G.R. No.

171626

August 6, 2014

OLONGAPO CITY, Petitioner, vs. SUBIC WATER AND SEWERAGE CO., INC., Respondent.
BRION, J.:
FACTS:
Pursuant to PD 198, petitioner Olongapo City (petitioner) passed Resolution No. 161, which transferred
all its existing water facilities and assets under the Olongapo City Public Utilities Department Waterworks
Division, to the jurisdiction and ownership of the OCWD. PD 198, as amended, allows LWDs which have
acquired an existing water system of a LGU to enter into a contract to pay the concerned LGU. In lieu of
the LGUs share in the acquired water utility plant, it shall be paid by the LWD an amount not exceeding
three percent (3%) of the LWDs gross receipts from water sales in any year.
Petitioner then filed a complaint for sum of money and damages against OCWD. Among others, petitioner
alleged that OCWD failed to pay its electricity bills to petitioner and remit its payment under the contract to
pay, pursuant to OCWDs acquisition of petitioners water system.
In the interim, OCWD entered into joint venture agreement (JVA) with SBMA, Biwater International
Limited (Biwater), and D.M. Consunji, Inc. (DMCI) on November 24, 1996. Pursuant to this agreement,
Subic Water a new corporate entity was incorporated. Subic Water was granted the franchise to
operate and to carry on the business of providing water and sewerage services in the Subic BayFree Port
Zone, as well as in Olongapo City. Hence, Subic Water took over OCWDs water operations in Olongapo
City.
To finally settle their money claims against each other, petitioner and OCWD entered into a compromise
agreement. In this agreement, petitioner and OCWD offset their respective claims and counterclaims. The
compromise agreement also contained a provision regarding the parties request that Subic Water,
Philippines, which took over the operations of the defendant Olongapo City Water District be made the comaker for OCWDs obligations. Mr. Noli Aldip, then chairman of Subic Water, acted as its representative
and signed the agreement on behalf of Subic Water.
Subsequently, the parties submitted the compromise agreement to RTC Olongapo for approval. In its
decision, the trial court approved the compromise agreement and adopted it as its judgment.
To enforce the compromise agreement, the petitioner filed a motion for the issuance of a writ of
execution with the trial court. In its order, the trial court granted the motion, but did not issue the
corresponding writ of execution.
ISSUE: WHETHER OR NOT SUBIC WATER CAN BE HELD SOLIDARILY LIABLE UNDER THE WRIT
OF EXECUTION SINCE IT WAS IDENTIFIED AS OCWDS CO-MAKER IN THE COMPROMISE
AGREEMENT.
RULING:
XXX

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No, Solidary liability must be expressly stated. The petitioners basis for this is the following provision of
the agreement:
4. Both parties also request that Subic Water, Philippines which took over the operations of the
defendant Olongapo City Water District be made as co-maker for the obligation herein abovecited.

As the rule stands, solidary liability is not presumed. This stems from Art. 1207 of the Civil Code, which
provides:
Art. 1207. x x x There is a solidary liability only when the obligation expressly so states, or when
the law or the nature of the obligation requires solidarity.
In Palmares v. Court of Appeals, the Court did not hesitate to rule that although a party to a promissory
note was only labeled as a co-maker, his liability was that of a surety, since the instrument expressly
provided for his joint and several liability with the principal.
In the present case, the joint and several liability of Subic Water and OCWD was nowhere clear in the
agreement. The agreement simply and plainly stated that petitioner and OCWD were only requesting
Subic Water to be a co-maker, in view of its assumption of OCWDs water operations. No evidence was
presented to show that such request was ever approved by Subic Waters board of directors.
Under these circumstances, petitioner cannot proceed after Subic Water for OCWDs unpaid obligations.
The law explicitly states that solidary liability is not presumed and must be expressly provided for. Not
being a surety, Subic Water is not an insurer of OCWDs obligations under the compromise agreement. At
best, Subic Water was merely a guarantor against whom petitioner can claim, provided it was first shown
that: a) petitioner had already proceeded after the properties of OCWD, the principal debtor; b) and
despite this, the obligation under the compromise agreement, remains to be not fully satisfied.
XXX

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We thus deny the present petition. The writ of execution issued by RTC Olongapo, Br. 75, in favor of
Olongapo City, is hereby confirmed to be null and void. Accordingly, respondent Subic Water cannot be
made liable under this writ.
WHEREFORE, premises considered, we hereby DISMISS the petition. The Court of Appeals' decision
dated July 6, 2005 and resolution dated January 3, 2006, annulling and setting aside the orders of the
Regional Trial Court of Olongapo, Branch 75 dated July 29, 2003 and October 7, 2003, and the writ of
execution dated July 31, 2003, are hereby AFFIRMED. Costs against the City of Olongapo.
SO ORDERED.

G.R. No. 212689

August 6, 2014

ECE REALTY and DEVELOPMENT, INC., Petitioner, vs.HAYDYN HERNANDEZ, Respondent.

REYES, J.:
FACTS:
Haydyn Hernandez (respondent) filed a Complaint for specific performance, with damages, against EMIR
and ECE before the HLURB. He alleged that ECE and EMIR, engaged in condominium development and
marketing, respectively, sold to him a 30-square meter condominium unit in the "Harrison Mansion"
described as Unit 808.
The respondent then paid the reservation fee and paid the downpayment. In the parties Contract to Sell,
EMIR and ECE promised that Unit 808 would be ready for occupancy by December 31, 1999. EMIR and
ECE failed to deliver Unit 808 to the respondent on December 31, 1999. Moreover, the respondent
discovered that Unit 808 contained only 26 sq m, not 30 sq m as contracted, thus, he asked for a
corresponding reduction in the price. Instead, EMIR and ECE demanded that he settle all his
amortizations in arrears with interest. Sometime in 2005, the respondent learned that EMIR and ECE had
sold Unit 808 to a third party.
The respondent in his complaint in the HLURB asked that EMIR and ECE be ordered to accept his
payment of the balance of the price of Unit 808, without interest; and to pay him damages. If Unit 808 is
no longer available, the respondent asked that EMIR and ECE reimburse him the amount he already
paid, plus legal interest.
In their Answer with Counterclaim, EMIR and ECE sought to dismiss the complaint for lack of cause of
action. They alleged that the respondent unjustifiably refused to accept the turn-over of Unit 808, that he
was duly given a Grace Period Notice, but the respondent let the said period lapse without settling his
past-due amortizations. Thus, ECE was compelled to cancel his contract to sell.
HLURB ordered EMIR and ECE to reimburse the respondent, plus legal interest, from the filing of the
complaint, and to pay the respondent moral and exemplary damages and attorneys fee. Upon appeal,
OP dismissed the appeal of ECE. On petition for review to the CA, ECE argued that the OP erred in
affirming the rescission of the parties contract to sell and the order to refund the respondents payments
with legal interest from filing of the complaint, along with the award of moral and exemplary damages and
attorneys fees to the respondent. ECE pointed out that the respondent did not ask for rescission and
refund on account of the delay in the delivery of Unit 808, but only for a reduction in the price. It further
argued that interest may be imposed only from finality of judgment. CA upheld the decision of the OP.
ISSUE: WHAT IS THE CORRECT LEGAL INTEREST RATE TO BE IMPOSED AFTER FINALITY OF
JUDGMENT.
RULING:

XXX

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Article 2209 of the New Civil Code provides that "If the obligation consists in the payment of a sum of
money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the

contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the legal
interest, which is six per cent per annum." There is no doubt that ECE incurred in delay in delivering the
subject condominium unit, for which reason the trial court was justified in awarding interest to the
respondent from the filing of his complaint. There being no stipulation as to interest, under Article 2209
the imposable rate is six percent (6%) by way of damages, following the guidelines laid down in the
landmark case of Eastern Shipping Lines v. Court of Appeals:
II. With regard particularly to an award of interest in the concept of actual and compensatory damages,
the rate of interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan
or forbearance of money, the interest due should be that which may have been stipulated in
writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest
on the amount of damages awarded may be imposed at the discretion of the court at the rate of
6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages
except when or until the demand can be established with reasonable certainty. Accordingly, where
the demand is established with reasonable certainty, the interest shall begin to run from the time
the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty
cannot be so reasonably established at the time the demand is made, the interest shall begin to
run only from the date the judgment of the court is made (at which time the quantification of
damages may be deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the
rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be
12% per annum from such finality until its satisfaction, this interim period being deemed to be by
then an equivalent to a forbearance of credit.
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The term "forbearance," within the context of usury law, has been described as a contractual obligation of
a lender or creditor to refrain, during a given period of time, from requiring the borrower or debtor to repay
the loan or debt then due and payable.
Eastern Shipping Lines, Inc. synthesized the rules on the imposition of interest, if proper, and the
applicable rate, as follows: The 12% per annum rate under CB Circular No. 416 shall apply only to loans
or forbearance of money, goods, or credits, as well as to judgments involving such loan or forbearance of
money, goods, or credit, while the 6%per annum under Art. 2209 of the Civil Code applies "when the
transaction involves the payment of indemnities in the concept of damage arising from the breach or a
delay in the performance of obligations in general," with the application of both rates reckoned "from the
time the complaint was filed until the [adjudged] amount is fully paid." In either instance, the reckoning
period for the commencement of the running of the legal interest shall be subject to the condition "that the
courts are vested with discretion, depending on the equities of each case, on the award of interest."

Thus, from the finality of the judgment awarding a sum of money until it is satisfied, the award shall be
considered a forbearance of credit, regardless of whether the award in fact pertained to one. Pursuant to
Central Bank Circular No. 416 issued on July 29, 1974, in the absence of written stipulation the interest
rate to be imposed in judgments involving a forbearance of credit was twelve percent (12%) per annum,
up from six percent (6%) under Article 2209 of the Civil Code. This was reiterated in Central Bank Circular
No. 905, which suspended the effectivity of the Usury Law beginning on January 1, 1983.
But since July 1, 2013, the rate of twelve percent (12%) per annum from finality of the judgment until
satisfaction has been brought back to six percent (6%). Section 1 of Resolution No. 796 of the Monetary
Board of the Bangko Sentral ng Pilipinas dated May 16, 2013 provides: "The rate of interest for the loan
or forbearance of any money, goods or credits and the rate allowed in judgments, in the absence of an
express contract as to such rate of interest, shall be six percent (6%) per annum." Thus, the rate of
interest to be imposed from finality of judgments is now back at six percent (6%), the rate provided in
Article 2209 of the Civil Code.
WHEREFORE, the decision of the Court of Appeals in CA-G.R. SP No. 120738 is AFFIRMED with
MODIFICATION. XXX XXX
XXX
SO ORDERED.

G.R. No. 182908

August 6, 2014

HEIRS OF FRANCISCO I. NARVASA, SR., and HEIRS OF PETRA IMBORNAL and PEDRO FERRER,
represented by their Attorney-in-Fact, MRS. REMEDIOS B. NARVASA-REGACHO, Petitioners,
vs.EMILIANA, VICTORIANO, FELIPE, MA TEO, RAYMUNDO, MARIA, and EDUARDO, all surnamed
IMBORNAL,Respondents.
PERLAS-BERNABE, J.:
FACTS:
Basilia had 4 children, namely, Alejandra, Balbina, Catalina, and Pablo. Francisco and Pedro were the
children of Alejandra, while petitioner Petra was the daughter of Balbina. Petitioners are the heirs and
successors-in-interest of Francisco, Pedro, and Petra (Francisco, et al.). On the other hand, respondents
Emiliana, Victoriano, Felipe, Mateo, Raymundo, Maria, and Eduardo, all surnamed Imbornal, are the
descendants of Pablo.
During her lifetime, Basilia owned a parcel of land situated Pangasinan, which she conveyed to her three
(3) daughters Balbina, Alejandra, and Catalina (Imbornal sisters) sometime in 1920. Meanwhile,
Catalinas husband, Ciriaco, applied for and was granted a homestead patent over a 31,367-sq. m.
riparian land (Motherland) adjacent to the Cayanga River in San Fabian, Pangasinan. He was eventually
awarded a Homestead Patent and therefor, a OCT was issued in his name. Later, OCT was cancelled
and a new TCT was issued in the name of his heirs. (Heirs of Ciriaco).
Ciriaco and his heirs had since occupied the northern portion of the Motherland, while respondents
occupied the southern portion.
Sometime in 1949, the First Accretion, adjoined the southern portion of the MotherlandAn OCT was then
issued in the name of respondent Victoriano, married to Esperanza Narvarte, covering the First
Accretion. Decades later, the Second Accretion abutted the First Accretion on its southern portion. An
OCT was then issued in the names of all the respondents covering the Second Accretion.
Claiming rights over the entire Motherland, Francisco, et al., filed an Amended Complaint for
reconveyance, partition,and/or damages against respondents. They anchored their claim on the allegation
that Ciriaco, with the help of his wife Catalina, urged Balbina and Alejandra to sell the Sabangan property,
and that Ciriaco used the proceeds therefrom to fund his then-pending homestead patent application over
the Motherland. In return, Ciriaco agreed that once his homestead patent is approved, he will be deemed
to be holding the Motherland which now included both accretions in trust for the Imbornal sisters.
RTC rendered a Decision in favor of Francisco, et al. The RTC found that the factual circumstances
surrounding the present case showed that an implied trust existed between Ciriaco and the Imbornal
sisters with respect to the Motherland. It gave probative weight to Francisco, et al.s allegation that the
Sabangan property, inherited by the Imbornal sisters from their mother, Basilia, was sold in order to help
Ciriaco raise funds for his then-pending homestead patent application. In exchange therefor, Ciriaco
agreed that he shall hold the Motherland in trust for them once his homestead patent application had
been approved. As Ciriaco was only able to acquire the Motherland subject of the homestead patent
through the proceeds realized from the sale of the Sabangan property, the Imbornal sisters and,

consequently, Francisco, et al. are entitled to their proportionate shares over the Motherland,
notwithstanding the undisputed possession of respondents over its southern portion since 1926.
CA rendered a Decision reversing and setting aside the RTC Decision. CA ruled that the Motherland was
titled in Ciriacos name, his descendants should be regarded as the absolute owners thereof.
ISSUE: WHETHER OR NOT AN IMPLIED TRUST BETWEEN THE IMBORNAL SISTERS AND CIRIACO
EXISTS.
RULING: NO
XXX

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The main thrust of Francisco, et al.s Amended Complaint is that an implied trust had arisen between the
Imbornal sisters, on the one hand, and Ciriaco, on the other, with respect to the Motherland. This implied
trust is anchored on their allegation that the proceeds from the sale of the Sabangan property an
inheritance of their predecessors, the Imbornal sisters were used for the then-pending homestead
application filed by Ciriaco over the Motherland. As such, Francisco, et al. claim that they are, effectively,
coowners of the Motherland together with Ciriacos heirs.
An implied trust arises, not from any presumed intention of the parties, but by operation of law in order to
satisfy the demands of justice and equity and to protect against unfair dealing or downright fraud. 44 To
reiterate, Article 1456 of the Civil Code states that "[i]f property is acquired through mistake or fraud, the
person obtaining it is, by force of law, considered a trustee of an implied trust for the benefit of the person
from whom the property comes."
The burden of proving the existence of a trust is on the party asserting its existence, and such proof must
be clear and satisfactorily show the existence of the trust and its elements. 45 While implied trusts may be
proven by oral evidence, the evidence must be trustworthy and received by the courts with extreme
caution, and should not be made to rest on loose, equivocal or indefinite declarations. Trustworthy
evidence is required because oral evidence can easily be fabricated.
In this case, it cannot be said, merely on the basis of the oral evidence offered by Francisco, et al., that
the Motherland had been either mistakenly or fraudulently registered in favor of Ciriaco. Accordingly, it
cannot be said either that he was merely a trustee of an implied trust holding the Motherland for the
benefit of the Imbornal sisters or their heirs.
As the CA had aptly pointed out, a homestead patent award requires proof that the applicant meets the
stringent conditions set forth under Commonwealth Act No. 141, as amended, which includes actual
possession, cultivation, and improvement of the homestead. It must be presumed, therefore, that Ciriaco
underwent the rigid process and duly satisfied the strict conditions necessary for the grant of his
homestead patent application. As such, it is highly implausible that the Motherland had been acquired and
registered by mistake or through fraud as would create an implied trust between the Imbornal sisters and
Ciriaco, especially considering the dearth of evidence showing that the Imbornal sisters entered into the
possession of the Motherland, or a portion thereof, orasserted any right over the same at any point during
their lifetime. Hence, when OCT No. 1462 covering the Motherland was issued in his name pursuant to
Homestead Patent No. 24991 on December 15, 1933, Ciriacos title to the Motherland had become
indefeasible. It bears to stress that the proceedings for land registration that led to the issuance of

Homestead Patent No. 24991 and eventually, OCT No. 1462 in Ciriacos name are presumptively regular
and proper, which presumption has not been overcome by the evidence presented by Francisco, et al.
XXX

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WHEREFORE, the petition is DENIED. The Decision dated November 28, 2006 and the Resolution dated
May 7, 2008 of the Court of Appeals in CA-G.R. CV No. 57618 are hereby AFFIRMED, and a new
judgment is entered DISMISSING the Amended Complaint dated February 27, 1984 filed in said case.
SO ORDERED.

G.R. No. 181723

August 11, 2014

ELIZABETH DEL CARMEN, Petitioner, vs. SPOUSES RESTITUTO SABORDO and MIMA MAHILUMSABORDO, Respondents.
PERALTA, J.:
FACTS:
Sometime in 1961, the Suico spouses, along with several business partners, entered into a business
venture by establishing a rice and corn mill at Mandaue City, Cebu. As part of their capital, they obtained
a loan from the DBP and to secure the said loan, four parcels of land owned by the Suico spouses,
denominated as Lots 506, 512, 513 and 514, and another lot owned by their business partner, Juliana Del
Rosario, were mortgaged. Subsequently, the Suico spouses and their business partners failed to pay their
loan obligations forcing DBP to foreclose the mortgage. After the Suico spouses and their partners failed
to redeem the foreclosed properties, DBP consolidated its ownership over the same.
Nonetheless, DBP later allowed the Suico spouses and Flores Spouses, as substitutes for Juliana Del
Rosario, to repurchase the subject lots by way of a conditional sale. The Suico and Flores spouses were
able to pay the downpayment and the first monthly amortization, but no monthly installments were made
thereafter. Threatened with the cancellation of the conditional sale, the Suico and Flores spouses sold
their rights over the said properties to herein respondents Restituto and Mima Sabordo, subject to the
condition that the latter shall pay the balance of the sale price. On September 3, 1974, respondents and
the Suico and Flores spouses executed a supplemental agreement whereby they affirmed that what was
actually sold to respondents were Lots 512 and 513, while Lots 506 and 514 were given to them as
usufructuaries. DBP approved the sale of rights of the Suico and Flores spouses in favor of herein
respondents. Subsequently, respondents were able to repurchase the foreclosed properties of the Suico
and Flores spouses.
On September 13, 1976, respondent Restituto filed with the then CFI an original action for declaratory
relief with damages and prayer for a writ of preliminary injunction raising the issue of whether or not the
Suico spouses have the right to recover from respondents Lots 506 and 514. RTC ruled in favor of the
Suico spouses directing that the latter have until August 31, 1987 within which to redeem or buy back
from respondents Lots 506 and 514. On appeal, the CA, modified the RTC decision by giving the Suico
spouses until October 31, 1990 within which to exercise their option to purchase or redeem the subject
lots from respondents.
In the meantime, Toriio died leaving his widow, Eufrocina, and several others, including herein petitioner,
as legal heirs. Later, they discovered that respondents mortgaged Lots 506 and 514 with RPB as security
for a loan which, subsequently, became delinquent.
Thereafter, claiming that they are ready with the payment of P127,500.00, but alleging that they cannot
determine as to whom such payment shall be made, petitioner and her co-heirs filed a Complaint with the
RTC seeking to compel herein respondents and RPB to interplead and litigate between themselves their
respective interests on the abovementioned sum of money. Upon filing of the complaint, the heirs of
Toribio deposited the amount of P127,500.00 with the RTC of San Carlos City, Branch 59.

ISSUE: WHETHER OR NOT THERE A VALID CONSIGNATION IN THE AMOUNT OF P127,500.00

WHICH WAS DEPOSITED TO THE RTC OF SAN CARLOS CITY.
RULING: Yes.

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At the outset, the Court quotes with approval the discussion of the CA regarding the definition and
nature of consignation, to wit: consignation [is] the act of depositing the thing due with the court or
judicial authorities whenever the creditor cannot accept or refuses to accept payment, and it generally
requires a prior tender of payment. It should be distinguished from tender of payment which is the
manifestation by the debtor to the creditor of his desire to comply with his obligation, with the offer of
immediate performance. Tender is the antecedent of consignation, that is, an act preparatory to the
consignation, which is the principal, and from which are derived the immediate consequences which the
debtor desires or seeks to obtain. Tender of payment may be extrajudicial, while consignation is
necessarily judicial, and the priority of the first is the attempt to make a private settlement before
proceeding to the solemnities of consignation. Tender and consignation, where validly made, produces
the effect of payment and extinguishes the obligation.
In the case of Arzaga v. Rumbaoa, which was cited by petitioner in support of his contention, this Court
ruled that the deposit made with the court by the plaintiff-appellee in the said case is considered a valid
payment of the amount adjudged, even without a prior tender of payment thereof to the defendantsappellants, because the plaintiff-appellee, upon making such deposit, expressly petitioned the court that
the defendants-appellees be notified to receive the tender of payment. This Court held that while "[t]he
deposit, by itself alone, may not have been sufficient, but with the express terms of the petition, there was
full and complete offer of payment made directly to defendants-appellants." 15 In the instant case, however,
petitioner and her co-heirs, upon making the deposit with the RTC, did not ask the trial court that
respondents be notified to receive the amount that they have deposited. In fact, there was no tender of
payment. Instead, what petitioner and her co-heirs prayed for is that respondents and RPB be directed to
interplead with one another to determine their alleged respective rights over the consigned amount; that
respondents be likewise directed to substitute the subject lots with other real properties as collateral for
their loan with RPB and that RPB be also directed to accept the substitute real properties as collateral for
the said loan. Nonetheless, the trial court correctly ruled that interpleader is not the proper remedy
because RPB did not make any claim whatsoever over the amount consigned by petitioner and her coheirs with the court.
In the cases of Del Rosario v. Sandico and Salvante v. Cruz, likewise cited as authority by petitioner, this
Court held that, for a consignation or deposit with the court of an amount due on a judgment to be
considered as payment, there must beprior tender to the judgment creditor who refuses to accept it. The
same principle was reiterated in the later case of Pabugais v. Sahijwani. As stated above, tender of
payment involves a positive and unconditional act by the obligor of offering legal tender currency as
payment to the obligee for the formers obligation and demanding that the latter accept the same. 19 In the
instant case, the Court finds no cogent reason to depart from the findings of the CA and the RTC that
petitioner and her co-heirs failed to make a prior valid tender of payment to respondents.
It is settled that compliance with the requisites of a valid consignation is mandatory. Failure to comply
strictly with any of the requisites will render the consignation void. One of these requisites is a valid prior
tender of payment.

Under Article 1256, the only instances where prior tender of payment is excused are: (1) when the
creditor is absent or unknown, or does not appear at the place of payment; (2) when the creditor is
incapacitated to receive the payment at the time it is due; (3) when, without just cause, the creditor
refuses to give a receipt; (4) when two or more persons claim the same right to collect; and (5) when the
title of the obligation has been lost. None of these instances are present in the instant case. Hence, the
fact that the subject lots are in danger of being foreclosed does not excuse petitioner and her co-heirs
from tendering payment to respondents, as directed by the court.
WHEREFORE, the instant petition is DENIED. The Decision of the Court of Appeals, dated May 25, 2007,
and its Resolution dated January 24, 2008, both in CA-G.R. CV No. 75013, are AFFIRMED.
SO ORDERED.

G.R. No. 192304

August 13, 2014
ANCHOR SAVINGS BANK (now Equicom Savings Bank), Petitioner, vs. PINZMAN REALTY AND
DEVELOPMENT CORPORATION, MARYLIN MANALAC AND RENATO GONZALES,Respondents.
VILLARAMA, JR., J.:
FACTS:
Sometime in December 1997, the private respondents obtained a loan from the petitioner in the amount
of P3M secured by a real estate mortgage over parcels of land located in Cubao, Quezon City which were
registered in the name of herein private respondent Marylin Mafialac. Private respondent Mafialac
executed a Promissory Note and Disclosure Statement in favor of the petitioner in the total amount
of P3,308,447.74 which amount already included payment for three months interest.
Moreover, the Promissory Note and Disclosure Statement imposed a monthly 5% late payment charge,
25% attorneys fees, and 25% liquidated damages in case of unpaid installments on the part of private
respondent Maalac. On December 3, 1997, the proceeds of the loan were released to private
respondent Maalac who then issued three checks for the payment of monthly installments to the
petitioner. However, among the three checks, only the first one amounting to P144K was cleared for
payment, and the private respondents incurred an outstanding balance ofP3,012,252.32 which they failed
to settle.
Subsequently, the private respondents received a Second Notice of Extrajudicial Sale for the satisfaction
of an obligation, excluding penalties, charges, attorneys fees and costs of foreclosure. The assailed
foreclosure sale was held where the petitioner emerged as the highest bidder of the disputed properties,
and a Certificate of Sale was issued in favor of the petitioner. Still, private respondent Maalac allegedly
tried to settle the loan but was surprised when petitioner issued a Statement of Account stating that
Pinzman Realty owed the petitioner P12,525,673.44 As private respondent Maalac failed to redeem the
properties, ownership of the foreclosed properties was eventually consolidated in petitioners name.
Petitioner later succeeded in acquiring certificates of title over the disputed properties.
Private respondents then filed a Complaint for the Annulment of Extrajudicial Foreclosure of Mortgaged
Properties, Auction Sale, Certificate of Sale and Damages against the petitioner before the RTC. The
private respondents prayed for the nullification of the foreclosure sale alleging that the amount demanded
in the Notice of Extrajudicial Sale was exorbitant and excessive. Specifically, instead of the amount
of P4,577,269.42 as demanded therein, the private respondents contended that the proper amount
should only be P3,825,907.16 if the balance of the loan is computed with interest at the rate of 3%
reckoned from the date of last payment.
The RTC dismissed the complaint and found that the private respondents did not question the compliance
of the petitioner with the procedural requirements for extrajudicial foreclosure. On appeal, the CA
reversed and set aside the court a quo. The CA declared that the loan agreement as embodied in the
Promissory Note and Disclosure Statement failed to stipulate a rate of interest. The CA held that said rate
was excessive, iniquitous, unconscionable and blatantly contrary to law and morals. Further, the CA ruled
that the imposition of such unlawful interest rate will nullify the foreclosure sale arising therefrom. In
particular, the CA affirmed the subsistence of the principal amount due without the unlawful interest rate.
In its place, the CA imposed a legal interest rate of 12% per
ISSUE: WHETHER THE IMPOSITION OF USURIOUS INTEREST RATES ON A LOAN OBLIGATION
SECURED BY A REAL ESTATE MORTGAGE WILL RESULT IN THE INVALIDITY OF THE
SUBSEQUENT FORECLOSURE SALE OF THE MORTGAGE.
RULING: No.
XXX

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XXX

It is jurisprudential axiom that a foreclosure sale arising from a usurious mortgage cannot be given legal
effect. Relevantly, in Heirs of Zoilo Espiritu v. Sps. Landrito, we struck down a foreclosure sale where the
amount declared as mortgageindebtedness involved excessive, unreasonable, and unconscionable
interestcharges. In no uncertain terms, we ruled that a mortgagor cannot be legally compelled to pay for a
grossly inflated loan:
Since the Spouses Landrito, the debtors in this case, were not given an opportunity to settle their
debt, at the correctamount and without the iniquitous interest imposed, no foreclosure
proceedings may be instituted. A judgment ordering a foreclosure sale is conditioned upon a
finding on the correct amount of the unpaid obligation and the failure of the debtor to pay the said
amount. In this case, ithas not yet beenshown that the Spouses Landrito had already failed to pay
the correct amount of the debt and, therefore, a foreclosure sale cannotbe conducted in order to
answer for the unpaid debt. The foreclosure sale conducted upon their failure to payP874,125 in
1990 should be nullified since the amount demanded as the outstanding loan was overstated;
consequently it has not been shown that the mortgagors the Spouses Landrito, have failed to
pay their outstanding obligation. Moreover, if the proceeds of the sale together with its reasonable
rates of interest were applied to the obligation, only a small part of its original loans would actually
remain outstanding, but because of the unconscionable interest rates, the larger part
corresponded to said excessive and iniquitous interest.
Recently, in Castro v. Tan, we affirmed the above doctrinal pronouncements as we also nullified a
foreclosure proceeding where the amount demanded as outstanding loan was clearly overstated due to
exorbitant interest rates.
In the case at bar, the unlawful interest charge which led to the demand for P4,577,269.42 as stated in
the Notice of Extrajudicial Sale resulted in the invalidity of the subsequent foreclosure sale held on June
1, 1999. The private respondents cannot be obliged to pay an inflated or overstated mortgage
indebtedness on account of excessive interest charges without offending the basic tenetsof due process
and equity.
The argument of the petitioner that defects in the Notice of Sale cannot affect the validity of the
foreclosure sale cannot be given credence. In relying on a long litany of cases, the petitioner failed to
realize that the issue in those cases was the validity of the Notice of Sale per se. Meanwhile, in the
present case, the issue is the validity of the foreclosure sale in view of the presence of usurious interest
charges.
WHEREFORE, the petition for review on certiorari is hereby DENIED. The Decision dated September 11,
2009 and Resolution dated May 17, 2010 of the Court of Appeals in CA-G.R. CV No. 89420 are
AFFIRMED.
With costs against petitioner.
SO ORDERED.

G.R. No. 184982

August 20, 2014

LAND BANK OF THE PHILIPPINES, Petitioner, vs.

JOSE T. LAJOM, represented by PORFIRIO RODRIGUEZ, FLORENCIA LAJOM GARCIA-DIAZ,
FRANCISCO LAJOM GARCIA, JR., FERNANDO LAJOM RODRIGUEZ, TOMAS ATAYDE, AUGUSTO
MIRANDA, JOSEFINA ATAYDE FRANCISCO, RAMON L. ATAYDE, and BLESILDA ATAYDE
RIOS, Respondents.
PERLAS-BERNABE, J.:
FACTS:
Lajom and his mother Vda. De Lajom were the registered owners of several parcels of land with an
aggregate area of 27 hectares (ha.), more or less, located in Nueva Ecija. Sometime in 1991, a 24-ha.,
more or less, portion of the subject land (subject portion) was placed under the government's Operation
Land Transfer Program pursuant to PD 27 otherwise known as the "Tenants Emancipation Decree," as
amended.
Accordingly, DAR through the LBP, offered to pay Lajom the following amounts as just compensation for
the following constitutive areas of the subject portion: (a) 19,434.00 for 11.3060 has.; (b) 17,505.65 for
2.4173 has.; and (c) 80,733.45 for 10.3949 has. (DAR valuation).
Records show, however, that despite non-payment of the offered just compensation, DAR granted twelve
(12) Emancipation. Lajom rejected the DAR valuation and, instead, filed an amended Petition for
determination of just compensation and cancellation of land transfers against the DAR, the LBP, and the
said farmer-beneficiaries. He alleged, inter alia, that in computing the amount of just compensation, the
DAR erroneously applied the provisions of PD 27 and Executive Order No. (EO) 228, Series of 1997, that
have been repealed by Section 17 of Republic Act No. (RA) 6657, 20 otherwise known as the
"Comprehensive Agrarian Reform Law of 1988," which took effect on June 15, 1988. Thus, he asserted
that the value of the subject portion should be computed based on the provisions of RA 6657, and not of
PD 27 and/or EO 228. In sum, Lajom stressed that the DAR valuation was arrived at without due process,
highly prejudicial and inimical to his and his heirs property rights.
RTC rejected the DAR valuation and fixed the just compensation for the subject portion at the total
amount of P3,858,912.00, with legal interest at the rate of 6% p.a. from 1991 until fully paid. CA affirmed
with modification the RTC Decision, deleting the award of 6% interest p.a. and, in lieu thereof, ordered
LBP to pay Lajom, through his representatives and/or heirs, interest by way of damages at the rate of
12% p.a. on the just compensation award of P3,858,912.00 from March 11, 2004 until fully paid.
ISSUE: WHAT IS THE PROPER INTEREST RATE ON THE JUST COMPENSATION AWARD.
RULING:
XXX

XXXX XXX

Third. With respect to the commonly raised issue on interest, the RTC may impose the same on the just
compensation award as may be justified by the circumstances of the case and in accordance with

prevailing jurisprudence. The Court has previously allowed the grant of legal interest in expropriation
cases where there was delay in the payment of just compensation, deeming the same to be an effective
forbearance on the part of the State. To clarify, this incremental interest is not granted on the computed
just compensation; rather, it is a penalty imposed for damages incurred by the landowner due to the delay
in its payment. Thus, legal interest shall be pegged at the rate of 12% p.a. from the time of taking until
June 30, 2013. Thereafter, or beginning July 1, 2013, until fully paid, just compensation shall earn interest
at the new legal rate of 6% p.a., conformably with the modification on the rules respecting interest rates
introduced by Bangko Sentral ng Pilipinas Monetary Board Circular No. 799, Series of 2013.
XXX

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XXX

WHEREFORE, the petitions are GRANTED. The Decision dated February 26, 2008 and the Resolution
dated October 17, 2008 of the Court of Appeals in CA-G.R. SP No. 89545 which: (a) upheld the valuation
of the subject portion computed by the Regional Trial Court of Cabanatuan City, Branch 23 (RTC) without,
however, taking into account the factors enumerated under Section 17 of Republic Act No. 6657, as
amended; and (b) deleted the interest award pegged at the rate of 6% per annum (p.a.) from 1991 until
fully paid and, instead, awarded the interest at the rate of 12% p.a. in the nature of damages from March
11, 2004 until fully paid, are hereby REVERSED and SET ASIDE. SP. Civil Case No. 1483-AF is
REMANDED to the RTC for reception of evidence on the issue of just compensation in accordance with
the guidelines set in this Decision. The RTC is directed to conduct the proceedings in said case with
reasonable dispatch and submit to the Court a report on its findings and recommended conclusions within
sixty (60) days from notice of this Decision.
SO ORDERED.

G.R. No. 189061

August 6, 2014

MIDWAY MARITIME AND TECHNOLOGICAL FOUNDATION, represented by its Chairman/President

PhD in Education DR. SABINO M. MANGLICMOT, Petitioner, vs. MARISSA E. CASTRO, ET
AL., Respondents.
REYES, J.:
The petitioner Midway Maritime and Technological Foundation (petitioner) is the lessee of two parcels of
land in Cabanatuan City. Its president, Manglicmot, is married to Adoracion, who is the registered owner
of the property. Inside said property stands a residential building, which is now the subject matter of the
dispute, owned by the respondents.
The two parcels of land, on a portion of which the residential building stand, were originally owned by the
respondents father Louis Castro, Sr. The elder Castro was also the president of CCC. On August 1975,
Castro mortgaged the property to Bancom to secure a loan. During the subsistence of the mortgage,
CCCs board of directors agreed to a 15-year lease of a portion of the property to the Castro children,
herein respondents, who subsequently built the residential house now in dispute. The lease was to expire
in 1992.
When CCC failed to pay its obligation, Bancom foreclosed the mortgage and the property was sold at
public auction in 1979, with Bancom as the highest bidder. Bancom thereafter assigned the credit to
Union Bank and later on, Union Bank consolidated its ownership over the properties in 1984 due to
CCCs failure to redeem the property. When Union Bank sought the issuance of a writ of possession over
the properties, which included the residential building, respondents opposed the same. In the meantime,
Adoracions father, Tomas, bought the two parcels of land from Union Bank in an auction sale. Tomas
subsequently leased the property to the petitioner and thereafter, sold the same to Adoracion.
In their Amended Complaint, the respondents alleged that: (1) they are the owners of the residential
building subject of the dispute, which they used from 1977 to 1985 when they left for the United States of
America and instituted their uncle Josefino as caretaker; (2) Manglicmot, who was the President of the
petitioner Midway Maritime and Technological Foundation, leased the building from Lourdes Castro,
mother of the respondents, in June 1993 with monthly rent ofP6,000.00, which was later to be increased
to P10,000.00 in October 1995 after Josefino vacates his occupied portion. The respondents prayed that
they be declared as the owners of the residential building, and that the petitioner be ordered to vacate the
same and pay rent arrearages and damages. The petitioner, however, denied respondents ownership of
the residential building and claimed that Adoracion owns the building, having bought the same together
with the land on which it stands.
RTC rendered judgment in favor of the respondents, declared them as the absolute owners of the
residential building and ordered petitioner to pay the respondents unpaid rentals from August 1995 until
fully paid. CA affirmed the decision of the RTC.
ISSUE: WHETHER OR NOT THERE EXISTS A LEASE AGREEMENT BETWEEN THE PETITIONER
AND THE RESPONDENS AS REGARDS THE RESIDENTIAL BUILDING.
RULING:

XXX

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XXX

Given the existence of the lease, the petitioners claim denying the respondents ownership of the
residential house must be rejected. According to the petitioner, it is Adoracion who actually owns the
residential building having bought the same, together withthe two parcels of land, from her father Tomas,
who, in turn, bought it in an auction sale.
It is settled that "[o]nce a contact of lease is shown to exist between the parties, the lessee cannot by any
proof, however strong, overturn the conclusive presumption that the lessor has a valid title to or a better
right of possession to the subject premises than the lessee." Section 2(b), Rule 131 of the Rules of Court
prohibits a tenant from denying the title of his landlord at the time of the commencement of the relation of
landlord and tenant between them. In Santos v. National Statistics Office, the Court expounded on the
rule on estoppel against a tenant and further clarified that what a tenant is estopped from denying is the
title of his landlord at the time of the commencement of the landlord-tenant relation. If the title asserted is
one that is alleged to have been acquired subsequent to the commencement of that relation, the
presumption will not apply.
In this case, the petitioners basis for insisting on Adoracions ownership dates back to the latters
purchase of the two parcels of land from her father, Tomas. It was Tomas who bought the property in an
auction sale by Union Bank in 1993 and leased the same to the petitioner in the same year. Note must be
madethat the petitioners president, Manglicmot, is the husband of Adoracion and son-in-law of Tomas. It
is not improbable that at the time the petitioner leased the residential building from the respondents
mother in 1993, it was aware of the circumstances surrounding the sale of the two parcels of land and the
natureof the respondents claim over the residential house. Yet, the petitioner still chose to lease the
building. Consequently, the petitioner is now estopped from denying the respondents title over the
residential building.
"Nemo dat quod non habet. One can sell only what one owns or is authorized to sell, and the buyer can
acquire no more right than what the seller can transfer legally." It must be pointed out that what Tomas
bought from Union Bank in the auction sale werethe two parcels of land originally owned and mortgaged
by CCC to Bancom, and which mortgage was later assigned by Bancom to Union Bank. Contrary to the
petitioners assertion, the property subject of the mortgage and consequently the auction sale pertains
only to these two parcels of land and did not include the residential house.
XXX

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XXX

The petitioner also insists that the lease between CCC and the respondents already expired when
Adoracion bought the property from Tomas. The foregoing issue, however, cannot be considered in the
present action. As established from the facts of this case, the residential house is located on a portion of
the property that was leased by CCC to the respondents. Disputing the lease between CCC and the
respondents, in effect, goes into the right of the respondents to maintain the residential house in question
and eventually, their right to have the same leased to the petitioner. Such argument, obviously, is a
disguised effort to contest the title of the respondents over the residential house leased to the petitioner,
which, as the Court previously discussed, cannot be allowed since they are estopped from denying the
same.
Article 1676 of the Civil Code provides:

The purchaser of a piece of land which is under a lease that is not recorded in the Registry of
property may terminate the lease, save when there is a stipulation to the contrary in the contract
of sale, or when the purchaser knows of the existence of the lease.
x x x x.
It cannot be denied that the transferors/purchasers of the property all had knowledge of the lease
between CCC and the respondents; yet, not any of the transferors/purchasers moved to terminate the
lease. In Bernabe v. Judge Luna, the Court stated:
[P]etitioners are in error when they say that because they are the buyers of the lot involved herein, they
ipso facto have the right to terminate an existing lease. They can do so but only if the lease itself is not
recorded, and they, as buyers, are not aware of the lease's existence and duration, xxx xxx

In the present case, the lease is not recorded, and although petitioner knew of its existence, there was no
fixed period for its duration - hence the lease was generally terminable at the will of the buyers petitioners.
But of course they had to make a demand for its termination. x x x.
XXX

XXX

WHEREFORE, the petition is DENIED for lack of merit.

SO ORDERED.

XXX