1

G.R. No. L-56170 January 31, 1984

HILARIO JARAVATA petitioner, vs.THE HON. SANDIGANBAYAN and THE PEOPLE OF THE PHILIPPINES, respondents.

Franco L. Loyola and Sabas Cacananta for petitioner.

The Solicitor General for respondents.

 

ABAD SANTOS, J.:

This is a petition to review the decision of the Sandiganbayan in Criminal Case No. 873.

Hilario Jaravata was accused of violating Section 3(b) of Republic Act No. 3019, as amended, said to have been committed in the following manner:

That on or about the period from April 30, 1979 to May 25, 1979, in the Municipality of Tubao, Province of La Union, Philippines, and within the jurisdiction of this Honorable Court, the abovenamed accused, being then the Assistant Principal of the Leones Tubao, La Union Barangay High School and with the use of his influence as such public official and taking advantage of his moral and official ascendancy over his classroom teachers, with deliberate intent did then and there wilfully, unlawfully and feloniously made demand and actually received payments from other classroom teachers, ROMEO DACAYANAN, DOMINGO LOPEZ, MARCELA BAUTISTA, and FRANCISCO DULAY various sums of money, namely: P118.00, P100.00, P50.00 and P70.00 out of their salary differentials, in consideration of accused having officially intervened in the release of the salary differentials of the six classroom teachers, to the prejudice and damage of the said classroom teachers, in the total amount of THREE HUNDRED THIRTY EIGHT (P338.00) PESOS, Philippine Currency. (Decision, p.1-2.)

After trial, the Sandiganbayan rendered the following judgment:

WHEREFORE, accused is hereby found guilty beyond reasonable doubt for Violation of Section 3(b), Republic Act No. 3019, as amended, and he is hereby sentenced to suffer an indeterminate imprisonment ranging from ONE (1) YEAR, is minimum, to FOUR (4) YEARS, as maximum, to further suffer perpetual special disqualification from public office and to pay the costs.

No pronouncement as to the civil liability it appearing that the money given to the accused was already refunded by him. (Id. pp, 16-17.)

The petition raises factual and legal issues but for obvious reasons Our decision shall deal with the legal issue only.

The Sandiganbayan states in its decision the following:

A perusal of the conflicting versions of the prosecution and the defense shows that there is no dispute that [complainants] Ramos, Lloren, Lopez, Dacayanan, Dulay and Bautista are classroom teachers of the Leones Barangay High School with accused as their assistant principal and [Conrado Baltazar as the administrator; that on January 5, 1979,

2

accused informed the classroom teachers of the approval of the release of their salary differentials for 1978 and to facilitate its payment accused and the classroom teachers agreed that accused follow-up the papers in Manila with the obligation on the part of the classroom teachers to reimburse the accused of his expenses; that accused incurred expenses in the total amount of P220.00 and there being six classroom teachers, he divided said amount by six or at the rate of P36.00 each; that the classroom teachers actually received their salary differentials and pursuant to said agreement, they, with the exception of Lloren and Ramos, gave the accused varying amounts but as Baltazar did not approve it, he ordered the accused to return the money given to him by Lopez, Dacayanan, Dulay and Bautista, and accused complied (Pp. 7-8.)

The decision also recites that "the evidence is overwhelming to show that accused received more than the rightful contribution of P36.00 from four classroom teachers, namely: Lopez, Dulay, Dacayanan and Bautista. Lopez categorically declared that he gave the accused P100.00 (TSN, p. 5, August 21, 1980 hearing) after he received his salary differential or an excess of P64.00. So with Dulay, that he gave P70.00 to the accused (TSN, p. 16, supra) or an excess of P34.00; Dacayanan, that he gave to the accused P118.00 (TSN, p. 26,supra) or an excess of P82.00, and Bautista, that he gave to the accused P50.00 (TSN, p. 38, supra) or an excess of P14.00. In short, the total amount received by the accused in excess of the share of the classroom teachers in the reimbursement of his expenses is P194.00. " (P. 9.)

Republic Act No. 3019, otherwise known as the Anti-Graft and Corrupt Practices Act provides, inter alia the following:

Sec. 3. Corrupt practices of public officers. — In addition to acts or omissions of public officers already penalized by existing law, the following shall constitute corrupt practices of any public officer and are hereby declared to be unlawful:

xxx xxx xxx

(b) Directly or indirectly requesting or receiving any gift, present, share, percentage, or benefit, for himself or for any other person in connection with any contract or transaction between the Government and any other party, wherein the public officer in his official capacity has to intervene under the law.

xxx xxx xxx

The legal issue is whether or not, under the facts stated, petitioner Jaravata violated the above-quoted provision of the statute.

A simple reading of the provision has to yield a negative answer.

There is no question that Jaravata at the time material to the case was a "public officer" as defined by Section 2 of R.A. No. 3019, i.e. "elective and appointive officials and employees, permanent or temporary, whether in the classified or unclassified or exempt service receiving compensation, even normal from the government." It may also be said that any amount which Jaravata received in excess of P36.00 from each of the complainants was in the concept of a gift or benefit. The pivotal question, however, is whether Jaravata, an assistant principal of a high school in the boondocks of Tubao, La Union, "in his official capacity has to intervene under the law" in the payment of the salary differentials for 1978 of the complainants. It should be noted that the arrangement was "to facilitate its [salary differential] payment accused and the classroom teachers agreed that accused follow-up the papers in Manila with the obligation on the part of the classroom teachers to reimburse the accused of his expenses.

3

In Our opinion, Sec. 3(b) of R.A. No. 3019, refers to a public officer whose official intervention is required by law in a contract or transaction.

There is no law which invests the petitioner with the power to intervene in the payment of the salary differentials of the complainants or anyone for that matter. Far from exercising any power, the petitioner played the humble role of a supplicant whose mission was to expedite payment of the salary differentials. In his official capacity as assistant principal he is not required by law to intervene in the payment of the salary differentials. Accordingly, he cannot be said to have violated the law afore-cited although he exerted efforts to facilitate the payment of the salary differentials.

WHEREFORE, the petition is hereby granted and the judgment of the Sandiganbayan convicting the petitioner is set aside. Costs de oficio.

G.R. No. L-30511 February 14, 1980

MANUEL M. SERRANO, petitioner, vs.CENTRAL BANK OF THE PHILIPPINES; OVERSEAS BANK OF MANILA; EMERITO M. RAMOS, SUSANA B. RAMOS, EMERITO B. RAMOS, JR., JOSEFA RAMOS DELA RAMA, HORACIO DELA RAMA, ANTONIO B. RAMOS, FILOMENA RAMOS LEDESMA, RODOLFO LEDESMA, VICTORIA RAMOS TANJUATCO, and TEOFILO TANJUATCO, respondents.

Rene Diokno for petitioner.

F.E. Evangelista & Glecerio T. Orsolino for respondent Central Bank of the Philippines.

Feliciano C. Tumale, Pacifico T. Torres and Antonio B. Periquet for respondent Overseas Bank of Manila.

Josefina G. Salonga for all other respondents.

 

CONCEPCION, JR., J.:

Petition for mandamus and prohibition, with preliminary injunction, that seeks the establishment of joint and solidary liability to the amount of Three Hundred Fifty Thousand Pesos, with interest, against respondent Central Bank of the Philippines and Overseas Bank of Manila and its stockholders, on the alleged failure of the Overseas Bank of Manila to return the time deposits made by petitioner and assigned to him, on the ground that respondent Central Bank failed in its duty to exercise strict supervision over respondent Overseas Bank of Manila to protect depositors and the general public. 1 Petitioner also prays that both respondent banks be ordered to execute the proper and necessary documents to constitute all properties fisted in Annex "7" of the Answer of respondent Central Bank of the Philippines in G.R. No. L-29352, entitled "Emerita M. Ramos, et al vs. Central Bank of the Philippines," into a trust fund in favor of petitioner and all other depositors of respondent Overseas Bank of Manila. It is also prayed that the respondents be prohibited permanently from honoring, implementing, or doing any act predicated upon the validity or efficacy of the deeds of mortgage, assignment. and/or conveyance or transfer of whatever nature of the properties listed in Annex "7" of the Answer of respondent Central Bank in G.R. No. 29352. 2

A sought for ex-parte preliminary injunction against both respondent banks was not given by this Court.

Undisputed pertinent facts are:

4

On October 13, 1966 and December 12, 1966, petitioner made a time deposit, for one year with 6% interest, of One Hundred Fifty Thousand Pesos (P150,000.00) with the respondent Overseas Bank of Manila. 3 Concepcion Maneja also made a time deposit, for one year with 6-½% interest, on March 6, 1967, of Two Hundred Thousand Pesos (P200,000.00) with the same respondent Overseas Bank of Manila. 4

On August 31, 1968, Concepcion Maneja, married to Felixberto M. Serrano, assigned and conveyed to petitioner Manuel M. Serrano, her time deposit of P200,000.00 with respondent Overseas Bank of Manila. 5

Notwithstanding series of demands for encashment of the aforementioned time deposits from the respondent Overseas Bank of Manila, dating from December 6, 1967 up to March 4, 1968, not a single one of the time deposit certificates was honored by respondent Overseas Bank of Manila. 6

Respondent Central Bank admits that it is charged with the duty of administering the banking system of the Republic and it exercises supervision over all doing business in the Philippines, but denies the petitioner's allegation that the Central Bank has the duty to exercise a most rigid and stringent supervision of banks, implying that respondent Central Bank has to watch every move or activity of all banks, including respondent Overseas Bank of Manila. Respondent Central Bank claims that as of March 12, 1965, the Overseas Bank of Manila, while operating, was only on a limited degree of banking operations since the Monetary Board decided in its Resolution No. 322, dated March 12, 1965, to prohibit the Overseas Bank of Manila from making new loans and investments in view of its chronic reserve deficiencies against its deposit liabilities. This limited operation of respondent Overseas Bank of Manila continued up to 1968. 7

Respondent Central Bank also denied that it is guarantor of the permanent solvency of any banking institution as claimed by petitioner. It claims that neither the law nor sound banking supervision requires respondent Central Bank to advertise or represent to the public any remedial measures it may impose upon chronic delinquent banks as such action may inevitably result to panic or bank "runs". In the years 1966-1967, there were no findings to declare the respondent Overseas Bank of Manila as insolvent. 8

Respondent Central Bank likewise denied that a constructive trust was created in favor of petitioner and his predecessor in interest Concepcion Maneja when their time deposits were made in 1966 and 1967 with the respondent Overseas Bank of Manila as during that time the latter was not an insolvent bank and its operation as a banking institution was being salvaged by the respondent Central Bank. 9

Respondent Central Bank avers no knowledge of petitioner's claim that the properties given by respondent Overseas Bank of Manila as additional collaterals to respondent Central Bank of the Philippines for the former's overdrafts and emergency loans were acquired through the use of depositors' money, including that of the petitioner and Concepcion Maneja. 10

In G.R. No. L-29362, entitled "Emerita M. Ramos, et al. vs. Central Bank of the Philippines," a case was filed by the petitioner Ramos, wherein respondent Overseas Bank of Manila sought to prevent respondent Central Bank from closing, declaring the former insolvent, and liquidating its assets. Petitioner Manuel Serrano in this case, filed on September 6, 1968, a motion to intervene in G.R. No. L-29352, on the ground that Serrano had a real and legal interest as depositor of the Overseas Bank of Manila in the matter in litigation in that case. Respondent Central Bank in G.R. No. L-29352 opposed petitioner Manuel Serrano's motion to intervene in that case, on the ground that his claim as depositor of the Overseas Bank of Manila should properly be ventilated in the Court of First Instance, and if this Court were to allow Serrano to intervene as depositor in G.R. No. L-29352, thousands of other depositors would follow and thus cause an avalanche of cases in this Court. In the resolution dated October 4, 1968, this Court denied Serrano's, motion to intervene. The contents of said motion to intervene are substantially the same as those of the present petition. 11

5

This Court rendered decision in G.R. No. L-29352 on October 4, 1971, which became final and executory on March 3, 1972, favorable to the respondent Overseas Bank of Manila, with the dispositive portion to wit:

WHEREFORE, the writs prayed for in the petition are hereby granted and respondent Central Bank's resolution Nos. 1263, 1290 and 1333 (that prohibit the Overseas Bank of Manila to participate in clearing, direct the suspension of its operation, and ordering the liquidation of said bank) are hereby annulled and set aside; and said respondent Central Bank of the Philippines is directed to comply with its obligations under the Voting Trust Agreement, and to desist from taking action in violation therefor. Costs against respondent Central Bank of the Philippines. 12

Because of the above decision, petitioner in this case filed a motion for judgment in this case, praying for a decision on the merits, adjudging respondent Central Bank jointly and severally liable with respondent Overseas Bank of Manila to the petitioner for the P350,000 time deposit made with the latter bank, with all interests due therein; and declaring all assets assigned or mortgaged by the respondents Overseas Bank of Manila and the Ramos groups in favor of the Central Bank as trust funds for the benefit of petitioner and other depositors. 13

By the very nature of the claims and causes of action against respondents, they in reality are recovery of time deposits plus interest from respondent Overseas Bank of Manila, and recovery of damages against respondent Central Bank for its alleged failure to strictly supervise the acts of the other respondent Bank and protect the interests of its depositors by virtue of the constructive trust created when respondent Central Bank required the other respondent to increase its collaterals for its overdrafts said emergency loans, said collaterals allegedly acquired through the use of depositors money. These claims shoud be ventilated in the Court of First Instance of proper jurisdiction as We already pointed out when this Court denied petitioner's motion to intervene in G.R. No. L-29352. Claims of these nature are not proper in actions for mandamus and prohibition as there is no shown clear abuse of discretion by the Central Bank in its exercise of supervision over the other respondent Overseas Bank of Manila, and if there was, petitioner here is not the proper party to raise that question, but rather the Overseas Bank of Manila, as it did in G.R. No. L-29352. Neither is there anything to prohibit in this case, since the questioned acts of the respondent Central Bank (the acts of dissolving and liquidating the Overseas Bank of Manila), which petitioner here intends to use as his basis for claims of damages against respondent Central Bank, had been accomplished a long time ago.

Furthermore, both parties overlooked one fundamental principle in the nature of bank deposits when the petitioner claimed that there should be created a constructive trust in his favor when the respondent Overseas Bank of Manila increased its collaterals in favor of respondent Central Bank for the former's overdrafts and emergency loans, since these collaterals were acquired by the use of depositors' money.

Bank deposits are in the nature of irregular deposits. They are really loans because they earn interest. All kinds of bank deposits, whether fixed, savings, or current are to be treated as loans and are to be covered by the law on loans. 14 Current and savings deposit are loans to a bank because it can use the same. The petitioner here in making time deposits that earn interests with respondent Overseas Bank of Manila was in reality a creditor of the respondent Bank and not a depositor. The respondent Bank was in turn a debtor of petitioner. Failure of he respondent Bank to honor the time deposit is failure to pay s obligation as a debtor and not a breach of trust arising from depositary's failure to return the subject matter of the deposit

WHEREFORE, the petition is dismissed for lack of merit, with costs against petitioner.

SO ORDERED.

6

Alipio vs. CA [G.R. No. 134100 Sept. 29, 2000]

Facts: Respondent Romeo Jaring was the lessee of a 14.5 hectare fishpond in Bataan for a period of 5 years ending on September 12, 1990. On June 19, 1987, he subleased the fishpond for the remaining period of his lease to the spouses Placido and Purita Alipio and the spouses Bienvenido and Remedios Manuel for an amount of Php 485,600.oo payable in 2 installments in the amount of Php 300,000.00 and 185,600.00 respectively. The 2nd installment will fall due on June 30, 1989. The 1st installment was duly paid but the 2nd installment was only partially fulfilled leaving a balance of Php 50,600.00. The sub lessees failed to settle the remaining balance despite repeated demands. This prompted private respondent Jaring to file a complaint on Oct. 13, 1989 against the Alipio and Manuel spouses in the RTC Bataan for the collection of the said amount and prayed in the alternative, the rescission of the sublease contract in case of failure to pay. However, prior to the institution of the complaint, on Dec. 1, 1988, one of the sub lessees, Placido Alipio, died. His wife, Purita moved to dismiss the complaint citing Rule 3 Sec 21 of the 1964 Rules of Court which states that in an action for recovery of money, debt or interests and the defendant dies before the CFI renders the final judgment, the case shall be dismissed and prosecuted in the manner especially provided in these rules. This rule was however amended, so that in Rule 3 Sec 20 of the 1997 Rules of Civil procedure, it states that there is no longer need to dismiss, that the case will be allowed to continue until entry of final judgment and that the claims will then be pursued in the manner provided by the rules on prosecuting claims against the estate of a deceased person. The RTC however, denied petitioner’s motion while the Manuel spouses were defaulted for failure to file an answer. The RTC rendered a decision ordering the petitioner and the Manuel spouses to pay the unpaid balance of Php 50,600 plus Php 10,000.00 for atty’s fees and cost of suit. 

Petitioner Alipio appealed to the CA but her appeal was also dismissed by the said appellate court citing the cases (1) Climaco vs. Siy-Uy - that the rule invoked by petitioner does not apply where there are another defendants against whom the action is instituted; and (2) Imperial insurance Ins. vs. David – that where a husband and wife bound themselves jointly and severally, in case of death, the liability of the surviving spouse is independent and separate so that she may be sued for the whole debt. 

Hence, petitioner Alipio, filed a petition for review on certiorari questioning the applicability of the above 2 cases. 

Issue: Whether or not a creditor can sue the surviving spouse for the collection of a debt which is owed by the conjugal partnership of gains or whether such claims must be filed in proceedings for the settlement of the estate of the decedent

Held: Petitioner and her late husband and the Manuel spouses signed the sublease contract binding themselves to pay the rentals stipulated which under Art. 161 of the Civil Code will make the conjugal partnership liable. However, when petitioner’s husband died, the conjugal partnership of gains was automatically dissolved thus all debts chargeable to it are to be paid in the intestate of testate proceedings of the deceased spouse. And even when there is no liquidation that has been made, this would not mean that the conjugal partnership of gains continues to exist in order to pursue the claim against the surviving spouse alone. The creditor under Sec 6 Rule 78 of the Revised Rules of Court can have the remedy of applying in court for letters of administration in his capacity as the principal creditor. 

SC ruled that the 2 cases cited by the CA do not apply in this case because such cases are based on different sets of facts not similar to the case herein. Private respondent cannot maintain the present suit against petitioner. The proper remedy is to file a claim against the Alipios in a proceeding for the settlement of the estate of the deceased husband. 

SC also ruled that the CA decision ordering payment of the balance does not specify whether it is to be paid jointly or solidarily. Applying Art 1207 of the Civil Code, the obligation of petitioner and the Manuel

7

spouses is presumed to be only JOINT, i.e. the debt is divided into as many equal shares as there are debtors, each debt being considered distinct from one another. SC therefore grants the petition and orders the Manuel spouses to pay Php 25,300.00 plus Php 10,000.00 for atty’s fees and cost of suit. The complaint against petitioner was dismissed without prejudice to the filing of claim by private respondent in a proceeding for the settlement of the estate of the deceased husband. 

[G.R. No. 134100. September 29, 2000]

PURITA ALIPIO, petitioner, vs. COURT OF APPEALS and ROMEO G. JARING, represented by his Attorney-In-Fact RAMON G. JARING, respondents.

D E C I S I O N

MENDOZA, J.:

The question for decision in this case is whether a creditor can sue the surviving spouse for the collection of a debt which is owed by the conjugal partnership of gains, or whether such claim must be filed in proceedings for the settlement of the estate of the decedent. The trial court and the Court of Appeals ruled in the affirmative. We reverse.

The facts are as follows:

Respondent Romeo Jaring[1] was the lessee of a 14.5 hectare fishpond in Barito, Mabuco, Hermosa, Bataan. The lease was for a period of five years ending on September 12, 1990. On June 19, 1987, he subleased the fishpond, for the remaining period of his lease, to the spouses Placido and Purita Alipio and the spouses Bienvenido and Remedios Manuel. The stipulated amount of rent was P485,600.00, payable in two installments of P300,000.00 and P185,600.00, with the second installment falling due on June 30, 1989. Each of the four sublessees signed the contract.

The first installment was duly paid, but of the second installment, the sublessees only satisfied a portion thereof, leaving an unpaid balance of P50,600.00. Despite due demand, the sublessees failed to comply with their obligation, so that, on October 13, 1989, private respondent sued the Alipio and Manuel spouses for the collection of the said amount before the Regional Trial Court, Branch 5, Dinalupihan, Bataan. In the alternative, he prayed for the rescission of the sublease contract should the defendants fail to pay the balance.

Petitioner Purita Alipio moved to dismiss the case on the ground that her husband, Placido Alipio, had passed away on December 1, 1988.[2] She based her action on Rule 3, §21 of the 1964 Rules of Court which then provided that "when the action is for recovery of money, debt or interest thereon, and the defendant dies before final judgment in the Court of First Instance, it shall be dismissed to be prosecuted in the manner especially provided in these rules." This provision has been amended so that now Rule 3, §20 of the 1997 Rules of Civil Procedure provides:

When the action is for the recovery of money arising from contract, express or implied, and the defendant dies before entry of final judgment in the court in which the action was pending at the time of such death, it shall not be dismissed but shall instead be allowed to continue until entry of final judgment. A favorable judgment obtained by the plaintiff therein shall be enforced in the manner especially provided in these Rules for prosecuting claims against the estate of a deceased person.

The trial court denied petitioner's motion on the ground that since petitioner was herself a party to the sublease contract, she could be independently impleaded in the suit together with the Manuel

8

spouses and that the death of her husband merely resulted in his exclusion from the case. [3] The Manuel spouses failed to file their answer. For this reason, they were declared in default.

On February 26, 1991, the lower court rendered judgment after trial, ordering petitioner and the Manuel spouses to pay private respondent the unpaid balance of P50,600.00 plus attorney's fees in the amount of P10,000.00 and the costs of the suit.

Petitioner appealed to the Court of Appeals on the ground that the trial court erred in denying her motion to dismiss. In its decision[4] rendered on July 10, 1997, the appellate court dismissed her appeal. It held:

The rule that an action for recovery of money, debt or interest thereon must be dismissed when the defendant dies before final judgment in the regional trial court, does not apply where there are other defendants against whom the action should be maintained. This is the teaching of Climaco v. Siy Uy, wherein the Supreme Court held:

Upon the facts alleged in the complaint, it is clear that Climaco had a cause of action against the persons named as defendants therein. It was, however, a cause of action for the recovery of damages, that is, a sum of money, and the corresponding action is, unfortunately, one that does not survive upon the death of the defendant, in accordance with the provisions of Section 21, Rule 3 of the Rules of Court.

x x x x x x x x x

However, the deceased Siy Uy was not the only defendant, Manuel Co was also named defendant in the complaint.   Obviously, therefore, the order appealed from is erroneous insofar as it dismissed the case against Co. (Underlining added)

Moreover, it is noted that all the defendants, including the deceased, were signatories to the contract of sub-lease. The remaining defendants cannot avoid the action by claiming that the death of one of the parties to the contract has totally extinguished their obligation as held inImperial Insurance, Inc. v. David:

We find no merit in this appeal. Under the law and well settled jurisprudence, when the obligation is a solidary one, the creditor may bring his action in toto against any of the debtors obligated in solidum. Thus, if husband and wife bound themselves jointly and severally, in case of his death, her liability is independent of and separate from her husband's; she may be sued for the whole debt and it would be error to hold that the claim against her as well as the claim against her husband should be made in the decedent's estate. (Agcaoili vs. Vda. de Agcaoili, 90 Phil. 97).[5]

Petitioner filed a motion for reconsideration, but it was denied on June 4, 1998. [6] Hence this petition based on the following assignment of errors:

A. THE RESPONDENT COURT COMMITTED REVERSIBLE ERROR IN APPLYING CLIMACO v. SIY UY, 19 SCRA 858, IN SPITE OF THE FACT THAT THE PETITIONER WAS NOT SEEKING THE DISMISSAL OF THE CASE AGAINST REMAINING DEFENDANTS BUT ONLY WITH RESPECT TO THE CLAIM FOR PAYMENT AGAINST HER AND HER HUSBAND WHICH SHOULD BE PROSECUTED AS A MONEY CLAIM.

B. THE RESPONDENT COURT COMMITTED REVERSIBLE ERROR IN APPLYING IMPERIAL INSURANCE INC. v. DAVID, 133 SCRA 317, WHICH IS NOT APPLICABLE BECAUSE THE SPOUSES IN THIS CASE DID NOT BIND THEMSELVES JOINTLY AND SEVERALLY IN FAVOR OF RESPONDENT JARING.[7]

The petition is meritorious. We hold that a creditor cannot sue the surviving spouse of a decedent in an ordinary proceeding for the collection of a sum of money chargeable against the conjugal

9

partnership and that the proper remedy is for him to file a claim in the settlement of estate of the decedent.

First. Petitioner's husband died on December 1, 1988, more than ten months before private respondent filed the collection suit in the trial court on October 13, 1989. This case thus falls outside of the ambit of Rule 3, §21 which deals with dismissals of collection suits because of the death of the defendant during the pendency of the case and the subsequent procedure to be undertaken by the plaintiff, i.e., the filing of claim in the proceeding for the settlement of the decedent's estate. As already noted, Rule 3, §20 of the 1997 Rules of Civil Procedure now provides that the case will be allowed to continue until entry of final judgment. A favorable judgment obtained by the plaintiff therein will then be enforced in the manner especially provided in the Rules for prosecuting claims against the estate of a deceased person. The issue to be resolved is whether private respondent can, in the first place, file this case against petitioner.

Petitioner and her late husband, together with the Manuel spouses, signed the sublease contract binding themselves to pay the amount of stipulated rent. Under the law, the Alipios' obligation (and also that of the Manuels) is one which is chargeable against their conjugal partnership. Under Art. 161(1) of the Civil Code, the conjugal partnership is liable for ¾

All debts and obligations contracted by the husband for the benefit of the conjugal partnership, and those contracted by the wife, also for the same purpose, in the cases where she may legally bind the partnership.[8]

When petitioner's husband died, their conjugal partnership was automatically dissolved [9] and debts chargeable against it are to be paid in the settlement of estate proceedings in accordance with Rule 73, §2 which states:

Where estate settled upon dissolution of marriage. ¾ When the marriage is dissolved by the death of the husband or wife, the community property shall be inventoried, administered, and liquidated, and the debts thereof paid, in the testate or intestate proceedings of the deceased spouse. If both spouses have died, the conjugal partnership shall be liquidated in the testate or intestate proceedings of either.

As held in Calma v. Tañedo,[10] after the death of either of the spouses, no complaint for the collection of indebtedness chargeable against the conjugal partnership can be brought against the surviving spouse. Instead, the claim must be made in the proceedings for the liquidation and settlement of the conjugal property. The reason for this is that upon the death of one spouse, the powers of administration of the surviving spouse ceases and is passed to the administrator appointed by the court having jurisdiction over the settlement of estate proceedings. [11] Indeed, the surviving spouse is not even a de facto administrator such that conveyances made by him of any property belonging to the partnership prior to the liquidation of the mass of conjugal partnership property is void.[12]

The ruling in Calma v. Tañedo was reaffirmed in the recent case of Ventura v. Militante.[13] In that case, the surviving wife was sued in an amended complaint for a sum of money based on an obligation allegedly contracted by her and her late husband. The defendant, who had earlier moved to dismiss the case, opposed the admission of the amended complaint on the ground that the death of her husband terminated their conjugal partnership and that the plaintiff's claim, which was chargeable against the partnership, should be made in the proceedings for the settlement of his estate. The trial court nevertheless admitted the complaint and ruled, as the Court of Appeals did in this case, that since the defendant was also a party to the obligation, the death of her husband did not preclude the plaintiff from filing an ordinary collection suit against her. On appeal, the Court reversed, holding that ¾

as correctly argued by petitioner, the conjugal partnership terminates upon the death of either spouse. . . . Where a complaint is brought against the surviving spouse for the recovery of an indebtedness chargeable against said conjugal [partnership], any judgment obtained thereby is void. The proper

10

action should be in the form of a claim to be filed in the testate or intestate proceedings of the deceased spouse.

In many cases as in the instant one, even after the death of one of the spouses, there is no liquidation of the conjugal partnership. This does not mean, however, that the conjugal partnership continues. And private respondent cannot be said to have no remedy. Under Sec. 6, Rule 78 of the Revised Rules of Court, he may apply in court for letters of administration in his capacity as a principal creditor of the deceased . . . if after thirty (30) days from his death, petitioner failed to apply for administration or request that administration be granted to some other person.[14]

The cases relied upon by the Court of Appeals in support of its ruling, namely, Climaco v. Siy Uy[15] and Imperial Insurance, Inc. v. David,[16] are based on different sets of facts. In Climaco, the defendants, Carlos Siy Uy and Manuel Co, were sued for damages for malicious prosecution. Thus, apart from the fact the claim was not against any conjugal partnership, it was one which does not survive the death of defendant Uy, which merely resulted in the dismissal of the case as to him but not as to the remaining defendant Manuel Co.

With regard to the case of Imperial, the spouses therein jointly and severally executed an indemnity agreement which became the basis of a collection suit filed against the wife after her husband had died. For this reason, the Court ruled that since the spouses' liability was solidary, the surviving spouse could be independently sued in an ordinary action for the enforcement of the entire obligation.

It must be noted that for marriages governed by the rules of conjugal partnership of gains, an obligation entered into by the husband and wife is chargeable against their conjugal partnership and it is the partnership which is primarily bound for its repayment.[17] Thus, when the spouses are sued for the enforcement of an obligation entered into by them, they are being impleaded in their capacity as representatives of the conjugal partnership and not as independent debtors such that the concept of joint or solidary liability, as between them, does not apply. But even assuming the contrary to be true, the nature of the obligation involved in this case, as will be discussed later, is not solidary but rather merely joint, making Imperial still inapplicable to this case.

From the foregoing, it is clear that private respondent cannot maintain the present suit against petitioner. Rather, his remedy is to file a claim against the Alipios in the proceeding for the settlement of the estate of petitioner's husband or, if none has been commenced, he can file a petition either for the issuance of letters of administration[18] or for the allowance of will,[19] depending on whether petitioner's husband died intestate or testate. Private respondent cannot short-circuit this procedure by lumping his claim against the Alipios with those against the Manuels considering that, aside from petitioner's lack of authority to represent their conjugal estate, the inventory of the Alipios' conjugal property is necessary before any claim chargeable against it can be paid. Needless to say, such power exclusively pertains to the court having jurisdiction over the settlement of the decedent's estate and not to any other court.

Second. The trial court ordered petitioner and the Manuel spouses to pay private respondent the unpaid balance of the agreed rent in the amount of P50,600.00 without specifying whether the amount is to be paid by them jointly or solidarily. In connection with this, Art. 1207 of the Civil Code provides:

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

Indeed, if from the law or the nature or the wording of the obligation the contrary does not appear, an obligation is presumed to be only joint, i.e., the debt is divided into as many equal shares as there are debtors, each debt being considered distinct from one another.[20]

11

Private respondent does not cite any provision of law which provides that when there are two or more lessees, or in this case, sublessees, the latter's obligation to pay the rent is solidary. To be sure, should the lessees or sublessees refuse to vacate the leased property after the expiration of the lease period and despite due demands by the lessor, they can be held jointly and severally liable to pay for the use of the property. The basis of their solidary liability is not the contract of lease or sublease but the fact that they have become joint tortfeasors. [21] In the case at bar, there is no allegation that the sublessees refused to vacate the fishpond after the expiration of the term of the sublease. Indeed, the unpaid balance sought to be collected by private respondent in his collection suit became due on June 30, 1989, long before the sublease expired on September 12, 1990.

Neither does petitioner contend that it is the nature of lease that when there are more than two lessees or sublessees their liability is solidary. On the other hand, the pertinent portion of the contract involved in this case reads:[22]

2. That the total lease rental for the sub-leased fishpond for the entire period of three (3) years and two (2) months is FOUR HUNDRED EIGHT-FIVE THOUSAND SIX HUNDRED (P485,600.00) PESOS, including all the improvements, prawns, milkfishes, crabs and related species thereon as well all fishing equipment, paraphernalia and accessories. The said amount shall be paid to the Sub-Lessor by the Sub-Lessees in the following manner, to wit:

A. Three hundred thousand (P300,000.00) Pesos upon signing this contract; and

B. One Hundred Eight-Five Thousand Six-Hundred (P185,6000.00) Pesos to be paid on June 30, 1989.

Clearly, the liability of the sublessees is merely joint. Since the obligation of the Manuel and Alipio spouses is chargeable against their respective conjugal partnerships, the unpaid balance of P50,600.00 should be divided into two so that each couple is liable to pay the amount of P25,300.00.

WHEREFORE, the petition is GRANTED. Bienvenido Manuel and Remedios Manuel are ordered to pay the amount of P25,300.00, the attorney's fees in the amount of P10,000.00 and the costs of the suit. The complaint against petitioner is dismissed without prejudice to the filing of a claim by private respondent in the proceedings for the settlement of estate of Placido Alipio for the collection of the share of the Alipio spouses in the unpaid balance of the rent in the amount ofP25,300.00.

SO ORDERED.

Carlos vs. AbelardoGR No. 146504, April 4, 2002

FACTS:

Honorio Carlos filed a petition against Manuel Abelardo, his son-in-law for recovery of the $25,000 loan used to purchase a house and lot located at Paranaque.  It was in October 1989 when the petitioner issued a check worth as such to assist the spouses in conducting their married life independently.  The seller of the property acknowledged receipt of the full payment.  In July 1991, the petitioner inquired from spouses status of the amount loaned from him, the spouses pleaded that they were not yet in position to make a definite settlement.  Thereafter, respondent expressed violent resistance to the extent of making various death threats against petitioner.  In 1994, petitioner made a formal demand but the spouses failed to comply with the obligation.  The spouses were separated in fact for more than a year prior the filing of the complaint hence spouses filed separate answers.  Abelardo contended that the amount was never intended as a loan but his share of income on contracts obtained by him in the construction firm and that the petitoner could have easily deducted the debt from his share in the profits.  RTC decision was in favor of the petitioner, however CA reversed and set aside trial court’s decision for insufficiency of evidence.  Evidently, there was a check issued worth $25,000 paid to the owner of the Paranaque property which became the conjugal dwelling of the spouses.  The wife executed an instrument acknowledging the loan but Abelardo did not sign.

12

ISSUE: WON a loan obtained to purchase the conjugal dwelling can be charged against the conjugal partnership.

HELD:

Yes, as it has redounded to the benefit of the family.  They did not deny that the same served as their conjugal home thus benefiting the family.  Hence, the spouses are jointly and severally liable in the payment of the loan.  Abelardo’s contention that it is not a loan rather a profit share in the construction firm is untenable since there was no proof that he was part of the stockholders that will entitle him to the profits and income of the company.

Hence, the petition was granted and Abelardo is ordered to pay the petitioner in the amount of $25,000 plus legal interest including moral and exemplary damages and attorney’s fees.

[G.R. No. 146504.  April 9, 2002]

HONORIO L. CARLOS, petitioner, vs. MANUEL T. ABELARDO, respondent.

KAPUNAN, J.:

Assailed in this petition for review on certiorari under Rule 45 of the Rules of Court is the decision of the Court of Appeals dated November 10, 2000 in CA-G.R. CV No. 54464 which reversed and set aside the decision of the Regional Trial Court of Valenzuela, Branch 172, and dismissed for insufficiency of evidence the complaint for a sum of money and damages filed by herein petitioner Honorio Carlos against respondent Manuel Abelardo, his son-in-law, and the latter’s wife, Maria Theresa Carlos-Abelardo.

Petitioner averred in his complaint filed on October 13, 1994 that in October 1989, respondent and his wife Maria Theresa Carlos-Abelardo approached him and requested him to advance the amount of US$25,000.00 for the purchase of a house and lot located at #19952 Chestnut Street, Executive Heights Village, Paranaque, Metro Manila. To enable and assist the spouses conduct their married life independently and on their own, petitioner, in October 31, 1989, issued a check in the name of a certain Pura Vallejo, seller of the property, who acknowledged receipt thereof.[1]

When petitioner inquired from the spouses in July 1991 as to the status of the amount he loaned to them, the latter acknowledged their obligation but pleaded that they were not yet in a position to make a definite settlement of the same.[2] Thereafter, respondent expressed violent resistance to petitioner’s inquiries on the amount to the extent of making various death threats against petitioner.[3]

On August 24, 1994, petitioner made a formal demand for the payment of the amount of US$25,000.00 but the spouses failed to comply with their obligation. [4] Thus, on October 13, 1994, petitioner filed a complaint for collection of a sum of money and damages against respondent and his wife before the Regional Trial Court of Valenzuela, Branch 172, docketed as Civil Case No. 4490-V-94. In the complaint, petitioner asked for the payment of the US$25,000.00 or P625,000.00, its equivalent in Philippine currency plus legal interest from date of extra-judicial demand.[5] Petitioner likewise claimed moral and exemplary damages, attorney’s fees and costs of suit from respondent.[6]

As they were separated in fact for more than a year prior to the filing of the complaint, respondent and his wife filed separate answers. Maria Theresa Carlos-Abelardo admitted securing a loan together with her husband, from petitioner.[7] She claimed, however, that said loan was payable on a staggered basis so she was surprised when petitioner demanded immediate payment of the full amount.[8]

13

In his separate Answer, respondent admitted receiving the amount of US$25,000.00 but claimed that:

xxx

a. Defendant (respondent) xxx revived that otherwise dormant construction firm H.L. CARLOS CONSTRUCTION of herein plaintiff which suffered tremendous setback after the assassination of Senator Benigno Aquino;

b. Working day and night and almost beyond human endurance, defendant devoted all his efforts and skill, used all his business and personal connection to be able to revive the construction business of plaintiff;

c. Little-by-little, starting with small construction business, defendant was able to obtain various construction jobs using the name H.L. CARLOS CONSTRUCTION and the income derived therefrom were deposited in the name of such firm of plaintiff,

d. Defendant xxx was made to believe that the earnings derived from such construction will be for him and his family since he was the one working to secure the contract and its completion, he was allowed to use the facilities of the plaintiff;

e. The plaintiff seeing the progress brought about by defendant xxx to his company proposed a profit sharing scheme to the effect that all projects amounting to more than P10 million shall be for the account of plaintiff; lower amount shall be for defendant’s account but still using H.L. CARLOS CONSTRUCTION.

f. But, to clear account on previous construction contracts that brought income to H.L.CARLOS CONSTRUCTION, out of which defendant derived his income, plaintiff gave the amount of US$25,000.00 to defendant to square off account and to start the arrangement in paragraph (e) supra;

g. That, the said US$25,000.00 was never intended as loan of defendant. It was his share of income on contracts obtained by defendant;

xxx [9]

Respondent denied having made death threats to petitioner and by way of compulsory counterclaim, he asked for moral damages from petitioner for causing the alienation of his wife’s love and affection, attorney’s fees and costs of suit. [10]

On June 26, 1996, the Regional Trial Court rendered a decision in favor of petitioner, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered as follows:

1. Ordering the defendants to pay plaintiff the amount of US$25,000.00 or its equivalent in Philippine Currency at the time of its payment, plus legal interest thereon from August 24, 1994 until fully paid;

2. Ordering the defendant Manuel T.Abelardo to pay the plaintiff the amount of P500,000.00 representing moral damages and the further amount of P50,000.00 as exemplary damages; and

3. Ordering the defendants to pay the plaintiff the amount of P100,000.00 as attorney’s fees, plus the costs of suit.

SO ORDERED. [11]

14

Respondent appealed the decision of the trial court to the Court of Appeals. On November 10, 2000, the Court of Appeals reversed and set aside the trial court’s decision and dismissed the complaint for insufficiency of evidence to show that the subject amount was indeed loaned by petitioner to respondent and his wife. The Court of Appeals found that the amount of US$25,000.00 was respondent’s share in the profits of H.L. Carlos Construction. The dispositive portion of the Court of Appeals’ decision states:

WHEREFORE, premises considered, the Decision of the Regional Trial Court of Valenzuela, Branch 172 in Civil Case No. 4490-V-94 is hereby REVERSED and SET ASIDE and a new one entered DISMISSING the Complaint for insufficiency of evidence.

The claim for damages by defendant-appellant is likewise DISMISSED, also for insufficiency of evidence, because of his failure to present substantial evidence to prove that plaintiff-appellee caused the defendant-spouses’ separation.

Costs against the plaintiff-appellee.

SO ORDERED. [12]

A motion for reconsideration of the above decision having been denied on, petitioner brought this appeal assigning the following errors:

THE COURT OF APPEALS ERRED IN FINDING INSUFFICIENT EVIDENCE TO PROVE THAT THE AMOUNT OF US$25,000.00 WAS A LOAN OBTAINED BY PRIVATE RESPONDENT AND HIS WIFE FROM PETITIONER.

THE COURT OF APPEALS ERRED IN HOLDING THAT THE US$25,000.00 WAS GIVEN AS PRIVATE RESPONDENT’S SHARE IN THE PROFITS OF H.L. CARLOS CONSTRUCTION, INC. AND THAT THE FILING OF THE COMPLAINT IS A HOAX.

THE COURT OF APPEALS ERRED IN NULLIFYING THE AWARD OF DAMAGES FOR LACK OF PROOF THEREOF.

We find merit in the petition.

As gleaned from the records, the following facts are undisputed: (1) there was a check in the amount of US$25,000.00 issued by petitioner; (2) this amount was received by respondent and his wife and given to a certain Pura Vallejo for the full payment of a house and lot located at #19952 Chestnut Street, Executive Heights Village, Paranaque, Metro Manila; (3) this house and lot became the conjugal dwelling of respondent and his wife; and (4) respondent’s wife executed an instrument acknowledging the loan but which respondent did not sign.

To prove his claim that the amount was in the nature of a loan or an advance he extended to respondent and his wife, petitioner presented Banker’s Trust Check No. 337 in the amount of US$25,000.00 he issued on October 31, 1989 to Pura Vallejo.[13] He also introduced in evidence an instrument executed by respondent’s wife on July 31, 1991 acknowledging her and her husband’s accountability to petitioner for the said amount which was advanced in payment of a house and lot located at #19952 Chestnut Street, Executive Heights Subdivision, Paranaque. [14] A formal demand letter by counsel for petitioner dated August 24, 1994 sent to and received by respondent was also on record. [15]

All these pieces of evidence, taken together with respondent’s admission that he and his wife received the subject amount and used the same to purchase their house and lot, sufficiently prove by a preponderance of evidence petitioner’s claim that the amount of US$25,000.00 was really in the nature of a loan.

15

Respondent tried to rebut petitioner’s evidence by claiming that the US$25,000.00 was not a loan but his share in the profits of H.L. Carlos Construction. He alleged that he received money from petitioner amounting to almost P3 million as his share in the profits of the corporation. To prove this, he presented ten (10) Bank of the Philippine Islands (BPI) checks allegedly given to him by petitioner.[16] He argued that if indeed, he and his wife were indebted to petitioner, the latter could have easily deducted the amount of the said loan from his share of the profits.

Respondent fails to convince this Court.

All the checks presented by respondent, which he claims to be his share in the profits of petitioner’s company, were all in the account of H.L. Carlos Construction. [17] On the other hand, the Banker’s Trust Check in the amount of US$25,000.00 was drawn from the personal account of petitioner.[18] Assuming to be true that the checks presented by respondent were his profits from the corporation, then all the more does this prove that the amount of US$25,000.00 was not part of such profits because it was issued by petitioner from his own account. Indeed, if such amount was respondent’s share of the profits, then the same should have been issued under the account of H.L. Carlos Construction.

Moreover, respondent failed to substantiate his claim that he is entitled to the profits and income of the corporation. There was no showing that respondent was a stockholder of H.L. Carlos Construction. His name does not appear in the Articles of Incorporation as well as the Organizational Profile of said company either as stockholder or officer.[19] Not being a stockholder, he cannot be entitled to the profits or income of said corporation. Neither did respondent prove that he was an employee or an agent so as to be entitled to salaries or commissions from the corporation.

We quote with favor the disquisition of the trial court on this point:

Early in time, it must be noted that payment of personal debts contracted by the husband or the wife before or during the marriage shall not be charged to the conjugal partnership except insofar as they redounded to the benefit of the family. The defendants never denied that the check of US$25,000.00 was used to purchase the subject house and lot. They do not deny that the same served as their conjugal home, thus benefiting the family. On the same principle, acknowledgment of the loan made by the defendant-wife binds the conjugal partnership since its proceeds redounded to the benefit of the family. Hence, defendant-husband and defendant-wife are jointly and severally liable in the payment of the loan.

Defendant-husband cannot allege as a defense that the amount of US $25,000.00 was received as his share in the income or profits of the corporation and not as a loan. Firstly, defendant-husband does not appear to be a stockholder nor an employee nor an agent of the corporation, H. L. Carlos Construction, Inc. Since he is not a stockholder, he has no right to participate in the income or profits thereof. In the same manner that as he is not an employee nor an agent of H. L. Carlos Construction, Inc., he has no right to receive any salary or commission therefrom. Secondly, the amount advanced for the purchase of the house and lot came from the personal account of the plaintiff. If, indeed, it was to be construed as defendant-husband’s share in the profits of the corporation, the checks should come from the corporation’s account and not from the plaintiff’s personal account, considering that the corporation has a personality separate and distinct from that of its stockholders and officers.

Even granting that the checks amount to US $3,000.000.00 given by the plaintiff to the defendant-spouses was their share in the profits of the corporation, still there is no sufficient evidence to establish that the US $25,000.00 is to be treated similarly. Defendant-husband in invoking the defense of compensation argued that if indeed they were indebted to the plaintiff, the latter could have applied their share in the proceeds or income of the corporation to the concurrent amount of the alleged loan, instead of giving the amount of P3,000,000.00 to them. This argument is untenable. Article 1278 of the Civil Code provides that compensation shall take place when two persons, in their own right, are debtors and creditors of each other. As its indicates, compensation is a sort of balancing between two obligations. In the instant case, the plaintiff and the defendant-husband are not debtors and creditors of

16

each other. Even granting that the defendant-husband’s claim to the profits of the corporation is justified, still compensation cannot extinguish his loan obligation to the plaintiff because under such assumption, the defendant is dealing with the corporation and not with the plaintiff in his personal capacity. Hence, compensation cannot take place.

The Court of Appeals, thus, erred in finding that respondent’s liability was not proved by preponderance of evidence. On the contrary, the evidence adduced by petitioner sufficiently established his claim that the US$25,000.00 he advanced to respondent and his wife was a loan.

The loan is the liability of the conjugal partnership pursuant to Article 121 of the Family Code:

Article 121. The conjugal partnership shall be liable for:

xxx

(2) All debts and obligations contracted during the marriage by the designated administrator-spouse for the benefit of the conjugal partnership of gains, or by both spouses or by one of them with the consent of the other;

(3) Debts and obligations contracted by either spouse without the consent of the other to the extent that the family may have been benefited;

If the conjugal partnership is insufficient to cover the foregoing liabilities, the spouses shall be solidarily liable for the unpaid balance with their separate properties.

xxx

While respondent did not and refused to sign the acknowledgment executed and signed by his wife, undoubtedly, the loan redounded to the benefit of the family because it was used to purchase the house and lot which became the conjugal home of respondent and his family. Hence, notwithstanding the alleged lack of consent of respondent, under Art. 21 of the Family Code, he shall be solidarily liable for such loan together with his wife.

We also find sufficient basis for the award of damages to petitioner, contrary to the findings of the Court of Appeals that petitioner is not entitled thereto.

Petitioner’s allegations of verbal and written threats directed against him by respondent is duly supported by evidence on record. He presented two witnesses, Irineo Pajarin and Randy Rosal, who testified on separate incidents where threats were made by respondent against petitioner.

Randy Rosal, driver of petitioner, declared that around three o’ clock in the afternoon of September 15, 1991, he was sent by respondent’s wife on an errand to deliver the acknowledgment letter to respondent for him to sign. Respondent did not sign the acknowledgment and instead, wrote a letter addressed to petitioner threatening him. He narrated what took place thereafter:

xxx

Q       When you were requested by Ma. Theresa C. Abelardo to bring a letter to herein defendant Manuel Abelardo for him to sign the same, do you know whether that letter was actually signed by Manuel Abelardo?

A       No, sir.

 xxx

17

Q       And what happened when Manuel Abelardo refused to sign that letter coming from the other defendant?

A       He made me wait and he prepared a letter to Mr. Honorio Carlos, sir.

xxx

Q       Where were you at the time when this defendant Manuel Abelardo prepared this letter?

A       In his house, sir.

Q       And where did he actually prepare that letter?

A       At the dining table, sir.

Q       How far were you from Manuel Abelardo from the dining table at the time when he was preparing a letter.

A       Around 1 meter, sir.

Q       And do you know where in, what particular paper did Mr. Abelardo prepare or write this letter?

A       He wrote it in a Manila envelope, sir.

xxx

Q       What happened after Manuel Abelardo prepared this letter in a Manila envelope?

A       He got a small envelope and placed there the name of Mr. Carlos as the addressee, sir.

xxx

Q       After preparing this letter on a Manila  envelope and then getting another envelope and writing on it the address of herein plaintiff, what did the defendant Manuel Abelardo do, if any?

A       He instructed me to mail the letter which he prepared, sir.

 xxx

Q       And did you actually accede to the request of herein defendant Manuel Abelardo for you to mail that letter to Engr. Carlos?

A       I got the envelope but I did not mail it, sir.

xxx

Q       May we know from you the reason why you did not mail said letter?

A       Because Engr. Carlos might become frightened, sir.

18

Q       What did you do with that letter, although you did not mail it?

A       I kept it, sir.

xxx

Q       And what did you do next after keeping the letter for several days?

A       I gave the letter personally to Engr. Carlos, sir.

Q       What prompted you to give that letter to Engr. Carlos instead of mailing it?

A       So that Engr. Carlos can prepare, sir.

 xxx [20]

This incident was duly entered and recorded in the Police Blotter on October 7, 1991 by a certain Sgt. Casile of the Valenzuela Police Station. [21] A photocopy of this written threat was also attached to the Police Report and presented in evidence. [22]

Another witness, Irineo Pajarin, recounted an incident which occurred in the afternoon of May 25, 1994, to wit:

xxx

Q       Now Mr. Witness, on May 25, 1994 at around 2:30 in the afternoon do you recall where you were on that particular date and time?

A       I was at B.F. Homes, Paranaque, sir.

Q       What were you doing at that time?

A       I was waiting for Sargie Cornista, sir.

xxx

Q       Will you please narrate to this Honorable Court that unusual incident?

A       Manuel Abelardo passed by and when he saw me he called me. I approached him while he was then on board his car and asked me who was my companion, sir.

Q       And what was your answer to him?

A       I told him it was Sargie, sir.

Q       And what was his reply if any?

A       He again asked me if I have in my company one of his children, sir.

Q       What was your reply?

A       I answered none, sir.

19

Q       Incidentally Mr. Witness, where or in what particular place did this conversation between you and Manuel T. Abelardo take place?

A       Parking Area of Academy I, Gov. Santos corner Aguirre St., sir.

Q       Now, what else happened after you talk[ed] with this Manuel T. Abelardo?

A       He said I may be fooling him because he said I once fooled him when I ran away with his children which he is going to take back, sir.

Q       And what was your reply to that?

A       I answered I did not do that and he said that once he discovered that I did it he would box me, sir.

Q       What else if any did he tell you at that time?

A       He asked me who instructed me, sir.

Q       Instructed you about what?

A       To run away with the children, sir.

Q       And what was your reply?

A       None, he was the one who said “was it your Ate Puppet?” But I did not answer, sir.

Q       What happened next when you failed to answer?

A       “Or my father in law?”

Q       And when he said his father in law to whom was he referring at that time?

A       Mr. Honorio Carlos, sir.

Q       After mentioning the name of his father-in-law Mr. Honorio Carlos what happened next?

A       He told me “Sabihin mo sa biyenan ko babarilin ko siya pag nakita ko siya.”

Q       Where was Manuel Abelardo at that particular time when he told this threatening remark against Honorio Carlos?

A       He was inside his car in Aguirre St., sir.

Q       How about you where were you approximately at that particular time when he narrated that message to you threatening the herein plaintiff?

A       I was outside looking in his vehicle at Aguirre St., sir.

xxx

Q       And what was your reply or reaction when he made this threatening remarks?

20

A       None, because he left. I was left behind, sir. [23]

This testimony was in part corroborated by an entry dated May 28, 1994 in the Police Blotter of the Paranaque Police Station narrating the aforementioned incident. [24]

The testimonies of these witnesses on the two separate incidents of threat are positive, direct and straightforward. Petitioner also declared on the witness stand that on several occasions, he received telephone calls from respondent cursing and threatening him. [25] These incidents of threat were also evidenced by a letter written by respondent’s wife and addressed to her father-in-law (father of respondent).[26] The letter recounted the instances when threats were made by her husband against petitioner, particularly, the incident reported by Pajarin and the threats made by respondent through the telephone. [27]

All these circumstances sufficiently establish that threats were directed by respondent against petitioner justifying the award of moral damages in favor of petitioner. However, the Court finds the amount of P500,000.00 as moral damages too exorbitant under the circumstances and the same is reduced to P50,000.00. The exemplary damages and attorney’s fees are likewise reduced to P20,000.00 and P50,000.00, respectively.

WHEREFORE, the petition is hereby GRANTED and the decision of the Court of Appeals in CA GR-CV No. 54464 is MODIFIED in that respondent is ordered to pay petitioner the amounts of (1) US$25,000 or its equivalent in Philippine currency at the time of payment, plus legal interest from August 4, 1994, until fully paid; (2) P50,000.00 as moral damages; (3) P20,000.00 as exemplary damages; and (4) P50,000.00 as attorney’s fees.

SO ORDERED.

G.R. No. L-44748 August 29, 1986

RADIO COMMUNICATIONS OF THE PHILS., INC. (RCPI). petitioner, vs.COURT OF APPEALS and LORETO DIONELA, respondents.

O. Pythogoras Oliver for respondents.

 

PARAS, J.:

Before Us, is a Petition for Review by certiorari of the decision of the Court of Appeals, modifying the decision of the trial court in a civil case for recovery of damages against petitioner corporation by reducing the award to private respondent Loreto Dionela of moral damages from P40,000 to Pl5,000, and attorney's fees from P3,000 to P2,000.

The basis of the complaint against the defendant corporation is a telegram sent through its Manila Office to the offended party, Loreto Dionela, reading as follows:

176 AS JR 1215PM 9 PAID MANDALUYONG JUL 22-66 LORETO DIONELA CABANGAN LEGASPI CITY

WIRE ARRIVAL OF CHECK FER

LORETO DIONELA-CABANGAN-WIRE ARRIVAL OF CHECK-PER

21

115 PM

SA IYO WALANG PAKINABANG DUMATING KA DIYAN-WALA-KANG PADALA DITO KAHIT BULBUL MO

(p. 19, Annex "A")

Plaintiff-respondent Loreto Dionela alleges that the defamatory words on the telegram sent to him not only wounded his feelings but also caused him undue embarrassment and affected adversely his business as well because other people have come to know of said defamatory words. Defendant corporation as a defense, alleges that the additional words in Tagalog was a private joke between the sending and receiving operators and that they were not addressed to or intended for plaintiff and therefore did not form part of the telegram and that the Tagalog words are not defamatory. The telegram sent through its facilities was received in its station at Legaspi City. Nobody other than the operator manned the teletype machine which automatically receives telegrams being transmitted. The said telegram was detached from the machine and placed inside a sealed envelope and delivered to plaintiff, obviously as is. The additional words in Tagalog were never noticed and were included in the telegram when delivered.

The trial court in finding for the plaintiff ruled as follows:

There is no question that the additional words in Tagalog are libelous. They clearly impute a vice or defect of the plaintiff. Whether or not they were intended for the plaintiff, the effect on the plaintiff is the same. Any person reading the additional words in Tagalog will naturally think that they refer to the addressee, the plaintiff. There is no indication from the face of the telegram that the additional words in Tagalog were sent as a private joke between the operators of the defendant.

The defendant is sued directly not as an employer. The business of the defendant is to transmit telegrams. It will open the door to frauds and allow the defendant to act with impunity if it can escape liability by the simple expedient of showing that its employees acted beyond the scope of their assigned tasks.

The liability of the defendant is predicated not only on Article 33 of the Civil Code of the Philippines but on the following articles of said Code:

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

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

There is sufficient publication of the libelous Tagalog words. The office file of the defendant containing copies of telegrams received are open and held together only by a metal fastener. Moreover, they are open to view and inspection by third parties.

It follows that the plaintiff is entitled to damages and attorney's fees. The plaintiff is a businessman. The libelous Tagalog words must have affected his business and social standing in the community. The Court fixes the amount of P40,000.00 as the reasonable amount of moral damages and the amount of P3,000.00 as attorney's fee which the defendant should pay the plaintiff. (pp. 15-16, Record on Appeal)

22

The respondent appellate court in its assailed decision confirming the aforegoing findings of the lower court stated:

The proximate cause, therefore, resulting in injury to appellee, was the failure of the appellant to take the necessary or precautionary steps to avoid the occurrence of the humiliating incident now complained of. The company had not imposed any safeguard against such eventualities and this void in its operating procedure does not speak well of its concern for their clientele's interests. Negligence here is very patent. This negligence is imputable to appellant and not to its employees.

The claim that there was no publication of the libelous words in Tagalog is also without merit. The fact that a carbon copy of the telegram was filed among other telegrams and left to hang for the public to see, open for inspection by a third party is sufficient publication. It would have been otherwise perhaps had the telegram been placed and kept in a secured place where no one may have had a chance to read it without appellee's permission.

The additional Tagalog words at the bottom of the telegram are, as correctly found by the lower court, libelous per se, and from which malice may be presumed in the absence of any showing of good intention and justifiable motive on the part of the appellant. The law implies damages in this instance (Quemel vs. Court of Appeals, L-22794, January 16, 1968; 22 SCRA 44). The award of P40,000.00 as moral damages is hereby reduced to P15,000.00 and for attorney's fees the amount of P2,000.00 is awarded. (pp. 22-23, record)

After a motion for reconsideration was denied by the appellate court, petitioner came to Us with the following:

ASSIGNMENT OF ERRORS

I

The Honorable Court of Appeals erred in holding that Petitioner-employer should answer directly and primarily for the civil liability arising from the criminal act of its employee.

II

The Honorable Court of Appeals erred in holding that there was sufficient publication of the alleged libelous telegram in question, as contemplated by law on libel.

III

The Honorable Court of Appeals erred in holding that the liability of petitioner-company-employer is predicated on Articles 19 and 20 of the Civil Code, Articles on Human Relations.

IV

The Honorable Court of Appeals erred in awarding Atty's. fees. (p. 4, Record)

Petitioner's contentions do not merit our consideration. The action for damages was filed in the lower court directly against respondent corporation not as an employer subsidiarily liable under the provisions of Article 1161 of the New Civil Code in relation to Art. 103 of the Revised Penal Code. The cause of

23

action of the private respondent is based on Arts. 19 and 20 of the New Civil Code (supra). As well as on respondent's breach of contract thru the negligence of its own employees. 1

Petitioner is a domestic corporation engaged in the business of receiving and transmitting messages. Everytime a person transmits a message through the facilities of the petitioner, a contract is entered into. Upon receipt of the rate or fee fixed, the petitioner undertakes to transmit the message accurately. There is no question that in the case at bar, libelous matters were included in the message transmitted, without the consent or knowledge of the sender. There is a clear case of breach of contract by the petitioner in adding extraneous and libelous matters in the message sent to the private respondent. As a corporation, the petitioner can act only through its employees. Hence the acts of its employees in receiving and transmitting messages are the acts of the petitioner. To hold that the petitioner is not liable directly for the acts of its employees in the pursuit of petitioner's business is to deprive the general public availing of the services of the petitioner of an effective and adequate remedy. In most cases, negligence must be proved in order that plaintiff may recover. However, since negligence may be hard to substantiate in some cases, we may apply the doctrine of RES IPSA LOQUITUR (the thing speaks for itself), by considering the presence of facts or circumstances surrounding the injury.

WHEREFORE, premises considered, the judgment of the appellate court is hereby AFFIRMED.

SO ORDERED.

G.R. No. L-32116 April 2l, 1981

RURAL BANK OF CALOOCAN, INC. and JOSE O. DESIDERIO, JR., petitioners, vs.THE COURT OF APPEALS and MAXIMA CASTRO, respondents.

 DE CASTRO, * J.:

This is a petition for review by way of certiorari of the decision 1 of the Court of Appeals in CA-G.R. No. 39760-R entitled "Maxima Castro, plaintiff-appellee, versus Severino Valencia, et al., defendants; Rural Bank of Caloocan, Inc., Jose Desiderio, Jr. and Arsenio Reyes, defendants-appellants," which affirmed in toto the decision of the Court of First Instance of Manila in favor of plaintiff- appellee, the herein private respondent Maxima Castro.

On December 7, 1959, respondent Maxima Castro, accompanied by Severino Valencia, went to the Rural Bank of Caloocan to apply for an industrial loan. It was Severino Valencia who arranged everything about the loan with the bank and who supplied to the latter the personal data required for Castro's loan application. On December 11, 1959, after the bank approved the loan for the amount of P3,000.00, Castro, accompanied by the Valencia spouses, signed a promissory note corresponding to her loan in favor of the bank.

On the same day, December 11, 1959, the Valencia spouses obtained from the bank an equal amount of loan for P3,000.00. They signed a promissory note (Exhibit "2") corresponding to their loan in favor of the bank and had Castro affixed thereon her signature as co-maker.

The two loans were secured by a real-estate mortgage (Exhibit "6") on Castro's house and lot of 150 square meters, covered by Transfer Certificate of Title No. 7419 of the Office of the Register of Deeds of Manila.

On February 13, 1961, the sheriff of Manila, thru Acting Chief Deputy Sheriff Basilio Magsambol, sent a notice of sheriff's sale addressed to Castro, announcing that her property covered by T.C.T. No. 7419

24

would be sold at public auction on March 10, 1961 to satisfy the obligation covering the two promissory notes plus interest and attorney's fees.

Upon request by Castro and the Valencias and with conformity of the bank, the auction sale that was scheduled for March 10, 1961 was postponed for April 10, 1961. But when April 10, 1961 was subsequently declared a special holiday, the sheriff of Manila sold the property covered by T.C.T. No. 7419 at a public auction sale that was held on April 11, 1961, which was the next succeeding business day following the special holiday.

Castro alleged that it was only when she received the letter from the Acting Deputy Sheriff on February 13, 1961, when she learned for the first time that the mortgage contract (Exhibit "6") which was an encumbrance on her property was for P6.000.00 and not for P3,000.00 and that she was made to sign as co-maker of the promissory note (Exhibit "2") without her being informed of this.

On April 4, 1961, Castro filed a suit denominated "Re: Sum of Money," against petitioners Bank and Desiderio, the Spouses Valencia, Basilio Magsambol and Arsenio Reyes as defendants in Civil Case No. 46698 before the Court of First Instance of Manila upon the charge, amongst others, that thru mistake on her part or fraud on the part of Valencias she was induced to sign as co-maker of a promissory note (Exhibit "2") and to constitute a mortgage on her house and lot to secure the questioned note. At the time of filing her complaint, respondent Castro deposited the amount of P3,383.00 with the court a quo in full payment of her personal loan plus interest.

In her amended complaint, Castro prayed, amongst other, for the annulment as far as she is concerned of the promissory note (Exhibit "2") and mortgage (Exhibit "6") insofar as it exceeds P3,000.00; for the discharge of her personal obligation with the bank by reason of a deposit of P3,383.00 with the court a quo upon the filing of her complaint; for the annulment of the foreclosure sale of her property covered by T.C.T. No. 7419 in favor of Arsenio Reyes; and for the award in her favor of attorney's fees, damages and cost.

In their answers, petitioners interposed counterclaims and prayed for the dismissal of said complaint, with damages, attorney's fees and costs. 2

The pertinent facts arrived from the stipulation of facts entered into by the parties as stated by respondent Court of Appeals are as follows:

Spawning the present litigation are the facts contained in the following stipulation of facts submitted by the parties themselves:

1. That the capacity and addresses of all the parties in this case are admitted .

2. That the plaintiff was the registered owner of a residential house and lot located at Nos. 1268-1270 Carola Street, Sampaloc, Manila, containing an area of one hundred fifty (150) square meters, more or less, covered by T.C.T. No. 7419 of the Office of the Register of Deeds of Manila;

3. That the signatures of the plaintiff appearing on the following documents are genuine:

a) Application for Industrial Loan with the Rural Bank of Caloocan, dated December 7, 1959 in the amount of P3,000.00 attached as Annex A of this partial stipulation of facts;

b) Promissory Note dated December 11, 1959 signed by the plaintiff in favor of the Rural Bank of Caloocan for the amount of P3,000.00 as per Annex B of this partial stipulation of facts;

25

c) Application for Industrial Loan with the Rural Bank of Caloocan, dated December 11, 1959, signed only by the defendants, Severino Valencia and Catalina Valencia, attached as Annex C, of this partial stipulation of facts;

d) Promissory note in favor of the Rural Bank of Caloocan, dated December 11, 1959 for the amount of P3000.00, signed by the spouses Severino Valencia and Catalina Valencia as borrowers, and plaintiff Maxima Castro, as a co-maker, attached as Annex D of this partial stipulation of facts;

e) Real estate mortgage dated December 11, 1959 executed by plaintiff Maxima Castro, in favor of the Rural Bank of Caloocan, to secure the obligation of P6,000.00 attached herein as Annex E of this partial stipulation of facts;

All the parties herein expressly reserved their right to present any evidence they may desire on the circumstances regarding the execution of the above-mentioned documents.

4. That the sheriff of Manila, thru Acting Chief Deputy Sheriff, Basilio Magsambol, sent a notice of sheriff's sale, address to the plaintiff, dated February 13, 1961, announcing that plaintiff's property covered by TCT No. 7419 of the Register of Deeds of the City of Manila, would be sold at public auction on March 10, 1961 to satisfy the total obligation of P5,728.50, plus interest, attorney's fees, etc., as evidenced by the Notice of Sheriff's Sale and Notice of Extrajudicial Auction Sale of the Mortgaged property, attached herewith as Annexes F and F-1, respectively, of this stipulation of facts;

5. That upon the request of the plaintiff and defendants-spouses Severino Valencia and Catalina Valencia, and with the conformity of the Rural Bank of Caloocan, the Sheriff of Manila postponed the auction sale scheduled for March 10, 1961 for thirty (30) days and the sheriff re-set the auction sale for April 10, 1961;

6. That April 10, 1961 was declared a special public holiday; (Note: No. 7 is omitted upon agreement of the parties.)

8. That on April 11, 1961, the Sheriff of Manila, sold at public auction plaintiff's property covered by T.C.T. No. 7419 and defendant, Arsenio Reyes, was the highest bidder and the corresponding certificate of sale was issued to him as per Annex G of this partial stipulation of facts;

9. That on April 16, 1962, the defendant Arsenio Reyes, executed an Affidavit of Consolidation of Ownership, a copy of which is hereto attached as Annex H of this partial stipulation of facts;

10. That on May 9, 1962, the Rural Bank of Caloocan Incorporated executed the final deed of sale in favor of the defendant, Arsenio Reyes, in the amount of P7,000.00, a copy of which is attached as Annex I of this partial stipulation of facts;

11. That the Register of Deeds of the City of Manila issued the Transfer Certificate of Title No. 67297 in favor of the defendant, Arsenio Reyes, in lieu of Transfer Certificate of Title No. 7419 which was in the name of plaintiff, Maxima Castro, which was cancelled;

12. That after defendant, Arsenio Reyes, had consolidated his title to the property as per T.C.T. No. 67299, plaintiff filed a notice of lis pendens with the Register of Deeds of

26

Manila and the same was annotated in the back of T.C.T. No. 67299 as per Annex J of this partial stipulation of facts; and

13. That the parties hereby reserved their rights to present additional evidence on matters not covered by this partial stipulation of facts.

WHEREFORE, it is respectfully prayed that the foregoing partial stipulation of facts be approved and admitted by this Honorable Court.

As for the evidence presented during the trial, We quote from the decision of the Court of Appeals the statement thereof, as follows:

In addition to the foregoing stipulation of facts, plaintiff claims she is a 70-year old widow who cannot read and write the English language; that she can speak the Pampango dialect only; that she has only finished second grade (t.s.n., p. 4, December 11, 1964); that in December 1959, she needed money in the amount of P3,000.00 to invest in the business of the defendant spouses Valencia, who accompanied her to the defendant bank for the purpose of securing a loan of P3,000.00; that while at the defendant bank, an employee handed to her several forms already prepared which she was asked to sign on the places indicated, with no one explaining to her the nature and contents of the documents; that she did not even receive a copy thereof; that she was given a check in the amount of P2,882.85 which she delivered to defendant spouses; that sometime in February 1961, she received a letter from the Acting Deputy Sheriff of Manila, regarding the extrajudicial foreclosure sale of her property; that it was then when she learned for the first time that the mortgage indebtedness secured by the mortgage on her property was P6,000.00 and not P3,000.00; that upon investigation of her lawyer, it was found that the papers she was made to sign were:

(a) Application for a loan of P3,000.00 dated December 7, 1959 (Exh. B-1 and Exh. 1);

(b) Promissory note dated December 11, 1959 for the said loan of P3,000.00 (Exh- B-2);

(c) Promissory note dated December 11, 1959 for P3,000.00 with the defendants Valencia spouses as borrowers and appellee as co-maker (Exh. B-4 or Exh. 2).

The auction sale set for March 10, 1961 was postponed co April 10, 1961 upon the request of defendant spouses Valencia who needed more time within which to pay their loan of P3,000.00 with the defendant bank; plaintiff claims that when she filed the complaint she deposited with the Clerk of Court the sum of P3,383.00 in full payment of her loan of P3,000.00 with the defendant bank, plus interest at the rate of 12% per annum up to April 3, 1961 (Exh. D).

As additional evidence for the defendant bank, its manager declared that sometime in December, 1959, plaintiff was brought to the Office of the Bank by an employee- (t.s.n., p 4, January 27, 1966). She wept, there to inquire if she could get a loan from the bank. The claims he asked the amount and the purpose of the loan and the security to he given and plaintiff said she would need P3.000.00 to be invested in a drugstore in which she was a partner (t.s.n., p. 811. She offered as security for the loan her lot and house at Carola St., Sampaloc, Manila, which was promptly investigated by the defendant bank's inspector. Then a few days later, plaintiff came back to the bank with the wife of defendant Valencia A date was allegedly set for plaintiff and the defendant spouses for the processing of their application, but on the day fixed, plaintiff came without the defendant spouses. She signed the application and the other papers pertinent to the

27

loan after she was interviewed by the manager of the defendant. After the application of plaintiff was made, defendant spouses had their application for a loan also prepared and signed (see Exh. 13). In his interview of plaintiff and defendant spouses, the manager of the bank was able to gather that plaintiff was in joint venture with the defendant spouses wherein she agreed to invest P3,000.00 as additional capital in the laboratory owned by said spouses (t.s.n., pp. 16-17) 3

The Court of Appeals, upon evaluation of the evidence, affirmed in toto the decision of the Court of First Instance of Manila, the dispositive portion of which reads:

FOR ALL THE FOREGOING CONSIDERATIONS, the Court renders judgment and:

(1) Declares that the promissory note, Exhibit '2', is invalid as against plaintiff herein;

(2) Declares that the contract of mortgage, Exhibit '6', is null and void, in so far as the amount thereof exceeds the sum of P3,000.00 representing the principal obligation of plaintiff, plus the interest thereon at 12% per annum;

(3) Annuls the extrajudicial foreclosure sale at public auction of the mortgaged property held on April 11, 1961, as well as all the process and actuations made in pursuance of or in implementation thereto;

(4) Holds that the total unpaid obligation of plaintiff to defendant Rural Bank of Caloocan, Inc., is only the amount of P3,000.00, plus the interest thereon at 12% per annum, as of April 3, 1961, and orders that plaintiff's deposit of P3,383.00 in the Office of the Clerk of Court be applied to the payment thereof;

(5) Orders defendant Rural Bank of Caloocan, Inc. to return to defendant Arsenio Reyes the purchase price the latter paid for the mortgaged property at the public auction, as well as reimburse him of all the expenses he has incurred relative to the sale thereof;

(6) Orders defendants spouses Severino D. Valencia and Catalina Valencia to pay defendant Rural Bank of Caloocan, Inc. the amount of P3,000.00 plus the corresponding 12% interest thereon per annum from December 11, 1960 until fully paid; and

Orders defendants Rural Bank of Caloocan, Inc., Jose Desiderio, Jr. and spouses Severino D. Valencia and Catalina Valencia to pay plaintiff, jointly and severally, the sum of P600.00 by way of attorney's fees, as well as costs.

In view of the conclusion that the court has thus reached, the counterclaims of defendant Rural Bank of Caloocan, Inc., Jose Desiderio, Jr. and Arsenio Reyes are hereby dismissed, as a corollary

The Court further denies the motion of defendant Arsenio Reyes for an Order requiring Maxima Castro to deposit rentals filed on November 16, 1963, resolution of which was held in abeyance pending final determination of the case on the merits, also as a consequence of the conclusion aforesaid. 4

Petitioners Bank and Jose Desiderio moved for the reconsideration 5 of respondent court's decision. The motion having been denied, 6 they now come before this Court in the instant petition, with the following Assignment of Errors, to wit:

I

28

THE COURT OF APPEALS ERRED IN UPHOLDING THE PARTIAL ANNULMENT OF THE PROMISSORY NOTE, EXHIBIT 2, AND THE MORTGAGE, EXHIBIT 6, INSOFAR AS THEY AFFECT RESPONDENT MAXIMA CASTRO VIS-A-VIS PETITIONER BANK DESPITE THE TOTAL ABSENCE OF EITHER ALLEGATION IN THE COMPLAINT OR COMPETENT PROOF IN THE EVIDENCE OF ANY FRAUD OR OTHER UNLAWFUL CONDUCT COMMITTED OR PARTICIPATED IN BY PETITIONERS IN PROCURING THE EXECUTION OF SAID CONTRACTS FROM RESPONDENT CASTRO.

II

THE COURT OF APPEALS ERRED IN IMPUTING UPON AND CONSIDERING PREJUDICIALLY AGAINST PETITIONERS, AS BASIS FOR THE PARTIAL ANNULMENT OF THE CONTRACTS AFORESAID ITS FINDING OF FRAUD PERPETRATED BY THE VALENCIA SPOUSES UPON RESPONDENT CASTRO IN UTTER VIOLATION OF THE RES INTER ALIOS ACTA RULE.

III

THE COURT OF APPEAL ERRED IN NOT HOLDING THAT, UNDER THE FACTS FOUND BY IT, RESPONDENT CASTRO IS UNDER ESTOPPEL TO IMPUGN THE REGULARITY AND VALIDITY OF HER QUESTIONED TRANSACTION WITH PETITIONER BANK.

IV

THE COURT OF APPEALS ERRED IN NOT FINDING THAT, BETWEEN PETITIONERS AND RESPONDENT CASTRO, THE LATTER SHOULD SUFFER THE CONSEQUENCES OF THE FRAUD PERPETRATED BY THE VALENCIA SPOUSES, IN AS MUCH AS IT WAS THRU RESPONDENT CASTRO'S NEGLIGENCE OR ACQUIESCENSE IF NOT ACTUAL CONNIVANCE THAT THE PERPETRATION OF SAID FRAUD WAS MADE POSSIBLE.

V

THE COURT OF APPEALS ERRED IN UPHOLDING THE VALIDITY OF THE DEPOSIT BY RESPONDENT CASTRO OF P3,383.00 WITH THE COURT BELOW AS A TENDER AND CONSIGNATION OF PAYMENT SUFFICIENT TO DISCHARGE SAID RESPONDENT FROM HER OBLIGATION WITH PETITIONER BANK.

VI

THE COURT OF APPEALS ERRED IN NOT DECLARING AS VALID AND BINDING UPON RESPONDENT CASTRO THE HOLDING OF THE SALE ON FORECLOSURE ON THE BUSINESS DAY NEXT FOLLOWING THE ORIGINALLY SCHEDULED DATE THEREFOR WHICH WAS DECLARED A HOLIDAY WITHOUT NECESSITY OF FURTHER NOTICE THEREOF.

The issue raised in the first three (3) assignment of errors is whether or not respondent court correctly affirmed the lower court in declaring the promissory note (Exhibit 2) invalid insofar as they affect respondent Castro vis-a-vis petitioner bank, and the mortgage contract (Exhibit 6) valid up to the amount of P3,000.00 only.

29

Respondent court declared that the consent of Castro to the promissory note (Exhibit 2) where she signed as co-maker with the Valencias as principal borrowers and her acquiescence to the mortgage contract (Exhibit 6) where she encumbered her property to secure the amount of P6,000.00 was obtained by fraud perpetrated on her by the Valencias who had abused her confidence, taking advantage of her old age and ignorance of her financial need. Respondent court added that "the mandate of fair play decrees that she should be relieved of her obligation under the contract" pursuant to Articles 24 7 and 1332 8 of the Civil Code.

The decision in effect relieved Castro of any liability to the promissory note (Exhibit 2) and the mortgage contract (Exhibit 6) was deemed valid up to the amount of P3,000.00 only which was equivalent to her personal loan to the bank.

Petitioners argued that since the Valencias were solely declared in the decision to be responsible for the fraud against Castro, in the light of the res inter alios acta rule, a finding of fraud perpetrated by the spouses against Castro cannot be taken to operate prejudicially against the bank. Petitioners concluded that respondent court erred in not giving effect to the promissory note (Exhibit 2) insofar as they affect Castro and the bank and in declaring that the mortgage contract (Exhibit 6) was valid only to the extent of Castro's personal loan of P3,000.00.

The records of the case reveal that respondent court's findings of fraud against the Valencias is well supported by evidence. Moreover, the findings of fact by respondent court in the matter is deemed final. 9 The decision declared the Valencias solely responsible for the defraudation of Castro. Petitioners' contention that the decision was silent regarding the participation of the bank in the fraud is, therefore, correct.

We cannot agree with the contention of petitioners that the bank was defrauded by the Valencias. For one, no claim was made on this in the lower court. For another, petitioners did not submit proof to support its contention.

At any rate, We observe that while the Valencias defrauded Castro by making her sign the promissory note (Exhibit 2) and the mortgage contract (Exhibit 6), they also misrepresented to the bank Castro's personal qualifications in order to secure its consent to the loan. This must be the reason which prompted the bank to contend that it was defrauded by the Valencias. But to reiterate, We cannot agree with the contention for reasons above-mentioned. However, if the contention deserves any consideration at all, it is in indicating the admission of petitioners that the bank committed mistake in giving its consent to the contracts.

Thus, as a result of the fraud upon Castro and the misrepresentation to the bank inflicted by the Valencias both Castro and the bank committed mistake in giving their consents to the contracts. In other words, substantial mistake vitiated their consents given. For if Castro had been aware of what she signed and the bank of the true qualifications of the loan applicants, it is evident that they would not have given their consents to the contracts.

Pursuant to Article 1342 of the Civil Code which provides:

Art. 1342. Misrepresentation by a third person does not vitiate consent, unless such misrepresentation has created substantial mistake and the same is mutual.

We cannot declare the promissory note (Exhibit 2) valid between the bank and Castro and the mortgage contract (Exhibit 6) binding on Castro beyond the amount of P3,000.00, for while the contracts may not be invalidated insofar as they affect the bank and Castro on the ground of fraud because the bank was not a participant thereto, such may however be invalidated on the ground of substantial mistake mutually committed by them as a consequence of the fraud and misrepresentation

30

inflicted by the Valencias. Thus, in the case ofHill vs. Veloso, 10 this Court declared that a contract may be annulled on the ground of vitiated consent if deceit by a third person, even without connivance or complicity with one of the contracting parties, resulted in mutual error on the part of the parties to the contract.

Petitioners argued that the amended complaint fails to contain even a general averment of fraud or mistake, and its mention in the prayer is definitely not a substantial compliance with the requirement of Section 5, Rule 8 of the Rules of Court. The records of the case, however, will show that the amended complaint contained a particular averment of fraud against the Valencias in full compliance with the provision of the Rules of Court. Although, the amended complaint made no mention of mistake being incurred in by the bank and Castro, such mention is not essential in order that the promissory note (Exhibit 2) may be declared of no binding effect between them and the mortgage (Exhibit 6) valid up to the amount of P3,000.00 only. The reason is that the mistake they mutually suffered was a mere consequence of the fraud perpetrated by the Valencias against them. Thus, the fraud particularly averred in the complaint, having been proven, is deemed sufficient basis for the declaration of the promissory note (Exhibit 2) invalid insofar as it affects Castro vis-a-vis the bank, and the mortgage contract (Exhibit 6) valid only up to the amount of P3,000.00.

The second issue raised in the fourth assignment of errors is who between Castro and the bank should suffer the consequences of the fraud perpetrated by the Valencias.

In attributing to Castro an consequences of the loss, petitioners argue that it was her negligence or acquiescence if not her actual connivance that made the fraud possible.

Petitioners' argument utterly disregards the findings of respondent Court of Appeals wherein petitioners' negligence in the contracts has been aptly demonstrated, to wit:

A witness for the defendant bank, Rodolfo Desiderio claims he had subjected the plaintiff-appellee to several interviews. If this were true why is it that her age was placed at 61 instead of 70; why was she described in the application (Exh. B-1-9) as drug manufacturer when in fact she was not; why was it placed in the application that she has income of P20,000.00 when according to plaintiff-appellee, she his not even given such kind of information -the true fact being that she was being paid P1.20 per picul of the sugarcane production in her hacienda and 500 cavans on the palay production. 11

From the foregoing, it is evident that the bank was as much , guilty as Castro was, of negligence in giving its consent to the contracts. It apparently relied on representations made by the Valencia spouses when it should have directly obtained the needed data from Castro who was the acknowledged owner of the property offered as collateral. Moreover, considering Castro's personal circumstances – her lack of education, ignorance and old age – she cannot be considered utterly neglectful for having been defrauded. On the contrary, it is demanded of petitioners to exercise the highest order of care and prudence in its business dealings with the Valencias considering that it is engaged in a banking business –a business affected with public interest. It should have ascertained Castro's awareness of what she was signing or made her understand what obligations she was assuming, considering that she was giving accommodation to, without any consideration from the Valencia spouses.

Petitioners further argue that Castro's act of holding the Valencias as her agent led the bank to believe that they were authorized to speak and bind her. She cannot now be permitted to deny the authority of the Valencias to act as her agent for one who clothes another with apparent authority as her agent is not permitted to deny such authority.

31

The authority of the Valencias was only to follow-up Castro's loan application with the bank. They were not authorized to borrow for her. This is apparent from the fact that Castro went to the Bank to sign the promissory note for her loan of P3,000.00. If her act had been understood by the Bank to be a grant of an authority to the Valencia to borrow in her behalf, it should have required a special power of attorney executed by Castro in their favor. Since the bank did not, We can rightly assume that it did not entertain the notion, that the Valencia spouses were in any manner acting as an agent of Castro.

When the Valencias borrowed from the Bank a personal loan of P3,000.00 evidenced by a promissory note (Exhibit 2) and mortgaged (Exhibit 6) Castro's property to secure said loan, the Valencias acted for their own behalf. Considering however that for the loan in which the Valencias appeared as principal borrowers, it was the property of Castro that was being mortgaged to secure said loan, the Bank should have exercised due care and prudence by making proper inquiry if Castro's consent to the mortgage was without any taint or defect. The possibility of her not knowing that she signed the promissory note (Exhibit 2) as co-maker with the Valencias and that her property was mortgaged to secure the two loans instead of her own personal loan only, in view of her personal circumstances – ignorance, lack of education and old age – should have placed the Bank on prudent inquiry to protect its interest and that of the public it serves. With the recent occurrence of events that have supposedly affected adversely our banking system, attributable to laxity in the conduct of bank business by its officials, the need of extreme caution and prudence by said officials and employees in the discharge of their functions cannot be over-emphasized.

Question is, likewise, raised as to the propriety of respondent court's decision which declared that Castro's consignation in court of the amount of P3,383.00 was validly made. It is contended that the consignation was made without prior offer or tender of payment to the Bank, and it therefore, not valid. In holding that there is a substantial compliance with the provision of Article 1256 of the Civil Code, respondent court considered the fact that the Bank was holding Castro liable for the sum of P6,000.00 plus 12% interest per annum, while the amount consigned was only P3,000.00 plus 12% interest; that at the time of consignation, the Bank had long foreclosed the mortgage extrajudicially and the sale of the mortgage property had already been scheduled for April 10, 1961 for non-payment of the obligation, and that despite the fact that the Bank already knew of the deposit made by Castro because the receipt of the deposit was attached to the record of the case, said Bank had not made any claim of such deposit, and that therefore, Castro was right in thinking that it was futile and useless for her to make previous offer and tender of payment directly to the Bank only in the aforesaid amount of P3,000.00 plus 12% interest. Under the foregoing circumstances, the consignation made by Castro was valid. if not under the strict provision of the law, under the more liberal considerations of equity.

The final issue raised is the validity or invalidity of the extrajudicial foreclosure sale at public auction of the mortgaged property that was held on April 11, 1961.

Petitioners contended that the public auction sale that was held on April 11, 1961 which was the next business day after the scheduled date of the sale on April 10, 1961, a special public holiday, was permissible and valid pursuant to the provisions of Section 31 of the Revised Administrative Code which ordains:

Pretermission of holiday. – Where the day, or the last day, for doing any act required or permitted by law falls on a holiday, the act may be done on the next succeeding business day.

Respondent court ruled that the aforesaid sale is null and void, it not having been carried out in accordance with Section 9 of Act No. 3135, which provides:

Section 9. – Notice shall be given by posting notices of the sale for not less than twenty days in at least three public places of the municipality or city where the property is situated, and if such property is worth more than four hundred pesos, such notice shall

32

also be published once a week for at least three consecutive weeks in a newspaper of general circulation in the municipality or city.

We agree with respondent court. The pretermission of a holiday applies only "where the day, or the last day for doing any act required or permitted by law falls on a holiday," or when the last day of a given period for doing an act falls on a holiday. It does not apply to a day fixed by an office or officer of the government for an act to be done, as distinguished from a period of time within which an act should be done, which may be on any day within that specified period. For example, if a party is required by law to file his answer to a complaint within fifteen (15) days from receipt of the summons and the last day falls on a holiday, the last day is deemed moved to the next succeeding business day. But, if the court fixes the trial of a case on a certain day but the said date is subsequently declared a public holiday, the trial thereof is not automatically transferred to the next succeeding business day. Since April 10, 1961 was not the day or the last day set by law for the extrajudicial foreclosure sale, nor the last day of a given period but a date fixed by the deputy sheriff, the aforesaid sale cannot legally be made on the next succeeding business day without the notices of the sale on that day being posted as prescribed in Section 9, Act No. 3135.

WHEREFORE, finding no reversible error in the judgment under review, We affirm the same in toto. No pronouncement as to cost.

SO ORDERED.

Rural Bank of Caloocan vs CAGR no. L-32116April 21, 1981 

FACTS: Maxima Castro, accompanied by Severino Valencia, went to Rural Bank of Caloocan to apply

for industrial loan. The loan was secured by a real estate mortgage on Castor’s house, after that, the bank approved the loan of P3000. Valencia obtained from the bank an equal amount of loan affixing Castro’s signature as co-maker without its knowledge. 

The sheriff then sent a notice announcing the property would be sold at public auction to satisfy the obligation.  Upon request, the auction sale which was scheduled for March 10, 1961 was postponed for April 10, 1961. But April 10 was subsequently declared a special holiday so the sheriff sold the property on public auction on April 11, 1961 which was the next succeeding business day following the special holiday.  

Castro prayed for the annulment of sale alleging that there was fraud on the part of Valencias who induced her to sign as co-maker of a promissory note since she is a 70-year old widow who cannot read and write and it was only when she receive the notice of sheriff, she learned that the encumbrance on her property was P6000 and not for P3000.  

 ISSUE: 

Whether or not the public auction sale was null and void for transferring the date already set by law.

 RULING: 

The sale is null and void for not having in accordance with Act 3135 which states that that a notice shall be given by posting notices of sale for not less than 20 days in at least 3 public places and if the property is worth more than P400 such notice shall also be published for in a newspaper of general circulation in the municipality or city once a week for 3 consecutive weeks.

33

 

The pretermission of a holiday applies only ‘where the day, or the last day for doing any act required or permitted by law falls on a holiday or when the last day of a given period for doing an act falls on holiday. It does not apply to a day fixed by an office or officer of the government for an act to be done.  

Since April 10, 1961 was not the day or the last day set by law for the extrajudicial foreclosure sale, nor the last day of a given period but a date fixed by deputy sheriff, the sale cannot be legally made on the next succeeding business day without the notice of the sale in accordance with Act no. 3135.

 G.R. No. 100970 September 2, 1992

FINMAN GENERAL ASSURANCE CORPORATION, petitioner, vs.THE HONORABLE COURT OF APPEALS and JULIA SURPOSA, respondents.

Aquino and Associates for petitioner.

Public Attorney's Office for private respondent. 

NOCON, J.:

This is a petition for certiorari with a prayer for the issuance of a restraining order and preliminary mandatory injunction to annul and set aside the decision of the Court of Appeals dated July 11, 1991, 1 affirming the decision dated March 20, 1990 of the Insurance Commission 2 in ordering petitioner Finman General Assurance Corporation to pay private respondent Julia Surposa the proceeds of the personal accident Insurance policy with interest.

It appears on record that on October 22, 1986, deceased, Carlie Surposa was insured with petitioner Finman General Assurance Corporation under Finman General Teachers Protection Plan Master Policy No. 2005 and Individual Policy No. 08924 with his parents, spouses Julia and Carlos Surposa, and brothers Christopher, Charles, Chester and Clifton, all surnamed, Surposa, as beneficiaries. 3

While said insurance policy was in full force and effect, the insured, Carlie Surposa, died on October 18, 1988 as a result of a stab wound inflicted by one of the three (3) unidentified men without provocation and warning on the part of the former as he and his cousin, Winston Surposa, were waiting for a ride on their way home along Rizal-Locsin Streets, Bacolod City after attending the celebration of the "Maskarra Annual Festival."

Thereafter, private respondent and the other beneficiaries of said insurance policy filed a written notice of claim with the petitioner insurance company which denied said claim contending that murder and assault are not within the scope of the coverage of the insurance policy.

On February 24, 1989, private respondent filed a complaint with the Insurance Commission which subsequently rendered a decision, the pertinent portion of which reads:

In the light of the foregoing. we find respondent liable to pay complainant the sum of P15,000.00 representing the proceeds of the policy with interest. As no evidence was submitted to prove the claim for mortuary aid in the sum of P1,000.00, the same cannot be entertained.

34

WHEREFORE, judgment is hereby rendered ordering respondent to pay complainant the sum of P15,000.00 with legal interest from the date of the filing of the complaint until fully satisfied. With costs. 4

On July 11, 1991, the appellate court affirmed said decision.

Hence, petitioner filed this petition alleging grove abuse of discretion on the part of the appellate court in applying the principle of "expresso unius exclusio alterius" in a personal accident insurance policy since death resulting from murder and/or assault are impliedly excluded in said insurance policy considering that the cause of death of the insured was not accidental but rather a deliberate and intentional act of the assailant in killing the former as indicated by the location of the lone stab wound on the insured. Therefore, said death was committed with deliberate intent which, by the very nature of a personal accident insurance policy, cannot be indemnified.

We do not agree.

The terms "accident" and "accidental" as used in insurance contracts have not acquired any technical meaning, and are construed by the courts in their ordinary and common acceptation. Thus, the terms have been taken to mean that which happen by chance or fortuitously, without intention and design, and which is unexpected, unusual, and unforeseen. An accident is an event that takes place without one's foresight or expectation — an event that proceeds from an unknown cause, or is an unusual effect of a known cause and, therefore, not expected.

. . . The generally accepted rule is that, death or injury does not result from accident or accidental means within the terms of an accident-policy if it is the natural result of the insured's voluntary act, unaccompanied by anything unforeseen except the death or injury. There is no accident when a deliberate act is performed unless some additional, unexpected, independent, and unforeseen happening occurs which produces or brings about the result of injury or death. In other words, where the death or injury is not the natural or probable result of the insured's voluntary act, or if something unforeseen occurs in the doing of the act which produces the injury, the resulting death is within the protection of the policies insuring against death or injury from accident. 5

As correctly pointed out by the respondent appellate court in its decision:

In the case at bar, it cannot be pretended that Carlie Surposa died in the course of an assault or murder as a result of his voluntary act considering the very nature of these crimes. In the first place, the insured and his companion were on their way home from attending a festival. They were confronted by unidentified persons. The record is barren of any circumstance showing how the stab wound was inflicted. Nor can it be pretended that the malefactor aimed at the insured precisely because the killer wanted to take his life. In any event, while the act may not exempt the unknown perpetrator from criminal liability, the fact remains that the happening was a pure accident on the part of the victim. The insured died from an event that took place without his foresight or expectation, an event that proceeded from an unusual effect of a known cause and, therefore, not expected. Neither can it be said that where was a capricious desire on the part of the accused to expose his life to danger considering that he was just going home after attending a festival. 6

Furthermore, the personal accident insurance policy involved herein specifically enumerated only ten (10) circumstances wherein no liability attaches to petitioner insurance company for any injury, disability or loss suffered by the insured as a result of any of the stimulated causes. The principle of " expresso

35

unius exclusio alterius" — the mention of one thing implies the exclusion of another thing — is therefore applicable in the instant case since murder and assault, not having been expressly included in the enumeration of the circumstances that would negate liability in said insurance policy cannot be considered by implication to discharge the petitioner insurance company from liability for, any injury, disability or loss suffered by the insured. Thus, the failure of the petitioner insurance company to include death resulting from murder or assault among the prohibited risks leads inevitably to the conclusion that it did not intend to limit or exempt itself from liability for such death.

Article 1377 of the Civil Code of the Philippines provides that:

The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity. Moreover,

it is well settled that contracts of insurance are to be construed liberally in favor of the insured and strictly against the insurer. Thus ambiguity in the words of an insurance contract should be interpreted in favor of its beneficiary. 7

WHEREFORE, finding no irreversible error in the decision of the respondent Court of Appeals, the petition forcertiorari with restraining order and preliminary injunction is hereby DENIED for lack of merit.

SO ORDERED.

[G.R. No. 134718. August 20, 2001]

HEIRS OF ROMANA INGJUG-TIRO: BEDESA, PEDRO, RITA all surnamed TIRO, and BARBARA TIRO (deceased) represented by NORMA SARAMOSING; HEIRS OF FRANCISCO INGJUG:

LEONARDO, LILIA, FERNANDA, ZENAIDA, PACITA and ANTONIO, all surnamed INGJUG; and HEIRS OF FRANCISCA INGJUG-FUENTES: ULDARICO and GUILLERMA, all surnamed

FUENTES, and PAULINA INGJUG-FUENTES (deceased) represented by VICTOR, ELENA, SERGIA and DESIDERIO, all surnamed MUEZ, Petitioners, v.SPOUSES LEON V. CASALS and

LILIA C. CASALS, SPOUSES CARLOS L. CLIMACO and LYDIA R. CLIMACO, SPOUSES JOSE L. CLIMACO, JR. and BLANQUITA C. CLIMACO, and CONSUELO L. CLIMACO, Respondents.

D E C I S I O N

A 5,354-square meter parcel of land is at the epicentrum of the controversy. Originally titled in the name of Mamerto Ingjug, the property is located in the former Municipality of Opon, Province of Cebu (now Marigondon, Lapu-Lapu City). The claimants are the descendants of Mamerto Ingjug on one hand who allege that they have been deprived of their successional rights through fraud and misrepresentation, and a group of vendees on the other hand claiming to have acquired the property for value and in good faith. The case filed by the descendants of Mamerto Ingjug was dismissed by the trial court on the ground of prescription and laches. The dismissal was affirmed by the Court of Appeals. The affirmance by the appellate court is now assailed in this petition for review.

During the Second World War, or some sixty (60) years ago, Mamerto Ingjug died leaving behind the subject parcel of land covered by Original Certificate of Title No. RO-0376 in his name as owner in fee simple. Upon his death title thereto devolved upon his five (5) children, namely, Romana, Francisco, Francisca, Luisa and Maria, all surnamed Ingjug. On 9 July 1965, or more than two (2) decades later, Luisa, Maria, one Eufemio Ingjug, and Guillerma Ingjug Fuentes-Pagubo, daughter of Francisca, sold the disputed land to herein respondents, the spouses Leon V. Casals and Lilia C. Casals, the spouses Carlos L. Climaco and Lydia R. Climaco, the spouses Jose L. Climaco, Jr. and Blanquita C. Climaco, and Consuelo L. Climaco. The vendors allegedly represented to the vendees that the property was inherited by them from the late Mamerto Ingjug, and that they were his only surviving heirs. The sale

36

was evidenced by a Deed of Sale of Unregistered Land [1 and an Extrajudicial Settlement and Confirmation of Sale [2 executed by the vendors in favor of the vendees.

On 10 August 1992, herein petitioners as heirs of Romana Ingjug, namely, Bedesa, Pedro, Rita and Barbara; heirs of Francisco Ingjug, namely, Leonardo, Lilia, Fernanda, Zenaida, Pacita and Antonio; and, heirs of Francisca, namely, Uldarico, and Paulina, challenged respondents' ownership of the property by filing a complaint for Partition, Recovery of Ownership and Possession, Declaration of Nullity: Deed of Sale of Unregistered Land; Extrajudicial Settlement and Confirmation of Sale, [3 against herein respondents. Petitioners alleged that they only discovered in 1990 that the property had already been sold and titled to respondents, and that respondents refused, despite repeated demands, to deliver and return to them their shares in the property. Petitioners also prayed that the Deed of Sale of Unregistered Land as well as the Extrajudicial Settlement and Confirmation of Sale executed by Luisa, Maria, Eufemio and Guillerma be nullified to the extent of petitioners' shares in the property.

Respondents - the spouses Leon Casals and Lilia Casals, and Consuelo L. Climaco - failed to answer within the reglementary period, hence, on motion of petitioners' counsel, they were declared in default. [4 On the other hand, respondents - the spouses Carlos L. Climaco and Lydia R. Climaco, and the spouses Jose L. Climaco, Jr. and Blanquita C. Climaco - filed a motion to dismiss, instead of an answer, arguing that the complaint failed to state a cause of action and was barred by prescription and laches. They further averred that the original certificate of title in the name of Mamerto Ingjug was lost during the war, and that they bought the property from the heirs of Mamerto Ingjug pending the reconstitution of the title; that they acquired the property in good faith believing that the vendors were indeed the only surviving heirs of Mamerto Ingjug; that upon the issuance of the reconstituted title the vendors executed the questionedDeed of Extrajudicial Settlement and Confirmation of Sale in their favor; and that, on the basis of the deed, the original certificate of title in the name of Mamerto Ingjug was cancelled and Transfer Certificate of Title No. T-1150 was issued in their names. [5

On 24 February 1993 the trial court in dismissing the complaint held [6 -

From February 9, 1965 to October 10, 1992 when the instant action was filed in court is 27 years and from February 2, 1967, the time the title was transferred to defendants to October 10, 1992 when plaintiffs initiated the instant case is 25 years. The possession of the property is admitted by the plaintiffs to be with the defendants. If this is so, then the conclusion is inevitable that the property has already been acquired by the defendants by prescription, and the action to recover the same has already been lost x x x x Co-ownership of the lot in question was already repudiated as early as 1965 when Luisa, Maria and Guillerma sold the land claiming they are the only heirs of Mamerto Ingjug, and when the other compulsory heir, Francisco Ingjug confirmed said sale in 1967. From that date, plaintiffs had only 10 years to initiate an action for reconveyance which they failed to do. Accordingly, an action for reconveyance based on implied or constructive trust prescribes in ten years counted from the date when an adverse title is asserted by the possessor of the property x x x moreover, "the rule in this jurisdiction is that an action to enforce an implied trust may be barred not only by prescription but also bylaches in which case repudiation is not even required."

On 26 February 1998 the Court of Appeals, as stated earlier, affirmed the Decision of the trial court. [7

Petitioners now seek a review of the appellate court's Decision contending that: (a) the litigated property was originally registered under the Torrens system and, as such, it cannot be acquired by prescription or adverse possession; (b) prescription is unavailing not only against the registered owner but also against his hereditary successors because the latter merely step into the shoes of the former by operation of law and are merely the continuation of the personality of their predecessors in interest; (c) the right to recover possession of a registered property is equally imprescriptible; (d) laches too may not be considered a valid defense for claiming ownership of land registered under the Torrens system. When prescription would not lie, neither would laches be available; (e) respondents are not in

37

possession of the land in the concept of owners, but are merely holding the same in trust for petitioners; (f) neither could possession of respondents be characterized as adverse possession in good faith; (g) Francisco Ingjug could not have been a party to the Deed of Extrajudicial Settlement and Confirmation of Sale in 1967 because he died on 17 August 1963; and, (h) Eufemio Ingjug, one of the signatories to the Deed of Sale, was not the son of Mamerto Ingjug but only a son-in-law, he being a Tiro and husband of Ramona Ingjug-Tiro. [8

The pivotal issue is whether petitioners' right to institute a complaint for partition and reconveyance is effectively barred by prescription and laches.

We grant the petition. It should be noted that the trial court dismissed the complaint based on prescription and laches alone without taking into consideration the other issues raised by petitioners concerning the validity of the contract and its bearing on the matter of prescription. The Court of Appeals likewise skirted the other issues and sustained the trial court's theory that herein petitioners' cause of action - which is essentially one for reconveyance based upon a constructive or implied trust resulting from fraud - had been effectively lost through prescription and laches.

A cursory reading of the complaint, however, reveals that the action filed by petitioners was for partition, recovery of ownership and possession, declaration of nullity of a deed of sale of unregistered land and extrajudicial settlement and confirmation of sale. Petitioners' causes of action are premised on their claim that: (a) the Deed of Sale of Unregistered Land is void and of no effect since their respective shares in the inheritance were included in the sale without their knowledge and consent, and one of the vendor-signatories therein, Eufemio Ingjug (Eufemio Tiro, [9 husband of Romana Ingjug [10), was not even a direct and compulsory heir of the decedent; and (b) the Extrajudicial Settlement and Confirmation of Sale is simulated and therefore null and void ab initio, as it was purportedly executed in 1967 by, among others, Eufemio Tiro who was not an heir, and by Francisco Ingjug who died in 1963. Also, the prayer in the same complaint expressly asks that all those transactions be declared null and void. In other words, it is the nullity of the deeds of sale and the extrajudicial settlement and confirmation of the sale which is the basic hypothesis upon which the instant civil action rests. Thus, it appears that we are dealing here not with simple voidable contracts tainted with fraud, but with contracts that are altogether null and void ab initio.

Assuming petitioners' allegations to be true, without however prejudging the validity or invalidity of the contract of sale and the extrajudicial settlement which will ultimately be determined by the trial court, Romana, Francisco, Francisca, Luisa and Maria, succeeded to the possession and ownership of the land from the time of the death of their father Mamerto Ingjug. The property should have been divided equally among them, but prior to its partition these heirs of Mamerto Ingjug owned the property in common. It follows then that Luisa, Maria and Guillerma (daughter of Francisca) and Eufemio Ingjug could not, by themselves, validly dispose of the entire litigated property to the exclusion of and without the knowledge and consent of the other heirs since Luisa, Maria, Guillerma and Eufemio are not the exclusive owners thereof. More so in the case of Eufemio, who is claimed to be a total stranger to and therefore has no legal interest whatsoever in the inherited property not being a direct heir.

Article 1458 of the New Civil Code provides: "By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent." It is essential that the vendors be the owners of the property sold otherwise they cannot dispose that which does not belong to them. As the Romans put it: "Nemo dat quod non habet." No one can give more than what he has. The sale of the realty to respondents is null and void insofar as it prejudiced petitioners' interests and participation therein. At best, only the ownership of the shares of Luisa, Maria and Guillerma in the disputed property could have been transferred to Respondents.

Consequently, respondents could not have acquired ownership over the land to the extent of the shares of petitioners. The issuance of a certificate of title in their favor could not vest upon them ownership of

38

the entire property; neither could it validate the purchase thereof which is null and void. Registration does not vest title; it is merely the evidence of such title. Our land registration laws do not give the holder any better title than what he actually has. [11 Being null and void, the sale to respondents of petitioners' shares produced no legal effects whatsoever.

Similarly, the claim that Francisco Ingjug died in 1963 but appeared to be a party to the Extrajudicial Settlement and Confirmation of Saleexecuted in 1967 would be fatal to the validity of the contract, if proved by clear and convincing evidence. Contracting parties must be juristic entities at the time of the consummation of the contract. Stated otherwise, to form a valid and legal agreement it is necessary that there be a party capable of contracting and a party capable of being contracted with. Hence, if any one party to a supposed contract was already dead at the time of its execution, such contract is undoubtedly simulated and false and therefore null and void by reason of its having been made after the death of the party who appears as one of the contracting parties therein. [12 The death of a person terminates contractual capacity.

In actions for reconveyance of property predicated on the fact that the conveyance complained of was null and void ab initio, a claim of prescription of action would be unavailing. [13 The action or defense for the declaration of the inexistence of a contract does not prescribe." [14 Neither could laches be invoked in the case at bar. Laches is a doctrine in equity and our courts are basically courts of law and not courts of equity. Equity, which has been aptly described as "justice outside legality," should be applied only in the absence of, and never against, statutory law. Aequetas nunguam contravenit legis. The positive mandate of Art. 1410 of the New Civil Code conferring imprescriptibility to actions for declaration of the inexistence of a contract should pre-empt and prevail over all abstract arguments based only on equity. Certainly, laches cannot be set up to resist the enforcement of an imprescriptible legal right, and petitioners can validly vindicate their inheritance despite the lapse of time.

Considering the foregoing, the trial court judge should not have summarily dismissed petitioners' complaint; instead, he should have required the defendants to answer the complaint, deferred action on the special defenses of prescription and laches, and ordered the parties to proceed with the trial on the merits. Verily, the dismissal of the case on the ground of prescription and laches was premature. The summary or outright dismissal of an action is not proper where there are factual matters in dispute which need presentation and appreciation of evidence. Here, petitioners still had to prove the following: first, that they were the coheirs and co-owners of the inherited property; second, that their coheirs-co-owners sold their hereditary rights thereto without their knowledge and consent; third, that forgery, fraud and deceit were committed in the execution of the Deed of Extrajudicial Settlement and Confirmation of Sale since Francisco Ingjug who allegedly executed the deed in 1967 actually died in 1963, hence, the thumbprint found in the document could not be his; fourth, that Eufemio Ingjug who signed the deed of sale is not the son of Mamerto Ingjug, and therefore not an heir entitled to participate in the disposition of the inheritance; fifth, that respondents have not paid the taxes since the execution of the sale in 1965 until the present date and the land in question is still declared for taxation purposes in the name of Mamerto Ingjug, the original registered owner, as of 1998; sixth, that respondents had not taken possession of the land subject of the complaint nor introduced any improvement thereon; and seventh, that respondents are not innocent purchasers for value.

Without any evidence on record relating to these points, this Court cannot affix its imprimatur to the peremptory dismissal of the complaint in light of the pleas of petitioners for their just share in the inheritance and for the partition of their common predecessor's estate. Indeed, it is but fair and just that, without prejudging the issues, the parties be allowed to substantiate their respective claims and defenses in a full-blown trial, and secure a ruling on all the issues presented in their respective pleadings.

WHEREFORE , the petition is GRANTED. The assailed Decision of the Court of Appeals is REVERSED and SET ASIDE, and the case is REMANDED to the RTC-Br. 27, Lapu-Lapu City, for trial and judgment on the merits. No costs.SO ORDERED.