respondent Salazar was advised to settle the matter with Templonuevo but they did not arrive at any settlement. As it appeared that private
respondent Salazar was not entitled to the funds represented by the checks which were deposited and accepted for deposit, petitioner BPI decided to
debit the amount of P267,707.70 from her Account No. 0201-0588-48 and the sum of P267,692.50 was paid to Templonuevo by means of a cashiers
check. The difference between the value of the checks (P267,692.50) and the amount actually debited from her account (P267,707.70) represented
bank charges in connection with the issuance of a cashiers check to Templonuevo.
In the answer to the third-party complaint, private respondent Templonuevo admitted the payment to him ofP267,692.50 and argued that said
payment was to correct the malicious deposit made by private respondent Salazar to her private account, and that petitioner banks negligence and
tolerance regarding the matter was violative of the primary and ordinary rules of banking. He likewise contended that the debiting or taking of the
reimbursed amount from the account of private respondent Salazar by petitioner BPI was a matter exclusively between said parties and may be
pursuant to banking rules and regulations, but did not in any way affect him. The debiting from another account of private respondent Salazar,
considering that her other account was effectively closed, was not his concern.
After trial, the RTC rendered a decision, the dispositive portion of which reads thus:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff [private respondent Salazar] and against the defendant
[petitioner BPI] and ordering the latter to pay as follows:
1. The amount of P267,707.70 with 12% interest thereon from September 16, 1991 until the said amount is fully paid;
2. The amount of P30,000.00 as and for actual damages;
3. The amount of P50,000.00 as and for moral damages;
4. The amount of P50,000.00 as and for exemplary damages;

5. The amount of P30,000.00 as and for attorneys fees; and

6. Costs of suit.
The counterclaim is hereby ordered DISMISSED for lack of factual basis.
The third-party complaint [filed by petitioner] is hereby likewise ordered DISMISSED for lack of merit.
Third-party defendants [i.e., private respondent Templonuevos] counterclaim is hereby likewise DISMISSED for lack of factual basis.
SO ORDERED.4
On appeal, the Court of Appeals (CA) affirmed the decision of the RTC and held that respondent Salazar was entitled to the proceeds of the three (3)
checks notwithstanding the lack of endorsement thereon by the payee. The CA concluded that Salazar and Templonuevo had previously agreed that
the checks payable to JRT Construction and Trading 5 actually belonged to Salazar and would be deposited to her account, with petitioner acquiescing
to the arrangement.6
Petitioner therefore filed this petition on these grounds:
I.
The Court of Appeals committed reversible error in misinterpreting Section 49 of the Negotiable Instruments Law and Section 3 (r and s) of Rule 131
of the New Rules on Evidence.
II.
The Court of Appeals committed reversible error in NOT applying the provisions of Articles 22, 1278 and 1290 of the Civil Code in favor of BPI.
III.
The Court of Appeals committed a reversible error in holding, based on a misapprehension of facts, that the account from which BPI debited the
amount of P267,707.70 belonged to a corporation with a separate and distinct personality.
IV.
The Court of Appeals committed a reversible error in holding, based entirely on speculations, surmises or conjectures, that there was an agreement
between SALAZAR and TEMPLONUEVO that checks payable to TEMPLONUEVO may be deposited by SALAZAR to her personal account and
that BPI was privy to this agreement.
V.
The Court of Appeals committed reversible error in holding, based entirely on speculation, surmises or conjectures, that SALAZAR suffered great
damage and prejudice and that her business standing was eroded.
VI.
The Court of Appeals erred in affirming instead of reversing the decision of the lower court against BPI and dismissing SALAZARs complaint.
VII.
The Honorable Court erred in affirming the decision of the lower court dismissing the third-party complaint of BPI. 7
The issues center on the propriety of the deductions made by petitioner from private respondent Salazars account. Stated otherwise, does a collecting
bank, over the objections of its depositor, have the authority to withdraw unilaterally from such depositors account the amount it had previously paid
upon certain unendorsed order instruments deposited by the depositor to another account that she later closed?
Petitioner argues thus:
1. There is no presumption in law that a check payable to order, when found in the possession of a person who is neither a payee nor the
indorsee thereof, has been lawfully transferred for value. Hence, the CA should not have presumed that Salazar was a transferee for value

within the contemplation of Section 49 of the Negotiable Instruments Law,8 as the latter applies only to a holder defined under Section
191of the same.9
2. Salazar failed to adduce sufficient evidence to prove that her possession of the three checks was lawful despite her allegations that these
checks were deposited pursuant to a prior internal arrangement with Templonuevo and that petitioner was privy to the arrangement.
3. The CA should have applied the Civil Code provisions on legal compensation because in deducting the subject amount from Salazars
account, petitioner was merely rectifying the undue payment it made upon the checks and exercising its prerogative to alter or modify an
erroneous credit entry in the regular course of its business.
4. The debit of the amount from the account of A.A. Salazar Construction and Engineering Services was proper even though the value of
the checks had been originally credited to the personal account of Salazar because A.A. Salazar Construction and Engineering Services, an
unincorporated single proprietorship, had no separate and distinct personality from Salazar.
5. Assuming the deduction from Salazars account was improper, the CA should not have dismissed petitioners third-party complaint
against Templonuevo because the latter would have the legal duty to return to petitioner the proceeds of the checks which he previously
received from it.
6. There was no factual basis for the award of damages to Salazar.
The petition is partly meritorious.
First, the issue raised by petitioner requires an inquiry into the factual findings made by the CA. The CAs conclusion that the deductions from the
bank account of A.A. Salazar Construction and Engineering Services were improper stemmed from its finding that there was no ineffective payment
to Salazar which would call for the exercise of petitioners right to set off against the formers bank deposits. This finding, in turn, was drawn from
the pleadings of the parties, the evidence adduced during trial and upon the admissions and stipulations of fact made during the pre-trial, most
significantly the following:
(a) That Salazar previously had in her possession the following checks:
(1) Solid Bank Check No. CB766556 dated January 30, 1990 in the amount of P57,712.50;
(2) Solid Bank Check No. CB898978 dated July 31, 1990 in the amount of P55,180.00; and,
(3) Equitable Banking Corporation Check No. 32380638 dated August 28, 1990 for the amount ofP154,800.00;
(b) That these checks which had an aggregate amount of P267,692.50 were payable to the order of JRT Construction and Trading, the name
and style under which Templonuevo does business;
(c) That despite the lack of endorsement of the designated payee upon such checks, Salazar was able to deposit the checks in her personal
savings account with petitioner and encash the same;
(d) That petitioner accepted and paid the checks on three (3) separate occasions over a span of eight months in 1990; and
(e) That Templonuevo only protested the purportedly unauthorized encashment of the checks after the lapse of one year from the date of the
last check.10
Petitioner concedes that when it credited the value of the checks to the account of private respondent Salazar, it made a mistake because it failed to
notice the lack of endorsement thereon by the designated payee. The CA, however, did not lend credence to this claim and concluded that petitioners
actions were deliberate, in view of its admission that the "mistake" was committed three times on three separate occasions, indicating acquiescence to
the internal arrangement between Salazar and Templonuevo. The CA explained thus:
It was quite apparent that the three checks which appellee Salazar deposited were not indorsed. Three times she deposited them to her account and
three times the amounts borne by these checks were credited to the same. And in those separate occasions, the bank did not return the checks to her so
that she could have them indorsed. Neither did the bank question her as to why she was depositing the checks to her account considering that she was
not the payee thereof, thus allowing us to come to the conclusion that defendant-appellant BPI was fully aware that the proceeds of the three checks
belong to appellee.
For if the bank was not privy to the agreement between Salazar and Templonuevo, it is most unlikely that appellant BPI (or any bank for that matter)
would have accepted the checks for deposit on three separate times nary any question. Banks are most finicky over accepting checks for deposit
without the corresponding indorsement by their payee. In fact, they hesitate to accept indorsed checks for deposit if the depositor is not one they
know very well.11

The CA likewise sustained Salazars position that she received the checks from Templonuevo pursuant to an internal arrangement between them,
ratiocinating as follows:
If there was indeed no arrangement between Templonuevo and the plaintiff over the three questioned checks, it baffles us why it was only on August
31, 1991 or more than a year after the third and last check was deposited that he demanded for the refund of the total amount of P267,692.50.
A prudent man knowing that payment is due him would have demanded payment by his debtor from the moment the same became due and
demandable. More so if the sum involved runs in hundreds of thousand of pesos. By and large, every person, at the very moment he learns that he
was deprived of a thing which rightfully belongs to him, would have created a big fuss. He would not have waited for a year within which to do so. It
is most inconceivable that Templonuevo did not do this.12
Generally, only questions of law may be raised in an appeal by certiorari under Rule 45 of the Rules of Court.13Factual findings of the CA are
entitled to great weight and respect, especially when the CA affirms the factual findings of the trial court. 14 Such questions on whether certain items
of evidence should be accorded probative value or weight, or rejected as feeble or spurious, or whether or not the proofs on one side or the other are
clear and convincing and adequate to establish a proposition in issue, are questions of fact. The same holds true for questions on whether or not the
body of proofs presented by a party, weighed and analyzed in relation to contrary evidence submitted by the adverse party may be said to be strong,
clear and convincing, or whether or not inconsistencies in the body of proofs of a party are of such gravity as to justify refusing to give said proofs
weight all these are issues of fact which are not reviewable by the Court. 15
This rule, however, is not absolute and admits of certain exceptions, namely: a) when the conclusion is a finding grounded entirely on speculations,
surmises, or conjectures; b) when the inference made is manifestly mistaken, absurd, or impossible; c) when there is a grave abuse of discretion; d)
when the judgment is based on a misapprehension of facts; e) when the findings of fact are conflicting; f) when the CA, in making its findings, went
beyond the issues of the case and the same are contrary to the admissions of both appellant and appellee; g) when the findings of the CA are contrary
to those of the trial court; h) when the findings of fact are conclusions without citation of specific evidence on which they are based; i) when the
finding of fact of the CA is premised on the supposed absence of evidence but is contradicted by the evidence on record; and j) when the CA
manifestly overlooked certain relevant facts not disputed by the parties and which, if properly considered, would justify a different conclusion. 16
In the present case, the records do not support the finding made by the CA and the trial court that a prior arrangement existed between Salazar and
Templonuevo regarding the transfer of ownership of the checks. This fact is crucial as Salazars entitlement to the value of the instruments is based
on the assumption that she is a transferee within the contemplation of Section 49 of the Negotiable Instruments Law.
Section 49 of the Negotiable Instruments Law contemplates a situation whereby the payee or indorsee delivers a negotiable instrument for value
without indorsing it, thus:
Transfer without indorsement; effect of- Where the holder of an instrument payable to his order transfers it for value without indorsing it, the transfer
vests in the transferee such title as the transferor had therein, and the transferee acquires in addition, the right to have the indorsement of the
transferor. But for the purpose of determining whether the transferee is a holder in due course, the negotiation takes effect as of the time when the
indorsement is actually made. 17
It bears stressing that the above transaction is an equitable assignment and the transferee acquires the instrument subject to defenses and equities
available among prior parties. Thus, if the transferor had legal title, the transferee acquires such title and, in addition, the right to have the
indorsement of the transferor and also the right, as holder of the legal title, to maintain legal action against the maker or acceptor or other party liable
to the transferor. The underlying premise of this provision, however, is that a valid transfer of ownership of the negotiable instrument in question has
taken place.
Transferees in this situation do not enjoy the presumption of ownership in favor of holders since they are neither payees nor indorsees of such
instruments. The weight of authority is that the mere possession of a negotiable instrument does not in itself conclusively establish either the right of
the possessor to receive payment, or of the right of one who has made payment to be discharged from liability. Thus, something more than mere
possession by persons who are not payees or indorsers of the instrument is necessary to authorize payment to them in the absence of any other facts
from which the authority to receive payment may be inferred. 18
The CA and the trial court surmised that the subject checks belonged to private respondent Salazar based on the pre-trial stipulation that
Templonuevo incurred a one-year delay in demanding reimbursement for the proceeds of the same. To the Courts mind, however, such period of
delay is not of such unreasonable length as to estop Templonuevo from asserting ownership over the checks especially considering that it was readily
apparent on the face of the instruments 19 that these were crossed checks.
In State Investment House v. IAC,20 the Court enumerated the effects of crossing a check, thus: (1) that the check may not be encashed but only
deposited in the bank; (2) that the check may be negotiated only once - to one who has an account with a bank; and (3) that the act of crossing the
check serves as a warning to the holder that the check has been issued for a definite purpose so that such holder must inquire if the check has been
received pursuant to that purpose.
Thus, even if the delay in the demand for reimbursement is taken in conjunction with Salazars possession of the checks, it cannot be said that the
presumption of ownership in Templonuevos favor as the designated payee therein was sufficiently overcome. This is consistent with the principle
that if instruments payable to named payees or to their order have not been indorsed in blank, only such payees or their indorsees can be holders and
entitled to receive payment in their own right. 21

The presumption under Section 131(s) of the Rules of Court stating that a negotiable instrument was given for a sufficient consideration will not
inure to the benefit of Salazar because the term "given" does not pertain merely to a transfer of physical possession of the instrument. The phrase
"given or indorsed" in the context of a negotiable instrument refers to the manner in which such instrument may be negotiated. Negotiable
instruments are negotiated by "transfer to one person or another in such a manner as to constitute the transferee the holder thereof. If payable to
bearer it is negotiated by delivery. If payable to order it is negotiated by the indorsement completed by delivery." 22The present case involves checks
payable to order. Not being a payee or indorsee of the checks, private respondent Salazar could not be a holder thereof.
It is an exception to the general rule for a payee of an order instrument to transfer the instrument without indorsement. Precisely because the situation
is abnormal, it is but fair to the maker and to prior holders to require possessors to prove without the aid of an initial presumption in their favor, that
they came into possession by virtue of a legitimate transaction with the last holder.23 Salazar failed to discharge this burden, and the return of the
check proceeds to Templonuevo was therefore warranted under the circumstances despite the fact that Templonuevo may not have clearly
demonstrated that he never authorized Salazar to deposit the checks or to encash the same. Noteworthy also is the fact that petitioner stamped on the
back of the checks the words: "All prior endorsements and/or lack of endorsements guaranteed," thereby making the assurance that it had ascertained
the genuineness of all prior endorsements. Having assumed the liability of a general indorser, petitioners liability to the designated payee cannot be
denied.
Consequently, petitioner, as the collecting bank, had the right to debit Salazars account for the value of the checks it previously credited in her favor.
It is of no moment that the account debited by petitioner was different from the original account to which the proceeds of the check were credited
because both admittedly belonged to Salazar, the former being the account of the sole proprietorship which had no separate and distinct personality
from her, and the latter being her personal account.
The right of set-off was explained in Associated Bank v. Tan:24
A bank generally has a right of set-off over the deposits therein for the payment of any withdrawals on the part of a depositor. The right of a
collecting bank to debit a client's account for the value of a dishonored check that has previously been credited has fairly been established by
jurisprudence. To begin with, Article 1980 of the Civil Code provides that "[f]ixed, savings, and current deposits of money in banks and similar
institutions shall be governed by the provisions concerning simple loan."
Hence, the relationship between banks and depositors has been held to be that of creditor and debtor. Thus, legal compensation under Article 1278 of
the Civil Code may take place "when all the requisites mentioned in Article 1279 are present," as follows:
(1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if
the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the
debtor.
While, however, it is conceded that petitioner had the right of set-off over the amount it paid to Templonuevo against the deposit of Salazar, the issue
of whether it acted judiciously is an entirely different matter.25 As businesses affected with public interest, and because of the nature of their
functions, banks are under obligation to treat the accounts of their depositors with meticulous care, always having in mind the fiduciary nature of
their relationship.26In this regard, petitioner was clearly remiss in its duty to private respondent Salazar as its depositor.
To begin with, the irregularity appeared plainly on the face of the checks. Despite the obvious lack of indorsement thereon, petitioner permitted the
encashment of these checks three times on three separate occasions. This negates petitioners claim that it merely made a mistake in crediting the
value of the checks to Salazars account and instead bolsters the conclusion of the CA that petitioner recognized Salazars claim of ownership of
checks and acted deliberately in paying the same, contrary to ordinary banking policy and practice. It must be emphasized that the law imposes a duty
of diligence on the collecting bank to scrutinize checks deposited with it, for the purpose of determining their genuineness and regularity. The
collecting bank, being primarily engaged in banking, holds itself out to the public as the expert on this field, and the law thus holds it to a high
standard of conduct.27 The taking and collection of a check without the proper indorsement amount to a conversion of the check by the bank. 28
More importantly, however, solely upon the prompting of Templonuevo, and with full knowledge of the brewing dispute between Salazar and
Templonuevo, petitioner debited the account held in the name of the sole proprietorship of Salazar without even serving due notice upon her. This ran
contrary to petitioners assurances to private respondent Salazar that the account would remain untouched, pending the resolution of the controversy
between her and Templonuevo.29 In this connection, the CA cited the letter dated September 5, 1991 of Mr. Manuel Ablan, Senior Manager of
petitioner banks Pasig/Ortigas branch, to private respondent Salazar informing her that her account had been frozen, thus:
From the tenor of the letter of Manuel Ablan, it is safe to conclude that Account No. 0201-0588-48 will remain frozen or untouched until herein
[Salazar] has settled matters with Templonuevo. But, in an unexpected move, in less than two weeks (eleven days to be precise) from the time that

letter was written, [petitioner] bank issued a cashiers check in the name of Julio R. Templonuevo of the J.R.T. Construction and Trading for the sum
of P267,692.50 (Exhibit "8") and debited said amount from Ms. Arcillas account No. 0201-0588-48 which was supposed to be frozen or controlled.
Such a move by BPI is, to Our minds, a clear case of negligence, if not a fraudulent, wanton and reckless disregard of the right of its depositor.
The records further bear out the fact that respondent Salazar had issued several checks drawn against the account of A.A. Salazar Construction and
Engineering Services prior to any notice of deduction being served. The CA sustained private respondent Salazars claim of damages in this regard:
The act of the bank in freezing and later debiting the amount of P267,692.50 from the account of A.A. Salazar Construction and Engineering Services
caused plaintiff-appellee great damage and prejudice particularly when she had already issued checks drawn against the said account. As can be
expected, the said checks bounced. To prove this, plaintiff-appellee presented as exhibits photocopies of checks dated September 8, 1991, October 28,
1991, and November 14, 1991 (Exhibits "D", "E" and "F" respectively) 30
These checks, it must be emphasized, were subsequently dishonored, thereby causing private respondent Salazar undue embarrassment and inflicting
damage to her standing in the business community. Under the circumstances, she was clearly not given the opportunity to protect her interest when
petitioner unilaterally withdrew the above amount from her account without informing her that it had already done so.
For the above reasons, the Court finds no reason to disturb the award of damages granted by the CA against petitioner. This whole incident would
have been avoided had petitioner adhered to the standard of diligence expected of one engaged in the banking business. A depositor has the right to
recover reasonable moral damages even if the banks negligence may not have been attended with malice and bad faith, if the former suffered mental
anguish, serious anxiety, embarrassment and humiliation. 31 Moral damages are not meant to enrich a complainant at the expense of defendant. It is
only intended to alleviate the moral suffering she has undergone. The award of exemplary damages is justified, on the other hand, when the acts of
the bank are attended by malice, bad faith or gross negligence. The award of reasonable attorneys fees is proper where exemplary damages are
awarded. It is proper where depositors are compelled to litigate to protect their interest. 32
WHEREFORE, the petition is partially GRANTED. The assailed Decision dated April 3, 1998 and Resolution dated April 3, 1998 rendered by the
Court of Appeals in CA-G.R. CV No. 42241 are MODIFIED insofar as it ordered petitioner Bank of the Philippine Islands to return the amount of
Two Hundred Sixty-seven Thousand Seven Hundred and Seven and 70/100 Pesos (P267,707.70) to respondent Annabelle A. Salazar, which portion
isREVERSED and SET ASIDE. In all other respects, the same are AFFIRMED.
No costs.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 191555

January 20, 2014

UNION BANK OF THE PHILIPPINES, Petitioner,

vs.
DEVELOPMENT BANK OF THE PHILIPPINES, Respondent.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on Certiorari1 are the Decision2 dated November 3, 2009 and Resolution3 dated February 26, 2010 of the Court of
Appeals (CA) in CA-G.R. SP No. 93833 which affirmed the Orders4 dated November 9, 2005 and January 30, 2006 of the Regional Trial Court of
Makati, Branch 585 (RTC) in Civil Case No. 7648 denying the motion to affirm legal compensation 6 filed by petitioner Union Bank of the Philippines
(Union Bank) against respondent Development Bank of the Philippines (DBP).
The Facts
Foodmasters, Inc. (FI) had outstanding loan obligations to both Union Banks predecessor-in-interest, Bancom Development Corporation (Bancom),
and to DBP.
On May 21, 1979, FI and DBP, among others, entered into a Deed of Cession of Property In Payment of Debt 7(dacion en pago) whereby the former
ceded in favor of the latter certain properties (including a processing plant in Marilao, Bulacan [processing plant]) in consideration of the following:
(a) the full and complete satisfaction of FIs loan obligations to DBP; and (b) the direct assumption by DBP of FIs obligations to Bancom in the
amount ofP17,000,000.00 (assumed obligations).8
On the same day, DBP, as the new owner of the processing plant, leased back 9 for 20 years the said property to FI (Lease Agreement) which was, in
turn, obliged to pay monthly rentals to be shared by DBP and Bancom.
DBP also entered into a separate agreement 10 with Bancom (Assumption Agreement) whereby the former: (a) confirmed its assumption of FIs
obligations to Bancom; and (b) undertook to remit up to 30% of any and all rentals due from FI to Bancom (subject rentals) which would serve as
payment of the assumed obligations, to be paid in monthly installments. The pertinent portions of the Assumption Agreement reads as follows:
WHEREAS, DBP has agreed and firmly committed in favor of Bancom that the above obligations to Bancom which DBP has assumed shall be
settled, paid and/or liquidated by DBP out of a portion of the lease rentals or part of the proceeds of sale of those properties of the Assignors
conveyed to DBP pursuant to the [Deed of Cession of Property in Payment of Debt dated May 21, 1979] and which are the subject of [the Lease
Agreement] made and executed by and between DBP and [FI], the last hereafter referred to as the "Lessee" to be effective as of July 31, 1978.
xxxx
4. DBP hereby covenants and undertakes that the amount up to 30% of any and all rentals due from the Lessee pursuant to the Lease Agreement shall
be remitted by DBP to Bancom at the latters offices at Pasay Road, Makati, Metro Manila within five (5) days from due dates thereof, and applied in
payment of the Assumed Obligations. Likewise, the amount up to 30% of the proceeds from any sale of the Leased Properties shall within the same
period above, be remitted by DBP to Bancom and applied in payment or prepayment of the Assumed Obligations. x x x.
Any balance of the Assumed Obligations after application of the entire rentals and or the entire sales proceeds actually received by Bancom on the
Leased Properties shall be paid by DBP to Bancom not later than December 29, 1998. (Emphases supplied)
Meanwhile, on May 23, 1979, FI assigned its leasehold rights under the Lease Agreement to Foodmasters Worldwide, Inc. (FW); 11 while on May 9,
1984, Bancom conveyed all its receivables, including, among others, DBPs assumed obligations, to Union Bank. 12
Claiming that the subject rentals have not been duly remitted despite its repeated demands, Union Bank filed, on June 20, 1984, a collection case
against DBP before the RTC, docketed as Civil Case No. 7648. 13 In opposition, DBP countered, among others, that the obligations it assumed were
payable only out of the rental payments made by FI. Thus, since FI had yet to pay the same, DBPs obligation to Union Bank had not arisen. 14 In
addition, DBP sought to implead FW as third party-defendant in its capacity as FIs assignee and, thus, should be held liable to Union Bank. 15

In the interim, or on May 6, 1988, DBP filed a motion to dismiss on the ground that it had ceased to be a real-party-in-interest due to the supervening
transfer of its rights, title and interests over the subject matter to the Asset Privatization Trust (APT). Said motion was, however, denied by the RTC
in an Order dated May 27, 1988.16
The RTC Ruling in Civil Case No. 7648
Finding the complaint to be meritorious, the RTC, in a Decision 17 dated May 8, 1990, ordered: (a) DBP to pay Union Bank the sum of P4,019,033.59,
representing the amount of the subject rentals (which, again, constitutes 30% of FIs [now FWs] total rental debt), including interest until fully paid;
and (b) FW, as third-party defendant, to indemnify DBP, as third- party plaintiff, for its payments of the subject rentals to Union Bank. It ruled that
there lies no evidence which would show that DBPs receipt of the rental payments from FW is a condition precedent to the formers obligation to
remit the subject rentals under the Lease Agreement. Thus, when DBP failed to remit the subject rentals to Union Bank, it defaulted on its assumed
obligations.18 DBP then elevated the case on appeal before the CA, docketed as CA-G.R. CV No. 35866.
The CA Ruling in CA-G.R. CV No. 35866
In a Decision19 dated May 27, 1994 (May 27, 1994 Decision), the CA set aside the RTCs ruling, and consequently ordered: (a) FW to pay DBP the
amount of P32,441,401.85 representing the total rental debt incurred under the Lease Agreement, including P10,000.00 as attorneys fees; and (b)
DBP, after having been paid by FW its unpaid rentals, to remit 30% thereof (i.e., the subject rentals) to Union Bank. 20
It rejected Union Banks claim that DBP has the direct obligation to remit the subject rentals not only from FWs rental payments but also out of its
own resources since said claim contravened the "plain meaning" of the Assumption Agreement which specifies that the payment of the assumed
obligations shall be made "out of the portion of the lease rentals or part of the proceeds of the sale of those properties of [FI] conveyed to DBP." 21 It
also construed the phrase under the Assumption Agreement that DBP is obligated to "pay any balance of the Assumed Obligations after application of
the entire rentals and/or the entire sales proceeds actually received by [Union Bank] on the Leased Properties . . . not later than December 29, 1998"
to mean that the lease rentals must first be applied to the payment of the assumed obligations in the amount of P17,000,000.00, and that DBP would
have to pay out of its own money only in case the lease rentals were insufficient, having only until December 29, 1998 to do so. Nevertheless, the
monthly installments in satisfaction of the assumed obligations would still have to be first sourced from said lease rentals as stipulated in the
assumption agreement.22 In view of the foregoing, the CA ruled that DBP did not default in its obligations to remit the subject rentals to Union Bank
precisely because it had yet to receive the rental payments of FW.23
Separately, the CA upheld the RTCs denial of DBPs motion to dismiss for the reason that the transfer of its rights, title and interests over the subject
matter to the APT occurred pendente lite, and, as such, the substitution of parties is largely discretionary on the part of the court.
At odds with the CAs ruling, Union Bank and DBP filed separate petitions for review on certiorari before the Court, respectively docketed as G.R.
Nos. 115963 and 119112, which were thereafter consolidated.
The Courts Ruling in G.R. Nos. 115963 & 119112
The Court denied both petitions in a Resolution24 dated December 13, 1995. First, it upheld the CAs finding that while DBP directly assumed FIs
obligations to Union Bank, DBP was only obliged to remit to the latter 30% of the lease rentals collected from FW, from which any deficiency was to
be settled by DBP not later than December 29, 1998. 25 Similarly, the Court agreed with the CA that the denial of DBPs motion to dismiss was proper
since substitution of parties, in case of transfers pendente lite, is merely discretionary on the part of the court, adding further that the proposed
substitution of APT will amount to a novation of debtor which cannot be done without the consent of the creditor. 26
On August 2, 2000, the Courts resolution became final and executory.27
The RTC Execution Proceedings
On May 16, 2001, Union Bank filed a motion for execution 28 before the RTC, praying that DBP be directed to pay the amount of P9,732,420.555
which represents the amount of the subject rentals (i.e., 30% of the FWs total rental debt in the amount of P32,441,401.85). DBP opposed29 Union
Banks motion, contending that it sought to effectively vary the dispositive portion of the CAs May 27, 1994 Decision in CA-G.R. CV No. 35866.
Also, on September 12, 2001, DBP filed its own motion for execution against FW, citing the same CA decision as its basis.
In a Consolidated Order30 dated October 15, 2001 (Order of Execution), the RTC granted both motions for execution. Anent Union Banks motion,
the RTC opined that the CAs ruling that DBPs payment to Union Bank shall be demandable only upon payment of FW must be viewed in light of
the date when the same was rendered. It noted that the CA decision was promulgated only on May 27, 1994, which was before the December 29,
1998 due date within which DBP had to fully pay its obligation to Union Bank under the Assumption Agreement. Since the latter period had already
lapsed, "[i]t would, thus, be too strained to argue that payment by DBP of its assumed obligation[s] shall be dependent on [FWs] ability, if not
availability, to pay."31 In similar regard, the RTC granted DBPs motion for execution against FW since its liability to Union Bank and DBP remained
undisputed.
As a result, a writ of execution32 dated October 15, 2001 (October 15, 2001 Writ of Execution) and, thereafter, a notice of garnishment 33 against DBP
were issued. Records, however, do not show that the same writ was implemented against FW.

DBP filed a motion for reconsideration34 from the Execution Order, averring that the latter issuance varied the import of the CAs May 27, 1994
Decision in CA-G.R. CV No. 35866 in that it prematurely ordered DBP to pay the assumed obligations to Union Bank before FWs payment. The
motion was, however, denied on December 5, 2001.35 Thus, DBPs deposits were eventually garnished.36 Aggrieved, DBP filed a petition for
certiorari37 before the CA, docketed as CA-G.R. SP No. 68300.
The CA Ruling in CA-G.R. SP No. 68300
In a Decision38 dated July 26, 2002, the CA dismissed DBPs petition, finding that the RTC did not abuse its discretion when it issued the October 15,
2001 Writ of Execution. It upheld the RTCs observation that there was "nothing wrong in the manner how [said writ] was implemented," as well as
"in the zealousness and promptitude exhibited by Union Bank" in moving for the same. DBP appealed the CAs ruling before the Court, which was
docketed as G.R. No. 155838.
The Courts Ruling in G.R. No. 155838
In a Decision39 dated January 13, 2004 (January 13, 2004 Decision), the Court granted DBPs appeal, and thereby reversed and set aside the CAs
ruling in CA-G.R. SP No. 68300. It found significant points of variance between the CAs May 27, 1994 Decision in CA-G.R. CV No. 35866, and the
RTCs Order of Execution/October 15, 2001 Writ of Execution. It ruled that both the body and the dispositive portion of the same decision
acknowledged that DBPs obligation to Union Bank for remittance of the lease payments is contingent on FWs prior payment to DBP, and that any
deficiency DBP had to pay by December 29, 1998 as per the Assumption Agreement cannot be determined until after the satisfaction of FWs own
rental obligations to DBP. Accordingly, the Court: (a) nullified the October 15, 2001 Writ of Execution and all related issuances thereto; and (b)
ordered Union Bank to return to DBP the amounts it received pursuant to the said writ. 40 Dissatisfied, Union Bank moved for reconsideration which
was, however, denied by the Court in a Resolution dated March 24, 2004 with finality. Thus, the January 13, 2004 Decision attained finality on April
30, 2004.41 Thereafter, DBP moved for the execution of the said decision before the RTC. After numerous efforts on the part of Union Bank proved
futile, the RTC issued a writ of execution (September 6, 2005 Writ of Execution), ordering Union Bank to return to DBP all funds it received
pursuant to the October 15, 2001 Writ of Execution. 42
Union Banks Motion to Affirm Legal Compensation
On September 13, 2005, Union Bank filed a Manifestation and Motion to Affirm Legal Compensation, 43 praying that the RTC apply legal
compensation between itself and DBP in order to offset the return of the funds it previously received from DBP. Union Bank anchored its motion on
two grounds which were allegedly not in existence prior to or during trial, namely: (a) on December 29, 1998, DBPs assumed obligations became
due and demandable;44 and (b) considering that FWI became non-operational and non-existent, DBP became primarily liable to the balance of its
assumed obligation, which as of Union Banks computation after its claimed set-off, amounted to P1,849,391.87.45
On November 9, 2005, the RTC issued an Order46 denying the above-mentioned motion for lack of merit, holding that Union Banks stated grounds
were already addressed by the Court in the January 13, 2004 Decision in G.R. No. 155838. With Union Banks motion for reconsideration therefrom
having been denied, it filed a petition for certiorari 47 with the CA, docketed as CA-G.R. SP No. 93833.
Pending resolution, Union Bank issued Managers Check48 No. 099-0003192363 dated April 21, 2006 amounting toP52,427,250.00 in favor of DBP,
in satisfaction of the Writ of Execution dated September 6, 2005 Writ of Execution. DBP, however, averred that Union Bank still has a balance
of P756,372.39 representing a portion of the garnished funds of DBP,49 which means that said obligation had not been completely extinguished.
The CA Ruling in CA-G.R. SP No. 93833
In a Decision50 dated November 3, 2009, the CA dismissed Union Banks petition, finding no grave abuse of discretion on the RTCs part. It affirmed
the denial of its motion to affirm legal compensation considering that: (a) the RTC only implemented the Courts January 13, 2004 Decision in G.R.
No. 155838 which by then had already attained finality; (b) DBP is not a debtor of Union Bank; and (c) there is neither a demandable nor liquidated
debt from DBP to Union Bank.51
Undaunted, Union Bank moved for reconsideration which was, however, denied in a Resolution 52 dated February 26, 2010; hence, the instant
petition.
The Issue Before the Court
The sole issue for the Courts resolution is whether or not the CA correctly upheld the denial of Union Banks motion to affirm legal compensation.
The Courts Ruling
The petition is bereft of merit. Compensation is defined as a mode of extinguishing obligations whereby two persons in their capacity as principals
are mutual debtors and creditors of each other with respect to equally liquidated and demandable obligations to which no retention or controversy has
been timely commenced and communicated by third parties. 53 The requisites therefor are provided under Article 1279 of the Civil Code which reads
as follows:

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

(1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if
the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the
debtor.1awp++i1 (Emphases and underscoring supplied)
The rule on legal54 compensation is stated in Article 1290 of the Civil Code which provides that "[w]hen all the requisites mentioned in Article 1279
are present, compensation takes effect by operation of law, and extinguishes both debts to the concurrent amount, even though the creditors and
debtors are not aware of the compensation."
In this case, Union Bank filed a motion to seek affirmation that legal compensation had taken place in order to effectively offset (a) its own obligation
to return the funds it previously received from DBP as directed under the September 6, 2005 Writ of Execution with (b) DBPs assumed obligations
under the Assumption Agreement. However, legal compensation could not have taken place between these debts for the apparent reason that
requisites 3 and 4 under Article 1279 of the Civil Code are not present. Since DBPs assumed obligations to Union Bank for remittance of the lease
payments are in the Courts words in its Decision dated January 13, 2004 in G.R. No. 155838 " contingent on the prior payment thereof by [FW]
to DBP," it cannot be said that both debts are due (requisite 3 of Article 1279 of the Civil Code). Also, in the same ruling, the Court observed that any
deficiency that DBP had to make up (by December 29, 1998 as per the Assumption Agreement) for the full satisfaction of the assumed obligations "
cannot be determined until after the satisfaction of Foodmasters obligation to DBP." In this regard, it cannot be concluded that the same debt had
already been liquidated, and thereby became demandable (requisite 4 of Article 1279 of the Civil Code).
The aforementioned Court decision had already attained finality on April 30, 2004 55 and, hence, pursuant to the doctrine of conclusiveness of
judgment, the facts and issues actually and directly resolved therein may not be raised in any future case between the same parties, even if the latter
suit may involve a different cause of action.56 Its pertinent portions are hereunder quoted for ready reference: 57
Both the body and the dispositive portion of the [CAs May 27, 1994 Decision in CA-G.R. CV No. 35866] correctly construed the nature of DBPs
liability for the lease payments under the various contracts, to wit:
x x x Construing these three contracts, especially the "Agreement" x x x between DBP and Bancom as providing for the payment of DBPs assumed
obligation out of the rentals to be paid to it does not mean negating DBPs assumption "for its own account" of the P17.0 million debt x x x. It only
means that they provide a mechanism for discharging [DBPs] liability. This liability subsists, since under the "Agreement" x x x, DBP is obligated to
pay "any balance of the Assumed Obligations after application of the entire rentals and or the entire sales proceeds actually received by [Union Bank]
on the Leased Properties not later than December 29, 1998." x x x It only means that the lease rentals must first be applied to the payment of
the P17 million debt and that [DBP] would have to pay out of its money only in case of insufficiency of the lease rentals having until December 29,
1998 to do so. In this sense, it is correct to say that the means of repayment of the assumed obligation is not limited to the lease rentals. The monthly
installments, however, would still have to come from the lease rentals since this was stipulated in the "Agreement."
xxxx
Since, as already stated, the monthly installments for the payment of the P17 million debt are to be funded from the lease rentals, it follows that if the
lease rentals are not paid, there is nothing for DBP to remit to [Union Bank], and thus [DBP] should not be considered in default. It is noteworthy
that, as stated in the appealed decision, "as regards plaintiffs claim for damages against defendant for its alleged negligence in failing and refusing to
enforce a lessors remedies against Foodmasters Worldwide, Inc., the Court finds no competent and reliable evidence of such claim."
xxxx
WHEREFORE, the decision appealed from is SET ASIDE and another one is RENDERED,
(i) Ordering third-party defendant-appellee Foodmasters Worldwide, Inc. to pay defendant and third-party plaintiff-appellant Development
Bank of the Philippines the sum of P32,441,401.85, representing the unpaid rentals from August 1981 to June 30, 1987, as well
as P10,000.00 for attorneys fees; and
(ii) Ordering defendant and third-party plaintiff-appellant Development Bank of the Philippines after having been paid by third-party
defendant-appellee the sum of P32,441,401.85, to remit 30% thereof to plaintiff-appellee Union Bank of the Philippines.
SO ORDERED.

In other words, both the body and the dispositive portion of the aforequoted decision acknowledged that DBPs obligation to Union Bank for
remittance of the lease payments is contingent on the prior payment thereof by Foodmasters to DBP.
A careful reading of the decision shows that the Court of Appeals, which was affirmed by the Supreme Court, found that only the balance or the
deficiency of the P17 million principal obligation, if any, would be due and demandable as of December 29, 1998. Naturally, this deficiency cannot
be determined until after the satisfaction of Foodmasters obligation to DBP, for remittance to Union Bank in the proportion set out in the 1994
Decision. (Emphases and underscoring supplied; citations omitted)
xxxx
In fine, since requisites 3 and 4 of Article 1279 of the Civil Code have not concurred in this case, no legal compensation could have taken place
between the above-stated debts pursuant to Article 1290 of the Civil Code. Perforce, the petition must be denied, and the denial of Union Bank s
motion to affirm legal compensation sustained.
WHEREFORE, the petition is DENIED. The Decision dated November 3, 2009 and Resolution dated February 26, 2010 of the Court of Appeals in
CA-G.R. SP No. 93833 are hereby AFFIRMED.
SO ORDERED.